Allianz SE
Annual Report 2013

Plain-text annual report

Achieving goals together Allianz Group Annual Report 2013 Content A To Our Investors   5  10  17  18  20  21 B  27  32  34  37 Letter to the Investors Supervisory Board Report Supervisory Board Board of Management International Executive Committee Allianz Share Corporate Governance Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB Takeover-related Statements and Explanations Remuneration Report C Group Management Report  48 Content Your AlliAnz  49  56  59 Business Operations and Markets Strategy and Steering Progress in Sustainable Development MAnAGeMent Discussion AnD AnAlYsis Business Environment  64 Executive Summary of 2013 Results  66 Property-Casualty Insurance Operations  71 Life/Health Insurance Operations  78 Asset Management  82 Corporate and Other  85 Outlook 2014  87 Balance Sheet Review  92 Liquidity and Funding Resources  99 Reconciliations 104 risk AnD opportunitY report AnD FinAnciAl control 105 123 Risk and Opportunity Report Controls over Financial Reporting and Risk Capital D Consolidated Financial Statements 126 127 128 129 130 131 134 E 245 246 247 248 249 253 Content Consolidated Balance Sheets Consolidated Income Statements Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements Further Information Joint Advisory Council of the Allianz Companies International Advisory Board Mandates of the Members of the Supervisory Board Mandates of the Members of the Board of Management Glossary Index To go directly to any chapter, simply click on the headline or the page number Allianz at a glance AnnuAl results Income statement 1 Total revenues 2 Operating profit 3 Net income from continuing operations 4 Net income (loss) from discontinued operations, net of income taxes 4 Net income (loss) thereof: Attributable to shareholders Balance sheet as of 31 December 1 Total assets Investments Total liabilities thereof: Reserves for insurance and investment contracts thereof: Reserves for loss and loss adjustment expenses Shareholders’ equity Non-controlling interests Share information Basic earnings per share1 Diluted earnings per share1 Dividend per share Total dividend Share price as of 31 December Market capitalization as of 31 December Other data Return on equity after income tax 1,7,8 Conglomerate solvency 9 Standard & Poor’s rating 11 Total assets under management as of 31 December thereof: Third-party assets under 2012 2011 2010 2009 2008 2007 More details on page 106,383 103,560 106,451 97,385 92,568 9,337 5,558 – 5,558 5,231 7,764 2,853 – 2,853 2,591 8,243 5,209 – 5,209 5,053 7,044 4,650 (395) 4,255 4,207 7,455 4,268 (6,373) (2,105) (2,363) 97,689 10,320 7,991 723 8,714 7,966 Change from previous year 4.1 % 7.8 % 14.1 % – 14.1 % 14.6 % 2013 110,773 10,066 6,344 – 6,344 5,996 711,530 411,015 658,681 € Mn € Mn € Mn € Mn € Mn € Mn € Mn € Mn € Mn 2.5 % 2.3 % 2.7 % 694,447 401,628 641,484 641,322 350,645 595,575 624,945 334,618 578,383 583,717 294,252 541,488 954,999 1,061,149 258,812 285,977 917,715 1,009,768 € Mn 404,072 3.3 % 390,985 361,956 349,793 323,801 298,057 292,244 € Mn € Mn € Mn € € € € Mn € € Mn % % 66,566 50,084 2,765 13.23 13.05 5.30 5 2,4195,6 130.35 59,505 (8.2) % (0.6) % 7.4 % 14.4 % 13.7 % 17.8 % 18.6 % 24.4 % 24.5 % 72,540 50,388 2,575 11.56 11.48 4.50 2,039 104.80 47,784 68,832 43,457 2,290 66,474 44,491 2,071 64,441 40,108 2,121 63,924 33,720 3,564 5.74 5.58 4.50 2,037 73.91 11.20 11.12 4.50 2,032 88.93 9.33 9.30 4.10 1,850 87.15 (5.25) (5.29) 3.50 1,580 75.00 33,651 40,419 39,557 33,979 63,706 47,753 3,628 18.00 17.71 5.50 2,472 147.95 66,600 11.9 182 AA 0.8 % -p (15) % -p – 11.1 197 AA 5.9 179 AA 11.9 173 AA 12.5 164 AA 9.9 157 10 AA 15.0 158 AA € Mn 1,769,551 (4.5) % 1,852,332 1,656,993 1,517,538 1,202,122 950,548 1,009,586 67 68 69 – 69 69 93 168 93 187 182 92 195 230 230 22 69 22 23 23 92 106 82 83 61 management as of 31 December € Mn 1,360,759 (5.4) % 1,438,425 1,281,256 1,163,982 Employees 147,627 2.5 % 144,094 141,938 151,338 925,699 153,203 703,478 182,865 764,621 181,207 1 Prior year figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 4 to the consolidated financial statements. Figures prior to 2011 have not been adjusted retrospectively. As of 1 January 2013, all restructuring charges are presented within operating profit and all prior year figures have been adjusted to conform to the current accounting presentation. Figures prior to 2011 have not been adjusted retrospectively. Figures prior to 2008 have not been restated to reflect the change in the Allianz Group’s accounting 2 3 4 policy for fixed-indexed annuities, effective 1 July 2010. Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). The Allianz Group uses operating profit as a key financial indicator to assess the performance of its business segments and the Group as a whole. Following the announcement of the sale on 31 August 2008, Dresdner Bank was classified as held for sale and discontinued operations. Therefore, all revenue and profit figures presented for our continuing busi- ness do not include the parts of Dresdner Bank that we sold to Commerzbank on 12 January 2009. The results from these operations are presented in a separate net income line “Net income (loss) from discontinued operations, net of income taxes”. Proposal. Total dividend based on total amount of shares. Actual dividend payment will be reduced by the dividend amount attributable to treasury shares. Based on average shareholders’ equity. Average shareholders’ equity has been calculated based upon the average of the current and the preceding year’s shareholders’ equity as of 31 December. Based on net income from continuing operations after non-controlling interests. Solvency according to the E.U. Financial Conglomerates Directive. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 31 December 2013 would be 173 % (2012 (as published): 188 %). The conglomerate solvency ratio decreased by approximately 16 percentage points as of 1 January 2013 due to amendments to IAS 19. Pro-forma after sale of Dresdner Bank completed. For further information about insurer financial strength ratings of Allianz SE, please refer to page 106.  5  6  7  8  9 10 11 Allianz Group Annual Report 2013 Multichannel reporting Print Download as PDF iPad 1 www.allianz.com/ annualreport 1 You can also scan the QR-Code to get directly to the specific Allianz App you wish to download from the Apple App Store. Orientation guide This sign indicates where additional information in this Annual Report or on the internet can be found. On pages 249 to 252, you will find a glossary of selected accounting, insurance and financial market terms used in this report. Group profile Allianz is a globAl compAny that operates in more thAn 70 countries. our experience and expertise in insurance and asset management make us one of the world’s strongest finAnciAl communities. with our broad portfolio of products and first-class service, we create tailor-made solutions for a changing world. € bn 50.1 shareholders’ equity AA standard & poor's rating since 2007 page 92 € bn110.8 total revenues page 67 € 5.30 dividend per share (proposal) page 22 € Mn10,066 operating profit page 68 € Mn 5,996 net income attributable to shareholders page 69 182 % conglomerate solvency page 92 our approximately 148,000 employees do their utmost every day to make the most of financial opportunities and assess and safeguard against risks both to the benefit of our customers and to protect the company. thanks to our global reach, expertise and financial strength, we are a trusted partner for over 83 million customers insured by Allianz all around the world. Achieving goAls together. 2 Annual Report 2013 Allianz Group Bapak Faisal, Field Officer, Allianz Customer, Indonesia * One prOtectiOn fOr my family, nO matter hOw far away i am. Our customers are at the heart of everything we do. Our in-depth knowledge of the markets and the variety of our products enable us to find the best solutions for their individual needs. We safeguard our customers and take advantage of global financial opportunities with them. a _ tO Our investOrs  5 10 17 18 20 21 Letter to the Investors Supervisory Board Report Supervisory Board Board of Management International Executive Committee Allianz Share pages 4 – 24 4 annual report 2013 allianz Group A To Our Investors  5 Letter to the Investors 10 Supervisory Board Report Supervisory Board 17 18 Board of Management 20 International Executive Committee 21 Allianz Share I am pleased to report very good results once again this year. Allianz posted revenues of more than € 110 BN for the first time ever, while at the same time considerably increasing profitability. At € 10.1 BN, our 2013 operating profit was one of the highest in our history. We increased our net income by 14.1 % to € 6.3 BN. Net income attributable to shareholders amounted to € 6.0 BN. Therefore, we will propose a dividend of € 5.30 per share.  With these results we held up very well not only against our international competitors. We also continued to further improve our financial strength as evidenced by one of the best ratings of all insurance companies from the rating agency Standard & Poor’s. Furthermore, our AA rating outlook was updated to “stable” by the same rating agency. This represents an outstanding assessment of our capital strength and solidity. The message is that your money is well invested in Allianz shares. This strong performance in such a challenging business environment is once again the impressive result of the efficiency and skill of our employees around the world – and of our distribution partners. I would like to thank them for their remarkable efforts last year. And I think that I also may offer these words of praise on your behalf, as the owners of Allianz. It was a difficult year for all regions of the world, with growth hampered by the need for structural adjustments, the fiscal consolidation in the Eurozone, the fiscal gridlock in the United States and sizeable political risks – especially in the Middle East. As a result, global economic growth in 2013 was even slightly lower than in the previous year. While central banks have supported growth by making an almost unlimited supply of liquidity available, the impact of persistently low interest rate levels represents a challenge for all savers and, in turn, for us as an insurer. In addition, severe hail, storms and floods in 2013 had an adverse effect on our results, in particular in Germany and Eastern Europe. Even so, we succeeded in making positive headlines for the second year in a row. The Property-Casualty business posted an increase in operating profit of 14.2 %, despite considerable losses from natural catastrophes. We were more than able to make up for these losses with a big improvement at our U.S. Property-Casualty subsidiary Fireman’s Fund and an excellent contri - bution to operating profit from Allianz Italy. Meanwhile, our Life/Health revenues grew by 8.5 %, supported by strong growth in particular in Germany and Italy, despite the general uncertainty among clients caused by the low interest rate environment, while operating profit declined by 8.0 % from the high level in the previous year. In Germany, we launched a new life insurance product in 2013 with separate guarantees in the savings and payout phases, which results in much less stringent capital adequacy requirements. In return, the client can expect higher returns. This innovation met with a good response in the market. The Asset Management business managed to post a record operating profit in 2013, with growth of 7.0 % despite a challenging environment in the second half. Our asset manager Pimco recorded outflows of funds 6 A To Our Investors  5 Letter to the Investors 10 Supervisory Board Report Supervisory Board 17 18 Board of Management 20 International Executive Committee 21 Allianz Share following the debate in the United States on a gradual reduction of asset purchases by the Federal Reserve Bank. We continued to pursue our investments in future growth in a systematic manner. This year, we made an acquisition in Turkey, which makes us the market leader in one of the most attractive growth markets. We bought the company – multi-line insurer Yapı Kredi – in July, at the same time securing a 15-year exclusive distribution agreement with Yapı Kredi Bank. Thanks to the acquisition of Yapı Kredi, our market share in Turkey is now almost comparable with our position in Germany. For the coming year, we believe that Allianz is well equipped to further boost its competitive position despite the challenges we face. Although the economies in Europe and the United States are continuing to stabilize, interest rates in both regions are likely to remain low for the foreseeable future. The Euro has meanwhile staged a strong recovery, despite the European debt crisis being far from over. While this is a welcome development in one sense, it also has an adverse impact on exports and on the foreign revenues of European companies with international operations. However, without further diversifying our investment portfolio we won’t achieve a satisfying investment performance on new investments. In this context, we also have to be attuned to currency fluctuations. A further challenge is the need to tackle difficult detailed aspects of regulation – supervisory legislation, solvency rules and the consequences of Allianz’s systemic relevance. This ties up a lot of resources and could potentially lead to higher capital adequacy requirements for Allianz. In our opinion, our strong capital position already covers such higher capital adequacy requirements today. 7 Alongside regulation, another increasingly important theme is the digitali- zation of our business models. New technologies are enabling us to meet the evolving needs of our clients, develop new products and tariffs and become more efficient and competitive. In this context, keeping our clients’ and company’s data secure has been given top priority. Digitalization is a long-term project. We have already achieved a great deal in recent years, but there is still a lot of work to do if we are to take full advantage of the potential available to us. We are pleased to note that our shareholders have also benefited from our success. We see the increase of 24.4 % in Allianz’s share price in 2013 as a sign that the markets agree with our strategy and our earnings stability. For 2014, we are aiming for an operating profit of € 10.0 BN. Due to ongoing market volatility, however, we believe that this result may ultimately rise or fall by up to € 500 mN. We will continue to work hard to justify your trust in us. Michael Diekmann Chairman of the Board of Management 8 A To Our Investors  5 Letter to the Investors 10 Supervisory Board Report Supervisory Board 17 18 Board of Management 20 International Executive Committee 21 Allianz Share Supervisory Board Report Ladies and Gentlemen, During the 2013 fiscal year, the Supervisory Board fulfilled all its duties and obligations as laid out in the company Statutes and applicable law. It monitored the management of the company and advised the Board of Management regarding the conduct of business. Overview Within the framework of our monitoring and advisory activities, the Board of Management informed us on a regular basis, and in a timely and comprehensive manner, both verbally and in writing, on the course of business, as well as on the economic and financial development of Allianz Group and Allianz SE, including deviations in actual business developments from existing plans. Further key areas the Board of Management reported on were business strategy, capital adequacy, the challenges facing life insurance due to persistent low interest rates, the effects of the sovereign debt crisis in Europe and Allianz SE’s classification as a Global Systemi- cally Important Insurer by the Financial Stability Board (FSB) and the International Association of Insurance Supervisors (IAIS), as well as any potentially resulting regulatory requirements. 10 Annual Report 2013 Allianz Group A To Our Investors  5 Letter to the Investors 10 Supervisory Board Report Supervisory Board 17 18 Board of Management 20 International Executive Committee 21 Allianz Share In addition, we were extensively involved in the Board of Management’s planning for both the 2014 fiscal year and the medium term. At various meetings, the Chief Executive Officers (CEOs) of Euler Hermes, Allianz Lebensversicherungs-AG and PIMCO presented the performance and strategic positioning of their entities. The Board of Management’s reports were supplemented by documents which each member of the Supervisory Board received in preparation for each meeting. Likewise, the annual financial statements of Allianz SE, the consolidated financial statements and the auditor’s reports were also made available to us in time for the relevant meeting. The half-yearly and quarterly financial reports, and the results of the auditor’s review were provided in advance to members of the Audit Committee. In the 2013 fiscal year, the Supervisory Board held six meetings. The meetings took place in February, March, May, August, October and December. The Board of Management also informed us in writing of important events that occurred between meetings. The chairmen of the Supervisory and Management Board also had regular discussions about major developments and decisions. Details on each member’s participation at meetings of the Supervisory Board and its committees can be found in the Corporate Gover- nance Report, starting on page 27. iSSUeS DiSCUSSeD iN THe SUPerviSOrY BOArD PLeNArY SeSSiONS In all of the Supervisory Board’s 2013 meetings, the Board of Management reported on Group revenues and results, developments in individual business segments, and on the capital, financial and risk situation. We were regularly informed by the Board of Management on the impact of natural catastrophes, the status of major legal disputes and other essential developments. In the meeting of 20 February 2013, the Supervisory Board dealt comprehensively with the pro- visional financial figures for the 2012 fiscal year and the Board of Management’s recommended dividend. It also discussed the intended closure of Allianz Bank’s business operations and the planned purchase of Turkish insurer Yapı Kredi. The appointed audit firm, KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG), Munich, reported in detail on the provisional results of their audit. The Supervisory Board also reviewed the extent to which individual members of the Board of Management had achieved their targets and set their variable remuneration for the 2012 fiscal year and their 2010 – 2012 mid-term bonus. In the meeting of 14 March 2013, the Supervisory Board discussed the audited annual Allianz SE and consolidated financial statements as well as the recommendation for the appropriation Annual Report 2013 Allianz Group 11 of earnings by the Board of Management for the 2012 fiscal year. KPMG confirmed there were no discrepancies to their February report and issued an unqualified auditor’s report for the indi- vidual and consolidated financial statements. The Supervisory Board also dealt with the agenda for the 2013 AGM of Allianz SE and approved the Supervisory Board’s proposals for resolution. In addition, we resolved to appoint KPMG as auditor for the individual and consolidated financial statements for the 2013 fiscal year as well as for the auditor’s review of the 2013 half-yearly interim report. By way of a presentation the Supervisory Board was also informed in detail about the performance of global credit insurer Euler Hermes. On 7 May 2013, just before the AGM, the Board of Management briefed us on the first quarter 2013 performance and on the Group’s current situation, particularly the capital adequacy. We further used this meeting to prepare for the subsequent AGM. The Supervisory Board adopted a resolution regarding the extension of Manual Bauer’s appointment until 31 December 2014, the year in which he will turn 60. In our meeting on 1 August 2013 the Board of Management reported in depth on the half-yearly results. We examined Allianz Turkey’s business activities and the security of client data in the wake of the NSA disclosures. We also dealt with the issuance of Allianz Shares to employees of Allianz Group. We were given a presentation on the performance of Allianz Lebensversicherungs- AG and had a thorough discussion about the challenges posed by persistently low interest rates and about product initiatives featuring a new guarantee concept. In the executive session, we agreed to a reduction in the thresholds regarding transactions in equity holdings which require our approval as well as to the respective amendment of our Rules of Procedure. At the meeting of 2 October 2013, we dealt extensively with the strategy of the Allianz Group, including risk strategy and risk management, capital management and digitalization. We were also given a presentation on the business performance and further development of the busi- ness model at PIMCO and discussed the outflows of funds from fixed income investments. The meeting was followed by a separate information session for members of the Supervisory Board where Allianz managers gave presentations on current topics. At the 12 December 2013 meeting, the Board of Management informed us of the third-quarter results, further business developments, the situation of the Allianz Group, and several other issues. We then discussed the planning for the 2014 fiscal year and the three-year period 2014 – 2016, as well as the remuneration structures within the Allianz Group and the Declaration of Conformity with the German Corporate Governance Code (Code). On the recommendation of the Personnel Committee, the Supervisory Board adopted a resolution to adjust the remunera- 12 Annual Report 2013 Allianz Group A To Our Investors  5 Letter to the Investors 10 Supervisory Board Report Supervisory Board 17 18 Board of Management 20 International Executive Committee 21 Allianz Share tion of the Board of Management with effect from 1 January 2014, to set the yearly premiums for pension schemes for members of the Board of management, and set out their targets for 2014. We also reviewed and approved the appropriateness of the remuneration of the Board of Management by means of a vertical and horizontal comparison. In line with a new recommen- dation of the Code, the “upper management” and “relevant workforce” groups were defined for the vertical comparison. In addition, we intensively discussed the Supervisory Board’s efficiency review, which we carried out for the first time in 2013 with the aid of an external advisor, and we discussed potential improvements in the way the Supervisory Board operates. DeCLArATiON OF CONFOrMiTY wiTH THe GerMAN COrPOrATe GOverNANCe CODe The Supervisory Board dealt with the new version of the Code dated 13 May 2013. On 12 December 2013 the Board of Management and the Supervisory Board issued the Decla- ration of Conformity in accordance with § 161 of the German Stock Corporation Act (“Aktien- gesetz”). The Declaration was posted on the company website, where it is available to share- holders at all times. Allianz SE fully complies and will continue to fully comply with the recommendations of the German Corporate Governance Code Commission made in the Code’s version of 13 May 2013 with one exception. Deviating from Item 5.3.2 of the Code, the Supervisory Board’s Risk Committee – rather than the Audit Committee – will be responsible for monitoring the risk management system. Further explanations of corporate governance in the Allianz Group can be found in the Corpo- rate Governance Report starting on pursuant to § 289a HGB starting on also be found on the Allianz website at page 27 and the Statement on Corporate Management page 32. More information on corporate governance can www.allianz.com/corporate-governance. COMMiTTee ACTiviTieS The Supervisory Board has formed various committees in order to perform its duties efficiently: the Standing Committee, the Personnel Committee, the Audit Committee, the Risk Committee and the Nomination Committee. The committees prepare the discussion and adoption of reso- lutions in the plenary sessions. Furthermore, in appropriate cases, the authority to adopt reso- lutions has been delegated to the committees. There is no Conciliation Committee because the German Co-Determination Act (“Mitbestimmungsgesetz”) which provides for such a commit- tee does not apply to Allianz SE as a European Company (SE). Please find the composition of the committees at the end of the reporting period on page 15. Annual Report 2013 Allianz Group 13 The Standing Committee held five meetings in 2013. These related primarily to corporate gover- nance issues, the preparation for the AGM, the Employee Stock Purchase Plan, and a review of the Supervisory Board’s efficiency conducted by an external advisor. During the fiscal year the committee passed resolutions requiring approval on the use of Authorized Capital 2010/II for the issue of shares to employees and to approve loans to senior executives. The Personnel Committee met four times over the fiscal year 2013. The committee dealt with personnel matters for both active and former members of the Board of Management, including succession planning and top management development. It also reviewed the extent to which members of the Board of Management had achieved their annual targets for fiscal year 2012 and the targets for the 2010-2012 mid-term bonus. The committee prepared the review of the Board of Management’s remuneration system, including the setting of targets for variable remuneration in 2014. In addition, the committee dealt with the mandates held by Board of Management members in the interests of the Allianz Group. In relation to this, resolutions were also adopted by written procedure in April and July 2013. The Audit Committee held five meetings in 2013. In the presence of the auditors, it discussed the annual financial statements of Allianz SE and the consolidated financial statements of the Allianz Group, the management reports and auditor’s reports. In addition, the committee reviewed the half-yearly and quarterly financial reports and, together with the auditors, went through the details of the auditor’s review of these financial statements. After carrying out these reviews, the Audit Committee saw no reason to raise any objections. The committee also reviewed the auditor’s engagement and established priorities for the annual audit. In addition, assignments to the auditors for services not connected to the audit itself were discussed. An upper limit for “non-audit services” by KPMG was agreed upon, requiring approval from the Audit Committee if it is to be exceeded. The committee also dealt with the compliance system, the internal auditing system as well the accounting process and internal financial reporting control mechanisms, including the appropriateness of the respective systems and processes. The committee received regular reports from the Head of Group Audit, from the General Counsel and from the Chief Compliance Officer on material audit results and their status as well as on legal and compliance issues. The committee approved the audit plan by Group Audit for 2014. The Risk Committee held two meetings in 2013. In both meetings, the committee discussed the current risk situation of the Allianz Group with the Board of Management. The risk report as well as other risk-related statements in the annual Allianz SE and consolidated financial state- ments and management and group management reports, were reviewed with the auditor and 14 Annual Report 2013 Allianz Group A To Our Investors  5 Letter to the Investors 10 Supervisory Board Report Supervisory Board 17 18 Board of Management 20 International Executive Committee 21 Allianz Share the Audit Committee was informed of the result. The appropriateness of the early risk recogni- tion system in Allianz was also discussed. In the August meeting, the committee looked in detail at the effectiveness of the risk management system, including an examination of its compliance with minimum supervisory requirements. Other matters considered were the risk strategy and market and credit risk. There was no business requiring a meeting of the Nomination Committee during fiscal year 2013. The Supervisory Board was regularly and comprehensively informed of the committees’ work. Chair and committees of the Supervisory Board – as of 31 December 2013 Chairman of the Supervisory Board: Dr. Helmut Perlet Deputy Chairmen: Dr. Wulf H. Bernotat, Rolf Zimmermann Standing Committee: Dr. Helmut Perlet (Chairman), Dr. Wulf H. Bernotat, Prof. Dr. Renate Köcher, Gabriele Burkhardt-Berg, Rolf Zimmermann Personnel Committee: Dr. Helmut Perlet (Chairman), Christine Bosse, Rolf Zimmermann Audit Committee: Dr. Wulf H. Bernotat (Chairman), Igor Landau, Dr. Helmut Perlet, Jean-Jacques Cette, Ira Gloe-Semler Risk Committee: Dr. Helmut Perlet (Chairman), Christine Bosse, Peter Denis Sutherland, Dante Barban, Franz Heiß Nomination Committee: Dr. Helmut Perlet (Chairman), Prof. Dr. Renate Köcher, Peter Denis Sutherland AUDiT OF ANNUAL ACCOUNTS AND CONSOLiDATeD FiNANCiAL STATeMeNTS In compliance with the special legal provisions applying to insurance companies, the statutory auditor and the auditor for the review of the half-yearly financial report are appointed by the Supervisory Board of Allianz SE and not by the AGM. The Supervisory Board has appointed KPMG as statutory auditor for the annual Allianz SE and consolidated financial statements as well as for the review of the half-yearly financial report. KPMG audited the financial statements of Allianz SE and the Allianz Group as well as the respective management reports. They issued an auditor’s report without any reservations. The consolidated financial statements were pre- pared on the basis of the international financial reporting standards (IFRS), as adopted in the European Union. KPMG performed a review of the half-yearly and quarterly financial reports. All Supervisory Board members received the documentation relating to the annual financial state ments and the auditor’s reports from KPMG for the 2013 fiscal year on schedule. The provi- sional financial statements and KPMG’s audit results were discussed in the Audit Committee Annual Report 2013 Allianz Group 15 on 25 February 2014 and in the plenary session of the Supervisory Board on 26 February 2014. The final financial statements and KPMG’s audit reports were reviewed on 13 March 2014 by the Audit Committee and in the Supervisory Board plenary session. The auditors participated in these discussions and presented the main results from the audit. No material weaknesses in the internal financial reporting control process were discovered. There were no circumstances that might give cause for concern about the auditor’s independence. On the basis of our own reviews of the annual Allianz SE and consolidated financial statements, the management and group management reports and the recommendation for appropriation of earnings, we raised no objections and agreed with the results of the KPMG audit. We approved the Allianz SE and consolidated financial statements prepared by the Board of Management. The company’s financial statements are therefore adopted. We agree with the Board of Man- agement’s proposal on the appropriation of earnings. The Supervisory Board would like to thank all Allianz Group employees for their great personal commitment over the past year. MeMBerS OF THe SUPerviSOrY BOArD AND BOArD OF MANAGeMeNT Dr. Gerhard Cromme resigned as a member of the Supervisory Board effective 14 August 2012. Christine Bosse was initially appointed to the Supervisory Board by court order as his successor. On 7 May 2013, the AGM elected Ms Bosse to the Supervisory Board. The current term of the Supervisory Board will expire following the 2017 AGM. On 1 January 2013, Board of Management members Mr. Oliver Bäte and Dr. Dieter Wemmer exchanged their responsibilities. Mr. Bäte took over responsibility for Insurance Western & Southern Europe. Dr. Wemmer took over responsibility for Finance, Controlling, Risk. Munich, 13 March 2014 For the Supervisory Board: Dr. Helmut Perlet Chairman 16 Annual Report 2013 Allianz Group A To Our Investors  5 Letter to the Investors 10 Supervisory Board Report Supervisory Board 17 18 Board of Management 20 International Executive Committee 21 Allianz Share Supervisory Board Dr. Helmut Perlet Chairman Former Member of the Board of Management of Allianz SE Jean-JaCques Cette Chairman of the Group Works Council of Allianz France S.A. Dr. Wulf H. Bernotat Vice Chairman Former Chairman of the Board of Management of E.ON AG rolf Zimmermann Vice Chairman Employee of Allianz Deutschland AG Dante BarBan Employee of Allianz S.p.A. CHristine Bosse Former Group Chief Executive Officer of the Executive Management of Tryg GaBriele BurkHarDt-BerG Chairwoman of the Group Works Council of Allianz SE ira Gloe-semler Chairwoman of the federal insurance group of ver.di Germany franZ Heiss Employee of Allianz Beratungs- und Vertriebs-AG Prof. Dr. renate köCHer Head of Institut für Demoskopie Allensbach (Allensbach Institute) iGor lanDau Member of the Board of Directors of Sanofi S.A. Peter Denis sutHerlanD Chairman of Goldman Sachs International Annual Report 2013 Allianz Group 17 Board of Management miCHael Diekmann Chairman of the Board of Management Dr. Werner ZeDelius Insurance German Speaking Countries, Human Resources Dr. Dieter Wemmer Finance, Controlling, Risk Gary BHoJWani Insurance USA Dr. CHristof masCHer Operations 18 Annual Report 2013 Allianz Group A To Our Investors  5 Letter to the Investors 10 Supervisory Board Report Supervisory Board 17 18 Board of Management 20 International Executive Committee 21 Allianz Share Dr. HelGa JunG Insurance Iberia & Latin America, Legal & Compliance, M & A oliver Bäte Insurance Western & Southern Europe manuel Bauer Insurance Growth Markets Dr. maximilian Zimmerer Investments Clement BootH Global Insurance Lines & Anglo Markets Jay ralPH Asset Management Worldwide Annual Report 2013 Allianz Group 19 International Executive Committee viCente tarDío Barutel Allianz Companía de Seguros y Reaseguros Spain axel tHeis Allianz Global Corporate & Specialty Germany anDreW torranCe Fireman’s Fund Insurance Company USA WilfrieD verstraete Euler Hermes France Dieter Wemmer Allianz SE Germany Walter WHite Allianz Life Insurance Company of North America USA Werner ZeDelius Allianz SE Germany maximilian Zimmerer Allianz SE Germany rÉmi Grenier Allianz Global Assistance France DouG HoDGe as of 18 March 2014 PIMCO USA HelGa JunG Allianz SE Germany Wolfram littiCH Allianz Elementar Austria CHristof masCHer Allianz SE Germany severin moser Allianz Suisse Switzerland niran Peiris Allianz Australia Australia Jay ralPH Allianz SE Germany JaCques riCHier Allianz France France markus riess Allianz Deutschland AG Germany klaus-Peter röHler Allianz S.p.A. Italy GeorGe sartorel Allianz SE – Asia-Pacific Singapore miCHael Diekmann Chairman, Allianz SE Germany amer aHmeD Allianz Re Germany solmaZ altin Allianz Sigorta A.S. Turkey oliver Bäte Allianz SE Germany manuel Bauer Allianz SE Germany Gary BHoJWani Allianz SE Germany Clement BootH Allianz SE Germany BruCe BoWers CEEMA Germany eliZaBetH Corley Allianz Global Investors Germany Jon Dye Allianz Insurance PLC United Kingdom moHameD el-erian PIMCO USA roBert franssen Allianz Benelux Belgium 20 Annual Report 2013 Allianz Group A To Our Investors  5 Letter to the Investors 10 Supervisory Board Report Supervisory Board 17 18 Board of Management 20 International Executive Committee 21 Allianz Share Allianz Share − Allianz shares gain 24.4 % as stock markets rally. − Dividend rises to € 5.30. Bullish equity markets After a lackluster start to the year 2013, European share prices started to fall in the spring, prompted by the financial crisis in Cyprus and the difficult political situation in Italy. As these economies started to heal, and with markets expecting central banks to stick to their expansionary monetary policies, share prices started to pick up con- siderably – before coming to an abrupt stop in June. This was trig- gered by hints made by the Federal Reserve Bank that it might start scaling down its bond purchase program before the end of 2013. Investors reacted by pulling considerable amounts of money out of the stock and bond markets – particularly from emerging markets. After further comments by the Federal Reserve Bank then suggested that an end to – or a restriction of – bond purchases was not looming on the horizon after all, share prices rallied during the second half of the year. Allianz price significantly up The gains made by Allianz shares in the previous year continued in a dynamic fashion in 2013, climbing by 24.4 % to € 130.35. Assuming that the dividend was reinvested in Allianz shares, total shareholder return amounted to 29.1 %. This rising share price reflects the com- pany’s encouraging business development. The increase of our share price, however, was somewhat less than the STOXX Europe 600 Insur- ance (+ 28.9 %) as market fears intensified during the course of the year that rising interest rates in the United States would slow down growth of our asset manager PIMCO. Allianz shares did, however, clearly out- perform cross-industry indices like the EURO STOXX 50 (+17.9 %). Following the publication of the 2013 results, 59 % of analysts issued a “buy” recommendation for Allianz shares – with an average price target of € 140. For analysts’ current recommendations and earn- ings estimates, please refer to www.allianz.com/analystsrecommendations. Rising share prices in 2013 also confirmed Allianz shares as an attractive investment for the longer term. For example, investors who have held our shares in their portfolios for five years and opted to reinvest their dividends in Allianz shares will have earned an average annual total shareholder return of 17.1 %. Annual Report 2013 Allianz Group Development of the AlliAnz shAre price versus stoXX europe 600 insurAnce AnD euro stoXX 50 indexed on the Allianz share price in € 140 130 120 110 100 1Q 2Q 3Q 4Q Allianz STOXX Europe 600 Insurance EURO STOXX 50 Source: Thomson Reuters Datastream AnAlysts’ recommenDAtions as of 28 February 2014 in % Sell 10 Hold 31 Source: Bloomberg Buy 59 AlliAnz shAre performAnce in compArison average annual performance in % Allianz (excl. dividends) Allianz (incl. dividends) stoXX Europe 600 Insurance euro stoXX 50 DAX Source: Thomson Reuters Datastream 1 year 2013 5 years 2009 – 2013 10 years 2004 – 2013 24.4 29.1 28.9 17.9 25.5 11.7 17.1 11.1 4.9 14.7 2.7 6.4 2.8 1.2 9.2 21 shAre price Development AgAinst stoXX europe 600 insurAnce € 200 175 150 125 100 75 50 25 178.64 133.92 145.92 156.75 111.20 129.70 89.72 111.15 73.87 88.36 95.43 76.67 46.64 48.68 130.80 101.75 108.05 105.85 57.47 70.02 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Allianz share price Allianz highs and lows STOXX Europe 600 Insurance (indexed on the Allianz share price) Source: Thomson Reuters Datastream Higher dividend Allianz shares as a sustainable investment Given our positive business development, we will propose to increase the dividend by € 0.80 to € 5.30 to the Annual General Meeting. Based on the year-end share price, this corresponds to a dividend yield of 4.1 %. The payout ratio, based on net income 1 for 2013, is 40 % 2. High weighting in major indices Allianz is one of the most highly valued financial services providers in the world, with our strength reflected in the weighting of Allianz shares in major German, European and global indices. In the STOXX Europe 600 Insurance, which includes 37 insurance companies, our shares carry the greatest weight. In the MSCI World Financials index we are among the top firms. Our sustainable entrepreneurial approach has long been recognized and resulted in our stock’s listing in major sustainability indices such as the Dow Jones Sustainability Index and the FTSE4Good. This is just one of the reasons why we are considered one of the most sustainable financial services providers worldwide. With our Environmental, Social and Governance Board we dem- onstrate our commitment to sustainability. We believe the Allianz Group’s focus on and clear commitment to environmental, social and governance issues in all our business activities enhances the attractiveness of Allianz shares for investors. For further information on sustainability in the Allianz Group, please refer to the Progress in Sustainable Development chapter starting on www.allianz.com/sustainability. page 59 and to Weighting of AlliAnz shAres in mAjor inDices Shareholder structure as of 31 December 2013 DAX euro stoXX 50 stoXX Europe 600 Insurance msci World Financials msci World Source: Deutsche Börse Group, STOXX Limited, MSCI Weighting in % Ranking Index members 7.3 3.1 13.4 1.2 0.3 5 10 1 14 73 30 50 37 340 1,610 With around 430,000 shareholders, Allianz is one of the most widely held publicly-owned corporations in Europe. Apart from approxi- mately 0.6 % of Allianz shares held in treasury, all of our shares con- tinue to be held in free float. At the end of the year, 86 % were held by institutional investors and 14 % by private investors. The breakdown by region shows that 69 % of Allianz shares were owned by Europeans and 31 % by non-Europeans. For up-to-date information on our shareholder structure, please refer to www.allianz.com/shareholders. 1 2 Based on net income after non-controlling interests. Total dividend based on total amount of shares. Actual dividend payment will be reduced by the dividend amount attributable to treasury shares. 22 Annual Report 2013 Allianz Group A To Our Investors  5 Letter to the Investors 10 Supervisory Board Report Supervisory Board 17 18 Board of Management 20 International Executive Committee 21 Allianz Share AlliAnz shAre key indicAtors At A glAnce Total number of issued shares as of 31 December Weighted average number of shares outstanding Share price as of 31 December High of the year Low of the year Share price performance in the year Beta coefficient 1 Market capitalization as of 31 December Average number of shares traded per day (Xetra) Basic earnings per share 2 Price-earnings ratio Dividend per share Total dividend Dividend yield as of 31 December Payout ratio 2,5 Return on equity after income tax 2,5,6 2013 2012 2011 2010 2009 456,500,000 455,950,000 455,300,000 454,500,000 453,900,000 453,297,832 452,666,296 451,764,842 451,280,092 450,845,024 € € € % € bn mn € € € mn % % % 130.35 130.80 101.75 24.4 1.3 59.5 1.7 13.23 9.9 5.303 2,4193,4 4.13 404 11.9 104.80 105.85 70.02 41.8 1.1 47.8 2.4 11.56 9.2 4.50 2,039 4.3 39 11.1 73.91 108.05 57.47 (16.9) 1.5 33.7 3.1 5.74 13.1 4.50 2,037 6.1 79 5.9 88.93 95.43 76.67 2.0 0.9 40.4 2.5 11.20 7.9 4.50 2,032 5.1 40 11.9 87.15 88.36 48.68 16.2 1.4 39.6 3.0 9.33 9.3 4.10 1,850 4.7 40 12.5 1 2 3 In comparison with EURO STOXX 50, source: Bloomberg. Prior year figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 4 to the consolidated financial statements. Figures prior to 2011 have not been adjusted retrospectively. Proposal. 4 5 6 Total dividend based on total amount of shares. Actual dividend payment will be reduced by the dividend amount attributable to treasury shares. Based on net income from continuing operations after non-controlling interests. Based on average shareholders‘ equity. Average shareholders‘ equity has been calculated based upon the average of the current and the preceding year’s shareholders’ equity as of 31 December. bAsic shAre informAtion Share type Security codes Bloomberg Reuters Registered shares with restricted transfer Wkn 840 400 isin de 000 840 400 5 AlV gr 0#AlVg.deU Service and Contact Allianz Investor Line Mon – Fri: 8 am – 8 pm CET Phone: +49.89.3800-7555 Email: investor.relations@allianz.com Find out online www.allianz.com/investor-relations Allianz Investor Relations App Important dates for shareholders and analysts See financial calendar (back cover) Annual Report 2013 Allianz Group 23 24 Annual Report 2013 Allianz Group Sital Bhambra, Senior Motor Fleet Underwriter, Allianz Employee, United Kingdom Our employees are key to our success. We promote their development inten- sively and help them expand their knowledge and gain new experiences on a continual basis. This enables us to consistently improve our performance and minimize the business risks facing our community. B _ CoRPoRAte GoveRnAnCe 27 32 34 37 Corporate Governance Report Statement on Corporate Manage ment pursuant to § 289a of the HGB (part of the Group Management Report) Takeover-related Statements and Explanations (part of the Group Management Report) Remuneration Report (part of the Group Management Report) Pages 26 – 46 26 Annual Report 2013 Allianz Group B Corporate Governance 27 32 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 34 Takeover-related Statements and Explanations 37 Remuneration Report Corporate Governance Report Good corporate governance is essential for sustainable business per- formance. The Board of Management and the Supervisory Board of Allianz SE attach great importance to complying with the recommen- dations of the German Corporate Governance Code (referred to here- inafter as the “Code”). Allianz SE complies with all but one of the cur- rent Code’s recommendations and with all its suggestions. The Declaration of Conformity issued by the Board of Management and Supervisory Board on 12 December 2013 and the company’s position regarding the Code’s suggestions can be found in the Statement on Corporate Management pursuant to § 289a of the HGB starting on page 32. Corporate constitution of the European Company As a European Company, Allianz SE is subject to special European SE regulations and the German SE Implementation Act (SE-Ausführungs- gesetz) in addition to German stock corporation law. The main fea- tures of the German stock corporation – in particular the two-tier board system (Board of Management and Supervisory Board) and the principle of equal employee representation on the Supervisory Board – have been maintained by Allianz SE. For further details on the differ- ences between a German stock corporation and a European Company with a registered office in Germany, please refer to www.allianz.com/ allianz-se. Function of the Board of Management The Board of Management manages Allianz SE and the Allianz Group. It currently comprises eleven members. Its responsibilities include setting business objectives and the strategic direction, coordinating and supervising the operating entities, as well as implementing and overseeing an efficient risk management system. In this context, the Board of Management is responsible for monitoring adherence to statutory provisions and official regulations. The Board of Manage- ment also prepares the quarterly and half-yearly financial reports, as well as the Group’s consolidated financial statements and the annu- al financial statements of Allianz SE. The members of the Board of Management are jointly responsi- ble for management. Notwithstanding this overall responsibility, the individual members of the Board head the departments they have been assigned independently. There are divisional responsibilities for business segments as well as functional responsibilities. The latter include the Chairman’s division, the Finance-, Risk Management- and Controlling-Function, Investments, Operations – including IT –, Human Resources, Legal and Compliance, and Mergers & Acquisi- tions. Business division responsibilities focus on geographic regions or operating segments, such as Asset Management. Rules of proce- dure specify in more detail the work of the Board of Management. Such rules set out for the specific responsibilities of Board members, matters reserved for the whole Board and other procedures necessary to pass resolutions. Regular Board of Management meetings are led by the Chair- man. Each member of the Board may request a meeting, providing notification of the proposed resolution. The Board takes decisions by ordinary resolution of participating members. In the event of a tie, the Chairman casts the deciding vote. The Chairman can also veto decisions but cannot impose any decisions against the majority vote on the Board of Management. Board of ManaGeMent and Group CoMMittees In the financial year 2013, the following Board committees helped to improve the efficiency of the work done by the Board of Management. Board CoMMittees Board CoMMittees responsiBiLities Group CapitaL CoMMittee Michael Diekmann (Chairman), Dr. Dieter Wemmer, Dr. Maximilian Zimmerer Group finanCe CoMMittee Dr. Maximilian Zimmerer (Chairman), Dr. Helga Jung, Jay Ralph, Dr. Dieter Wemmer, Dr. Werner Zedelius Group it CoMMittee Dr. Christof Mascher (Chairman), Jay Ralph, Dr. Dieter Wemmer, Dr. Werner Zedelius Group risk CoMMittee Dr. Dieter Wemmer (Chairman), Clement Booth, Jay Ralph, Dr. Maximilian Zimmerer as of 31 December 2013 Proposals to the Board of Management concerning risk strategy, strategic asset allocation and risk capital allocation within the Group. Deciding on material investments, preparing and monitoring the Group’s investment policy, financing and capital management. Developing, implementing and monitoring a Group-wide it strategy, approval of relevant it investments. Establishing and overseeing a Group-wide risk management and monitoring system. Besides Board committees, there are also Group committees whose job it is to prepare decisions for the Board of Management of Allianz SE, submit proposals for resolutions and ensure the smooth flow of information within the Group. Annual Report 2013 Allianz Group 27 Group CoMMittees Group CoMMittees responsiBiLities Group CoMpensation CoMMittee Board members and executives reporting to the Allianz se Board of Management Group underwritinG CoMMittee Members of the Board of Management, executives below Allianz se Board level and Chief Underwriting Officers of Group companies internationaL exeCutive CoMMittee All members of the Board of Management of Allianz se and Managing Directors of the major subsidiaries of Allianz Group Designing, monitoring and improving compensation systems, annual submission of a report on the results of its monitoring, along with proposals for improvements. Monitoring of the underwriting business and related risk management, developing an underwriting policy and strategy. Discussion of overall strategic issues for the Allianz Group (for composition, see page 20). The responsibilities and composition of the Board of Management and Group committees are set out in the respective Rules of Proce- dure, which require the approval of the Board of Management. In December 2013, the Board approved certain changes to the responsi- bilities of the Board and Group committees to harmonize them with the responsibilities of Board members. These changes come into force in financial year 2014. The Allianz Group runs its operating entities and business seg- ments via an integrated management and control process. The Hold- ing and the operating entities first define the business strategies and goals. On this basis, joint plans are then prepared for the Supervisory Board’s consideration when setting targets for performance-based remuneration of the members of the Board of Management (for details, please see the Remuneration Report starting on page 37). When filling managerial positions, the Board of Management takes diversity into consideration. For example, 30 % of managerial positions in the Allianz Group in Germany are targeted to be filled by women by 2015. The Board of Management reports regularly and comprehen- sively to the Supervisory Board on business development, the finan- cial position and earnings, budgeting and achievement of objectives, business strategy and risk exposure. Certain important decisions of the Board of Management require approval by the Supervisory Board. Some of these require- ments are stipulated by law or by decisions of the Annual General Meeting (AGM). These include approval for the Board of Management to increase the share capital (Authorized Capital), acquire treasury shares or issue convertible bonds or bonds with warrants. In addition, the Statutes also provide approval requirements for certain transac- tions, such as intercompany agreements and the launch of new busi- ness segments or closure of existing ones, insofar as such actions are material to the Group. Approval is also required for acquisitions of companies and holdings in companies as well as divestments of Group companies which exceed certain threshold levels. The Agree- ment concerning the Participation of Employees in Allianz SE requires 28 Annual Report 2013 Allianz Group the approval of the Supervisory Board for the appointment of the member of the Board of Management responsible for employment and social welfare. Principles and function of the Supervisory Board The German Co-Determination Act (Mitbestimmungsgesetz) does not apply to Allianz SE because it has the legal form of a European Company (SE). The size and composition of the Supervisory Board are instead determined by general European SE regulations. These regu- lations are implemented in the Statutes and by the Agreement con- cerning the Participation of Employees in Allianz SE dated 20 Septem- ber 2006. The agreement can be found on our website at www. allianz.com/allianz-se. The Supervisory Board comprises twelve members appointed by the AGM. Six of these twelve members are appointed on the basis of proposals from employees, which the AGM is bound to accept. In accordance with the Agreement concerning the Participation of Employees in Allianz SE, the seats for the six employee representa- tives are allocated in proportion to the number of Allianz employees in the different countries. The Supervisory Board currently in office comprises four employee representatives from Germany and one each from France and Italy. The last regular election of the Super- visory Board took place in May 2012 for a term lasting until the end of the ordinary AGM in 2017. The Supervisory Board oversees and advises the Board of Man- agement on managing the business. It is also responsible for appoint- ing the members of the Board of Management, determining their overall remuneration and reviewing Allianz SE’s and the Allianz Group’s annual financial statements. The Supervisory Board’s activi- ties in the 2013 financial year are described in the Supervisory Board Report starting on page 10. The Supervisory Board held six regular meetings in financial year 2013 and is scheduled to meet three times each half calendar year in the future. Extraordinary meetings may be convened as needed. The committees also hold regular meetings. The Supervisory Board takes all decisions based on a simple majority. The special require- ments for appointing members to the Board of Management con- tained in the German Co-Determination Act and the requirement for a Conciliation Committee do not apply to an SE. In the event of a tie, the casting vote lies with the Chairman of the Supervisory Board, who at Allianz SE must be a shareholder representative. If the Chairman is not present in the event of a tie, the casting vote lies with the deputy chairperson from the shareholder side. A second deputy chairperson is elected on the proposal of the employee representatives. The Supervisory Board regularly reviews the efficiency of its activities. The plenary Supervisory Board discusses recommenda- tions for improvements and adopts appropriate measures on the basis of recommendations from the Standing Committee. B Corporate Governance 27 32 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 34 Takeover-related Statements and Explanations 37 Remuneration Report supervisory Board CoMMittees Part of the Supervisory Board’s work is carried out by its committees. The composition of committees and the tasks assigned to them are regulated by the Supervisory Board’s Rules of Procedure. The Supervi- sory Board receives regular reports on the activities of its committees. puBLiCation of detaiLs of MeMBers’ partiCipation in MeetinGs The Supervisory Board considers it good corporate governance to publish the details of individual members’ participation in plenary sessions and committee meetings. supervisory Board CoMMittees puBLiCation of detaiLs of MeMBers’ partiCipation in MeetinGs supervisory Board CoMMittees standinG CoMMittee 5 members − Chairman: Chairman of the Supervisory Board (Dr. Helmut Perlet) − Two further shareholder representatives (Prof. Dr. Renate Köcher, Dr. Wulf H. Bernotat) responsiBiLities − Approval of certain transactions which require approval of the Supervisory Board, e.g. capital increases, acquisitions and disposals of participations − Preparation of the Declaration of Compliance pursuant to § 161 Aktiengesetz (German Stock Corporation Act) and control of corporate governance − Preparation of the self-evaluation of the − Two employee represen tatives Supervisory Board − Initial review of the annual Allianz se and consoli - dated financial statements, management reports (incl. Risk Report) and the dividend proposal, review of half-yearly and quarterly financial reports − Monitoring of the financial reporting process, the effectiveness of the internal control and audit system and legal and compliance issues − Monitoring of the audit procedures, including the independence of the auditor and the services additionally rendered, awarding of the audit contract and discussion of key issues related to the external audit − Monitoring of the risk situation and special risk developments in the Allianz Group − Monitoring of the effectiveness of the risk management system − Initial review of the Risk Report and other risk-related statements in the annual financial statements and management reports of Allianz se and the Allianz Group, informing the Audit Committee on the results of such reviews pLenary sessions of tHe supervisory Board Dr. Helmut Perlet (Chairman) Dr. Wulf H. Bernotat (Vice Chairman) Rolf Zimmermann (Vice Chairman) Dante Barban Christine Bosse Gabriele Burkhardt-Berg Jean-Jacques Cette Ira Gloe-Semler Franz Heiß Prof. Dr. Renate Köcher Igor Landau Peter Denis Sutherland standinG CoMMittee Dr. Helmut Perlet (Chairman) Dr. Wulf H. Bernotat Gabriele Burkhardt-Berg Prof. Dr. Renate Köcher Rolf Zimmermann personneL CoMMittee Dr. Helmut Perlet (Chairman) Christine Bosse Rolf Zimmermann audit CoMMittee − Preparation of the appointment of Board of Dr. Wulf H. Bernotat (Chairman) Management members − Preparation of plenary session resolutions on the compensation system and the overall compensation of Board of Management members − Conclusion, amendment and termination of service contracts of Board of Management members unless reserved for the plenary session − Long-term succession planning for the Board of Management, taking diversity into account and, in particular, aiming for adequate representation of women − Approval of the assumption of other mandates by Board of Management members − Setting of concrete objectives for the composition of the Supervisory Board − 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 Jean-Jacques Cette Ira Gloe-Semler Igor Landau Dr. Helmut Perlet risk CoMMittee Dr. Helmut Perlet (Chairman) Dante Barban Christine Bosse Franz Heiß Peter Denis Sutherland 1 Excused. (Gabriele Burkhardt-Berg, Rolf Zimmermann) audit CoMMittee 5 members − Chairman: appointed by the Supervisory Board (Dr. Wulf H. Bernotat) − Three shareholder represen - tatives (Dr. Wulf H. Bernotat, Igor Landau, Dr. Helmut Perlet) − Two employee represen tatives (Ira Gloe-Semler, Jean-Jacques Cette) risk CoMMittee 5 members − Chairman: appointed by the Supervisory Board (Dr. Helmut Perlet) − Three shareholder representatives (Christine Bosse, Dr. Helmut Perlet, Peter Denis Sutherland) − Two employee represen tatives (Dante Barban, Franz Heiß) personneL CoMMittee 3 members − Chairman: Chairman of the Supervisory Board (Dr. Helmut Perlet) − One further shareholder representative (Christine Bosse) − One employee represen tative (Rolf Zimmermann) noMination CoMMittee 3 members − Chairman: Chairman of the Supervisory Board (Dr. Helmut Perlet) − Two further shareholder representatives (Prof. Dr. Renate Köcher, Peter Denis Sutherland) Annual Report 2013 Allianz Group presenCe in perCent 6/6 6/6 6/6 6/6 6/6 6/6 6/6 4/61 6/6 4/61 6/6 5/61 5/5 5/5 5/5 3/51 5/5 4/4 4/4 4/4 5/5 5/5 4/51 5/5 5/5 2/2 2/2 2/2 2/2 2/2 100 100 100 100 100 100 100 66.67 100 66.67 100 83.33 100 100 100 60 100 100 100 100 100 100 80 100 100 100 100 100 100 100 29 oBjeCtives of tHe supervisory Board reGardinG its CoMposition In order to implement a recommendation by the Code, the Super- visory Board specified the following objectives for its composition at its meeting on 12 December 2012: oBjeCtives of tHe supervisory Board reGardinG its CoMposition “The aim of Allianz se’s Supervisory Board is to have members who are equipped with the necessary skills and competence to properly supervise and advise Allianz se’s management. Supervisory Board candidates should possess the professional expertise and experience, integrity, motivation and commitment, independence and personality required to successfully carry out the responsibilities of a Supervisory Board member in a financial-services institution with international operations. To promote additional cooperation among Supervisory Board members, care should be taken in selecting the candidates to ensure that adequate attention is paid to ensuring diversity in occupational backgrounds, professional expertise and experience. Employee representation within Allianz se, as provided for by the se Agreement concerning the Participation of Employees dated 20 September 2006, contributes to diversity of work experience and cultural background. Pursuant to § 6 (2) sentence 2 of the Act on the Participation of Employees in a European Company (seBG), the number of women and men appointed as German employee representatives should be proportional to the number of women and men working in the German companies. However, the Supervisory Board does not have the right to select the employee representatives. The following requirements and objectives apply to the composition of Allianz se’s Supervisory Board:1 I. Requirements relating to the individual members II. Requirements relating to the composition of the Supervisory Board of the Board as a whole 1. Specialist knowledge – At least one member must have considerable experience in the insurance and financial-services fields At least one member must have expert knowledge of accounting and auditing as defined by § 100 (5) AktG – – Specialist knowledge of, or experience in, other economic sectors. 2. International character 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. Since the establishment of Allianz se as a Societas Europaea (European Company), Allianz employees from different Member States of the eu are considered in the distribution of Supervisory Board seats for employee representatives, according to the Agreement concerning the Participation of Employees in Allianz se dated 20 September 2006. 3. Diversity and appropriate representation of women The members of the Supervisory Board shall complement one another regarding their background, professional experience and specialist knowledge, in order to provide the Supervisory Board with the most diverse sources of experience and specialist knowledge possible. The aim is for at least 25 % of the Supervisory Board members to be women. The representation of women is generally considered to be the joint responsibility of the shareholder and employee representatives.” 1. General selection criteria – Managerial or operational experience – General knowledge of the insurance and financial services business – – Fulfillment of the regulatory requirements: Willingness and ability to make sufficient commitments in time and substance – Reliability – Knowledge of the field of corporate governance and supervisory law1 – Knowledge of the main features of accounting and risk management1 Compliance with the limitation on the number of mandates as recommended by the German Corporate Governance Code and required by § 7a (4) of the German Insurance Supervision Act (“Versicherungsaufsichtsgesetz – vaG”). – 2. Independence At least eight members of the Supervisory Board should be independent as defined by No. 5.4.2 of the Corporate Governance Code, i.e. they may not have any business or personal relations with Allianz se or its Board of Management, a controlling shareholder or an enterprise associated with the latter, which may cause a substantial and not merely temporary conflict of interests. In case shareholder representatives and employee representatives are viewed separately, at least four members should be independent within the meaning of No. 5.4.2 of the Corporate Governance Code, respectively. Regarding employee representatives, however, the mere fact of employee representation and the existence of a working relationship with the company shall not itself affect independence. In addition, at least one member must be independent within the meaning of § 100 (5) of the German Stock Corporation Act. It must be taken into account that the possible emergence of conflicts of interest in individual cases cannot, as a general rule, be excluded. Potential conflicts of interest must be disclosed to the Chairman of the Supervisory Board and will be resolved by appropriate measures. 3. Retirement age According to the Supervisory Board’s Rules of Procedure, its members may not, in general, be older than 70 years of age. 1 See the BaFin notice on the monitoring of members of administrative and supervisory bodies pursuant to the German Banking Act (KWG) and the German Insurance Supervision Act (VAG) dated 3 December 2012. 30 Annual Report 2013 Allianz Group B Corporate Governance 27 32 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 34 Takeover-related Statements and Explanations 37 Remuneration Report The composition of the Supervisory Board of Allianz SE reflects these objectives. It has an appropriate number of independent members with international backgrounds. With a current complement of four female members, the goal of ensuring that women are adequately represented on the Supervisory Board is being met. The current com- position of the Supervisory Board and its committees is described on page 15. Shares held by members of the Board of Management and the Supervisory Board The total holdings of members of the Board of Management and the Supervisory Board of Allianz SE amounted to less than 1 % of the com- pany’s issued shares as of 31 December 2013. Directors’ dealings Members of the Board of Management and the Supervisory Board are obliged by the German Securities Trading Act (Wertpapierhandels- gesetz) to disclose any transactions involving shares of Allianz SE or financial instruments based on them to both Allianz SE and the Ger- man Federal Financial Supervisory Authority should the value of the shares acquired or divested by the member or a person closely asso- ciated to the member, amount to five thousand Euros or more within a calendar year. Such disclosures are published on our website at www.allianz.com/supervisory- www.allianz.com/management-board and board. Annual General Meeting Shareholders exercise their rights at the AGM. When adopting resolu- tions, each share carries one vote. In order to facilitate the exercise of shareholders’ rights, Allianz SE allows shareholders to follow the AGM’s proceedings on the internet and be represented by proxies appointed by Allianz SE. These proxies exercise voting rights exclu- sively on the basis of instructions given by the shareholder. Share- holders are also able to cast their votes by postal voting. This option is also available via the internet in the form of online voting. Allianz SE regularly promotes the use of email and internet services. The AGM elects the members of the Supervisory Board and approves the actions taken by the Board of Management and the Supervisory Board. It decides on the use of profits, capital transac- tions and the approval of intercompany agreements, as well as the remuneration of the Supervisory Board and changes to the company’s Statutes. In accordance with European regulations and the Statutes, changes to the Statutes require a two-thirds majority of votes cast in case less than half of the share capital is represented in the AGM. Each year, an ordinary AGM takes place at which the Board of Management and Supervisory Board give an account of the preceding financial year. For special decisions, the German Stock Corporation Act pro- vides for the convening of an extraordinary AGM. Accounting policies and audit of financial statements The Allianz Group prepares its accounts according to § 315a of the German Commercial Code (“Handelsgesetzbuch – HGB”), on the basis of IFRS international accounting standards as adopted within the European Union. The annual financial statements of Allianz SE are prepared in accordance with German law, in particular the HGB. In compliance with special legal provisions that apply to insur- ance companies, the auditor of the annual financial statements and of the half-yearly financial report is appointed by the Supervisory Board and not by the AGM. The audit of the financial statements covers the individual financial statements of Allianz SE and also the consolidated financial statements of the Allianz Group. To ensure maximum transparency, we inform our shareholders, financial analysts, the media and the general public of the company’s situation on a regular basis and in a timely fashion. 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 quarterly and half- yearly financial reports, which are reviewed by the auditor. Information is also made available at the AGM, at press conferences and analysts’ meetings, as well as on the Allianz Group’s website. Our website also provides a financial calendar listing the dates of major publications and events, such as annual reports, quarterly and half-yearly financial reports and AGMs. The financial calendar for 2014 can be found on our website at www.allianz.com/financialcalendar. Outlook As it sets about implementing the regulatory requirements of the future Solvency II supervisory regime, the Allianz Group will continue to develop its existing governance system – particularly in the areas of risk management and control systems. Annual Report 2013 Allianz Group 31 Statement on Corporate Manage ment pursuant to § 289a of the HGB The Statement on Corporate Management pursuant to § 289a of the German Commercial Code (“Handelsgesetzbuch – HGB”) forms part of the Group Management Report. According to § 317 (2), sentence 3 of the HGB, this Statement does not have to be included within the scope of the audit. In addition, Allianz SE follows all the suggestions of the German Cor- porate Governance Code Commission in its 13 May 2013 version and also followed all suggestions in the previous version of 15 May 2012. The Declaration of Conformity and further information on corporate governance at Allianz can be found on our website at Declaration of conformity with the German Corporate Governance Code On 12 December 2013, the Board of Management and the Supervisory Board issued the following Declaration of Compliance of Allianz SE with the German Corporate Governance Code: DECLARATION OF CONFORMITY WITH THE GERMAN CORPORATE GOVERNANCE CODE “Declaration of Conformity by the Management Board and the Supervisory Board of Allianz SE with the recommendations of the German Corporate Governance Code Commission in accordance with § 161 of the German Stock Corporation Act (AktG) 1. Allianz SE fully complies and will continue to fully comply with the recommendations of the German Corporate Governance Code Commission (Code Commission) in the version of 13 May 2013, published by the Federal Ministry of Justice in the official section of the Federal Gazette (Bundesanzeiger), with the following exception: According to Item 5.3.2. of the German Corporate Governance Code, the Audit Committee of the Supervisory Board shall be responsible for the monitoring of the risk management system. The Supervisory Board of Allianz SE has additionally established a specific Risk Committee, which is, inter alia, responsible for the monitoring of the risk management system instead of the Audit Committee. 2. Since the last Declaration of Conformity as of 12 December 2012, Allianz SE has fully complied with the recommendations of the Code Commission in the version of 15 May 2012. Munich, 12 December 2013 Allianz SE For the Board of Management: Signed Michael Diekmann Signed Dr. Helga Jung For the Supervisory Board: Signed Dr. Helmut Perlet” www. AlliAnz.com/corporAte-governAnce. The listed Group company Oldenburgische Landesbank AG issued its own Declaration of Conformity in December 2013, which states that Oldenburgische Landesbank AG complies with all of the recommendations of the German Corporate Governance Code in its version of 13 May 2013. Corporate governance practices INTERNAL CONTROL SYSTEMS Effective internal control systems for our internal and external finan- cial reporting are essential in order to gain the confidence of the capital market, our customers and the public. Consequently, the Allianz Group has implemented a comprehensive risk management system that involves regular assessments of the effectiveness of inter- nal controls as well as a quantitative limit system that helps the com- pany avoid unwanted risks. The internal requirements regarding the control of financial reporting refer to accounting, the reporting of Market Consistent Embedded Value (MCEV), and risk capital. For fur- ther information on the risk organization and risk principles, please refer to pAge 119. (For further information on the internal controls over financial reporting and risk capital, please refer to pAge 123.) The quality of the internal control systems is assessed by internal audit staff of the Allianz Group who are independent of the activities which are audited. Internal Audit is an independent, objective assur- ance and consulting activity designed to add value and improve our organization’s operations. It helps us to accomplish our objectives by introducing a systematic, disciplined approach and thus contribut- ing to the evaluation and improvement of the effectiveness of the risk management, control and governance processes. Therefore, internal audit activities are geared towards helping the company to mitigate risks as well as further assist in strengthening its governance pro- cesses and structures. 32 Annual Report 2013 Allianz Group DESCRIPTION OF THE FUNCTIONS OF THE BOARD OF MANAGEMENT AND THE SUPERVISORY BOARD AND OF THE COMPOSITION AND FUNCTIONS OF THEIR COMMITTEES A description of the composition of the Supervisory Board and its committees can be found on pAges 15 And 17 of the Annual Report. On pAges 18 And 19, reference is made to the composition of the Board of Management and a description of the composition of the Board of Management’s committees can be found on pAge 27 of the Corporate Governance Report. The information can also be found on our website at www. AlliAnz.com/corporAte-governAnce. A general description of the functions of the Board of Manage- ment, the Supervisory Board and their committees can be found in the Corporate Governance Report starting on pAge 27 and on our website at www. AlliAnz.com/corporAte-governAnce. B Corporate Governance 27 32 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 34 Takeover-related Statements and Explanations 37 Remuneration Report COMPLIANCE PROGRAM The sustained success of the Allianz Group is based on the respon- sible behavior of all Group employees, who embody trust, respect and integrity. By means of the global compliance program coordinated by its independent central compliance department, Allianz supports and follows internationally and nationally recognized guidelines and standards for rules-compliant and value-based corporate gover- nance. These include the principles of the United Nations (UN) Global Compact, the Guidelines of the Organization for Economic Co-operation and Development (OECD) for Multinational Enterprises, and European and international standards on combating corruption and bribery, combating money laundering and terrorism financing, data protection, consumer protection, and economic and financial sanctions. Allianz counteracts the risks that might arise from non- compliance with legal regulations and provisions (compliance risk) through its support for and acceptance of these standards. The cen- tral compliance department is responsible, in close cooperation with local compliance departments, for ensuring the effective implemen- tation and monitoring of the compliance program within the Allianz Group as well as for the investigation of potential compliance infringements. The standards of conduct established by the Allianz Group’s Code of Conduct for Business Ethics and Compliance are obligatory for all employees worldwide. The Code of Conduct is available on our website at www. AlliAnz.com/corporAte-governAnce. The Code of Conduct and the internal guidelines derived from it provide all employees with clear guidance on behavior that lives up to the values of the Allianz Group. In order to transmit the principles of the Code of Conduct and the internal compliance program based on these principles, Allianz has implemented interactive training programs around the world. These provide practical guidelines which enable employees to come to their own decisions. The Code of Conduct also forms the basis for guidelines and controls to ensure fair dealings with Allianz Group customers (sales compliance). There are legal provisions against corruption and bribery in almost all countries in which Allianz has a presence. The global Anti- Corruption Program of the Allianz Group ensures the continuous monitoring and improvement of the internal anti-corruption con- trols. (For further information on the Anti-Corruption Program, please refer to Progress in Sustainable Development starting on pAge 59.) A major component of the Allianz Group’s compliance program is a whistleblower system that allows employees to alert the relevant compliance department confidentially about irregularities. Employ- ees who voice concerns about irregularities in good faith should not fear retribution in any form, even if the concerns turn out to be unfounded at a later date. Annual Report 2013 Allianz Group 33 Takeover-related Statements and Explanations Statements pursuant to § 289 (4) and § 315 (4) of the German Commercial Code (“Handelsgesetzbuch – HGB”) and explanatory report. Composition of share Capital As of 31 December 2013, the share capital of Allianz SE was € 1,168,640,000. It was divided into 456,500,000 registered and fully paid-up shares with no-par value and a corresponding share capital amount of € 2.56 per share. All shares carry the same rights and obligations. Each no- par-value share carries one vote. restriCtions on voting rights and share transfers; exerCise of voting rights in Case of employee equity partiCipations Shares may only be transferred with the consent of the Company. The Company may withhold a duly applied approval only if it deems this to be necessary in the interest of the Company on exceptional grounds. The applicant will be informed of the reasons. Shares acquired by employees of the Allianz Group as part of the Employee Stock Purchase Plan are in principle subject to a one-year lock-up period. Outside Germany, the lock-up period may in some cases be up to five years. In some countries, in order to ensure that the lock-up period is observed, the employee shares are held through- out that period by a bank, another natural person or a legal entity acting as a trustee. Nevertheless, employees may instruct the trustee to exercise voting rights or have power-of-attorney granted to them to exercise such voting rights. Lock-up periods contribute to the Employee Stock Purchase Plan’s aims of committing employees to the Company and letting them benefit from the performance of the stock price. interests in the share Capital exCeeding 10 % of the voting rights No direct or indirect interests in the share capital of Allianz SE that exceed 10 % of the voting rights have been reported to Allianz SE; nor are we otherwise aware of any such interests. shares with speCial rights Conferring powers of Control There are no shares with special rights conferring powers of control. legal and statutory provisions appliCable to the appointment and removal of members of the board of management and to amendments of the statutes The Supervisory Board appoints the members of Allianz SE’s Board of Management for a maximum term of five years (Article 9 (1), Article 39 (2) and Article 46 of the SE Regulation, §§ 84, 85 of the German Stock Corporation Act and § 5 (3) of the Statutes). Reappointments, in each case for a maximum of five years, are permitted. A simple majority of the votes cast in the Supervisory Board is required to appoint mem- bers of the Board of Management. In the case of a tie vote, the Chair- person of the Supervisory Board, who pursuant to Article 42 sentence 2 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 Deputy Chairperson shall have the casting vote, provided he or she is a shareholder representative. A Deputy Chairperson who is an employee representative has no cast- ing vote (§ 8 (3) of the Statutes). If a required member of the Board of Management is missing, in urgent cases the courts must appoint such member upon the application of an interested party (§ 85 of the German Stock Corporation Act). The Supervisory Board may dismiss members of the Board of Management if there is an important reason (§ 84 (3) of the German Stock Corporation Act). According to § 5 (1) of the Statutes, the Board of Management shall consist of at least two persons. Otherwise, the Supervisory Board determines the number of members. The Supervisory Board has appointed a Chairman of the Board of Management pursuant to § 84 (2) of the German Stock Corporation Act. German insurance supervisory law requires that members of the Board of Management have the reliability and professional com- petence needed to manage an insurance company. A person cannot become a member of the Board of Management if he or she is already a manager of two other insurance undertakings, pension funds, insurance holding companies or insurance special purpose vehicles. However, the supervisory authority may permit more than two such mandates if they are held within the same group (§§ 121a, 7a of the German Insurance Supervision Act (“Versicherungsaufsichts gesetz”, VAG)). The Federal Financial Services Supervisory Authority (“Bundes- anstalt für Finanzdienstleistungsaufsicht”) must be notified about the intention of appointing a Board of Management member pursuant to §§ 121a, 13d No. 1 of the German Insurance Supervision Act. 34 Annual Report 2013 Allianz Group B Corporate Governance 27 32 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 34 Takeover-related Statements and Explanations 37 Remuneration Report Amendments to the Statutes must be adopted by the General Meeting. § 13 (4) sentence 2 of the Statutes of Allianz SE stipulates that, unless this conflicts with mandatory law, changes to the Statutes require a two-thirds majority of the votes cast, or, if at least one half of the share capital is represented, a simple majority of the votes cast. The Statutes thereby make use of the option set out in § 51 sentence 1 of the SE Implementation Act (“SE-Ausführungsgesetz”) which is based upon Article 59 (1) and (2) of the SE Regulation. A larger majority is, inter alia, required for a change in the corporate object or the reloca- tion of the registered office to another E.U. member state (§ 51 sen- tence 2 of the SE Implementation Act). The Supervisory Board may alter the wording of the Statutes (§ 179 (1) sentence 2 of the German Stock Corporation Act and § 10 of the Statutes). AutHorizAtion of tHe BoArd of MAnAGeMent to issue And repurcHAse sHAres The Board of Management is authorized to issue shares as well as to acquire and use treasury shares as follows: It may increase the Company’s share capital, on or before 4 May 2015, with the approval of the Supervisory Board, by issuing new reg- istered no-par-value shares against contributions in cash and/or in kind, on one or more occasions: − Up to a total of € 550,000,000 (Authorized Capital 2010/I). The shareholders’ subscription rights for these shares can be exclud- ed, with the consent of the Supervisory Board, (i) for fractional amounts, (ii) in order to safeguard the rights pertaining to hold- ers of convertible bonds or bonds with warrants, (iii) in the event of a capital increase against cash contribution of up to 10 % if the issue price of the new shares is not significantly less than the stock market price, (iv) within certain limitations, if the shares are issued in connection with a listing of Allianz shares on a stock exchange in the People’s Republic of China, and (v) in the event of a capital increase against contributions in kind. − Up to a total of € 8,344,000 (Authorized Capital 2010/II). The share- holders’ subscription rights can be excluded in order to issue the new shares to employees of Allianz SE and its Group companies as well as for fractional amounts. The Company’s share capital is conditionally increased by up to € 250,000,000 (Conditional Capital 2010). This conditional capital increase will only be carried out to the extent that conversion or option rights resulting from bonds issued by Allianz SE or its subsid- iaries on the basis of the authorization of the General Meeting of 5 May 2010 are exercised, or that conversion obligations tied to such bonds are fulfilled. The Board of Management may buy back and use Allianz shares for other purposes until 4 May 2015 on the basis of the authorization of the General Meeting of 5 May 2010 (§ 71 (1) No. 8 of the German Stock Corporation Act). Together with other treasury shares that are held by Allianz SE or which are attributable to it under §§ 71a et seq. of the German Stock Corporation Act, such shares may not exceed 10 % of the share capital at any time. The shares acquired pursuant to this authorization may be used, under exclusion of the shareholders’ subscription rights, for any legally admissible purposes, and in par- ticular those specified in the authorization. Furthermore, the acqui- sition of treasury shares under this authorization may also be carried out using derivatives such as put options, call options, forward pur- chases or a combination thereof, provided such derivatives do not relate to more than 5 % of the share capital. Domestic or foreign banks that are majority owned by Allianz SE may buy and sell Allianz shares for trading purposes (§ 71 (1) No. 7 and (2) of the German Stock Corporation Act) under an authorization of the General Meeting valid until 4 May 2015. The total number of shares acquired thereunder, together with treasury shares held by Allianz SE or attributable to it under §§ 71a et seq. of the German Stock Corporation Act, shall at no time exceed 10 % of the share capital of Allianz SE. essentiAl AGreeMents of AlliAnz se witH cHAnGe of control clAuses And coMpensAtion AGreeMents providinG for tAkeover scenArios The following essential agreements of the Company are subject to a change of control condition following a takeover bid: − Our reinsurance contracts, in principle, include a provision under which both parties to the contract have an extraordinary termination right in the case where the other party to the contract merges or its ownership or control situation changes materially. Agreements with brokers regarding services connected with the purchase of reinsurance cover also provide for termination rights in case of a change of control. Such clauses are standard market practice. − The exclusive bancassurance distribution agreement between Allianz and HSBC for life insurance products in Asia (China, Indo- nesia, Malaysia, Australia, Sri Lanka, Taiwan, Brunei, Philip- pines), includes a provision under which both parties have an extraordinary termination right in case there is a change of control of the other party’s ultimate holding company. − The exclusive bancassurance distribution agreement between Allianz SE and HSBC for life insurance products in Turkey includes a provision under which both parties have an extraordinary ter- mination right in case there is a change of control of the other party’s ultimate holding company. Annual Report 2013 Allianz Group 35 Under the Allianz Sustained Performance Plan (ASPP), Restricted Stock Units (RSU) – i.e. virtual Allianz shares – are granted as a stock- based remuneration component to senior management of the Allianz Group worldwide. In addition, under the Group Equity Incen- tive (GEI) scheme, Stock Appreciation Rights (SAR) – i.e. virtual options on Allianz shares – were also granted until 2010. Some of these are still outstanding. The conditions for these RSU and SAR con- tain change of control clauses which apply if a majority of the voting share capital in Allianz SE is acquired, directly or indirectly, by one or more third parties which do not belong to the Allianz Group and which provide for an exception from the usual exercise periods. The RSU will be exercised, in line with their general conditions, by the Company for the relevant plan participants on the day of the change of control without observing any vesting period that would otherwise apply. The cash amount payable per RSU must be at least the price offered per Allianz share in a preceding tender offer. In case of a change of control as described above, SAR will be exercised, in line with their general conditions, by the Company for the relevant plan participants on the day of the change of control without observing any vesting period. By providing for the non-application of the block- ing period in the event of a change of control, the terms take into account the fact that the conditions under which the share price moves are very different when there is a change in control. − The framework agreements between Allianz SE and the subsi- diaries of various car manufacturers (FCE Bank plc, Volkswagen Financial Services AG, respectively) relating to the distribution of car insurance by the respective car manufacturers each include a provision under which each party has an extraordinary termination right in case there is a change of control of the other party. − Bilateral credit agreements in some cases provide for termina- tion rights if there is a change of control, mostly defined as the acquisition of at least 30 % of the voting rights within the meaning of § 29 (2) of the German Takeover Act (“Wertpapiererwerbs- und Übernahmegesetz”, WpÜG). If such termination rights are exer- cised, the respective credit lines have to be replaced by new credit lines under conditions then applicable. The Company has entered into the following compensation agree- ments with members of the Board of Management and employees providing for the event of a takeover bid: A change of control clause in the service contracts of the mem- bers of Allianz SE’s Board of Management provides that, if within 12 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 Man- agement Board member resigns his or her office because the respon- sibilities as a Board member are significantly reduced through no fault of the Board member, he or she shall receive his or her contrac- tual remuneration for the remaining term of the service contract, but limited, for the purpose hereof, to three years, in the form of a one-off payment. The one-off payment is based on the fixed remuneration plus 50 % of the variable remuneration, however, this basis being lim- ited to the amount paid for the last fiscal year. To the extent that the remaining term of the service contract is less than three years, the one-off payment is generally increased in line with a term of three years. This applies accordingly if, within two years of a change of con- trol, a mandate in the Board of Management is coming to an end and is not extended; the one-off payment will then be granted for the period between the end of the mandate and the end of the three-year period after the change of control. For further details, please refer to the Remuneration Report starting on page 37. 36 Annual Report 2013 Allianz Group B Corporate Governance 27 32 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 34 Takeover-related Statements and Explanations 37 Remuneration Report Remuneration Report This report covers the remuneration arrangements for the Board of Management and the Supervisory Board of Allianz SE. − Alignment with shareholder interests: 25 % of total target direct remuneration is dependent upon share price performance. The report is prepared in accordance with the requirements of the German Commercial Code (HGB) and the International Financial Reporting Standards (IFRS). It also takes into account § 64b Law on the Supervision of Insurance Undertakings (“Versicherungsaufsichts­ gesetz – VAG”), the requirements of the German Ministry of Finance’s Insurance Remuneration Regulation (“Versicherungs­Vergütungs­ verordnung – VersVergV”), and the recommendations of the German Corporate Governance Code. Allianz SE Board of Management remuneration GOVERNANCE SYSTEM The remuneration of the Board of Management is decided upon by the entire Supervisory Board. Such decisions are prepared by the Per­ sonnel Committee. If required, outside advice is sought from inde­ pendent external consultants. The Personnel Committee and the Super visory Board consult with the Chairman of the Board of Manage­ ment as appropriate in assessing the performance and remunera­ tion of members of the Board of Management. The Chairman of the Board of Management is not present when his own remuneration is discussed. Regarding the activities and decisions taken by the Person­ nel Committee and the Supervisory Board, please refer to the Super­ visory Board Report section. The remuneration system for the Board of Management was presented and approved at the 2010 Annual General Meeting. REMUNERATION PRINCIPLES AND MARKET POSITIONING The key principles of Board of Management remuneration are as follows: − Support of the Group’s strategy: Performance targets reflect the Allianz Group’s business strategy. − Alignment of pay and performance: A significant performance­ based, variable component. − Variable remuneration focused on sustainability: Two thirds of the variable remuneration reflect longer­term performance. One third is a deferred payout after three years based on a sus­ tainability assessment covering the three­year period. The other third rewards sustained performance through share price devel­ opment with a deferred payout after five years. The structure, weighting and level of remuneration is decided by the Supervisory Board. Remuneration survey data is provided by external consultants. The peer group consists primarily of other DAX 30 com­ panies. Compensation levels usually vary between the median and around the third quartile of this group. The structure of Allianz Group’s total remuneration is more strongly weighted to variable, longer­term components than in other DAX 30 companies. Remu­ neration and benefit arrangements are also periodically compared with best practices. The Supervisory Board takes remuneration levels within the Group into account when assessing the appropriateness of the remuneration of the Board of Management. REMUNERATION STRUCTURE, COMPONENTS AND TARGET SETTING PROCESS There are four main remuneration components. Each has approxi­ mately the same weighting within annual target remuneration: base salary, annual bonus, annualized mid­term bonus (MTB) and equity­ related remuneration. The target compensation of each variable component does not exceed the base salary, with the total target vari­ able compensation not exceeding three times the base salary. In addition Allianz offers pensions/similar benefits and perquisites. Base salary Base salary is the fixed remuneration component and is expressed as an annual cash sum, paid in twelve monthly installments. Variable remuneration Variable remuneration aims to balance short­term performance, longer­term success and sustained value creation. Each year, the Supervisory Board agrees on performance targets for the variable remuneration with the members of the Board of Man­ agement. These are documented for the upcoming financial year. Every three years the MTB sustainability criteria are set for the follow­ ing mid­term period. All variable awards are made under the rules and conditions of the “Allianz Sustained Performance Plan” (ASPP) which consists of the equally weighted components below. The grant of variable remu­ neration components is related to performance and can vary between 0 % and 165 % of the respective target values. For a regular member of the Board of Management with a base salary and target variable com­ pensation of € 700 THou for each variable remuneration component the minimum payout is € 700 THou if the performance was rated with 0 % and no variable component was granted. The maximum total direct compensation (excluding perquisites) is € 4,165 THou if the Annual Report 2013 Allianz Group 37 performance reached the 165 % cap: base salary € 700 THou + 165 % of € 2,100 THou (= total of the three variable compensation components at target). The performance of the Chairman is determined by the average target achievement of the other Board of Management members and can be adjusted by the Supervisory Board based on the Chairman’s personal performance. Variable compensation components: − Annual bonus (short­term): A cash payment which rewards the achievement of quantitative and qualitative targets for the respective financial year and is paid the year following the per­ formance year. Quantitative targets represent 75 % and consist of 50 % Group targets (equally split between annual operating profit and annual net income) and 25 % divisional targets. For the divisional targets a new split was introduced for 2013: 10 % annual operating profit, 10 % annual net income and 5 % dividend. Quantitative targets for board members with a functional focus are determined based on their key responsibilities. Qualitative targets reflect the specific individual priorities for 2013 per member of the Board of Management. − MTB (mid­term): A deferred award which reflects the achieve­ ment of the annual targets by accruing an amount identical to the annual bonus. The actual award is subject to a three­year sustainability assess ment and is paid at the end of a three­year performance cycle. The following criteria are considered: − adjusted capital growth vs. planned development in light of risk capital employed (adjusted capital essentially represents the fair value of the shareholders’ equity) − balance sheet strength, i.e. development of solvency capital − comparison with peers − “partner of choice” for stakeholders − extraordinary events. ILLUSTRATION Of THE PROCESS AND THE UNDERLYING TIMELINE Of THE MTB CYCLE, fROM TARGET SETTING TO fINAL PERfORMANCE ASSESSMENT1 € THOU Sustainability criteria setting for the three-year performance period Notional accruals Max: 3,465 165 % Accrual 550 Accrual 620 Accrual 930 Total 2,100 Accrual 550 Accrual 620 Accrual 930 Target: 2,100 Initial accrued amounts ± Sustainability assessment = Final payout Dec 2012 20132 20142 20152 Min: 0 0 % 20163 Sustainability criteria setting Performance period Sustainability assessment & payout Year 1 Year 2 Year 3 1 Example based on target values of a regular member of the Board of Management with an annual target of € 700 THOU for the MTB. Accrual is only a notional indication. 2 3 Actual accrual for the MTB (mid-term) 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. Final payout is subject to the sustainability assessment of the Supervisory Board and may vary within the full range between 0 % – 165 % of the cumulative target values independent of the notional accruals. 38 Annual Report 2013 Allianz Group and 20 % (per child) of the original Board member’s pension, with the aggregate not to exceed 100 %. Should Board membership cease prior to retirement age for other reasons, the accrued pension rights are maintained if vesting requirements are met. Perquisites Perquisites mainly consist of contributions to accident and liability insurances and the provision of a company car. Where applicable, expenses are paid for the maintenance of two households. Perqui­ sites are not linked to performance. Each member of the Board of Management is responsible for the income tax on these perquisites. The Supervisory Board reviews regularly the level of perquisites. B Corporate Governance 27 32 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 34 Takeover-related Statements and Explanations 37 Remuneration Report − Equity­related remuneration (long­term): A virtual share award, known as “Restricted Stock Units” (RSus). RSus are granted after the end of the financial year with the annual bonus performance determining the value of the equity grant. The 165 % cap of the annual bonus also applies to the RSu grant value, which must not exceed € 1,155 THou for a regular member of the Board of Management with a € 700 THou target. The number of RSus granted results from dividing the grant value by the value of an RSu at the time of grant. Following the end of the four­year vest­ ing period, the company makes a cash payment based on the number of RSus granted and the market price of the Allianz share at that time. To avoid extreme payouts, the RSu payout is capped at 200 % above grant price.1 In accordance with the RSu rules, outstanding holdings are for­ feited should a Board member leave at their own request or be terminated for cause. Variable remuneration components may not be paid, or payment may be restricted in the case of a breach of the Allianz Code of Conduct, risk limits or compliance requirements. Additionally, a reduction or abandonment of variable remuneration may occur if the supervisory authority (BaFin) requires this in accordance with its statutory powers. Pensions and similar benefits To provide competitive and cost­effective retirement and disability benefits, since 1 January 2005 Board of Management members par­ ticipate in a contribution­based system. Prior to this date, Board members participated in a defined benefit plan that provided fixed benefits not linked to base salary increases. Benefits generated under this plan were frozen at the end of 2004. Additionally, most Board members participate in the Allianz Versorgungskasse VVaG (AVK), a contribution­based pension plan and the Allianz Pensionsverein e.V. (APV), which provide pension benefits for salaries up to the German social security ceiling. Company contributions to the current pension plan depend on the years of service on the Board of Management. They are invested in a fund with a guaranteed minimum interest rate per year. On retirement, the accumulated capital is converted into a lifetime annuity. Each year the Supervisory Board decides whether, and to what extent, a budget is provided, also considering the targeted pen­ sion level. This budget includes a risk premium paid to cover death and disability. The earliest age a pension can be drawn is 60, except for cases of occupational or general disability for medical reasons. In these cases it may become payable earlier on; an increase by projec­ tion may apply. In the case of death, a pension may be paid to depen­ dents. Surviving dependents normally receive 60 % (surviving partner) 1 The relevant share price used to determine the final number of RSUs granted and the 200 % cap are only available after sign-off by the external auditors. Annual Report 2013 Allianz Group 39 2013 REMUNERATION AND LINK TO PERfORMANCE Total remuneration: The following table shows individual remunera­ tion for 2013 and 2012, including fixed and variable remuneration and pension service costs. To provide comparable disclosure to previous years, the remuneration table includes the annual accrual of the MTB. INDIVIDUAL REMUNERATION: 2013 AND 2012 Total might not sum up due to rounding € THOU Fixed Variable Total Pensions Total incl. Pensions Base salary Perquisites Annual bonus (short-term)1 MTB (mid-term) Board members Michael Diekmann (Chairman) Oliver Bäte Manuel Bauer Gary Bhojwani 3 Clement Booth Dr. Helga Jung Dr. Christof Mascher Jay Ralph Dr. Dieter Wemmer Dr. Werner Zedelius Dr. Maximilian Zimmerer Total 8 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 20127 2013 2012 1,280 1,280 750 750 700 700 700 700 750 750 700 700 700 700 700 700 700 700 750 750 700 408 8,430 8,495 2912 23 53 58 16 16 70 68 85 137 14 11 27 23 28 36 14 18 16 1725 1506 8 764 595 Fair value of RSU award at date of grant (long-term) 1,581 1,498 1,003 946 927 899 942 793 945 926 904 857 899 841 948 943 978 958 910 896 924 543 6,315 5,798 3,811 3,646 3,497 3,412 3,597 3,146 3,670 3,664 3,426 3,281 3,423 3,247 3,571 3,566 3,649 3,592 3,497 3,611 3,622 2,044 914 824 350 277 298 272 1964 2104 410 394 279 267 304 286 236 234 230 205 527 485 369 257 7,229 6,622 4,161 3,923 3,795 3,684 3,793 3,356 4,080 4,058 3,705 3,549 3,727 3,533 3,807 3,800 3,879 3,797 4,024 4,096 3,991 2,301 1,581 1,498 1,003 1,581 1,498 1,003 946 927 899 942 793 945 926 904 857 899 841 948 943 978 958 910 896 924 543 946 927 899 942 793 945 926 904 857 899 841 948 943 978 958 910 896 924 543 10,961 10,547 10,961 10,547 10,961 10,547 42,078 40,731 4,113 4,006 46,191 44,737 1 2 3 4 Actual bonus paid in 2014 for fiscal year 2013 and in 2013 for fiscal year 2012. Michael Diekmann received an anniversary payment of € 267 THOU. Gary Bhojwani’s base salary and variable compensation is denominated in USD, the contractually agreed USD/€ exchange rate of 1.347910 (2011 fourth quarter average) was applied. Gary Bhojwani does not receive pension contributions into the Allianz SE pension plans but only under his Allianz of America employment agreement. 5 6 7 8 Dr. Werner Zedelius received an anniversary payment of € 156 THOU. Dr. Maximilian Zimmerer received an anniversary payment of € 146 THOU. Dr. Maximilian Zimmerer joined Allianz SE Board of Management on 1 June 2012 and received a pro-rated remuneration for 2012. The total remuneration reflects the remuneration of the full Board of Management in the respective year, Dr. Paul Achleitner left the Board of Management of Allianz SE on 31 May 2012. 40 Annual Report 2013 Allianz Group B Corporate Governance 27 32 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 34 Takeover-related Statements and Explanations 37 Remuneration Report Below we discuss the 2013 remuneration results and the link to per­ formance against targets for all key remuneration elements and the total remuneration of each member of the Board of Management. between 128 % and 143 % of the target with an average bonus award of 134 % of the target. This represents 83 % of the maximum payout. − Base salary: Base salaries for 2013 were maintained at their − MTB 2013 – 15: An accrual mirroring the annual bonus was made. existing levels. − Annual bonus: The 2013 target achievement for the Group, the business division/corporate functions and the qualitative per­ formance was on average assessed at 134 % and ranged between 128 % and 143 %. Consequently, total annual bonus awards ranged − Equity-related remuneration: In accordance with the approach described earlier, a number of RSus were granted to each Board member in March 2014 which will vest in 2017 and be distributed/ settled in 2018. At the time of grant, each award had the same value as the award for the 2013 annual bonus. GRANTS, OUTSTANDING HOLDINGS AND EqUITY COMPENSATION ExPENSE UNDER THE ALLIANz EqUITY PROGRAM1 Board members Michael Diekmann (Chairman) Oliver Bäte Manuel Bauer Gary Bhojwani 5 Clement Booth Dr. Helga Jung Dr. Christof Mascher Jay Ralph Dr. Dieter Wemmer Dr. Werner Zedelius Dr. Maximilian Zimmerer Total RSU 2 Number of RSU granted on 3/13/20142 15,479 9,816 9,076 9,135 9,250 8,848 8,798 9,277 9,576 8,913 9,048 SAR 3 Number of RSU held at 12/31/2013 Number of SAR held at 12/31/2013 Strike Price Range € Equity Compensation Expense 2013 € THOU4 64,070 39,799 23,935 41,360 39,748 17,830 35,972 38,566 11,135 44,708 24,787 53,879 22,642 12,789 21,028 36,075 8,117 18,616 16,493 – 39,414 16,780 245,833 87.36 – 160.13 87.36 – 117.38 87.36 – 160.13 87.36 – 160.13 87.36 – 160.13 87.36 – 160.13 87.36 – 160.13 87.36 – 117.38 104.65 87.36 – 160.13 87.36 – 160.13 3,628 2,215 1,225 2,115 2,353 917 2,151 2,442 488 3,394 1,621 – 22,549 107,216 381,910 1 2 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 2010. The remuneration system valid until December 2009 is disclosed in the Annual Report 2009 (starting on page 17). The relevant share price used to determine the final number of RSUs granted is only available after sign-off by the external auditors, thus numbers are based on a best estimate as well as the maximum amount distributed after the RSU portion has vested. As disclosed in the Annual Report 2012, the equity-related grant in 2013 was made to participants as part of their 2012 remuneration. The disclosure in the Annual Report 2012 was based on a best estimate of the RSU grants. The actual grants, as of 7 March 2013, deviated from the estimated values and have to be disclosed accordingly. The actual RSU grants as of 7 March 2013 under the Allianz equity program are as follows: Michael Diekmann: 17,415, Oliver Bäte: 10,995, Manuel Bauer: 10,446, Gary Bhojwani: 9,573, Clement Booth: 10,760, Dr. Helga Jung: 9,958, Dr. Christof Mascher: 9,778, Jay Ralph: 10,962, Dr. Dieter Wemmer: 11,135, Dr. Werner Zedelius: 10,419, Dr. Maximilian Zimmerer: 8,302. 3 4 5 SARs are released to plan participants upon expiry of the vesting period, assuming all other exercise hurdles are met. For SARs granted until and including 2008, the vesting period was two years. For SARs granted from 2009, the vesting period is four years. SARs can be exercised on condition that the price of the Allianz SE stock is at least 20 % above the strike price at the time of grant. Additionally, the price of the Allianz SE stock must have exceeded the Dow Jones EURO STOXX Price Index (600) over a period of five consecutive trading days at least once during the plan period. Grants of equity-related remuneration are accounted for as cash settled awards. The fair value of the granted RSUs and SARs is remeasured at each reporting date and accrued as a compensation expense proportionately over the vesting and service period. Upon vesting, any subsequent changes in the fair value of the unexercised SARs are also recognized as a compensation expense. Gary Bhojwani’s RSU grant will be based on his annual bonus amount of € 942 THOU. The number of RSUs will be calculated in line with the process for other USD participants by application of the 2013 fourth quarter USD/€ exchange rate of 1.36138. − Pensions: Company contributions in the current plan are 27.98 % (2012: 28.35 %) of base salary, increasing to 34.98 % (2012: 35.44 %) after five years and to 41.98 % (2012: 42.53 %) after ten years service on the Board of Management. These are invested in a fund and have a minimum guaranteed interest rate of 2.75 % each year. If the net annual return of the AVK exceeds 2.75 % the full increase in value is credited in the same year. For members with pension rights in the frozen defined benefit plan, the above contribution rates are reduced by an amount equivalent to 19 % of the expected annual pension from that plan. The Allianz Group paid € 4 Mn (2012: € 4 Mn) to increase reserves for pensions and similar benefits for active members of the Board of Management. As of 31 December 2013, reserves for pen­ sions and similar benefits for active members of the Board of Management amounted to € 41 Mn (2012: € 36 Mn). Annual Report 2013 Allianz Group 41 INDIVIDUAL PENSIONS: 2013 AND 2012 Total might not sum up due to rounding € THOU Board members Michael Diekmann (Chairman) Oliver Bäte Manuel Bauer Gary Bhojwani 7 Clement Booth Dr. Helga Jung Dr. Christof Mascher Jay Ralph Dr. Dieter Wemmer Dr. Werner Zedelius Dr. Maximilian Zimmerer Defined benefit pension plan (frozen) 1 Current pension plan AVK/APV 2 Transition payment 3 Total Annual pension payment4 337 337 0 0 57 57 2438 2438 0 0 62 62 0 0 0 0 0 0 225 225 161 161 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 SC5 DBO6 SC5 DBO6 SC5 DBO6 SC5 DBO6 SC5 DBO6 285 226 0 0 54 43 0 0 0 0 40 29 0 0 0 0 0 0 157 119 108 48 7,527 7,297 0 0 1,261 1,216 1099 1289 0 0 806 786 0 0 0 0 0 0 4,128 4,041 2,759 2,704 585 561 318 248 234 223 19610 21010 325 315 231 232 253 249 233 231 228 204 346 344 212 103 4,867 3,861 1,839 1,367 1,306 970 0 0 2,655 2,101 1,099 824 2,035 1,619 1,086 765 509 245 2,866 2,287 1,877 1,511 9 6 3 3 9 6 0 0 3 2 9 6 3 3 3 3 2 0 9 6 9 4 192 186 16 14 120 160 0 0 19 17 152 149 19 17 10 8 3 0 194 189 188 184 35 31 29 26 0 0 0 0 82 77 0 0 49 34 0 0 0 1 15 16 39 102 1,114 1,053 194 163 1 1 0 0 693 594 0 0 337 283 1 0 1 1 522 500 522 476 914 824 350 277 298 272 196 210 410 394 279 267 304 286 236 234 230 205 527 485 369 257 13,699 12,397 2,049 1,544 2,688 2,347 109 128 3,367 2,712 2,057 1,759 2,392 1,919 1,096 773 513 246 7,709 7,017 5,346 4,875 1 2 3 4 5 6 For Gary Bhojwani the frozen Allianz Retirement Plan (ARP) and the frozen Supplemental Retirement Plan (SRP). 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. Before Allianz’s founding of the APV in 1998, both Allianz and the plan par- ticipants were contributing to the AVK. For details on the transition payment see section termination of service. In any event a death benefit is included. Expected annual pension payment at assumed retirement age (age 60), excluding current pension plan. SC = service cost. Service costs are calculatory costs for the DBO related to the reported business year. DBO = defined benefit obligation; end of year. The figures show the obligation for Allianz resulting from defined benefit plans taking into account realistic assumptions with regard to interest rate, dynamics and biometric probabilities.  7  8  9 10 Gary Bhojwani only holds pension plans subject to his Allianz of America employment agreement, de- nominated in USD. All amounts in the table are € amounts derived by applying the contractually agreed USD/€ exchange rate of 1.347910. The Allianz Retirement Plan (ARP) and the Supplemental Retirement Plan (SRP) are two completely frozen DB-plans, i.e. there are no future accruals in these plans. Current pension plans for Gary Bhojwani include the Deferred Compensation Plan (DCP) and the 401(k) plan. Both current plans are Defined Contribution plans. Their contributions are included in the table. In the ARP he can choose between a lump sum payment or an annuity. The lump sum benefit amount projected with actual interest rates is USD 120 THOU (2012: USD 120 THOU) and likely to change when he retires at age 65. In the SRP he will get three annual installments of USD 69.4 THOU (2012: USD 69.4 THOU) at the age of 65, which – as we have shown in the table – total USD 208 THOU (2012: USD 208 THOU). The DBO for the ARP is USD 54 THOU (2012: USD 58 THOU) and for the SRP USD 93 THOU (2012: USD 115 THOU). The contribution to the DCP is USD 246 THOU (2012: USD 266 THOU) and to the 401(k) plan USD 18 THOU (2012: USD 17 THOU). There is no DBO as both plans are DC plans. In 2013, remuneration and other benefits totaling € 9 Mn (2012: € 7 Mn) were paid to retired members of the Board of Management and dependents. Reserves for current pension obligations and accrued pension rights totaled € 100 Mn (2012: € 105 Mn). − Perquisites: For 2013, the total value of the perquisites amounted to € 0.8 Mn (2012: € 0.6 Mn). − Total remuneration: The total remuneration for 2013 excludes the notional annual accruals of the MTB 2013 – 15. The figures for 2012 (in parentheses) include the actual payout of the MTB 2010 – 12. Both figures exclude the pension service cost: Michael Diekmann € 4,734(8,404) THou Oliver Bäte € 2,808(5,282) THou Manuel Bauer € 2,570(3,923) THou Gary Bhojwani 1 € 2,655(3,146) THou Clement Booth € 2,725(5,155) THou Dr. Helga Jung € 2,522(3,281) THou Dr. Christof Mascher € 2,524(4,724) THou Jay Ralph € 2,623(4,936) THou Dr. Dieter Wemmer € 2,671(3,592) THou Dr. Werner Zedelius € 2,587(5,007) THou Dr. Maximilian Zimmerer € 2,698(2,044) THou. 42 Annual Report 2013 Allianz Group 1 Gary Bhojwani’s total remuneration is denominated in USD. The contractually agreed USD/€ exchange rate of 1.347910 (2011 fourth quarter average) was applied. B Corporate Governance 27 32 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 34 Takeover-related Statements and Explanations 37 Remuneration Report The sum of the total remuneration of the Board of Management for 2013, excluding the notional accruals of the MTB 2013 – 15, amounts to € 31 Mn (2012 including the payment of the MTB 2010 – 12: € 53 Mn 1). The corresponding amount, including pension service cost, equals € 35 Mn (2012 including the payment of the MTB 2010 – 12: € 57 Mn 1). LOANS TO MEMBERS Of THE BOARD Of MANAGEMENT As of 31 December 2013, there were no outstanding loans granted by Allianz Group companies to members of the Board of Management. TERMINATION Of SERVICE Board of Management contracts are limited to a period of five years. For new appointments, in compliance with the German Corporate Governance Code, a shorter period is typical. Arrangements for termination of service including retirement are as follows: Board members who were appointed before 1 January 2011 are eligible to use a company car for a period of twelve months after their retirement. Termination of Service – details of the payment arrangements Transition payment (appointment before 1 January 2010) Board members receiving a transition payment are subject to a six months non­compete clause. The payment is calculated based on the last base salary (paid for a period of six months) and 25 % of the target variable remuneration at the date when notice is given. A Board member with a base salary of € 700 THou would receive a maximum of € 875 THou. An Allianz pension, where immediately payable, is taken into account in adjusting transition payment amounts. 1. Board members who were appointed before 1 January 2010 – and who have served a term of at least five years – are eligible for a six­ month transition payment after leaving the Board of Management. Severance payment cap Payments to Board members for early termination with a remaining term of contract of more than two years are capped at two years’ com­ pensation: 2. Severance payments made to Board members in case of an early termination comply with the German Corporate Governance Code. Whereby the annual compensation 3. Special terms, also compliant with the German Corporate Gover­ nance Code, apply if service is terminated as a result of a “change of control”. This requires that a shareholder of Allianz SE, acting alone or together with other shareholders, holds more than 50 % of voting rights in Allianz SE. Termination as a result of a change of control occurs 1. is calculated on the basis of the previous year’s annual base salary plus 50 % of the target variable remuneration (for a Board member with a fixed base salary of € 700 THou the annual com­ pensation would amount to € 1,750 THou; hence he/she would receive a maximum severance payment of € 3,500 THou); and 2. shall not exceed the latest year’s actual total compensation. if within twelve months after a change of control In case the remaining term of contract is less than two years the pay­ ment is pro­rated according to the remaining term of the contract. a. the Management Board appointment is unilaterally revoked by the Supervisory Board, or b. the Board member resigned due to a substantial decrease in managerial responsibilities and without giving cause for termi­ nation, or c. a Management Board appointment is terminated by mutual agreement Change of Control In case of early termination as a result of a change of control, sever­ ance payments made to Board members generally amount to a three years’ compensation (annual compensation as defined above) and shall not exceed 150 % of the severance payment cap (a Board member with a base salary of € 700 THou would receive a maximum of € 5,250 THou). Consequently, the payout is less than two years’ total remuneration at target (which would be € 5,600 THou). or if the mandate expires and is not renewed within two years of the change of control. MISCELLANEOUS Contracts do not contain provisions for any other cases of early ter­ mination from the Board of Management. 1 For joining or leaving members of the Allianz SE Board only the pro-rated MTB relating to their service as Board members is disclosed. Internal and external Board appointments When a member of the Board of Management holds an appointment in another company within the Allianz Group, the full remuneration amount is transferred to Allianz SE. In recognition of the benefits to the organization, Board of Management members are supported if Annual Report 2013 Allianz Group 43 they accept a limited number of non­executive supervisory roles in appropriate external organizations. In these cases, 50 % of the remu­ neration received is paid to Allianz SE. A Board member retains the full remuneration only when the Supervisory Board qualifies the appointment as a personal one. Remuneration paid by external orga­ nizations is shown in the annual reports of the companies concerned. The remuneration relating to the external appointment is set by the governing body of the relevant organization. REMUNERATION PRINCIPLES − Set total remuneration at a level aligned with the scale and scope of the Supervisory Board’s duties and appropriate to the company’s activities and business and financial situation. − Set a remuneration structure that takes into account the indi­ vidual functions and responsibilities of Supervisory Board mem­ bers, such as chair, vice­chair or committee mandates. OUTLOOK fOR 2014 The Supervisory Board approved the following changes to the remu­ neration of the Board of Management in December 2013: − Set a remuneration structure to allow for proper oversight of business as well as for adequate decisions on executive personnel and remuneration. − The base salary of all regular members of the Board of Manage­ ment has been harmonized for 2014. Those base salaries at € 700 THou for 2013 will be adjusted to € 750 THou. − For all Board members, the respective target amounts for each of the variable components (annual bonus, MTB and equity­ related) were aligned with the applicable base salary to ensure a pay split at target of 25 % fixed and 75 % variable compensation. From 2014, a regular Board member has a target amount of € 750 THou per variable component resulting in a total direct compensation at target of € 3,000 THou, the Chief Executive Officer a target amount of € 1,280 THou per variable component resulting in a total direct compensation at target of € 5,120 THou. − The overall cap on the total variable compensation has been low­ ered from 165 % to 150 %, the cap for the single targets (quantitative Group targets, quantitative divisional targets, and qualitative targets) remained unchanged at 165 %. Overall, for a Board member with a current base salary of € 700 THou, the three measures lead to a reduction of € 40 THou at cap: the maxi­ mum direct compensation decreased from currently € 4,165 THou to € 4,125 THou. For the Chief Executive Officer this reduction equals € 81 THou at cap (from € 7,121 THou down to € 7,040 THou). The pension contributions as a percentage of base salary paid by the company to the contribution­based pension plan remain unchanged. Remuneration of the Supervisory Board The remuneration of the Supervisory Board is governed by the Stat­ utes of Allianz SE and the German Stock Corporation Act. The structure of the Supervisory Board’s remuneration is regularly reviewed with respect to German, European and international corporate gover­ nance recommendations and regulations. REMUNERATION STRUCTURE AND COMPONENTS The remuneration structure, which comprises fixed and committee­ related remuneration only, was approved by the Annual General Meeting 2011 and is laid down in the Statutes of Allianz SE. It became effective for the financial year 2011. Fixed annual remuneration The remuneration of a Supervisory Board member consists of a fixed cash amount paid after the end of each business year for services rendered over that period. A regular Supervisory Board member receives a fixed remuneration of € 100 THou per year. Each deputy Chairperson receives € 150 THou and the Chairperson € 200 THou. Committee-related remuneration The Chairperson and members of the Supervisory Board committees receive additional committee­related remuneration. The committee­ related remuneration is as follows: COMMITTEE-RELATED REMUNERATION € THOU Committee Personnel Committee, Standing Committee, Risk Committee Audit Committee Nomination Committee Chair Member 40 80 – 20 40 – Attendance fees and expenses In addition to the fixed and committee­related remuneration, mem­ bers of the Supervisory Board receive an attendance fee of € 750 for each Supervisory Board or committee meeting they attend in person. Should several meetings be held on the same or consecutive days, the attendance fee will be paid only once. Allianz SE reimburses the members of the Supervisory Board for their out­of­pocket expenses and the VAT payable on their Supervisory Board activity. For the per­ formance of his duties, the Chairman of the Supervisory Board is 44 Annual Report 2013 Allianz Group B Corporate Governance 27 32 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 34 Takeover-related Statements and Explanations 37 Remuneration Report furthermore entitled to an office with secretarial support and use of the Allianz carpool service. In the financial year 2013, Allianz SE reim­ bursed expenses totaling € 67,433. REMUNERATION fOR 2013 The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2,018 THou in 2013 (€ 2,089 THou in 2012). The following table shows the individual remuneration for 2013 and 2012: INDIVIDUAL REMUNERATION: 2013 AND 2012 Total might not sum up due to rounding € THOU Members of the Supervisory Board Dr. Helmut Perlet 2 (Chairman) Dr. Henning Schulte-Noelle 3 (Chairman) Dr. Wulf Bernotat (Vice Chairman)5 Dr. Gerhard Cromme 4 (Vice Chairman) Rolf Zimmermann (Vice Chairman) Dante Barban 2 Christine Bosse 5 Gabriele Burkhardt-Berg 2 Jean-Jacques Cette Ira Gloe-Semler 2 Geoff Hayward 3 Franz Heiß Prof. Dr. Renate Köcher Peter Kossubek 3 Igor Landau Jörg Reinbrecht 3 Peter Denis Sutherland Total 6 Committees 1 P C C C M M M M M A M M M C C M M M M M M M N C C C M M M M M5 S C C C M M M M M M M M M5 M R C C C M M M M M M M M4 M M 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Fixed remu ne ration Commit tee remu ne ration Atten dance fees Total remu neration 200.0 133.3 – 83.3 150.0 120.9 – 100.0 150.0 150.0 100.0 66.7 100.0 41.7 100.0 66.7 100.0 100.0 100.0 66.7 – 41.7 100.0 100.0 100.0 100.0 – 41.7 100.0 100.0 – 41.7 100.0 100.0 160.0 106.7 – 66.7 100.0 100.0 – 26.7 40.0 40.0 20.0 13.3 40.0 16.7 20.0 13.3 40.0 40.0 40.0 26.6 – 8.3 20.0 20.0 20.0 21.7 – 8.3 40.0 40.0 – 16.7 20.0 20.0 6.0 4.5 – 2.2 6.0 5.2 – 1.5 4.5 3.0 366.0 244.5 – 152.2 256.0 226.1 – 128.2 194.5 193.0 4.5 124.5 2.2 4.5 1.5 4.5 2.2 6.0 5.2 4.5 3.0 – 1.5 4.5 3.0 3.0 3.0 – 1.5 6.0 5.2 – 1.5 3.7 3.0 82.2 144.5 59.9 124.5 82.2 146.0 145.2 144.5 96.3 – 51.5 124.5 123.0 123.0 124.7 – 51.5 146.0 145.2 – 59.9 123.7 123.0 1,400.0 1,454.0 560.0 585.0 57.8 49.7 2,017.8 2,088.7 Legend: C = Chairperson of the respective committee, M = Member of the respective committee. 1 2 3 Abbreviations: A – Audit, N – Nomination, P – Personnel, R – Risk, S – Standing. Since 9 May 2012. Until 9 May 2012. 4 5 6 Until 14 August 2012. Since 15 August 2012. The total remuneration reflects the remuneration of the full Supervisory Board in the respective year. Annual Report 2013 Allianz Group 45 Remuneration for mandates in other Allianz companies and for other functions Mrs. Gabriele Burkhardt­Berg was a member of the Supervisory Board of Allianz Deutschland AG until 10 April 2013 and received a pro rata remuneration of € 20 THou for this membership. All current employee representatives of the Supervisory Board except for Mrs. Ira Gloe­ Semler are employed by Allianz Group companies and receive a mar­ ket aligned remuneration for their services. Loans to members of the Supervisory Board On 31 December 2013, there was one outstanding loan granted by Allianz Group companies to members of the Supervisory Board of Allianz SE. One member received a mortgage loan of € 80 THou from Allianz Bank in 2010. The loan has a duration of 10 years and was granted at a normal market interest rate. 46 Annual Report 2013 Allianz Group ’ Catherine Porte Arondelle, Allianz Global Assistance Doctor, France * One helping hand wherever yOu are. The expertise of our employees and partners who support us all around the world is a key factor in our success which we can rely on at all times. Our commitment to help people whenever and wherever they need us ensures optimum results for our customers. c _ grOup ManageMent repOrt pages 48 – 124  85  86  86 Corporate and Other Earnings summary Earnings summaries by reportable segments  87 Outlook 2014  87  88  88  89  89  89  90  91  91  91  92  92  92  93  98  99  99  99  99 103 Overview: 2013 results versus previous year outlook Economic outlook Insurance industry outlook Asset management industry outlook Outlook for the Allianz Group Overview: outlook and assumptions 2014 Management’s assessment of expected revenues and earnings for 2014 Financing and liquidity development and capitalization Expected dividend development Management’s overall assessment of the current economic situation of the Allianz Group Balance Sheet Review Shareholders’ equity Regulatory capital adequacy Total assets and total liabilities Off-balance sheet arrangements Liquidity and Funding Resources Organization Liquidity management of our operating entities Liquidity management and funding of Allianz SE Allianz Group consolidated cash flows 104 Reconciliations 104 104 Composition of total revenues Composition of total revenue growth risk AnD opportunitY report AnD FinAnciAl control 105 Risk and Opportunity Report 105 106 108 110 119 121 121 123 123 124 Allianz risk profile and management assessment Capitalization Internal risk capital framework Internal risk assessment Risk governance Risk management priorities for 2014 Further future challenges and opportunities Controls over Financial Reporting and Risk Capital Internal controls over financial reporting Risk capital controls Your AlliAnz  49 Business Operations and Markets Allianz Group structure Insurance operations Asset Management Corporate and Other  49  49  50  50  51 Worldwide presence and business segments  52 Our markets  56  58  59  59  61  61  63 Strategy and Steering Our steering Progress in Sustainable Development Business Environment People Ethics MAnAgeMent Discussion AnD AnAlYsis  64  64  64  66  66  67  68  68  68  69  69  70  70  70 Business Environment Economic environment 2013 Business environment 2013: insurance and asset management industry Executive Summary of 2013 Results Earnings summary Total revenues Operating profit Non-operating result Income taxes Net income Proposal for appropriation of net earnings Events after the balance sheet date Changes in segment structure, presentation and accounting policies Other parts of the Group Management Report  71 Property-Casualty Insurance Operations  71  73  74  76 Gross premiums written Operating profit  Net income Property-Casualty insurance operations by reportable segments  78 Life/Health Insurance Operations Statutory premiums  78  79 Operating profit  80  81 Net income Life/Health insurance operations by reportable segments  82 Asset Management  82 Assets under management  84 Operating revenues  84 Operating profit  84 Net income 48 annual report 2013 allianz group C Group Management Report Your Allianz Business Operations and Markets 49 56 Strategy and Steering 59 Progress in Sustainable Development Business Operations and Markets Allianz offers a comprehensive range of insurance and asset management products and services and has more than 83 million insured customers. Allianz Group structure Allianz  SE and its subsidiaries (the Allianz Group) offer Property- Casualty insurance, Life/Health insurance and Asset Management products and services in over 70 countries, with the largest of its operations in Europe. Allianz SE, as the parent company of the Allianz Group, has its headquarters in Munich, Germany. The Allianz Group structure reflects both business segments and geographical regions. Our business activities are first organized by product and type of service based on how these are strategically managed: insurance activities, asset management activities and cor- porate and other activities. Due to differences in the nature of products, risks and capital allocation, insurance activities are further divided into Property-Casualty and Life/Health categories. In accordance with the responsibilities of the Board of Management, each of the insurance categories is grouped into regional reportable segments. Corporate and other activities are divided into three different report- able segments in order to differentiate between the respective products, risks and capital allocation. In total, the Allianz Group has 17 report- able segments. AlliAnz Group structure – business seGments And reportAble seGments property-cAsuAlty life/HeAltH Asset mAnAGement corporAte And otHer – German Speaking Countries – Western & Southern Europe – Iberia & Latin America – USA – Global Insurance Lines & Anglo Markets – Growth Markets – Allianz Worldwide Partners – German Speaking Countries – Western & Southern Europe – Iberia & Latin America – USA – Global Insurance Lines & Anglo Markets – Growth Markets – Asset Management – Holding & Treasury – Banking – Alternative Investments Insurance operations selected product rAnGe insurAnce We offer a wide range of property-casualty and life/health insurance products to both private and corporate customers. We are the leading property-casualty insurer globally and rank among the top five in the life/health insurance business. Our key markets based on premiums are Germany, France, Italy and the United States. Most of our insurance markets are served by local Allianz com- panies. However, some business lines – such as Allianz Global Corpo- rate & Specialty (AGCS), Allianz Worldwide Partners (AWP) and Credit Insurance – are run globally. Based on premiums, the split between private and corporate clients is approximately 50 % / 50 % for our Prop- erty-Casualty business segment, and about 80 % / 20 % for Life/Health. property-cAsuAlty Private Clients Corporate Clients – Motor (liability/own damage) – Liability – Property – Accident – Travel and assistance – Property – Liability – Motor fleets – Directors’ and Officers’ liability – Credit – Marine, aviation and transport life/HeAltH Private Clients Corporate Clients – Endowment – Annuity – Term – Disability – Investment-oriented products – Private health insurance – Group life products – Group health and disability products – Pension products for employees Annual Report 2013 Allianz Group 49 Asset Management Corporate and Other Our two major investment management businesses, PIMCO and AllianzGI, operate under Allianz Asset Management (AAM). With € 1,770 bn assets under management (including those of the Allianz Group), we are one of the largest asset managers in the world handling third-party assets with active investment strategies. 63 % of third- party assets are from institutional investors, while 37 % are from retail clients. Our core markets are the United States, Germany, France, Italy, the United Kingdom and the Asia-Pacific region. selected product rAnGe Asset mAnAGement Equity Fixed Income Alternatives Solutions retAil And institutionAl clients – Systematic – Sector/theme funds – Region /country funds – Style funds – Small cap funds – Stocks plus – Money market – Low duration – Real return – Global – Investment grade – Structured products – Commodity funds – Certificate funds – Currency funds – Life-cycle concepts – Multi-asset solution – Variable annuity solutions – Diversified income – High yield – Emerging markets – Convertible bonds – Equity long/short – Relative value – Infrastructure debt/ equity – Asset/liability management – Risk management concepts 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 Investments. HoldinG & treAsury operAtions Holding & Treasury includes the management and support of the Group’s businesses through its strategy, risk, corporate finance, trea- sury, financial reporting, controlling, communication, legal, human resources and technology functions. bAnkinG operAtions Our banking operations support our insurance business and comple- ment the products we offer in Germany, Italy, France, the Nether- lands and Bulgaria. As a division of Allianz Deutschland AG, Olden- burgische Landesbank  AG (OLb) is Allianz’s main own banking product and service provider in Germany. OLb, Germany’s largest private regional bank, covers the northwest of Germany and focuses on retail and corporate clients. AlternAtiVe inVestments operAtions Alternative Investments provides global alternative investment man- agement services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of our insurance opera- tions. The Alternative Investments reportable segment also includes a fully consolidated private equity investment. 50 Annual Report 2013 Allianz Group C Group Management Report Your Allianz Business Operations and Markets 49 56 Strategy and Steering 59 Progress in Sustainable Development Worldwide presence and business segments mArket positions of our business operAtions insurAnce GermAn speAkinG countries GlobAl insurAnce lines & AnGlo mArkets insurAnce GroWtH mArkets ◼ I. ◼ I. ◼ Germany ◼ II. ◼ III. ◼ II. ◼ II. Austria Switzerland insurAnce Western & soutHern europe ◼ III. ◼ II. ◼ – ◼ II. ◼ II. ◼ I. United Kingdom Australia Ireland Allianz Global Corporate and Specialty Credit Insurance Middle East and North Africa ◼ III. ◼ II. Egypt ◼ III. ◼ ii. ◼ ◼ III. Lebanon Saudi Arabia Europe ◼ II. ◼ II. ◼ ◼ III. ◼ III. ◼ II. ◼ III. ◼ II. ◼ III. ◼ ◼ III. ◼ III. Italy Greece Turkey 1 France Belgium ◼ II. ◼ III. ◼ The Netherlands ◼ II. ◼ III. Luxembourg Africa ◼ II. ◼ II. ◼ II. ◼ II. ◼ I. ◼ I. ◼ II. ◼ IV. ◼ II. ◼ II. ◼ II. ◼ II. ◼ II. ◼ II. ◼ II. ◼ II. Benin Burkina Faso Cameroon Central Africa Congo Brazzaville Ghana Ivory Coast Madagascar Mali Senegal Togo insurAnce iberiA & lAtin AmericA ◼ II. ◼ III. ◼ II. ◼ III. Spain Portugal Latin America ◼ IV. ◼ II. ◼ – ◼ II. ◼ II. ◼ IV. ◼ III. Argentina Brazil Colombia Mexico ◼ IV. ◼ – Reinsurance insurAnce usA AlliAnz WorldWide pArtners ◼ IV. ◼ III. United States ◼ – ◼ – Allianz Worldwide Partners Asset mAnAGement insurAnce GroWtH mArkets Asia ◼ – ◼ II. ◼ IV. ◼ – ◼ II. ◼ II. ◼ IV. ◼ II. ◼ – ◼ I. ◼ I. ◼ – ◼ III. ◼ – ◼ IV. ◼ III. ◼ III. ◼ III. ◼ IV. ◼ III. Brunei 2 China 3 Hong Kong 2 India 3 Indonesia Japan 2 Laos Malaysia Pakistan Singapore 2 South Korea Sri Lanka Taiwan Thailand Central and Eastern Europe ◼ ◼ I. Bulgaria ◼ I. ◼ II. ◼ I. ◼ II. ◼ III. ◼ I. ◼ II. ◼ II. ◼ III. ◼ II. ◼ II. ◼ III. ◼ III. ◼ I. ◼ I. ◼ IV. Croatia Czech Republic Hungary Poland Romania Russia Slovakia Ukraine America ◼ ◼ ◼ ◼ United States Canada Europe/Middle East ◼ ◼ Germany ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ Asia-Pacific ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ France Italy Portugal Spain Switzerland Austria The Netherlands United Kingdom Nordics Middle East Japan Hong Kong Taiwan Singapore South Korea China India Australia ◼ Property-Casualty ◼ Life/Health ◼ Banking ◼ Retail Asset Management ◼ II. Position 2 to 5 Insurance market position by gross premiums written: 4 I. Position 1 Institutional Asset Management III. Position 6 to 10 IV. Not in the top 10 1 2 Reflecting our acquisition in 2013, Turkey Property-Casualty and Life/Health ranked in category I. and II., respectively. Property-Casualty business belongs to Allianz Global Corporate and Specialty. 3 4 Based on total market ranking (including domestic competitors), China Property-Casualty ranked in cate- gory IV. and India Property-Casualty in category III., respectively. Source: Own local estimations as of 2012 (the Netherlands as of 2011). Annual Report 2013 Allianz Group 51 Our markets The following sections provide an overview of our business opera- tions in certain insurance markets by business division and of our Asset Management business. We focus on our operations in insur- ance core markets and comment on material developments in select- ed insurance markets as well as on our asset management market, since these account for the major developments in our operating results. insurAnce core mArkets insurAnce core mArkets Core markets Germany France Italy United States I. II. II. IV. I. III. II. III. Statutory/gross premiums written Operating profit Number of customers € mn 29,525 12,685 12,462 9,375 € mn 1,724 822 1,342 641 mn 20.0 4.9 6.0 1.2 Market position ◼ Property-Casualty ◼ Life/Health Market position by gross premiums written: II. Position 2 to 5 I. Position 1 III. Position 6 to 10 IV. Not in the top 10 Germany We provide our customers in Germany with a full range of insurance and financial services through Allianz Deutschland AG. Our products are mainly provided by Allianz Versicherungs-AG ( Allianz Sach), Allianz Lebensversicherungs-AG ( Allianz Leben) and Allianz Private Krankenversicherungs-AG ( Allianz Private Kranken). They are mostly distributed through a network of full-time tied agents. Allianz Bera- tungs- und Vertriebs-AG serves as our distribution company. As the market leader in the German property-casualty market, we offer a wide variety of insurance products for private and com- mercial customers. Germany is a rather mature market for property- casualty business, with intensive competition. 2013 showed premium growth mostly in motor business and commercial non-motor busi- ness. Although high natural catastrophes and large losses impacted the operating profit heavily, our combined ratio remained below 100 %. Since the second half of 2013, PrivatSchutz product components have grown considerably. PrivatSchutz is a new modular tariff com- bining householder, houseowner, legal protection and personal gen- eral liability insurance and takes into account customer demands for flexibility and individual insurance cover. It has reduced the erosion of our portfolio in the non-motor personal business significantly. Although the property-casualty market continues to be competitive, our ongoing strategic focus on strengthening sales, improving our claims management and reducing the expense ratio has already led to premium growth and improved profitability. Furthermore, we will continue to extend our cooperation with the automobile industry and increase our position in the direct market under the brand of AllSecur. For our life insurance business, we are active in private and com- mercial markets and provide a comprehensive range of products. The main classes of coverage offered include annuity, endowment, term, disability and nursing care insurance. A lot of customers are currently rethinking risk and return factors in their old-age provision. For years we have been successfully enlarging our product range and in summer 2013 we launched our new Perspektive offering. This has separate guarantees in the savings and payout phases, from which our customers can expect higher returns as a result of much less stringent capital adequacy requirements. This life insurance product meets customer needs very well. In the fourth quarter of 2013, new business for Perspektive through our tied agents channel accounted for 24 % of our old-age provision retail business. In our commercial lines, we serve our customers with group life insurance and provide companies with services and solutions in con- nection with defined benefit pension arrangements and defined con- tribution plans. In total, we increased our market share in terms of revenues in 2013 by 1.4 %. After the single premium business reached a new record level in 2013, we expect, however, that the exceptional growth will not recur in 2014. Through Allianz Private Kranken, we provide a wide range of health insurance products, including full private health care coverage, supplementary health and long-term care insurance as well as for- eign travel medical insurance. After a reluctant demand in 2013, we still expect growing demand for both full private health care coverage and supplementary insurance in the future. This should be supported by the very good external ratings we received recently for our full pri- vate health care coverage and by our well-positioned long-term care insurance offerings. Italy Our Italian insurance entity Allianz S.p.A. is strongly dedicated to the agent channel. We also offer our products through Genialloyd (one of the leading companies in direct business), the broker channel, Allianz Bank Financial Advisors S.p.A. and via bancassurance, with UniCredit as our main distribution partner. In our property-casualty business, Allianz Italy significantly out- performed its market in terms of premium growth and profitability. In a market that experienced a contraction of 3.7 % 1, Allianz premium volume declined by only 0.3 %, which allowed us to increase our market share for the second consecutive year. In terms of profitability, the combined ratio reached a historical low, which reflects the strong 1 Based on the first nine months of 2013. 52 Annual Report 2013 Allianz Group C Group Management Report Your Allianz Business Operations and Markets 49 56 Strategy and Steering 59 Progress in Sustainable Development technical capabilities achieved through continuous investment and innovation. This achievement was strongly supported by the performance of our agent network, which was merged in 2013 after operating as three separate entities in the past. This marks a milestone in the history of Allianz Italy and was accompanied by the introduction of the com- mon digital platform Digital Agency. This new platform supports simple, mobile and paperless processes, allowing for significant increases in service quality, agent efficiency and customer satisfac- tion. Another driver of innovation has been the introduction of Modu- lar Offer, which provides family coverage against the most serious risks. It is a single contract with protection modules from all insur- ance lines and affordable pricing on a monthly subscription basis. The success of our initiatives is reflected in a net promoter score for our agents of + 21 %, which stands out against a market average of (11) %. The growth of Genialloyd in terms of pure direct premiums reached 19 % and contributed to our strong performance in Property- Casualty. In our life business, we increased our premium volume by 33 %, raising our overall life market share by approximately one percentage point. This growth was particularly supported by our bancassurance cooperation with UniCredit and our proprietary financial advisors network. Our unit-linked product market share increased signifi- cantly to 20 % 1, leading to an improved new business mix. Sales of unit-linked products accounted for over 70 % of new business, com- pared to a market average of approximately 34 %. Progetto Reddito, our innovative decumulation product, has generated € 1.3 bn of new business since its launch at the beginning of 2013. Looking ahead, we aim to further gain market share in the property-casualty business despite the challenging market condi- tions, and to preserve our combined ratio advantage by accelerating our digital transformation. In our life business, we strive to further rebalance our portfolio by improving our new business mix. France Allianz France S.A. is a major provider of insurance and financial ser- vices in the French retail and commercial markets, offering a broad range of property-casualty and life/health products for individuals and corporate customers. These include liability insurance, disabil- ity cover as well as investment and savings products. We distribute these offerings mostly via agents, life and health consultants, brokers and independent financial advisors, as well as selected external part- ners. In addition, our customers can research and buy products on line, either through e Allianz or via our direct sales channel AllSecur. The French property-casualty market has seen limited growth in recent years and remains highly competitive. Competition is likely to remain tough, with expected higher customer churn due to local 1 Based on the first nine months of 2013. Annual Report 2013 Allianz Group regulatory changes regarding cancellation rules. In this business environment, we continue to concentrate on increasing the efficiency of our company structures, simplifying our product range and pro- cesses and rebuilding our IT platform, with a view to delivering state- of-the-art digital solutions and high-quality claims services. This constant focus allows us to grow our customer base, for example in motor insurance. Thanks to the full integration of Gan Eurocourtage in 2013, which specializes in distributing its products via brokers, we are now one of the leaders in the midcorp market. Concerning the life market in France, we anticipate a continued period of low interest rates, reinforcing the need to focus on technical margins and cost optimization to maintain the attractiveness of our offer. We have responded to the needs of our clients with a range of traditional and unit-linked products in both group and individual business, combining financial strength with the opportunity for more attractive yields. As an example, our new offer of a discretionary mandate is a successful illustration of this approach. We also hold a strong position in the health market, often com- bining elements of life, health and casualty insurance as comprehen- sive solutions for individual and commercial customers. Recent regulatory changes have created new opportunities for the develop- ment of our group business. Our historic know-how will allow us to adapt our offer and positioning rapidly. Our retail insurance activities are complemented by Allianz Banque, which allows us to offer one-stop solutions, in particular for our life customers. United States Our property-casualty insurance business in the United States is con- ducted through Fireman’s Fund Insurance Company (FFIC). Our life and annuity business is managed through Allianz Life Insurance Company of North America ( Allianz Life). Through FFIC, we underwrite personal and commercial lines, selling these products through independent agents and brokers. We also participate in a crop insurance program through a reinsurance arrangement. Our personal business unit focuses on affluent and high-net-worth individuals while our commercial business unit offers specialized property-casualty coverage for small and medium- sized businesses. FFIC is one of the few carriers in the United States that has a nationwide personal and commercial lines presence. During 2013, catastrophe activity was relatively light and we saw a stabilization of the U.S. property-casualty insurance market, leading to modest market growth. At FFIC, a restructuring of the reinsurance program for crop insurance business reduced our premiums for this business line in 2013. While ongoing portfolio action to address prof- itability concerns and change the business mix unfavorably impact- ed our premiums, we saw improving results in 2013. The low interest rate environment, however, continues to put pressure on profits. In 2014, we remain focused on niche markets, enhancing customer ser- vice and improving FFIC’s core underwriting strengths. This should 53 allow us to better position ourselves in this competitive market over time. Our life and annuity business primarily underwrites fixed index and variable annuities, and fixed index universal life insurance prod- ucts – all of which are sold through independent distribution channels, as well as large financial institutions such as banks and wire houses. In 2013, we expanded our product portfolio by introducing a hybrid product offering both variable investment allocation options and index-linked investment allocation options. In 2013, competitiveness increased in the fixed index annuity space due to aggressive products offered by competitors that started to enter the industry two years ago. Despite a more competitive market environment we continue to be the market leader in the fixed index annuity market. In the wake of better market conditions and product changes in 2012, product profitability of new business significantly improved in 2013. As a result, our life and annuity insurance business performed well over- all. We anticipate continued economic uncertainty, equity market volatility and a low interest rate environment in the long term. On the upside, we continue to believe that U.S. demographic trends present us with an excellent opportunity in the retirement market. In order to reap these benefits, we will continuously strengthen our distribu- tion network and value proposition to our customers through product innovation and high-quality services. selected insurAnce mArkets Turkey We serve the Turkish market mainly through our subsidiaries Allianz Sigorta S.A., Allianz Hayat ve Emeklilik S.A. as well as the recently acquired Yapı Kredi Sigorta S.A. and Yapı Kredi Emeklilik S.A., which was rebranded to Allianz Yasam ve Emeklilik. Through our subsidiary Allianz Sigorta, we continued to acceler- ate our business in Turkey, with organic premium growth of 34 % com- pared to a market average of 22 % in property-casualty in 2013. While this growth was mainly driven by motor business, we are also a leading provider of health insurance in Turkey. Our operational success is based on a large and growing agent distribution network, sophisticated pricing, robust underwriting and high efficiency. Allianz is the market leader in terms of property- casualty profits. Supported by a continuous focus on customer experi- ence management and quality assurance, Allianz in Turkey succeeded in increasing its customer base by over 50 % in 2013. In addition to organic growth, the acquisition of Yapı Kredi Sig- orta and its life and pension insurance subsidiary Yapı Kredi Emeklilik, rebranded as Allianz Yasam ve Emeklilik, fueled our expansion in Turkey. Through this transaction, which closed on 12 July 2013, Allianz became the market leader in the property-casualty segment and a top-3 player in life and pension solutions. This acquisition allows us to accelerate our growth through strong strategic relationships in an insurance market with significant long-term potential. An important part of the agreement between Allianz and Yapı Kredi is a 15-year bancassurance agreement which will provide Allianz with exclusive access to the fifth-largest banking network in Turkey, comprising more than 900 branches and 6.5 million custom- ers. A further part of our profitable growth story is the successful launch of a 10-year exclusive distribution agreement with HSbC on 23 August 2013 for the sale of Allianz life and pension products through HSbC’s widely spread branch network in Turkey. Both part- nerships will strengthen our presence in the Turkish market for life and long-term provisions, which is currently dominated by bank dis- tribution. Based on the still very low levels of insurance penetration and the young demographic profile, our outlook for insurance in Turkey remains very optimistic. While we expect competitive pressure to further increase, Allianz in Turkey benefits from its strong and diver- sified market position to generate further profitable growth. Allianz Worldwide Partners In 2013, our global entities active in the b2b2C space – Allianz Global Assistance, Allianz Worldwide Care and Allianz Global Automotive – started to collaborate closely as Allianz Worldwide Partners (AWP). The set-up of this division will be further enhanced during 2014 with the reclassification of our International Health business in France from Life/Health to the Property-Casualty business segment. Allianz Global Assistance is the world leader in travel insurance, assistance and personal services and has the operational platforms to offer sup- port services on a 24/7 basis around the globe, handled by strong local units providing on-site care. The combined activities of Allianz Worldwide Care and Allianz France International Health will form one of the biggest players in international health insurance, selling and servicing health products to expatriates and high-net-worth individuals around the globe. Allianz Global Automotive, as the lead- ing strategic insurance partner in the automotive industry, combines sales expertise around the car dealer point-of-sale with product know-how embedded into the value chain of the automotive industry. Based on premiums, we are the worldwide market leader in this seg- ment, serving over 40 car brands across more than 25 countries. Based on the combined strengths of these businesses, AWP can provide a comprehensive product and service range. AWP has seen strong growth in 2013, building on the continued growth of its components and adding growth synergies from increased collaboration on sales and products. 54 Annual Report 2013 Allianz Group C Group Management Report Your Allianz Business Operations and Markets 49 56 Strategy and Steering 59 Progress in Sustainable Development Asset mAnAGement mArket For the asset management industry as a whole, 2013 was a favorable year, although it was a further year of uncertainty in capital markets with volatility remaining at elevated levels. The announcement of the Federal Reserve in May that it would start to take a reduction of its asset purchases into consideration led to an increase in interest rates. The yield on 10-year U.S. government bonds increased from 1.6 % at the end of May 2013 to around 3 % at the end of the year. As a result of the interest rate increase, valuations for fixed income assets declined, while equities recorded a strong performance. On a global basis, equities rose by 29 % last year. Market flows into equity and fixed income strategies were par- ticularly strong in the first half of 2013. During the second half of the year, flows into traditional fixed income strategies were to a certain extent impacted by the rise in interest rates. Flows into both shorter- term and floating-rate strategies continued to be strong, while cer- tain investors found the higher yields presented new opportunities in longer-term strategies. Flows into equity assets, however, mostly continued throughout the year, reaching levels not observed in the recent past. Allianz’s Asset Management operations recorded strong inflows in areas such as non-traditional fixed income and multi-asset. The overall flow development, however, was impacted by the general market trend of outflows in the traditional bond space. Throughout 2013 both PIMCO and AllianzGI reflected market developments in their portfolio allocations and continued to deliver outstanding client service. From a strategic perspective, PIMCO as well as AllianzGI went ahead with the implementation of their longer- term development plans. In 2013, AllianzGI engaged in further com- plexity reduction by combining entities, while at the same time fur- ther expanding its product offerings, e.g. in the infrastructure debt space. PIMCO continues to focus on delivering returns and managing risk on behalf of clients across a growing range of investment solu- tions, and took additional steps with regard to their longer-term development plan to broaden its product offerings into such areas as the alternatives platform, income solutions, equities and ETFs. Annual Report 2013 Allianz Group 55 Strategy and Steering Our longer-term strategic ambition is to be the world’s strongest financial com- munity: the leading property-casualty insurer in terms of revenue and profitability, one of the three most profitable life and health insurers among our global peer group and the number one active wealth manager by assets and operating margin. In 2013, we stayed on target to meet this goal, achieving one of the best operating results in our history. We remain the global number one in property-casualty insurance, are among the top five global life and health insurers and defended our position as the world’s most profitable and second largest active asset manager. In an uncertain and volatile business environment, we will protect the pillars of our business strategy – our integrity, financial strength, operational excellence and talent base – and leverage our size to offer outstanding products and services to our customers and business partners. Our unique strengths Our three business segments Property-Casualty, Life/Health and Asset Management all contribute significantly to our operating profit. As a result, we provide our shareholders with a high level of diversifi- cation, while offering our customers truly global reach in practically all business lines of insurance and asset management. We hold lead- ing market positions in the mature economies as well as in several of the world’s preeminent growth markets. We are one of the leading insurers of multinational corporations and large infrastructure projects. At the same time we are the biggest provider of microinsur- ance solutions to low-income households in developing economies. Our capital base is one of the strongest in the industry, while Allianz is one of the world’s most valuable brands in financial services. the four pillars of our strategy Building the strongest financial community t h g n Financial str e Truste d p a r t n e r insurance and investments O p e r a t i o n al e xcellence e st people B 56 Annual Report 2013 Allianz Group C Group Management Report Your Allianz Business Operations and Markets 49 56 Strategy and Steering 59 Progress in Sustainable Development Our Operating envirOnment The 2013 insurance and asset management environment was char- acterized by the ongoing depression of interest rates, suppressed economic growth in mature economies, excess capital and risk capacity and a resulting margin pressure across our lines of business. In addition, we witnessed a further evolution of the regulatory frame- work we operate in: − In July 2013, Allianz was designated by the Financial Stability Board as a Global Systemically Important Insurer and has, as a consequence, become subject to additional regulatory require- ments. Allianz continues its active engagement with supervisory bodies and is preparing for the additional requirements announced – for example, the implementation of a recovery plan. − In November 2013, the European Union agreed on the timeline for the implementation of Solvency II, which will come into effect from 2016 onwards. Allianz has supported Solvency II from the beginning, convinced it will provide the Union with one of the most advanced regulatory regimes in the world, for the benefit of insurers and their stakeholders. Natural catastrophes were again a major feature of the year, with Europe witnessing the highest ever losses due to flooding and hail. Our diversification and size helped us to absorb those risks but we will continue to monitor closely our overall exposures and to stay at the forefront of developments in the securitization of risks for the capital markets. Economic growth continues to differ markedly between our European core markets and the emerging economies. At the same time the Euro’s appreciation against most relevant curren- cies impacts our financial results. Consumer behavior is creating new channels and markets, challenging an industry still working largely on paper and face-to-face. Public scrutiny of the financial services industry is at an all-time high, with record fines being passed to banks and ongoing discussions in the public and within our industry on how to best ensure good advice, particularly for life and pension insurance. Our fOcus gOing fOrward In this environment we will continue to protect the pillars of our busi- ness strategy – our integrity, financial strength, operational excel- lence and talent base. Together with other leading financial institu- tions we are investing time and talent to define sustainable insurance and investment (more information on our Progress in Sustainable Development starting on page 59). We are continuously monitoring the nature of our customer relationships and our investment and insurance product portfolio to understand the potential implications and impact of our actions for society and the environment. We are pleased to be rated one of the strongest financial institu- tions in terms of capital: In March 2013, Standard & Poor’s raised the outlook for our AA rating to “stable”. It allows us to offer our clients outstanding security in a volatile global business environment. We intend to maintain our strong capital position through prudent man- agement of our balance sheet, an ongoing focus on operating profit- ability and a cautious stance on large-scale acquisitions. We will be looking out for further consolidation opportunities in attractive mar- kets and segments where we see a clear complementary fit with our portfolio and capabilities. In this context we expect to generate sig- nificant value through disciplined allocation of capital to businesses and markets promising sustainable returns at or above our hurdle rate. To secure our leadership in the world’s preeminent markets for insurance and asset management, we will focus on growing with our existing customers. We will continue to drive best practice in under- writing, investment management and client service between our operating entities globally. At the same time we will further increase the pace of investments in our digital offering and processing capa- bilities. In each of our business activities we strive to reach the scale necessary to offer an unparalleled development platform for our employees and ensure an outstanding product offering and service for our customers and business partners. Consequently, we are evolving our structures to ensure that we capture the full potential of our global organization. For example, as of 1 January 2014, a new holding named “Allianz Worldwide Partners” (AWP) will steer the activities of Allianz Global Assistance, Allianz Global Automotive, Allianz France International Health and Allianz Worldwide Care. AWP thus coordinates our activities in the B2B2C business, where we develop products with corporate clients which they offer to their own customers or employees. Safeguarding the strategic pillars of our business and focused on growth and scale, we are confident that over the coming years we will build what we aim to be – the world’s strongest financial community. Annual Report 2013 Allianz Group 57 Our steering BOard Of management and OrganiZatiOnaL structure Allianz SE has a divisional Board structure that is further split into functional and business responsibilities. The business-related divi- sions reflect our business segments Property-Casualty, Life/Health, memBers Of the BOard Of management and their respOnsiBiLities in 20131 Asset Management and Corporate and Other. These are overseen by seven board members, with six members concentrating on the insur- ance business segments and one on Asset Management as a stand- alone segment. The remaining four divisions (i.e. Chairman of the Board of Management, Finance, Investments and Operations) focus on Group functions, along with business-related responsibilities. respOnsiBiLities Chairman of the Board of Management Finance, Controlling, Risk Investments, Global Life/Health Operations, Allianz Worldwide Partners Insurance Western & Southern Europe, Global Property-Casualty Insurance USA Insurance German Speaking Countries, Banking, Human Resources Insurance Growth Markets Asset Management Worldwide Global Insurance Lines & Anglo Markets Insurance Iberia & Latin America, Legal & Compliance, Mergers & Acquisitions Asset Management. For a comprehensive view of our segment perfor- mance, please refer to the Management Discussion and Analysis starting on page 64. Besides performance steering, we also have a risk steering pro- cess in place, which is described in the Risk and Opportunity Report starting on page 105. Non-financial key performance indicators (KPIs) are mainly used for the sustainability assessment of the mid-term bonus – under the category “partner of choice” mainly the following KPIs are consid- ered: Allianz Engagement Survey and Net Promoter Score results, brand performance (measured by the Funnel Performance Index), diversity development, organizational transparency (as measured by the Transparency International Corporate Reporting ranking) and sustainability development (as measured by widely recognized indi- ces and rankings). BOard memBers Michael Diekmann Dr. Dieter Wemmer Dr. Maximilian Zimmerer Dr. Christof Mascher Oliver Bäte Gary Bhojwani Dr. Werner Zedelius Manuel Bauer Jay Ralph Clement Booth Dr. Helga Jung 1 For further information about the remuneration structure, including target setting and performance assessment, please refer to the Remuneration Report starting on page 37. target setting and mOnitOring The Allianz Group steers its operating entities and business seg- ments via an integrated management and control process. This starts with the definition of a business-specific strategy and goals, which are discussed and agreed between the Holding and operating entities. According to this strategy, a three-year plan is prepared by the operating entities and aggregated to form the financial plans for the business divisions and the Allianz Group. The Supervisory Board then approves the plan and sets corresponding targets for the Board of Management. The performance-based remuneration of the Board of Management is linked to short-, mid- and long-term targets to ensure effectiveness and emphasize sustainability. For further details, please refer to the Remuneration Report starting on page 37. This plan also forms the basis for our capital management. We continuously monitor our business performance against these targets through monthly reviews to ensure that appropriate measures can be taken in the event of negative developments. During these reviews, we monitor key operational and financial metrics. Operating profit and net income are the main financial performance indicators across all business segments for the Allianz Group. In addition, we also use segment-specific figures such as the combined ratio for Property-Casualty, in-force and new business margins and margin on reserves for Life/Health and the cost-income ratio for 58 Annual Report 2013 Allianz Group C Group Management Report Your Allianz Business Operations and Markets 49 56 Strategy and Steering 59 Progress in Sustainable Development Progress in Sustainable Development We take our responsibility for the environment and societal issues seri- ously and focus on activities relevant to our business and stakehold- ers. Over the course of 2013 we made good progress in further embed- ding environmental, social and governance aspects into our business. Our positive performance was also recognized by the Dow Jones Sus- tainability Index, which named us the leading sustainable insurer. At the same time, Allianz is receiving more attention from non- governmental organizations (NGOs). As a major insurer and asset manager, we have business relationships with companies worldwide. Critics of some of these companies are increasingly turning to us. We take their concerns seriously. Engagement is a key tool in under- standing the expectations of our stakeholders, and also as a means of starting a discussion. Our strong commitment to integrating envi- ronmental, social and governance aspects into our core processes supports our business strategy, ensures we live up to our values and demonstrates responsibility in our decision-making. As signatories to the United Nations Environment Programme Finance Initiative’s (UNEP-FI) Principles for Sustainable Insurance (PSI) and the Principles for Responsible Investment (PRI), we want to drive sustainability across the board. This chapter highlights Allianz’s sustainability performance and presents major developments in the areas of Business, Environ- ment, People and Ethics in 2013.1 Business 2 AlliAnz BrAnd The Allianz brand3 plays a key role in driving sustainable business growth. Altogether, we work with more than 600,000 Allianz ambas- sadors such as employees, agents and partners towards creating a One Allianz experience for our customers. In line with this goal, our Allianz branded revenues stood at approximately 82 % (2012: 83 %) of total revenues in 2013. Our one-brand vision leaves room for our renowned specialty brands such as PIMCO and Euler Hermes that use Allianz as their reference and build brand equity transfer for our mutual benefit. Allianz is one of the most successful financial ser- vices brands in the Interbrand 100 Best Global Brands Ranking 2013: Our brand again demonstrated growth in value, increasing by 8 % to approximately USD 6.7 bN (2012: USD 6.2 bN). Authentic brand experience for trusted relationships In 2013, we continued our global brand communication framework ONE. Rolled out in over 30 countries, ONE supports our global position- ing as a Trusted Partner and establishes a consistent and authentic brand message. We further evolved our global sponsoring platforms. With a stronger focus on digital and social media, and in close align- ment with our distribution strategy, our premium sponsorships now offer a new quality of customer experience and engagement with our brand and our business. Furthermore, we anchor corporate respon- sibility as a vital component in our strategic sponsorship approach. More than 25 Allianz entities, for example, are engaged in our Road Safety Program. Overall, we continue to invest in our strong global brand, with increased focus on strategic growth markets and a clear emphasis on digital media. In 2013, for example, the overall share of digital spend- ing in our local markets reached almost 25 % of our media expendi- tures worldwide. Our customers expect free choice across a variety of different access channels to Allianz. Therefore, we invest in real-time custom- er interaction and corresponding technology to stay connected to consumers and improve our customer service. One particular focus in our retail business is on making Allianz products and services easy to find and to purchase, be it from Allianz agents and partners or online. For example, offer innovations such as FastQuote from Allianz Italy allow customers to receive a competitive motor quote simply and quickly based on only two data feeds. Customer BAse Overall, our customer base has grown from approximately 78 million customers insured by Allianz worldwide in 2012 to more than 83 mil- lion customers in 2013. The increase was mainly due to the acquisi- tion of Yapı Kredi in Turkey with around 3 million customers and an organic growth of approximately 2 million customers. Customers By region/Country 1 as of 31 December 2013 [31 December 2012] in % Anglo Markets 7.9 [7.5] USA 1.4 [1.6] 1 2 3 A full presentation of our sustainability strategy, approach and progress can be found online at www. allianz.com/sustainability. More information can be found online at www.allianz.com/sustainability/business. Our Allianz trademark is registered and protected worldwide, as are our domain names. Furthermore, we have registered our corporate design and brand claim “Allianz. With you from A – Z.” in all relevant countries worldwide. With our rebranding activities we are extending the scope of our business under the Allianz brand beyond the core area of insurance and asset management. In order to maintain the distinctiveness and strength of our Allianz brand, we continuously monitor possible infringements of our trademark applications and registrations by third parties. Growth Markets 32.3 [36.2] Rest of Europe & Latin America 18.5 [14.0] 1 Customer figures exclude microinsurance and pension funds clients. Annual Report 2013 Allianz Group 59 Germany 24.0 [24.2] Rest of German Speaking Countries 2.6 [2.7] France 6.0 [6.4] Italy 7.3 [7.4] Customer foCus The loyalty of our customers is a key factor for sustainable growth. As part of our customer-focused activities, we use key feedback tools, such as the Net Promoter Score (NPS). NPS is a measurement of cus- tomers’ willingness to recommend Allianz and has been established as our key global metric for customer loyalty in about 40 Allianz com- panies worldwide representing around 90 % of gross premiums written. Top-down NPS is measured annually according to global cross- industry standards and allows benchmarking against competitors in the respective markets. Despite shortfalls in some markets versus local peers, we increased our global NPS performance by two percent- age points overall in 2013. Compared to our competitors, 50 % of Allianz businesses significantly outperformed their local peer aver- age and 27 % have achieved loyalty leadership in their market. In 2014, we expect the positive global trend to continue and more markets to outperform their local peers. To steadily improve our customer service, we apply bottom-up NPS: asking our customers for direct feedback after key interactions with Allianz – such as claims handling or sales – helps us to identify areas for improvement and continuously monitor the impact of our measures taken. sustAinABility in Core Business And ProduCts And serviCes Established in 2012, the Group ESG Board, a committee with Board Member leadership, is responsible for further promoting environ- mental, social and governance (ESG) aspects in our insurance and investing activities. Strengthening the governance and integration of ESG aspects in our core business processes was a priority in 2013. We identified sensitive business areas for both underwriting and invest- ments, developed a global ESG business screening process and also established an ESG dialogue format which continually engages a group of NGOs. The dialogues allow NGOs to directly address Allianz with their concerns and give us the opportunity to listen, understand and respond to their different perspectives. We can also tap into the expertise of NGOs when formulating ESG positions and guidelines, incorporating their direct, on-the-ground experience on various topics. Sustainability in proprietary investments We strive to invest sustainably across all asset classes over time. The practical implementation of sustainability in proprietary asset man- agement involves integrating ESG factors into our investment process through research, corporate and country analysis, asset manager selection, monitoring and risk management. Moreover, concerns about climate change are changing the way assets are managed and are giving rise to new and alternative asset classes: − As large institutional investors, insurance companies are impor- tant players in the financing of a low-carbon economy. We are one of the leading investors in renewables with a strong portfolio in wind energy and solar power amounting to € 1.7 bN in 2013 (2012: € 1.3 bN). Renewables have an attractive risk-return profile that fits well with our long-term investment strategy. We are gradually expanding our investments in this sector with a planned investment volume of around € 400 MN per year. − Allianz Real Estate (ARE) has a comprehensive sustainability pro- gram, with a focus on environmental factors. We apply specific sustainability metrics in investment and property management processes and actively engage with tenants. − As part of Allianz’s Climate Change Strategy, we are an early investor in the carbon market. The Rimba Raya project in Borneo (Indonesia), which will prevent the emission of 90 million tons of CO2 over a 30-year period, is Allianz’s third carbon investment in emerging markets. We are also using the credits from these direct investments to offset our own carbon footprint. Sustainability in third-party asset management Allianz manages a growing portfolio of Sustainable and Responsible Investments (SRI). At the end of 2013, assets under management in our SRI funds for PIMCO totaled € 78.2 bN (2012: € 49.1 bN) and AllianzGI € 17.5 bN (2012: € 15.3 bN), bringing the total to € 95.7 bN, which is 6 % of our total third-party assets under management. At the heart of our ESG strategies lay strong ESG research capabilities, engagement with the companies we invest in and pursuit of active share ownership through proxy voting. Sustainability in underwriting As a leading industrial insurer globally and one of the world’s top life insurers, it is important that we demonstrate leadership to our cus- tomers, the industry as a whole and wider society in embedding ESG issues into our insurance business. Effective research and risk man- agement are crucial to mitigating ESG risks. To support our local insurance entities in assessing ESG risks, we have agreed to establish an ESG Impact Desk. Entities will be required to consult this Desk in the event that their transactions trigger key ESG issues within our sensitive business areas. We will continue to work on integrating ESG issues into our insurance business in 2014. Green solutions We offer our private and commercial customers over 150 green prod- ucts and services that mitigate the negative effects of climate change or take its environmental impact into account. We are able to report on their contribution to our overall financial performance for the first time and in 2013 revenues totaled more than € 1.1 bN. 60 Annual Report 2013 Allianz Group C Group Management Report Your Allianz Business Operations and Markets 49 56 Strategy and Steering 59 Progress in Sustainable Development Microinsurance Many low-income families in developing countries lack access to financial services which could help them manage the risks associated with natural disasters, accidents and illness. Allianz offers micro- insurance products in eleven countries in Asia, Africa and Latin America. Our products range from life insurance and savings plans to crop index insurance. 2013 saw strong growth again; we now insure 24.9 million people (2012: 17.1 million) with revenues of € 86.1 MN (2012: € 78.6 MN) 1. For more information please refer to the chapter Risk and Opportunity Report from page 105 onwards. Environment 2 CArBon reduCtion strAtegy We are committed to reducing our environmental impact. We have a target to reduce our carbon emissions per employee by 35 % by 2015 against a 2006 baseline. Since 98 % of the Group’s emissions come from energy, travel and paper, we are focusing our activities on these three areas. Because energy use is the largest contributor to our car- bon footprint, we also have a specific energy target: to reduce energy consumption per employee by 10 % by 2015 against a 2010 baseline. environmentAl footPrint 1 as of 31 December Total emissions Per employee emissions Total energy consumption thereof: Renewables 2013 20122 20112 in metric tons Co2e in metric tons Co2e in gJ in % 342,724 344,776 361,398 2.35 2.40 2.55 2,901,457 3,079,897 3,124,973 41.7 39.2 33.4 Total travel – plane, train, car in tkm 967,210 931,356 953,717 Total paper in metric tons 20,894 20,193 19,525 1 2 KPMG Wirtschaftsprüfungsgesellschaft AG has provided limited assurance on the 2013 environmental performance information. For further information, please refer to www.allianz.com/sustainability. 2012 and 2011 figures have been adjusted reflecting a methodology change for reporting on energy from renewable sources and 2012 figures were adjusted for error corrections. As part of our overarching climate change strategy and in addition to our carbon reduction target, we have been a carbon neutral business since 2012, by offsetting our emissions through our own carbon investment projects. People 4 BreAkdown of Co2 emissions 1 as of 31 December 2013 in % Energy Travel Paper Water Waste our emPloyees Our employees’ exceptional commitment and ambition to provide excellent service to our customers are crucial to our success. We place great emphasis on fostering employee engagement, strong leadership and technical expertise among an increasingly diverse workforce of 147,627 employees as of 31 December 2013 (31 December 2012: 144,094 employees) 5. 2013 57.3 37.1 3.9 0.2 1.5 1 KPMG Wirtschaftsprüfungsgesellschaft AG has provided limited assurance on the 2013 environmental performance information. For further information, please refer to www.allianz.com/sustainability. In 2013, we continued to reduce our carbon footprint , cutting CO2 emissions from our business. Our overall CO2 reduction since 2006 now stands at 37.2 % 3 per employee and, whilst we have also exceeded our energy reduction target (status minus 18.1 % per employee), as the economy continues to improve the challenge for us will be con- trolling our consumption and emissions over business cycles. Diversity Allianz recognizes the importance of having a diverse, inclusive workforce that is made up of employees from different backgrounds. We understand that promoting diversity is necessary for Allianz as a global company to be successful and we have implemented a num- ber of initiatives to support this. Consistent with our Code of Conduct, Allianz has a zero-tolerance policy against discrimination and harassment in the workplace. As part of the effort on the advance- ment of women at Allianz, in 2008 we set ourselves the global target of increasing the share of women in the talent pools for executive positions to 30 % by 2015. A top management sponsorship program for women and flexible work-life programs, such as part-time employ- ment or job sharing, are part of supporting actions taken in several 1 2 3 Figures include non-consolidated entities (i.e. India). More information can be found online at www.allianz.com/sustainability/environment. The Allianz Group’s total reported carbon footprint already considers the compensation activities of some of our subsidiaries. 4 5 More information can be found online at www.allianz.com/sustainability/people. Total number of employees with an employment contract of all consolidated companies (core and non- core business). Annual Report 2013 Allianz Group 61 countries. We are also committed to having 30 % of management posi- tions in Germany held by women by the end of 2015. emPloyee engAgement index women ACross the AlliAnz grouP 1 Employee Engagement Index 2013 73 2012 70 2011 67 in % Women in executive positions 2 Female managers 3 Share of women in overall workforce 2013 21.2 35.5 52.8 2012 19.4 33.9 52.5 2011 19.2 33.3 52.3 1 2 3 Figures based on the number of employees in Allianz’s core business. Excluded are fully consolidated companies which are considered as pure financial investments and companies classified as held for sale. Including women at all executive positions below the Board of Management. Including women functionally responsible for other staff, regardless of level, e.g. division, department, and team managers. Talent management We take a common and systematic approach to developing talent across all Allianz companies. To ensure the quality and performance of our employees, we focus on managing and developing talent and careers by assessing performance and potential, providing appropri- ate development actions and ensuring robust succession plans. We develop both leadership and functional skills to ensure our employ- ees can achieve current and future business goals. In order to meet future staff needs, we promote the necessity of lifelong learning. Also, our Strategic Workforce Planning proactively supports strategic human resources decision-making by supplying forecasts on eco- nomic, demographic and socio-cultural trends. Remuneration The Allianz Group paid a total of € 9.1 bN (2012: € 8.9 bN) to its employees worldwide in 2013. Of this, approximately 32 % was for performance- related (variable) remuneration elements. € 2.4 bN (2012: € 2.3 bN) was spent on social security contributions, pensions and other social benefits. Employee engagement Allianz annually collects feedback from employees, managers and board members to measure the overall level of engagement and iden- tify its drivers through the Allianz Engagement Survey. 119,230 employees from 72 Allianz companies were invited to participate in 2013. The global response rate of 84 % was 3 percentage points up com- pared to 2012. The Employee Engagement Index is a key measure of employee satisfaction, loyalty, advocacy and pride. Scores on this index have improved continuously every year since the launch of the Group-wide survey in 2010. The survey results are factors in the remu- neration of the Group’s Board of Management. 62 Annual Report 2013 Allianz Group Further employee figures further emPloyee figures 1 tenure 2 Tenure Allianz Group Age struCture in % Average age – Allianz Group emPloyment relAtionshiP in % Permanent employees Temporary employees Full-time employees Part-time employees emPloyee QuAlifiCAtion in % University degree Vocational training Other qualification emPloyee turnover Total external recruitment Total external leavers 2013 2012 10.8 10.7 40.1 39.8 93.3 6.7 88.5 11.5 45.3 31.6 23.1 93.5 6.5 87.6 12.4 44.5 31.3 24.2 23,477 21,115 21,324 19,815 1 2 Figures based on the number of employees in Allianz’s core business. Excluded are fully consolidated companies which are considered as pure financial investments and companies classified as held for sale. Tenure represents the period of employment in Allianz companies starting from the date of the first entry into an Allianz company. Community engAgement We donate money to address social, environmental and cultural issues relevant to Allianz and the societies in which we operate. In 2013 we donated € 18.6 MN (2012: € 20.4 MN) to support local communi- ties. We also offer our employees the possibility to donate in the event of natural catastrophes. Furthermore, we have an international net- work of 13 Allianz affiliated corporate foundations. We offer a number of employee volunteering opportunities in local communities, for example My Finance Coach, which fosters financial literacy among youth and reached more than 150,000 stu- dents in Germany alone in 2013, and the leadership development program Social OPEX, in which 59 employees from 21 Allianz subsid- iaries shared their expertise with 24 socially-committed organiza- tions. C Group Management Report Your Allianz Business Operations and Markets 49 56 Strategy and Steering 59 Progress in Sustainable Development Ethics 1 Our integrity calls upon us to make only promises we can keep and take only risks we can manage. Good corporate governance and transparency are key to gaining and keeping the trust of our stake- holders. ComPliAnCe mAnAgement In 2013, we continued with measures to further strengthen the effec- tiveness of compliance management by enhancing quality assur- ance, global reporting on compliance risks and independent reviews of key elements of our compliance program. Allianz applies its gen- eral operational risk management approach to assess corruption and fraud risks. Additional assessments and on-site reviews are com- bined with the new Compliance Quality Assurance Program. Rolled out in 2012, the program consists of self-assessments, on-site reviews and monitoring via reporting. It verifies the implementation and effectiveness of Allianz’s Compliance Management System, which includes the Anti-Corruption Program, across the Group. The implementation and maintenance of the Allianz Anti- Corruption Program, which is compulsory for all employees, contin- ued in 2013. It aims to inform employees about Allianz’s main anti- corruption and anti-fraud rules, the essentials of our anti-corruption and gifts and entertainment policies, and our anti-fraud principles. Training about anti-discrimination and anti-harassment procedures is also offered, in alignment with local legal requirements. trust And trAnsPArenCy One of the aftereffects of the banking and European sovereign debt crisis is that the insurance industry has been confronted with an increasing degree of regulation. All-time low interest rates and mar- ket insecurity and volatility remain critical factors for our business and particularly for our customers. Our main goal when interacting with governments is to contribute solutions to socio-political issues and create a stable political and economic landscape that will ben- efit our customers and us over the long term. For example, we are engaging in discussions on the impact of low interest rates on savings and old-age provisions and facilitating investments in a low-carbon economy. Headquartered in Germany, Allianz SE is committed to the coun- try’s long lasting democracy. Thus, we contribute to democratic political parties in the German Parliament (Bundestag) representing a variety of views within the political spectrum and supporting the social market economy. Our policy governing corporate donations to political parties in Germany rules that all contributions are made annually on 1 July to ensure that they are in no manner connected, or perceived to be connected, to any legislative initiative or elections. In 2013, we contributed a total of € 150,000. 1 More information can be found online at www.allianz.com/sustainability/ethics. Annual Report 2013 Allianz Group 63 a year earlier. Despite this increase, spreads on debt-ridden Economic and Monetary Union (EMU) countries narrowed considerably. Buoyed not least by the ongoing low interest rate environment, stock markets rallied. Following an initial depreciation against the U.S. Dollar in the first quarter of 2013, the Euro gained in strength over the remainder of the year. Progress in solving the European sovereign debt crisis and the economic stabilization of the Eurozone have been key factors in shoring up confidence in the Euro. Business environment 2013: insurance and asset management industry 2013 was another challenging year for the insurance industry. With economic growth remaining subdued, overall premium growth was more or less stagnant. But this stability conceals considerable differ- ences between markets. For example, German premiums strength- ened, along with moderate improvements in economic activity, whereas parts of southern Europe were still in the doldrums. Emerging markets, too, witnessed a rather turbulent year, with highly volatile capital flows and exchange rates. But despite the economic slow- down in many of these markets, overall premium growth proved remarkably resilient, mainly driven by an increase in life growth. Low interest rates and financial market volatility were still a major challenge. As a result, investment returns stayed rather low, putting the sector’s profitability under pressure. Furthermore, regu- latory developments continued to have a significant impact. Most importantly, the final agreement on Solvency II in November 2013 paved the way for its introduction on 1 January 2016 and reduced somewhat the regulatory uncertainty that has beleaguered the industry in recent years. Although 2013 had its fair share of natural disasters, from typhoons and earthquakes in Asia to flooding in Europe, catastrophe losses remained rather low for a second consecutive year – at least in a global context – due to the weak penetration in many of the markets that were hit by natural catastrophes. This bolstered underwriting profitability. The big exception was the German market, which had to contend not only with floods in June but with big storms thereafter, triggering large insurance losses. Business Environment Economic environment 2013 BRIGHTER ECONOMIC CONDITIONS DuRING THE YEAR After a subdued start to 2013 the world economy gained momentum starting in the second quarter, thanks mainly to an improved picture in industrialized countries. Particularly encouraging was the return to positive economic growth in the Eurozone following six negative quarters in a row. In the United States and the U.K., overall output picked up again after only tepid growth at the start of the year. In addition, the economic recovery in Japan continued on a broader footing thanks to expansionary monetary and fiscal policies. By con- trast, economic growth in most emerging markets remained fairly subdued, taking their pre-crisis growth rates as a yardstick. All in all, global economic output is likely to have grown by 2.3 % in 2013, well below the 10-year average of close to 3 %. Gross domestic product (GDP) in industrialized countries increased by about 1.1 % on average last year. While both the United States and Japan registered fairly solid growth of close to 2 %, real GDP in the Eurozone contracted on average by 0.4 % in 2013. As in previous years, economic performance varied widely within the currency area. Countries like Greece and Italy experienced a strong contraction, while Austria, Belgium and the Slovak Republic registered positive, albeit weak, growth. The economic impact emanating from the Euro- pean debt crisis continued to exert a dampening effect on the Ger- man economy. Following an already moderate expansion of 0.7 % in 2012, real GDP grew only 0.4 % in 2013. Emerging markets expanded by 4.4 % on average, with economic growth in emerging Asian markets coming in at 6.2 %. The primary drivers on the financial markets in 2013 were once again the ultra-loose monetary policy of major central banks and the gradual easing of the European sovereign debt crisis. The financial markets took a hefty knock in the summer months after the Federal Reserve sketched out a possible timetable for a gradual phasing-out of its bond-purchasing program. This not only pushed up yields in the United States, but above all exerted downward pressure on the currencies of those emerging markets with a poor economic score- card. Countries with yawning current account deficits like India and Turkey proved particularly vulnerable. In December, the Federal Reserve finally announced the first step towards a gradual normal- ization of its monetary policy – a reduction in the volume of its monthly bond purchases by USD 10 BN to USD 75 BN from January 2014. On the other side of the Atlantic, the European Central Bank lowered its key interest rate in two steps from 0.75 % to 0.25 % over the course of 2013 and continued to signal its readiness to lower key interest rates further and even offer, yet again, exceptionally long terms for financ- ing operations. Yields on 10-year German government bonds ended the year at 1.9 %, an increase of about 60 basis points compared with 64 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations Market flows into equity and fixed income were strong in the first half of 2013. During the second half of the year, fixed income flows were to a certain extent impacted by the rise in interest rates. Flows into equity assets mostly continued throughout the year, reaching levels not observed in the recent past. These equity flows were not only driven by passive products. Active equity managers were also able to capture a portion of the organic growth. The flow development, as well as rising asset valuations, drove revenues and profits higher. Industry efficiency generally improved, despite the continuing growth trend in expenses – due to higher compensation or marketing costs, for example. In the property-casualty sector, overall market conditions were basi- cally unchanged from the previous year. Stable premium growth in advanced markets was underpinned by moderate rate increases and the gradual improvement of economic activity, for example in the United States and Germany. On the other hand, many markets in southern Europe, for example Italy and Spain, remained in reverse gear with continuous declines in premium income. Premium growth in emerging markets generally proved robust, despite turbulent financial markets. In particular, premium increases in China and Latin America recorded double-digit growth rates. Overall, according to our own market estimates and based on preliminary figures, global premiums grew around 4.5 % in 2013 (adjusted for foreign currency translation effects). Underwriting profitability improved slightly in 2013, reflecting the general positive pricing momentum and the low level of natural catastrophes. But overall profitability was restrained by the challeng- ing investment environment. Despite small increases in the wake of the assumed change in U.S. monetary policy (“tapering”), interest rates remained at low levels and investment returns were therefore subdued. In the life sector, global premium income growth recovered slightly in 2013. This improvement was mainly led by emerging markets, which benefited from relatively strong increases in China and South- East Asia. Latin America continued to post double-digit growth as well. The performance of advanced markets was more mixed, with some – notably the U.S. market – under pressure and others recover- ing rather strongly, for example Germany, France and Italy. In total, according to our own market estimates and based on preliminary figures, global premiums grew by around 3 % in 2013 (adjusted for foreign currency translation effects). The persistent low-yield environment coupled with modest eco- nomic growth depressed new business profitability for traditional life business. Insurance savings products continued to suffer from weak demand against a backdrop of reduced guarantees. However, risk protection products fared better. These included not only tradi- tional mortality, but also health insurance products such as disability and long-term care insurance – which benefited from rising con- sumer awareness of a “protection gap” in these fields. For the asset management industry as a whole, 2013 was a favorable year, although it was a further year of uncertainty in capital markets with volatility remaining at elevated levels. The announcement of the Federal Reserve in May that it would start to take a reduction of its asset purchases into consideration, led to an increase in interest rates. The yield on 10-year U.S. government bonds increased from 1.6 % at the end of May 2013 to around 3 % at the end of the year. As a result of the interest rate increase, valuations for fixed income assets declined, while equities recorded a strong performance. On a global basis, equities rose by 29 % last year. Annual Report 2013 Allianz Group 65 Executive Summary of 2013 Results − Revenues increased to € 110.8 bn. − Operating profit grew 7.8 % to € 10,066 mn. − Net income increased to € 6,344 mn. − Solvency ratio remained strong at 182 %.1 Allianz Group overview Allianz SE and its subsidiaries (the Allianz Group) have opera- tions in over 70 countries. The Group’s results are reported by business segment: Property-Casualty insurance operations, Life/Health insurance operations, Asset Management and Corporate and Other. Key figures key figures AlliAnz group € mn Total revenues Operating profit 2,3 Net income 2 Solvency ratio 1 in % 2013 110,773 10,066 6,344 182 2012 106,383 9,337 5,558 197 Earnings summary economic And industry environment in 2013 The world economy gained momentum in 2013, mainly due to a pick- up in industrialized countries. The primary drivers of the financial markets in 2013 were once again the ultra-loose monetary policy of major central banks and the gradual easing of the European sovereign debt crisis. While equity markets recorded a strong performance, per- sistent low interest rates continued to put pressure on the insurance industry’s investment returns. The announcement by the Federal Reserve that it would start to consider a reduction of its asset pur- chases not only pushed up yields in the United States but also exert- ed downward pressure on the currencies of emerging markets such as Turkey and Brazil. The Euro strengthened against the U.S. Dollar and selected emerging market currencies over the course of the year. In the property-casualty insurance industry, overall market con- ditions were basically unchanged from the previous year. Under- pinned by a positive pricing momentum, the industry saw stable premium growth in advanced markets globally, while southern Euro- pean countries in particular saw continued declines. On the other hand, premium growth in emerging markets generally proved robust. Claims from natural catastrophes remained rather low for a second consecutive year, at least in a global context, as weak penetration in many of the markets hit by natural catastrophes limited insurers’ losses – except for Germany with higher losses from floods and big storms thereafter. In the life insurance industry, global premium income growth recovered slightly in 2013. This was mainly driven by premium increases in emerging markets, while there was a mixed picture in advanced markets with Germany, France and Italy recovering and the U.S. market remaining under pressure. Insurance savings products continued to suffer from weak demand against a backdrop of reduced 1 Solvency according to the E.U. Financial Conglomerates Directive. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 31 December 2013 would be 173 % (2012 (as published): 188 %). The conglomerate solvency ratio decreased by approximately 16 percentage points as of 1 January 2013 due to amendments to IAS 19. 2 3 Prior year figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 4 to the consolidated financial statements. As of 1 January 2013, all restructuring charges are presented within operating profit and all prior year figures have been adjusted to conform to the current accounting presentation. 66 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations guarantees in the persistent low interest rate environment. By con- trast, risk protection products fared better due to a rising awareness of a protection gap. For the asset management industry as a whole, 2013 was a favor- able year, although there was continued uncertainty on capital mar- kets with volatility remaining high. Following the tapering announce- ment of the Federal Reserve, interest rates increased and thus valuations for fixed income assets declined, while equities recorded a strong performance. These developments adversely impacted fixed income flows but continued to support favorable flows into equity assets. mAnAgement’s Assessment of 2013 results We recorded growth in total revenues of 4.1 % – to € 110.8 bn – reaching an all-time high, despite the challenges of operating in a persistently low interest rate environment. On an internal basis 1, revenues increased by 4.7 %. Our Life/Health and Asset Management business segments generated strong revenue growth, while premiums in the Property-Casualty business remained rather stable. Our operating profit increased 7.8 % to € 10,066 mn. This was main- ly due to the remarkable underwriting performance in our Property- Casualty business segment despite a higher burden from natural catastrophes. Our Asset Management business segment contributed positively due to higher average assets under management and high- er related margins. The operating result from the Corporate and Other business segment improved, mainly due to a higher net fee and commission result. However, our Life/Health business was impacted by a lower investment result. Overall, our group performance devel- oped favorably and we significantly exceeded our original operating profit target of € 9.2 bn plus or minus € 0.5 bn. Our net income increased 14.1 % to € 6,344 mn, driven by the strong operating performance as well as a slightly improved non-operating result. Net income attributable to shareholders and non-controlling interests was € 5,996 mn (2012: € 5,231 mn) and € 348 mn (2012: € 327 mn), respectively. Our capitalization remained strong and shareholders’ equity decreased slightly by € 0.3 bn to € 50.1 bn compared to 31 December 2012. Our conglomerate solvency ratio strengthened by one percentage point, after reflecting the negative impact of a change in accounting for pensions 2. Total revenues 3 totAl revenues – Business segments � mn 120,000 100,000 80,000 60,000 40,000 20,000 106,3831 590 6,786 52,347 + 4.7 % (6.6) % + 8.5 % + 9.1 % 110,7731 551 7,162 56,784 46,889 (0.3) % 46,579 2012 2013 Property-Casualty Internal growth Life/Health Asset Management Corporate and Other 1 Total revenues include € (303) mn (2012: € (229) mn) from consolidation. Property-Casualty gross premiums written amounted to € 46.6 bn, down 0.7 %. On an internal basis, gross premiums written decreased by 0.3 %, reflecting the expected reduction in our U.S. crop business. Excluding this reduction, our internal growth was positive at 2.5 %. We experienced solid growth mainly in Latin America, Turkey, at Allianz Global Assistance and in Germany. Life/Health statutory premiums amounted to € 56.8 bn, an increase of 9.1 % on an internal basis. Strong single premium increases from unit-linked and savings products more than compensated for the premium declines in selected markets where we were impacted by regulatory changes or took further profitability and risk manage- ment actions. Asset Management operating revenues grew by 8.5 % on an inter- nal basis. This was mainly driven by higher average assets under management and higher related margins. Our performance fees reached an impressive level of € 510 mn but remained € 256 mn below the record level of € 766 mn in 2012. Once again our overall investment performance was excellent. However, higher interest rates and vola- tile capital markets led to third-party net outflows of € 12 bn. Total revenues from our Banking operations (reported in our Corporate and Other business segment) decreased by € 39 mn to € 551 mn, mainly as a result of a lower net interest result. 1 2 Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 104 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the Allianz Group as a whole. Prior year figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 4 to the consolidated financial statements. 3 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/Health, oper- ating revenues in Asset Management and total revenues in Corporate and Other (Banking). Annual Report 2013 Allianz Group 67 Operating profit Operating prOfit – BUSineSS SegmentS � mn 12,000 10,000 8,000 6,000 4,000 2,000 0 9,3371 2,953 2,943 4,614 (1,114) 2012 + 7.8 % 10,0661 3,161 2,709 5,268 (1,004) 2013 Property-Casualty Life/Health Asset Management Corporate and Other 1 Total operating profit includes € (68) mn (2012: € (59) mn) from consolidation. Our Property-Casualty operating profit went up by € 654 mn, or 14.2 %, to € 5,268 mn. The underwriting result increased by € 728 mn to € 2,170 mn, largely driven by an improvement in our loss ratio. Reflect- ing the low interest environment, however, our operating investment income (net) decreased by € 181 mn to € 3,048 mn. The Life/Health operating profit decreased by € 234 mn to € 2,709 mn, mainly as a result of the decline in the operating invest- ment result, which was burdened by the net of adverse foreign currency and financial derivatives impacts. Asset Management recorded a strong operating profit of € 3,161 mn – growth of 7.0 %. On an internal basis, operating profit grew by 10.1 %. This was mainly driven by higher operating revenues and to a lesser extent by lower restructuring charges compared to 2012. The cost- income ratio improved by 0.6 percentage points to 55.9 %. Non-operating result Our non-operating result improved by € 196 mn to a loss of € 422 mn. This was mainly due to lower amortization of intangible assets and lower interest expenses from external debt. Our non-operating investment result decreased from € 809 mn to € 663 mn. This was driven by a decline in our income from financial assets and liabilities carried at fair value through income as well as lower realizations, which was partly offset by lower impairments. Non-operating income from financial assets and liabilities carried at fair value through income (net) fell by € 186 mn to € 24 mn, as the previous year’s figure benefited from the positive valuation effects of The Hartford warrants, which were sold in April 2012. Non-operating realized gains and losses (net) dropped from € 1,112 mn to € 952 mn. This was mainly due to lower realizations on equities. Non-operating impairments of investments (net) decreased by € 200 mn to € 313 mn in 2013. This was mainly due to lower equity impairments, driven by favorable equity market developments. Lower impairments on debt securities in 2013 further contributed to the improvement. Non-operating interest expenses from external debt declined by € 90 mn to € 901 mn due to the low interest rate environment. New issu- ances have had lower funding costs compared to bonds that matured or were redeemed. Non-operating acquisition-related expenses improved by € 68 mn to € 33 mn, mainly due to lower PImCO B-unit expenses. Non-operating amortization of intangible assets was down by € 123 mn to € 136 mn, largely due to higher impairments in the previous year. For further information, please refer to note 15 to the consoli- dated financial statements. Income taxes Our operating result in Corporate and Other improved by € 110 mn to a loss of € 1,004 mn. An improvement in Holding & Treasury was partly offset by a deterioration in Banking due to restructuring charges, while the operating result in Alternative Investments remained almost stable. Income taxes rose by € 139 mn to € 3,300 mn, driven by a € 925 mn higher income before income taxes in 2013 compared to 2012. The effective tax rate improved by 2.1 percentage points to 34.2 % (2012: 36.3 %), mainly due to lower tax charges from prior year taxes in 2013 com- pared to 2012. 68 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations Net income totAl revenues And reconciliAtion of operAting profit (loss) to net income (loss) Net income increased by € 786 mn – from € 5,558 mn to € 6,344 mn – driv- en by our strong operational performance, a lower effective tax rate and an improved non-operating result. Net income attributable to shareholders and non-controlling interests amounted to € 5,996 mn (2012: € 5,231 mn) and € 348 mn (2012: € 327 mn), respectively. Our largest non-controlling interests in net income related to Euler Hermes and PImCO. Basic earnings per share rose from € 11.56 to € 13.23 in 2013 and diluted earnings per share increased from € 11.48 to € 13.05. For further information on earnings per share, please refer to note 50 to the con- solidated financial statements. Proposal for appropriation of net earnings The Board of Management and the Supervisory Board propose that the net earnings (“Bilanzgewinn”) of Allianz SE of € 3,068,573,879.31 for the 2013 fiscal year shall be appropriated as follows: − Distribution of a dividend of € 5.30 per no-par share entitled to a dividend: € 2,404,893,952.80 − Unappropriated earnings carried forward: € 663,679,926.51 The proposal for appropriation of net earnings reflects the 2,746,424 treasury shares held directly and indirectly by the Company at the time of the publication of the convocation of the Annual General Meeting in the Federal Gazette. Such treasury shares are not entitled to the dividend pursuant to § 71b of the German Stock Corporation Act (AktG) . Should there be any change in the number of shares entitled to the dividend by the date of the Annual General Meeting, the above proposal will be amended accordingly and presented for resolution on the appropriation of net earnings at the Annual General Meeting, with an unchanged dividend of € 5.30 per each share entitled to dividend. Munich, 24 February 2014 Allianz SE € mn Total revenues 1 Premiums earned (net) Operating investment result Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Interest expenses, excluding interest expenses from external debt Operating impairments of investments (net) Investment expenses Subtotal Fee and commission income Other income 2013 2012 110,773 106,383 66,628 66,045 20,918 21,084 (1,866) 3,333 (421) (298) (905) 20,761 10,492 209 (721) 3,215 (486) (421) (876) 21,795 9,812 214 Claims and insurance benefits incurred (net) (47,802) (48,873) Change in reserves for insurance and investment contracts (net) 2 Loan loss provisions Acquisition and administrative expenses (net), excluding acquisition-related expenses Fee and commission expenses Restructuring charges Other expenses Reclassification of tax benefits Operating profit (loss) Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) Subtotal Income from fully consolidated private equity investments (net) Interest expenses from external debt Acquisition-related expenses Amortization of intangible assets Reclassification of tax benefits Non-operating items Income (loss) before income taxes Income taxes Net income (loss) Net income (loss) attributable to: Non-controlling interests Shareholders (13,990) (14,360) (86) (111) (22,832) (3,038) (170) (106) – 10,066 (21,945) (2,895) (268) (94) 17 9,337 24 952 (313) 663 (15) (901) (33) (136) – (422) 210 1,112 (513) 809 (59) (991) (101) (259) (17) (618) 9,644 (3,300) 6,344 8,719 (3,161) 5,558 348 5,996 327 5,231 1 2 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/Health, oper- ating revenues in Asset Management and total revenues in Corporate and Other (Banking). Includes expenses for premium refunds (net) in Property-Casualty of € (162) mn (2012: € (292) mn). Annual Report 2013 Allianz Group 69 Other parts of the Group Management Report The following information also forms part of the Group Management Report: − Statement on Corporate Management pursuant to § 289a of the HGb starting on pagE 32, − Takeover-related Statements and Explanations starting on pagE 34 and the − Remuneration Report starting on pagE 37. Events after the balance sheet date AlliAnz issued A cHf 500 mn undAted suBordinA ted Bond In January 2014, Allianz SE issued a subordinated bond in the amount of CHF 500 mn with no scheduled maturity, but with ordinary call rights of Allianz beginning in July 2019. The coupon of 3.25 % p.a. is fixed until July 2019. Changes in segment structure, presentation and accounting policies In 2013, we experienced material changes in our presentation and accounting policies due to the amendments to IAS 19 and the applica- tion of IFRS 13, which came into effect on 1 January 2013. For further information, please refer to note 4 to the consolidated financial state- ments. In addition, all restructuring charges have been presented within the operating profit effective 1 January 2013. For further infor- mation, please refer to note 6 to the consolidated financial state- ments. The applicable requirements of the German Accounting Stan- dard 20 (“Deutscher Rechnungslegungs Standard – DRS”) are incorpo- rated in the Group Management Report 2013. In 2013, the reportable segment “Global Assistance” was renamed “Allianz Worldwide Partners”. For further information, please refer to Business Operations and Markets starting on pagE 49. There were no changes to the Board of Management in 2013. For further information on the current composition of the Board of Man- agement, please refer to pagE 58. 70 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations Property-Casualty Insurance Operations − Gross premiums written at € 46.6 BN. − Operating profit up 14.2 % to € 5,268 MN, driven by a strong underwriting result. − Combined ratio at 94.3 %. Business segment overview Key figures Our Property-Casualty business offers a wide range of products and services for both private and corporate clients. Our offer- ings cover many insurance classes such as motor, accident/dis- ability, property and general liability. We conduct business worldwide in more than 50 countries. We are also a global leader in travel insurance, assistance services and credit insur- ance. We distribute our products via a broad network of agents, brokers, banks and other strategic partners, as well as through direct channels. key figures property-casualty € mn Gross premiums written Operating profit 1,2 Net income 1 Loss ratio in % Expense ratio in % Combined ratio 1 in % 2013 46,579 5,268 3,818 65.9 28.4 94.3 2012 46,889 4,614 3,505 68.3 27.9 96.2 Gross premiums written 3 On a nominal basis, we recorded gross premiums written of € 46,579 MN, down € 310 MN or 0.7 %. Unfavorable foreign currency translation effects were € 1,100 MN, largely due to the depreciation of the Austra- lian Dollar, the Brazilian Real, the U.S. Dollar, and the British Pound against the Euro.4 Consolidation/deconsolidation effects were posi- tive and amounted to € 949 MN. These mainly stemmed from our acquisitions of the activities of Gan Eurocourtage in France, Yapı Kredi Sigorta in Turkey and Mensura in Belgium. Adjusted for foreign currency translation and (de-)consolida- tion effects, our gross premiums written decreased by 0.3 %. The positive price effect of 0.8 % was more than offset by the negative vol- ume effect of 1.1 %, mainly driven by the changed structure in our crop business in the United States. Excluding the reduction in our U.S. crop business, our internal growth was positive and amounted to 2.5 %. We experienced solid growth in Latin America, Turkey, at Allianz Global Assistance and in Germany. Analyzing internal premium growth in terms of price and volume, we use four clusters based on 2013 internal growth over 2012: Cluster 1: Overall growth – both price and volume effects are positive. Cluster 2: Overall growth – either price or volume effects are positive. Cluster 3: Overall decline – either price or volume effects are negative. Cluster 4: Overall decline – both price and volume effects are negative. 1 2 Prior year figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 4 to the consolidated financial statements. As of 1 January 2013, all restructuring charges are presented within operating profit and all prior year figures have been adjusted to conform to the current accounting presentation. 3 4 We comment on the development of our gross premiums written on an internal basis; meaning adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information. Based on the average exchange rates in 2013 compared to 2012. Annual Report 2013 Allianz Group 71 gross premiums written by region/country 1 Year 2013 [2012] in % Asia-Pacific and Rest of World 8.1 [8.3] USA and Latin America 13.0 [16.3] Other Europe 16.3 [14.9] Spain 4.2 [4.2] Switzerland 4.8 [4.6] Germany 27.4 [26.1] France 12.5 [12.0] Italy 8.7 [8.6] United Kingdom 5.0 [5.0] 1 After elimination of transactions between Allianz Group companies in different countries and different reportable segments. Gross premiums written from our specialty lines have been allocated to the respective geographic regions. cluster 1 In Turkey gross premiums amounted to € 978 MN. Our strong internal growth of 37.2 % was primarily driven by our motor business through tied agents. In Latin America we recorded gross premiums of € 2,350 MN, up 11.0 % on an internal basis. The main driver was Brazil with all lines of business contributing to our growth. In Allianz Global Assistance gross premiums increased to € 1,972 MN. Our internal growth of 10.0 % stemmed from higher vol- umes mainly in our Brazilian, French, U.S., Spanish, and German business, as well as price increases primarily in our Australian and U.S. subsidiaries. In Australia gross premiums grew to € 2,847 MN. The increase of 4.6 % on an internal basis benefited from new customers and higher tariffs in our motor and property business. In the United Kingdom we generated gross premiums of € 2,274 MN. On an internal basis, we expanded by 2.8 % with volume growth mainly driven by our commercial motor line and tariff increases across all commercial lines, in particular in our liability and motor business. In our Credit Insurance business, gross premiums increased to € 2,092 MN. The growth of 2.3 % on an internal basis stemmed from the acquisition of new customers. cluster 2 In Asia-Pacific we recorded gross premiums of € 667 MN. The 17.8 % increase on an internal basis was mainly driven by the strong growth in our Malaysian motor business. The overall price effect was slightly negative. In Central and Eastern Europe gross premiums stood at € 2,477 MN, up 6.3 % on an internal basis. The growth was largely attributable to higher volumes in our motor, personal accident and health business in Russia, which outweighed a negative price effect. In Germany gross premiums totaled € 9,261 MN. The internal growth of 1.6 % was due to price increases mainly in motor, property and liability lines. It was partly offset by negative volume effects, par- ticularly in our accident and motor business. In Switzerland gross premiums went up to € 1,489 MN. Our inter- nal growth of 1.1 % was supported by higher volumes, mainly in our motor and commercial property business. However, this was partly offset by an overall negative price effect. In France gross premiums amounted to € 4,174 MN – up 0.5 % on an internal basis. This was driven by tariff increases across all lines of business, which more than compensated for volume losses. In Spain gross premiums rose to € 1,958 MN. Despite the difficult market conditions we recorded internal growth of 0.3 %. We generated higher volumes in our motor, property and liability lines, which offset the effect of declining tariffs. cluster 3 In the United States gross premiums decreased to € 2,058 MN. On an internal basis, gross premiums dropped by 39.7 %, largely due to the expected reduction in our crop business and, to a lesser extent, declines in our commercial lines, which continue to be impacted by our strict underwriting discipline. The overall price effect was positive. In Italy gross premiums amounted to € 4,032 MN. The decrease of 0.3 % on an internal basis was largely attributable to falling prices, mainly in our motor business. Although regulatory changes weighed on volumes, they were supported by increases in our motor business – particularly in our direct channel – resulting in a slightly positive volume effect. cluster 4 At AGCS gross premiums dropped to € 4,999 MN, down 4.7 % on an inter- nal basis. This was mainly due to lower volumes in our property, marine and Allianz Risk Transfer (ART) business. The overall price effect was also slightly negative. 72 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations Operating profit operating profit € mn Underwriting result Operating investment income (net) Other result 1 Operating profit 2013 2,170 3,048 50 5,268 2012 1,442 3,229 (57) 4,614 1 Consists of fee and commission income/expenses, other income/expenses and restructuring charges. Operating profit amounted to € 5,268 MN, up € 654 MN and driven by a strong underwriting result. Our underwriting result grew by € 728 MN to € 2,170 MN. This increase was largely due to an improvement in our accident year loss ratio of 1.3 percentage points, supported by the continued positive price momentum, and a more favorable run-off, despite higher claims from natural catastrophes. The combined ratio improved by 1.9 percentage points to 94.3 %. The following operations contributed positively to the development of our accident year loss ratio: United States: 1.2 percentage points. This was largely driven by the absence of the negative impacts of 2012 – the high natural catas- trophe losses recorded from Storm Sandy and the severe drought in the crop business. Italy: 0.5 percentage points. This was mainly driven by the recovered profitability in our non-motor business, particularly in our general third-party liability line, and supported by lower claims fre- quency and severity in our motor business. Additionally, the burden from natural catastrophes in 2012, such as the earthquake in Emilia Romagna, was above the 2013 level. AGCS: 0.2 percentage points. The positive impact primarily resulted from fewer large losses and a reduced burden from natural catastrophe claims, despite higher attritional claims. Credit Insurance: 0.2 percentage points. This was driven by sound risk management that resulted in lower claims activity despite increasing business volumes and still-high insolvency levels in Euro- pean markets. France: 0.1 percentage points. This was supported by a favorable pricing environment, particularly in retail lines, as well as by a slightly lower impact from large claims. underwriting result € mn Premiums earned (net) Accident year claims Previous year claims (run-off) Claims and insurance benefits incurred (net) Acquisition and administrative expenses (net) Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds) 1 Underwriting result 2013 42,047 (29,402) 1,689 (27,713) (11,942) 2012 41,705 (29,698) 1,207 (28,491) (11,634) (222) 2,170 (138) 1,442 The following operations contributed negatively to the development of our accident year loss ratio: Germany: 0.9 percentage points. The negative impact was due to higher losses from natural catastrophes. However, the attritional claims ratio was lower than in 2012 due to a favorable price momen- tum – particularly in our motor business. Reinsurance: 0.2 percentage points. This was entirely driven by higher losses from natural catastrophes. Adjusted for these, the underlying loss ratio was lower than in 2012. 1 Consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 34 to the consolidated financial statements. Our accident year loss ratio stood at 69.9 %, down 1.3 percentage points compared to the previous year. However, net losses from natural catastrophes were up from € 715 MN to € 1,218 MN, increasing their impact by 1.2 percentage points to 2.9 %. While 2012 was burdened primarily by Storm Sandy, 2013 was severely impacted by floods in Central and Eastern Europe and hailstorms in Germany. Excluding natural catastrophes, our accident year loss ratio was 67.0 %, a 2.5 percentage point improvement on 2012. This was mainly because of the continued positive price momentum and a favorable development in claims frequency and severity. Our run-off result grew by € 482 MN to € 1,689 MN, resulting in an increase of 1.1 percentage points in the run-off ratio. This was partly due to a more favorable previous year claims development, but pri- marily attributable to the absence of some negative effects reported in 2012. These included the additional reserve strengthening in the United States and the increase in the estimated ultimate loss for the 2011 Thailand floods. In 2013, total expenses stood at € 11,942 MN, compared to € 11,634 MN in the previous year. Our expense ratio increased slightly by 0.5 percentage points to 28.4 %. This increase mainly reflects the effects of structural changes in our portfolio in the United States (reduced crop business), the negative impact from regulatory changes on our business in Brazil (policy collection fee) and the acquisition of the activities of Gan Eurocourtage in France. Annual Report 2013 Allianz Group 73 operating investment income (net) 1 € mn Interest and similar income (net of interest expenses) Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Operating impairments of investments (net) Investment expenses Expenses for premium refunds (net) 2 Operating investment income (net) 2013 2012 3,543 (76) 69 (11) (315) (162) 3,048 3,723 (46) 168 (17) (307) (292) 3,229 1 2 The operating investment income (net) for our Property-Casualty business segment consists of the operating investment result – as shown in note 6 to the consolidated financial statements – and expenses for premium refunds (net) (policyholder participation) as shown in note 34 to the consolidated financial statements. Refers to policyholder participation, mainly from UBR (accident insurance with premium refunds) busi- ness, and consists of the investment-related part of “change in reserves for insurance and investment contracts (net)”. For further information, please refer to note 34 to the consolidated financial statements. Operating investment income (net) amounted to € 3,048 MN, down by € 181 MN. This was mainly due to decreased interest and similar income (net of interest expenses). Interest and similar income (net of interest expenses) dropped by € 180 MN. This was driven by lower income on debt securities – mainly due to lower yields. The average asset base 1 grew by 1.7 % from € 100.9 BN to € 102.6 BN. Operating income from financial assets and liabilities carried at fair value through income (net) fell by € 30 MN to a further loss of € 76 MN. The decline was mainly because of an unfavorable foreign currency result. Operating realized gains and losses (net) decreased by € 99 MN to € 69 MN as last year’s result benefited from gains related to portfolio adjustments. other result € mn Fee and commission income Other income Fee and commission expenses Other expenses Restructuring charges Other result 2013 1,226 47 2012 1,165 35 (1,141) (1,088) (21) (61) 50 (23) (146) (57) Net income Net income increased by € 313 MN to € 3,818 MN, reflecting our better operating performance and the effect of the slightly lower non-oper- ating realized gains and losses (net). property-casualty business segment information € mn Gross premiums written 1 Ceded premiums written Change in unearned premiums Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues 2013 46,579 (3,982) (550) 42,047 3,595 (76) 69 1,226 47 2012 46,889 (4,727) (457) 41,705 3,770 (46) 168 1,165 35 46,908 46,797 Claims and insurance benefits incurred (net) (27,713) (28,491) Change in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Restructuring charges Other expenses Operating expenses (384) (52) (11) (315) (11,942) (1,141) (61) (21) (430) (47) (17) (307) (11,634) (1,088) (146) (23) (41,640) (42,183) Operating profit 5,268 4,614 Non-operating items Income before income taxes Income taxes Net income Loss ratio 2 in % Expense ratio 3 in % Combined ratio 4 in % 296 5,564 (1,746) 3,818 65.9 28.4 94.3 328 4,942 (1,437) 3,505 68.3 27.9 96.2 1 2 3 4 For the Property-Casualty business segment, total revenues are measured based upon gross premiums written. Represents claims and insurance benefits incurred (net) divided by premiums earned (net). Represents acquisition and administrative expenses (net) divided by premiums earned (net). Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). 1 Including the French health business, excluding fair value option and trading. 74 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations Annual Report 2013 Allianz Group 75 Property-Casualty insurance operations by reportable segments ProPerty-Casualty insuranCe oPerations by rePortable segments € mn Gross premiums written Premiums earned (net) Operating profit (loss) internal 1 Germany 2 Switzerland Austria German Speaking Countries 3 Italy France 4 The Netherlands Turkey 5 Belgium 6 Greece Africa Western & Southern Europe 7 Latin America Spain Portugal Iberia & Latin America United States USA 8 Allianz Global Corporate & Specialty Reinsurance PC 2 Australia United Kingdom Credit Insurance Ireland Global Insurance Lines & Anglo Markets 9 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe 10 Asia-Pacific Middle East and North Africa Growth Markets Allianz Global Assistance Allianz Worldwide Care Allianz Worldwide Partners 11 Consolidation and Other 12 Total 2013 9,261 1,489 966 11,748 4,032 4,174 700 978 465 111 87 10,547 2,350 1,958 312 4,620 2,058 2,058 4,999 3,345 2,847 2,274 2,092 412 15,969 808 427 268 321 276 186 82 93 16 2,477 667 67 3,211 1,972 452 2,507 2012 9,158 1,501 938 11,630 4,045 3,538 714 611 397 108 83 9,496 2,389 1,953 317 4,659 3,550 3,550 5,314 3,460 3,018 2,318 2,034 433 16,577 678 421 307 336 280 181 90 90 13 2,393 596 68 3,057 1,800 384 2,186 2013 9,261 1,518 966 11,777 4,032 3,557 700 838 374 111 87 9,699 2,651 1,958 312 4,921 2,141 2,141 5,063 3,305 3,158 2,382 2,043 412 16,363 857 428 274 321 285 185 82 94 17 2,544 702 73 3,319 1,980 452 2,515 2012 9,115 1,501 938 11,587 4,045 3,538 705 611 364 108 83 9,454 2,388 1,953 317 4,658 3,550 3,550 5,314 3,460 3,018 2,318 1,998 433 16,541 678 421 307 336 280 181 90 90 13 2,393 596 68 3,057 1,800 384 2,230 2013 7,611 1,422 814 9,861 3,950 3,804 659 753 427 87 55 9,735 1,737 1,804 269 3,810 1,988 1,988 2,926 2,880 2,235 2,122 1,435 372 11,970 598 345 230 266 228 150 63 77 7 1,964 377 46 2,387 1,842 419 2,296 2012 7,421 1,450 788 9,674 3,893 3,200 684 412 355 90 49 8,683 1,607 1,810 265 3,682 2,654 2,654 3,299 3,124 2,235 2,165 1,344 397 12,564 603 355 233 273 225 143 66 75 7 1,980 320 48 2,348 1,745 355 2,100 2013 661 194 62 916 1,126 401 27 69 50 17 11 1,712 133 236 26 395 154 154 427 317 378 201 407 62 1,785 (38) 12 27 53 44 5 19 13 – 127 67 8 202 96 30 102 2012 828 192 76 1,102 881 411 15 34 62 19 9 1,447 126 239 38 403 (546) (546) 415 357 394 215 409 69 1,854 – 14 27 70 32 – 17 15 3 171 56 5 232 99 24 122 (4,081) 46,579 (4,266) 46,889 (4,041) 46,694 (4,224) 46,853 – 42,047 – 41,705 2 5,268 – 4,614 1 2 3 This reflects gross premiums written on an internal basis, adjusted for foreign currency translation and (de-)consolidation effects. The combined ratio 2013 at Germany and Reinsurance PC was impacted by a one-off effect related to the commutation of internal reinsurance resulting in a 0.9 percentage point improvement in the combined ratio for Germany and an increase of 2.3 percentage points in Reinsurance PC. This had no impact at Group level. Includes “Münchener und Magdeburger Agrarversicherung AG” with gross premiums written of € 32 mn, premiums earned (net) of € 14 mn and operating loss of € 1 mn for 2013, and gross premiums written of € 33 mn, premiums earned (net) of € 15 mn and operating profit of € 6 mn for 2012. 4 5 6 7 Effective as of 1 October 2012, Allianz France acquired the property-casualty brokerage portfolio-related activities (excluding transport) of Gan Eurocourtage. On 12 July 2013, Allianz Turkey acquired Yapı Kredi Bank’s shareholding in the Turkish property-casualty insurance company Yapı Kredi Sigorta. Effective as of 1 August 2012, Allianz Belgium acquired the assets and assumed the liabilities related to the insurance activities of Mensura. Contains € 11 mn and € 16 mn operating profit for 2013 and 2012, respectively, from a management holding located in Luxembourg. 76 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations % Germany 2 Switzerland Austria German Speaking Countries 3 Italy France 4 The Netherlands Turkey 5 Belgium 6 Greece Africa Western & Southern Europe 7 Latin America Spain Portugal Iberia & Latin America United States USA 8 Allianz Global Corporate & Specialty Reinsurance PC 2 Australia United Kingdom Credit Insurance Ireland Global Insurance Lines & Anglo Markets 9 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe 10 Asia-Pacific Middle East and North Africa Growth Markets Allianz Global Assistance Allianz Worldwide Care Allianz Worldwide Partners 11 Consolidation and Other 12 Total Combined ratio Loss ratio Expense ratio 2013 99.5 91.1 96.5 98.0 78.2 97.6 99.8 96.1 94.0 83.9 95.7 89.4 98.3 90.9 95.0 94.6 103.6 103.6 95.0 92.8 93.5 96.0 79.3 90.1 92.5 112.0 100.9 100.4 86.2 84.5 102.9 72.1 89.3 124.8 99.5 91.2 95.6 98.2 96.1 93.3 96.7 – 94.3 2012 96.8 92.4 96.1 96.0 85.0 96.9 103.1 98.3 93.9 82.4 94.7 91.8 98.4 91.0 92.0 94.3 129.4 129.4 96.2 92.7 95.2 95.6 79.7 91.0 93.2 103.2 100.5 101.3 81.4 90.5 105.8 75.9 88.0 85.2 96.9 91.3 105.1 96.3 95.3 93.8 95.1 – 96.2 2013 73.4 67.9 70.5 72.3 53.1 68.9 70.2 71.4 65.4 50.1 52.1 62.3 66.4 70.0 72.6 68.6 69.2 69.2 67.3 61.2 68.1 64.5 50.4 59.2 63.3 69.7 65.8 60.0 54.8 56.6 72.6 44.8 50.1 59.9 62.9 60.1 61.5 62.5 61.0 73.5 63.5 – 65.9 2012 69.2 68.9 71.4 69.3 60.3 69.1 74.7 71.5 62.0 37.7 48.9 64.9 67.4 70.1 68.5 68.8 101.1 101.1 68.7 65.5 68.7 64.3 51.9 61.0 65.2 61.1 66.9 60.4 51.4 63.7 77.7 47.4 50.6 33.5 61.3 59.7 70.1 61.3 59.6 74.5 62.1 – 68.3 2013 26.1 23.2 26.0 25.7 25.1 28.7 29.6 24.7 28.6 33.8 43.6 27.1 31.9 20.9 22.4 26.0 34.4 34.4 27.7 31.6 25.4 31.5 28.9 30.9 29.2 42.3 35.1 40.4 31.4 27.9 30.3 27.3 39.2 64.9 36.6 31.1 34.1 35.7 35.1 19.8 33.2 – 28.4 2012 27.6 23.5 24.7 26.7 24.7 27.8 28.4 26.8 31.9 44.7 45.8 26.9 31.0 20.9 23.5 25.5 28.3 28.3 27.5 27.2 26.5 31.3 27.8 30.0 28.0 42.1 33.6 40.9 30.0 26.8 28.1 28.5 37.4 51.7 35.6 31.6 35.0 35.0 35.7 19.3 33.0 – 27.9  8  9 10 11 The reserve strengthening for asbestos risks in 2012 at Fireman’s Fund Insurance Company of € 71 mn had no impact on the financial results of the Allianz Group and Fireman’s Fund’s combined ratio under IFRS. Contains € 7 mn and € 5 mn operating loss for 2013 and 2012, respectively, from AGF UK. Contains income and expense items from a management holding and consolidations between countries in this region. The business division Allianz Worldwide Partners includes the legal entities of Allianz Global Assistance and Allianz Worldwide Care as well as the reinsurance business of Allianz Global Automotive and income and expenses of a management holding. The set-up of this division will be further enhanced during the following quarters. The reinsurance business of Allianz Global Automotive contributed with gross premi- ums written of € 83 mn, premiums earned (net) of € 35 mn and an operating loss of € 24 mn for 2013 and with gross premiums written of € 2 mn, premiums earned (net) of € 0.3 mn and an operating loss of € 1 mn for 2012. The operating profit of Allianz Worldwide Partners includes Global Automotive central costs. Operating profit slightly up on an underlying basis. Represents elimination of transactions between Allianz Group companies in different geographic regions. 12 Annual Report 2013 Allianz Group 77 Life/Health Insurance Operations − Statutory premiums rebounded 8.5 % to € 56.8 bn. − Operating profit solid at € 2,709 mn, but impacted by a lower investment result. Business segment overview Key figures Allianz offers a broad range of life, health, savings and invest- ment-oriented products, including individual and group life insurance contracts. Via our distribution channels – mainly tied agents, brokers and bank partnerships – we offer life and health products to both private and corporate clients. As one of the worldwide market leaders in life business we serve customers in more than 45 countries. Key figures life/health € mn Statutory premiums Operating profit 1, 2 Net income 1 Margin on reserves (bps) 3 2013 56,784 2,709 1,941 58 2012 52,347 2,943 2,034 67 Statutory premiums 4, 5 In 2013, statutory premiums amounted to € 56,784 mn, an increase of € 4,437 mn. Excluding unfavorable foreign currency translation effects of € 562 mn and consolidation/deconsolidation effects largely from our acquisition of the activities of Yapı Kredi in Turkey, premiums increased by 9.1 % – or € 4,741 mn – on an internal basis 5. We saw mixed premium growth reflecting our overall product strategy with double-digit growth in several markets – where we achieved strong growth in targeted segments – and double-digit declines in other markets, where we reduced business for profitability reasons or regulatory changes. The growth in premiums was predominantly driven by strong single premium unit-linked product sales in Italy and Taiwan. It was supported by an increase in single premium business with savings products including traditional endowment and annuity products in Germany. This was partly offset by sizeable declines in South Korea and Switzerland where profitability and risk management actions limited volumes, and in Poland due to regulatory changes. Overall, we recorded a higher proportion of single premiums over recurring premium business compared to 2012. statutory premiums by region/country 1 Year 2013 [2012] in % Asia-Pacific and Rest of World 9.3 [10.3] USA and Latin America 13.4 [14.4] Other Europe 11.0 [9.2] Belgium 1.7 [1.7] Spain 2.2 [2.0] Switzerland 2.8 [3.6] Germany 36.1 [35.7] France 13.1 [13.4] Italy 10.4 [9.7] 1 After elimination of transactions between Allianz Group companies in different countries and different reportable segments. 1 2 3 Prior year figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 4 to the consolidated financial statements. As of 1 January 2013, all restructuring charges are presented within operating profit and all prior year figures have been adjusted to conform to the current accounting presentation. Represents operating profit divided by the average of the current and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 4 5 Statutory premiums are gross premiums written from sales of life and health insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. In the following section, we comment on the development of our statutory gross premiums written on an internal basis, i.e. adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information. 78 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations Premiums in Italy increased 32.5 % to € 8,430 mn. Sustained by a favor- able market environment, this remarkable growth was driven by our financial advisors and bancassurance channel, with a continued focus on unit-linked products in order to reduce our risk capital con- sumption. The continued strong growth of unit-linked premiums was largely due to a successful product launch via our financial advi- sors channel in late 2012 as well as a recovery of the bancassurance sales channel from the low level in 2012. In Latin America, premiums were up 31.0 % to € 329 mn. This growth was driven by Mexico, where we recorded increased premiums from a large annuity contract and higher sales of investment-oriented products with single premiums. In Colombia, premiums decreased as several large contracts were not renewed. Premiums in Spain increased 14.0 % to € 1,225 mn. This was main- ly driven by strong sales of investment-oriented and unit-linked products distributed through the bancassurance and agent channels. Increased premiums in the traditional business also contributed to this growth. In our German life business, premiums grew 12.0 % to € 17,000 mn. This growth was largely driven by a strong increase in single premi- um business with savings products including traditional endowment and annuity products, while our business with recurring premiums was stable. Premiums in our German health business remained broadly unchanged at € 3,264 mn. The strong business in supplemen- tary coverage compensated for decreased business in full health care coverage. In France, we recorded a premium increase of 6.7 % to € 8,511 mn. This growth was largely driven by our employee benefit products, individual health business and the strong performance of the part- nerships business in individual life. France experienced a beneficial shift of its traditional life business towards unit-linked products. In Asia-Pacific, we recorded premiums of € 5,092 mn. The growth of 3.9 % was largely driven by the increase in unit-linked premiums in Taiwan through the bancassurance channel. This more than com- pensated for the decrease of single premium investment-oriented business in South Korea, where we stopped selling one of our major products in the third quarter of 2012. Premiums in the United States increased to € 7,317 mn, represent- ing growth of 3.9 %. This was primarily driven by stronger fixed- indexed annuity sales, where we gained positive momentum partially as a result of distribution and product promotions starting in the third quarter of 2013. This was partly offset by a decline in the variable annuity business. Both business lines were impacted by product changes in reaction to low interest rates in mid-2012 that initially resulted in a considerable drop in sales. In Belgium/Luxembourg, we recorded premiums of € 2,049 mn, an improvement of 1.5 %, after very strong growth in the previous year. This improvement was supported by our bancassurance partnership in Belgium. In Switzerland, premiums totaled € 1,602 mn. The decrease of 14.1 % was largely the result of lower single premiums in our group life business where we have maintained a more selective growth focus. While recurring premiums in our group life business remained rela- tively stable, recurring premiums in our individual life business increased slightly. Premiums in Central and Eastern Europe declined to € 913 mn, representing a drop of 21.0 %. This largely relates to Poland where regulatory changes led to a significant decrease in deposit business. In Hungary, the increase in single premium unit-linked products as a result of a sales campaign partly offset this decline. Operating profit Operating profit decreased by € 234 mn to € 2,709 mn, mainly as a result of the € 899 mn decline in the operating investment result, which was burdened by the net of adverse foreign currency and financial derivatives impacts. However, this decline was partly offset by lower allocations to policy reserves. Interest and similar income (net of interest expenses) decreased by € 63 mn to € 16,685 mn. We recorded lower interest income from debt securities, mainly due to the low interest rate environment, derisking activities and as a result of foreign currency translation effects of our business in the United States. This decrease was largely compensated for by higher income from dividends and real estate. Operating income from financial assets and liabilities carried at fair value through income (net) decreased by € 1,102 mn to a loss of € 1,829 mn. This was mainly due to losses from the net of foreign cur- rency effects and financial derivatives in Germany. The appreciation of the Euro against selective emerging markets currencies and the rise in interest rates were the main drivers. Derivatives are used to manage duration and other interest rate-related exposures as well as to protect against equity and foreign currency fluctuations. Operating realized gains and losses (net) amounted to € 3,293 mn. The increase of € 249 mn was driven by higher realized gains on debt securities and equities. Operating impairments of investments (net) decreased from € 428 mn in 2012 to € 331 mn. This represents an improvement of € 97 mn as the previous year was burdened by higher equity impair- ments, mainly on our investments in financial sector assets. Claims and insurance benefits incurred (net) amounted to € 20,096 mn, a decrease of € 290 mn. This was mainly due to lower pay- ments for maturities in Germany and was partly offset by higher maturities in France and Thailand. Changes in reserves for insurance and investment contracts (net) decreased by € 415 mn to € 13,556 mn. This was largely driven by a lower change in reserves for deferred premium refunds due to the negative revaluation impact of decreased investment income in Ger- many and the more favorable impact from the change in annuitization Annual Report 2013 Allianz Group 79 and guaranteed benefit reserves in the United States. This was partly offset by a higher increase in aggregate policy reserves in Germany due to higher premiums, premium refunds due to the favorable development of financial income in France and the set-up of a pre- mium deficiency reserve in South Korea. Investment expenses went up by € 80 mn to € 839 mn, mainly fol- lowing slightly higher management fees for direct and equity invest- ments. Acquisition and administrative expenses (net) amounted to € 5,603 mn, an increase of € 287 mn. This was mainly driven by higher amortization of deferred acquisition costs. life/health business segment information € mn Statutory premiums 1 Ceded premiums written Change in unearned premiums Statutory premiums (net) Deposits from insurance and investment contracts Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Margin on reserves decreased from 67 to 58 basis points, driven Operating realized gains/losses (net) by the direct and indirect effects of continued market volatility. Fee and commission income Other income Operating revenues 2013 56,784 (648) (332) 55,804 (31,223) 24,581 16,766 (1,829) 3,293 646 157 2012 52,347 (693) (248) 51,406 (27,013) 24,393 16,832 (727) 3,044 534 154 43,614 44,230 Claims and insurance benefits incurred (net) (20,096) (20,386) Changes in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Restructuring charges Other expenses Operating expenses (13,556) (13,971) (81) (331) (839) (5,603) (251) (50) (98) (84) (428) (759) (5,316) (228) (27) (88) (40,905) (41,287) Operating profit 2,709 2,943 Non-operating items Income before income taxes Income taxes Net income 84 2,793 (852) 1,941 92 3,035 (1,001) 2,034 Margin on reserves 2 in basis points 58 67 1 2 Statutory premiums are gross premiums written from sales of life and health insurance policies as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Represents operating profit divided by the average of the current and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and invest- ment contracts and financial liabilities for unit-linked contracts less reinsurance assets. Overall, reserve-driven fees were moderately higher, while the decrease in our operating profit was largely driven by the investment margin drop (i.e. investment income net of hedged item movements and policyholder participation) in several locations. This margin was lower in Germany as a result of hedging and foreign currency related losses as well as higher reserve allocations. The establishment of a premium deficiency reserve in South Korea as well as lower fair value results related to annuity and guaranteed benefit features and lower realized gains in the United States increased this negative impact. However, in part due to these investment margin effects, the United States recorded lower amortization of deferred acquisition costs, which partly compensated for the adverse investment margin impact; partly offsetting this effect was a deferred acquisition cost write-down in South Korea. Net income Net income decreased by € 93 mn to € 1,941 mn, consistent with our operating performance, while a slightly improved effective tax rate contributed positively. 80 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations Life/Health insurance operations by reportable segments Life/HeaLtH insurance operations by reportabLe segments € mn Germany Life Germany Health Switzerland Austria German Speaking Countries Italy France Belgium/Luxembourg The Netherlands Greece Turkey 4 Africa Western & Southern Europe Latin America Spain Portugal Iberia & Latin America United States USA Reinsurance LH Global Insurance Lines & Anglo Markets South Korea Taiwan Indonesia Malaysia Japan Other Asia-Pacific Poland Slovakia Hungary Czech Republic Russia Croatia Bulgaria Romania Central and Eastern Europe 5 Middle East and North Africa Global Life Growth Markets Consolidation 7 Total Statutory premiums 1 Premiums earned (net) Operating profit (loss) internal 3 2013 2012 2013 2012 2013 2012 17,000 3,264 1,602 385 22,251 8,430 8,511 2,049 277 90 419 54 19,830 329 1,225 232 1,786 7,317 7,317 515 515 1,354 1,745 686 381 – 926 5,092 127 245 165 172 84 62 35 23 913 163 6 6,174 15,179 3,269 1,903 407 20,758 6,364 7,977 2,019 276 95 114 52 16,897 255 1,075 190 1,520 7,289 7,289 484 484 1,871 1,352 760 330 1 789 5,103 411 244 147 171 94 55 31 23 1,176 170 4 6,453 17,000 3,264 1,634 385 22,283 8,430 8,511 2,049 277 90 184 54 19,595 334 1,225 232 1,791 7,571 7,571 515 515 1,357 1,810 789 403 – 945 5,304 127 245 168 178 90 63 35 23 929 185 6 6,424 15,179 3,269 1,903 407 20,758 6,364 7,977 2,019 276 95 114 52 16,897 255 1,075 190 1,520 7,289 7,289 484 484 1,871 1,352 760 330 1 789 5,103 411 244 147 171 94 55 31 23 1,176 170 4 6,453 11,538 3,264 488 282 15,572 483 3,401 400 140 53 81 25 4,583 145 457 83 685 883 883 430 430 494 152 247 200 6 636 1,735 40 209 46 77 83 61 30 14 560 131 2 2,428 11,282 3,268 686 288 15,524 543 3,056 416 135 57 37 24 4,268 123 495 86 704 848 848 425 425 580 129 305 211 5 622 1,852 125 206 53 66 90 52 27 13 632 139 1 2,624 (1,089) 56,784 (1,054) 52,347 (1,091) 57,088 (1,054) 52,347 – 24,581 – 24,393 2013 862 201 78 33 1,174 2012 1,026 197 79 31 1,333 216 421 61 28 2 3 4 735 9 128 21 158 487 487 23 23 (129) – 60 18 7 80 36 16 29 9 17 – 4 4 1 78 17 – 131 1 2,709 237 353 64 58 5 5 5 727 11 107 5 123 457 457 47 47 31 9 54 17 3 49 163 17 32 4 20 (3) 3 7 1 79 15 (1) 256 – 2,943 Margin on reserves 2 (bps) 2013 2012 48 80 60 77 53 45 56 59 66 65 25 185 53 109 196 403 201 70 70 111 111 (130) – 505 167 39 230 16 270 243 244 303 – 132 302 221 228 304 –6 49 –6 58 61 83 62 78 64 54 50 69 144 158 110 238 57 158 177 111 171 69 69 208 208 33 18 454 174 13 140 73 298 267 115 377 (185) 125 541 213 247 300 –6 99 –6 67 1 2 3 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. Represents operating profit (loss) divided by the average of the current and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and invest- ment contracts and financial liabilities for unit-linked contracts less reinsurance assets. Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects. 4 5 6 7 On 12 July 2013, Allianz acquired Yapı Kredi Bank’s 93.94 % shareholding in the Turkish property-casualty insur- ance company Yapı Kredi Sigorta, including its life and pension insurance subsidiary Yapı Kredi Emeklilik. Contains income and expense items from a management holding and consolidations between countries in this region. Presentation not meaningful. Represents elimination of transactions between Allianz Group companies in different geographic regions. Annual Report 2013 Allianz Group 81 Asset Management − Strong operating profit of € 3.2 bn. − Cost-income ratio improved to 55.9 %. − Third-party net outflows of € 12 bn in 2013. − Total assets under management at € 1,770 bn. Business segment overview Key figures Allianz offers Asset Management products and services for third-party investors and the Allianz Group’s insurance opera- tions. We serve a wide range of retail and institutional clients worldwide with investment and distribution capacities in all major markets. Based on total assets under management, we are one of the largest asset managers in the world that manages third-party assets with active investment strategies. key figures asset management € mn Operating revenues Operating profit 1,2 Cost-income ratio 1,2 in % Net income 1 Total assets under manage ment as of 31 December in € bn thereof: Third-party assets under manage ment as of 31 December in € bn 2013 7,162 3,161 55.9 1,925 1,770 1,361 2012 6,786 2,953 56.5 1,810 1,852 1,438 Assets under management Development of total assets unDer management € bn Total AuM (as of 12/31/2012) Net flows Market effects Consolidation, deconsoli- dation and other effects F/X effects Total AuM (as of 12/31/2013) 1,681 1,571 169 2 1,852 (14) 1 (1) (68) 197 2 1,770 0 500 1,000 1,500 2,000 Fixed income Equities Other Changes 1 Prior year figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 4 to the consolidated financial statements. 2 As of 1 January 2013, all restructuring charges are presented within operating profit and all prior year figures have been adjusted to conform to the current accounting presentation. 82 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations As of 31 December 2013, total assets under management amounted to € 1,770 bn. Of this, € 1,361 bn related to our third-party assets under management and € 409 bn to Allianz group assets. We show the devel- opment of total assets under management based on asset classes as they are relevant for the business segment’s devel opment. In 2013, we recorded net outflows of total assets under manage- ment of € 14 bn. Of these, € 12 bn were related to third-party assets under management and € 2 bn to Allianz group assets. In the second half of 2013 the rise in interest rates, especially in the United States, led to a decline in valuations for fixed income assets, while equities globally recorded a strong performance. These developments and the respective volatile global bond markets resulted in fixed income net outflows especially in the second half of 2013, which more than offset the strong fixed income net inflows in the first half of the year. Overall, net outflows stemmed from the United States and related to tradi- tional fixed income products, while our non-traditional fixed income products and equities recorded net inflows in 2013. The major driver behind the development of total assets under management was unfavorable foreign currency translation effects of € 68 bn due to the strong depreciation of the U.S. Dollar against the Euro.1 Favorable market effects accounted for an increase of € 1bn in total assets under management. This was entirely driven by a strong positive market return of € 27 bn on equities and was mostly offset by a negative impact of € 26 bn on fixed income. In the following section, we focus on the development of third-party assets under management. thirD-party assets unDer management by business unit as of 31 December 2013 [31 December 2012] in % Other 2.3 [2.0] AllianzGI 15.8 [12.4] PIMCO 81.9 [85.6] thirD-party assets unDer management by region/country 1,2,3 as of 31 December 2013 [31 December 2012] in % Other 2.3 [2.0] Asia-Pacific 9.8 [10.4] Europe 26.4 [23.0] America 61.5 [64.6] 1 2 3 Based on the location of the asset management company. “America” consists of the United States, Canada and Brazil (approximately € 823 bn, € 11 bn and € 3 bn third-party assets under management as of 31 December 2013, respectively). “Other” consists of third-party assets managed by other Allianz Group companies (approximately € 32 bn as of 31 December 2013 and € 28 bn as of 31 December 2012, respectively). The regional allocation of third-party assets under management shifted slightly. Europe’s share rose by 3.4 percentage points, mainly due to a reallocation of some third-party assets under management from the United States to Europe and a positive market return driven by equities. America’s share decreased by 3.1 percentage points, due to the strong depreciation of the U.S. Dollar against the Euro, net out- flows, the negative market return on fixed income assets and the real- location of assets. Mainly due to the impact of market return, the share of equities in our third-party assets under management increased by two per- centage points in favor of equities, compared to 31 December 2012 with 87 % attributable to fixed income and 13 % to equities. The split of third-party assets under management between our retail and institutional clients 2 shifted slightly – up one percentage point for retail clients (37 %) and down one percentage point for insti- tutional clients (63 %). 1 Based on the closing rate on the respective balance sheet date. 2 Client group classification is driven by investment vehicle types. Annual Report 2013 Allianz Group 83 three-year rolling investment performance of pimco anD allianzgi 1 Operating profit PIMCO AllianzGI 93 96 90 (7) (4) (10) (39) (38) (45) 61 62 55 generally in line with our business growth. % 100 80 60 40 20 0 (20) (40) Driven by higher operating revenues, our operating profit went up to € 3,161 Mn, an increase of € 208 Mn or 7.0 %. Excluding the unfavorable impact of foreign currency translation effects 2 our operating profit rose by approximately 10.0 %. This result was mainly due to higher operating revenues and to a lesser extent the comparative benefit of lower restructuring charges (€ 57 Mn) versus those incurred in 2012. Administrative expenses rose by € 225 Mn to € 3,995 Mn, which was Our cost-income ratio improved by 0.6 percentage points to 55.9 %, reflecting our continued expense discipline. Furthermore our cost- income ratio benefited from lower restructuring charges in 2013 com- pared to 2012 but was burdened by lower performance fees in 2013 in contrast to the record high in 2012. Excluding these two effects the cost-income ratio improved by 1.0 percentage point – from 58.8 % in 2012 to 57.8 % in 2013. Net income Our net income increased by € 115 Mn, or 6.4 % to € 1,925 Mn. This was largely consistent with our strong operating performance. asset management business segment information € mn Management and loading fees Performance fees Other Fee and commission income Commissions Other Fee and commission expenses Net fee and commission income Net interest income 1 Income from financial assets and liabilities carried at fair value through income (net) Other income Operating revenues Administrative expenses (net), excluding acquisition-related expenses Restructuring charges Operating expenses Operating profit Income taxes Net income 2013 8,032 510 69 8,611 (1,403) (81) (1,484) 7,127 12 13 10 7,162 (3,995) (6) (4,001) 2012 7,163 766 112 8,041 (1,243) (67) (1,310) 6,731 24 16 15 6,786 (3,770) (63) (3,833) 3,161 2,953 (1,181) 1,925 (1,029) 1,810 Cost-income ratio 2 in % 55.9 56.5 1 2 Represents interest and similar income less interest expenses. Represents operating expenses divided by operating revenue. 2011 2012 2013 2011 2012 2013 Outperforming third-party assets under management Underperforming third-party assets under management 1 The investment performance is based on Allianz Asset Management account-based, asset-weighted three-year investment performance of third-party assets versus the primary target including all accounts managed by portfolio managers of Allianz Asset Management. For some retail funds, the net of fee performance is compared to the median performance of the corresponding Morningstar peer group (first and second quartile mean outperformance). For all other retail funds and for all institutional accounts, the gross of fee perfor mance (revaluated based on closing prices) is compared to the respective benchmark based on different metrics. The overall investment performance of our Asset Management busi- ness was on a high level, with 85 % of our assets outperforming their respective benchmarks (31 December 2012: 92 %). An outstanding 90 % of PIMCO assets outperformed their respective benchmarks. 55 % of AllianzGI assets outperformed their respective benchmarks. Operating revenues Despite unfavorable foreign currency translation effects in 2013, our operating revenues rose by € 376 Mn, or 5.5 %, to € 7,162 Mn. On an inter- nal basis 1, operating revenues grew by 8.5 %.This was mainly driven by an increase in management and loading fees due to higher average assets under management and higher related margins. Net fee and commission income increased by € 396 Mn, or 5.9 % to € 7,127 Mn, benefiting from the increase in management and loading fees. Our performance fees reached an impressive level in 2013. How- ever, compared to the record year 2012, with its exceptionally high performance fees, these decreased by € 256 Mn to € 510 Mn, mainly as a result of lower performance fees from private funds and traditional products. Our income from financial assets and liabilities carried at fair value through income (net), was down by € 3 Mn due to reduced levels of seed money in 2013. 1 Operating revenues adjusted for foreign currency translation and (de-) consolidation effects. 2 Based on average exchange rates in 2013 compared to 2012. 84 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations Corporate and Other Operating loss decreased by € 110 mn to € 1,004 mn, driven by Holding & Treasury. Business segment overview Key figures Corporate and Other encompasses the reportable segments Holding & Treasury, Banking and Alternative Invest ments. Hold­ ing & Treasury includes the management of and support for Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communica­ tion, legal, human resources and technology functions. Our banking products offered in Germany, Italy, France, the Nether­ lands and Bulgaria complement our insurance product port folio. We also provide global alternative investment management services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of the Allianz Group. Key figures Corporate and other1 € mn Operating revenues Operating expenses 2,3 Operating result 2,3 2013 1,631 (2,635) (1,004) 2012 1,632 (2,746) (1,114) Net income (loss) 2 (1,334) (1,854) Key figures reportable segments € mn holding & treasury Operating revenues Operating expenses 2,3 Operating result 2,3 banKing Operating revenues Operating expenses 2,3 Operating result 2,3 alternative investments Operating revenues Operating expenses 2,3 Operating result 2,3 2013 2012 362 (1,301) (939) 1,096 (1,187) (91) 175 (151) 24 286 (1,387) (1,101) 1,189 (1,223) (34) 169 (147) 22 1 2 Consolidation included. For further information about our Corporate and Other business segment, please refer to note 6 to the consolidated financial statements. Prior year figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 4 to the consolidated financial statements. 3 As of 1 January 2013, all restructuring charges are presented within operating profit and all prior year figures have been adjusted to conform to the current accounting presentation. Annual Report 2013 Allianz Group 85 Our net interest, fee and commission result decreased by € 33 mn to € 545 mn due to a lower net interest result. Because of the low inter- est rate environment and a reduction in our exposure to government bonds, the net interest result was down by € 37 mn to € 332 mn. Our net fee and commission income increased by only € 4 mn to € 213 mn as the effects of growth in sales of insurance and investment-oriented prod- ucts in Italy and the closure of Allianz Bank’s business operations in Germany essentially offset each other. Administration expenses were reduced by € 43 mn to € 468 mn, mainly as a result of the closure of the Allianz Bank’s business oper- ations. Our loan loss provisions decreased by € 25 mn to € 86 mn. The pre- vious year was burdened by increased loan loss provisions due to financial guarantees within certain unit-linked products related to peripheral sovereign bonds (which matured or were sold by the end of 2012). However, we recorded higher loan loss provisions related to our ship financing business in 2013. Our operating income from financial assets and liabilities carried at fair value through income (net) dropped by € 6 mn to € 8 mn. alternative investments Our operating result remained stable at € 24 mn (2012: € 22 mn). Lower interest income and slightly increased investment and administrative expenses were more than compensated for by a € 14 mn rise in our net fee and commission income. Earnings summary Our operating result in Corporate and Other improved by € 110 mn to a loss of € 1,004 mn. The € 162 mn improvement in Holding & Treasury was partly offset by a € 57 mn deterioration in Banking. The operating result in Alternative Investments remained almost stable at € 24 mn. Our net loss decreased from € 1,854 mn to € 1,334 mn. This improvement was supported by a higher non-operating investment result, lower interest expenses from external debt and a decline in amortization of intangible assets. Our reduced operating loss also contributed to this development. Earnings summaries by reportable segments holding & treasury Our operating loss improved by € 162 mn to € 939 mn. This was driven by a recovery of our net interest result and a better net fee and com- mission result. Our net interest result increased from € (169) mn to a net loss of € 63 mn. Interest and similar income increased by € 33 mn to € 278 mn due to the resumption of interest payments on our silent participa- tion in Commerzbank, but partly offset by lower interest income from other debt instruments. Our interest expenses, excluding interest expenses from external debt, decreased by € 73 mn to € 341 mn as rates and internal borrowing diminished. Our net fee and commission result advanced by € 54 mn to a loss of € 178 mn. This reduction was mainly due to the higher revenues of our internal IT service provider. Administrative expenses (net), excluding acquisition-related expenses, grew by € 93 mn to € 684 mn, mainly due to higher pension costs as a result of lower discount rates. During the second half of 2013 we reduced restructuring provi- sions mainly related to our data center consolidation project by € 34 mn. Investment expenses were down by € 22 mn to € 79 mn due to increased cost recovery from other group companies. banKing Our operating loss worsened by € 57 mn to € 91 mn due to higher restructuring charges and a decrease in the net interest result. In 2013, we incurred restructuring charges of € 88 mn almost completely related to the closure of the Allianz Bank’s business oper- ations. In this context, it is worth mentioning that our restructuring charges have been presented within the operating profit since the beginning of 2013. Excluding the restructuring charges, the operating result in Banking would have improved from 2012 by € 31 mn to a loss of € 3 mn in 2013. 86 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations Outlook 2014 − Global economic activity poised to pick up in 2014. − Allianz Group operating profit outlook in the range of € 10.0 BN, plus or minus € 0.5 BN. Overview: 2013 results versus previous year outlook 1 2013 results versus previous year outlook for 2013 outlook 2013 – as per annual report 2012 results 2013 allianz Group Operating profit of € 9.2 bn, plus or minus € 0.5 bn. Operating profit of € 10.1 bn. Maintenance of strong capital and solvency ratios. Protection of shareholders’ investments, while continuing to provide attractive returns and dividends (dividend payout ratio of 40 %). Profitable growth. Investment strategy focused on generating attractive returns and minimizing vulnerability to price fluctuations. property-Casualty Growth in gross premiums written between 2.5 % and 3.5 %. Operating profit in the range of € 4.3 bn and € 5.1 bn. Regulatory solvency ratio of 182 % (2012 (as published): 197 %; 2012 (pro forma restated): 181 %).“aa” Standard & Poor’s rating with “stable” outlook (revised upward from “negative” in March 2013). Allianz remains one of the highest-rated insurance groups. Return on equity, after income taxes, of 11.9 % (2012 (as published): 10.5 %; 2012 (restated): 11.1 %). Proposed dividend at € 5.30 (2012: € 4.50) per share. Payout ratio of 40 %. We recorded growth of 7.8 % in operating profit compared to the previous year, driven by improvements in the Property-Casualty and Asset Management business segments and partially offset by a lower Life/Health contribution. Operating investment result decreased by € 1.0 bn (4.7 %) mainly as a result of the low interest environment and unfavorable foreign currency effects. Non-operating investment result fell by € 0.1 bn. Gross premiums written decreased by 0.7 % due to negative inter nal growth of 0.3 % and unfavorable foreign currency translation effects. Operating profit of € 5.3 bn above the higher end of our range, driven by a strong underwriting result. Combined ratio of 96 % over the cycle. Combined ratio improved by 1.9 percentage points to 94.3 %. Pressure on investment income due to reinvestments in a low interest rate environment. Overcompensation of the underlying claims inflation by the aggregate effect of improvements in pricing, claims management and productivity gains. life/HealtH Revenues at 2012 level. Operating investment income (net) declined by 5.6 % to € 3.0 bn. Accident year loss ratio excluding claims from natural catas trophes improved from 69.5 % to 67.0 %. Expense ratio increased slightly from 27.9 % to 28.4 %, mainly driven by the change in the crop business structure in the United States, the regulatory changes in Brazil (policy collection fee) and the acquisition of the activities of Gan Eurocourtage in France. Statutory premiums of € 56.8 bn, compared to € 52.3 bn in 2012. Growth driven by strong sales in the unit-linked business without guarantees. Operating profit in the range of € 2.5 bn and € 3.1 bn. Operating profit of € 2.7 bn. Margin on reserves between 50 and 70 basis points. Margin on reserves at 58 basis points. Pressure on investment income due to low interest rates and normalization of net harvesting result. Prioritizing profitability over growth, taking further product and pricing actions as necessary. asset ManaGeMent Moderate growth in total assets under management and continued net inflows, especially into fixed income products. Operating profit in the € 2.7 bn to € 3.1 bn range. Cost-income ratio at or below 60 %. Although net harvesting result was up, operating investment result declined by 5.0 % to € 17.0 bn, driven by lower income from assets and liabilities carried at fair value. New business profitability improved from the previous year as a result of continued product and pricing actions and a more favorable economic environment. Net outflows from total assets under management of € 14.0 bn, entirely out of fixed income products as a result of the sharp increase in interest rates during the second half of 2013. Operating profit of € 3.2 bn due to higher average assets under management and higher related margins. Cost-income ratio improved by 0.6 percentage points to 55.9 %. 1 For more detailed information on the previous year outlook for 2013, please see the Annual Report 2012 starting on page 157. Annual Report 2013 Allianz Group 87 Economic outlook 1 Insurance industry outlook The improvement in the global purchasing managers’ index for the manufacturing sector during the second half of 2013 has raised hopes that the pickup in economic activity will continue or even intensify well into 2014. It is particularly encouraging that the more upbeat mood is now broadly spread across all regions. Given the expected acceleration in growth in the industrialized world, global output is likely to expand by slightly more than 3 % in 2014, following an increase of 2.3 % in 2013. Fears that economic development in emerg- ing markets would deteriorate substantially now look unfounded. Nevertheless, they have lost steam since 2012 and will not return to their pre-crisis growth rates. However, with an expected real GDP increase of 4.6 % in 2014, growth in these countries will still be consid- erably higher than in the industrialized world. In the Eurozone, the economy is also starting to get back on its feet in crisis-ridden mem- ber states, narrowing the “north-south divide”. Both sentiment indi- ces and hard economic indicators such as industrial production data suggest the economic recovery is set to continue, albeit at a moderate pace. For 2014 as a whole, we expect real GDP growth of 1.5 %. Sup- ported by brighter economic conditions in the Eurozone, the German economy could expand by about 2 % in 2014. Inflation is likely to remain subdued on a global level, not least due to the dire unemploy- ment situation in many industrialized countries, which keeps the lid on wages. Financial markets will probably remain under the spell of mon- etary policy in 2014. We expect to see a gradual exit from crisis mode, led by the U.S. central bank reining in its asset purchases. Neverthe- less, given its concerns about money market rates, banking liquidity and lending growth, the European Central Bank might actually slightly ease further – despite the recovery in the Eurozone – before eventually starting to exit from its very expansionary policy stance in late 2014. Even though monetary policy would still remain highly accommodative, the first steps towards an exit could well be accom- panied by pronounced swings in the equity, bond and currency mar- kets. Although the sovereign debt crisis in the Eurozone is not yet over, we expect it to continue to gradually abate. With short-term rates close to zero, there are limited prospects of markedly higher yields on longer-term bonds. We expect yields on 10-year German and U.S. government bonds to climb only modestly to 2.4 % and 3.3 %, respectively, by the end of 2014. With growth in the United States set to outpace that in the Euro- zone, the U.S. Dollar is likely to appreciate against the Euro. Global economic expansion is set to accelerate over 2014. Therefore, the macroeconomic environment will be supportive of world pre- mium growth. As in previous years, premium growth in emerging markets will outpace that of advanced markets, although the latter’s recovery will be more pronounced. On the other hand, the outlook for profitability remains challenging, as investment returns are expected to stay low and the regulatory environment continues to become more demanding in terms of capital and reserve requirements. In the property-casualty sector, we anticipate higher premium growth in 2014 as the increase in economic activity bolsters demand for insurance coverage. In particular, the expected recovery in Europe should pave the way for a return to positive premium growth in all parts of the region. Emerging markets should display stable growth rates – although against the backdrop of a tougher economic envi- ronment in some of these markets, the expansion might be moderate by their historical standards. The increase in premium rates on the other hand may rather slow down in 2014. Overall, we expect global premium revenue to rise in the 4.5 % – 5.0 % range in 2014 (adjusted for foreign currency translation effects). Overall profitability for the property-casualty sector – although benefiting from a continuing gradual market hardening – is expected to remain stable in 2014, with low yields working their way through to earnings, prices increasing modestly and reserve releases dwin- dling somewhat but helped by the benign inflationary environment. In the life sector, we expect premium growth to recover, too. In mature markets, better economic prospects and a new product mix will help to lift top-line growth. In emerging markets strong growth will be mainly driven by rising incomes and social security reforms. All in all, we expect that global premium revenue will rise in the 3.5 % – 4.5 % range in 2014 (adjusted for foreign currency translation effects). With interest rates remaining at low levels, companies will con- tinue to adapt their business models to the challenging environment. Besides a stronger focus on the protection business – including health – new and more flexible guarantee concepts are set to come to the forefront in the savings business. At the same time, insurers will continue to look for new, long-term investment opportunities, paying special attention to infrastructure investments. But despite progress on these fronts, profitability will remain under pressure, not least because of more stringent capital and reserve requirements. 1 The information presented in the sections Economic outlook, Insurance industry outlook and Asset manage- ment industry outlook is based on our own estimates. 88 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations Asset management industry outlook Overview: outlook and assumptions 2014 Increasing asset valuations for equities, as well as growing optimism about growth in certain developed markets, provide a potential tail- wind for the asset management industry in 2014. Nevertheless, con- siderable downside risks remain and could materialize if global growth fails to meet expectations. A reduction of the currently highly supportive monetary policy may also put the positive trends in finan- cial markets at risk. The further development of regulatory activities – particularly in the consumer protection and transparency fields – is an additional source of uncertainty for the asset management industry. Throughout 2013, investors demonstrated a growing risk appe- tite by, among other actions, shifting their asset allocation towards equities, multi-asset or solutions-oriented fixed income strategies. Although equities may remain vulnerable to setbacks in the near fu- ture due to the rising valuations, higher interest rates and global demographic trends on the other hand, will increase the attractive- ness of bonds. This holds true in particular for liability-driven inves- tors or for the growing number of retirees in the developed world looking for a stable stream of income. Improving economic conditions in certain developed markets as well as trends in client demand represent a positive environment for further asset management industry growth. At the same time, industry profitability is expected to remain challenged as asset flows into passive products and growing expenses from higher distribution or marketing costs put pressure on operating margins, and the effects of increased regulatory oversight and reporting take their toll. In such an environment a money manager’s ability to grow is dependent on providing innovative client-focused investment solu- tions, delivering above-benchmark investment results, offering com- prehensive investment products and services, its ability to prudently and holistically respond to client needs and upping the scale and efficiency of operations. Outlook for the Allianz Group As discussed earlier, the world economy is poised to pick up in 2014 and we look set to enter a period of moderate growth. Despite signs of a global recovery, however, there are clear risks for 2014. Geopoliti- cal tensions, a renewed flare-up of the European sovereign debt crisis in large industrialized countries and currency or trade wars all have the potential to send the world economy into a tailspin. However, the outlook provided here assumes the absence of such shocks. outlook 2014 allianz Group Operating profit of € 10.0 bn, plus or minus € 0.5 bn. Protection of shareholders’ investments, while continuing to provide attractive returns and dividends. Selective profitable growth. property-Casualty Growth in gross premiums written by more than 3.0 %. Operating profit in the range of € 5.1 bn to € 5.7 bn. Combined ratio below 96 % over the cycle. Pressure on operating investment income (net) due to reinvestments in a low interest rate environment. life/HealtH Revenues in the range of € 52.0 bn to € 56.0 bn. Operating profit between € 2.7 bn and € 3.3 bn. Margin on reserves between 50 and 70 basis points. Pressure on investment income due to low interest rates and continued capital market uncertainty. Prioritizing profitability over growth, taking further product and pricing actions as necessary. asset ManaGeMent Slight growth in total assets under management due to positive equity but subdued fixed income product inflows. Operating profit in the € 2.5 bn to € 2.9 bn range. Cost-income ratio at or below 60.0 %. assuMptions Our outlook assumes no significant deviations from the following underlying assumptions: − Accelerated global economic growth. − Continued low interest rate environment. − No dramatic interest rate movements. − A 100 basis point increase or decrease in interest rates would, respectively, either raise or lower operating profits by approx- imately € 0.1 BN in the first year following the rate change. This does not include fair value changes in interest rate sensitive positions that are reported in our income statement. − No disruptive fiscal or regulatory interference. − Level of claims from natural catastrophes at expected average levels. − Average U.S. Dollar to Euro exchange rate of 1.35. − A 10 % weakening or strengthening of the U.S. Dollar versus our planned exchange rate of 1.35 to the Euro would have a negative or positive impact on operating profits of approximately € 0.3 BN, respectively. We expect our business mix and profitability contributions to remain largely unchanged compared to 2013. Our Property- Casualty busi- ness will carry on making up the majority of our operating profit. We anticipate that the Asset Management business segment will con- tinue to be a significant source of operating profit, even though at a Annual Report 2013 Allianz Group 89 lower level mainly due to lower expected performance fees and lower average assets under management. In the Life/Health business seg- ment, operating profitability will remain under pressure due to low yields. However, we expect an increase compared to the 2013 results, which were burdened by negative one-off effects. Although the global economy is showing signs of a recovery, investment results are likely to remain under pressure due to low interest rates and the continued uncertainty surrounding the Euro- pean sovereign debt crisis. These results will be partly offset by a better operational performance in the business segments and a growth- driven increase in our operating asset base. Management’s assessment of expected revenues and earnings for 2014 In 2013, our total revenues amounted to € 110.8 BN, representing a 4.1 % and a 4.7 % increase on a nominal and internal basis, respectively, compared to last year. We expect a rather flat development in 2014, with Property-Casualty experiencing positive internal growth, while Life/Health volumes and Asset Management revenues are likely to be under pressure due to our selective focus on profitable growth and the uncertain financial market outlook, respectively. As our product and service offerings differ from country to country, information about the development of our sales markets and modifi- cations to our product portfolio also varies. Overall, we expect our mar- ket and product mix to remain relatively unchanged in 2014. In the Life/ Health business segment, in line with expected market trends, we could see a fall in premiums from life insurance products with guarantees. In 2013, we exceeded our operating profit target, reaching € 10.1 BN. In 2014, we envisage operating profit of € 10.0 BN, plus or minus € 0.5 BN, as we expect a lower level of performance fees and lower average assets under management in the Asset Management business segment, partially compensated for by an expected increase in the Life/Health business segment. Our net income increased substantially, reaching € 6.3 BN in 2013. Consistent with our disclosure practice in the past and given the sus- ceptibility of our non-operating results to adverse capital market developments, we do not provide a precise outlook for net income. However, since our outlook presumes no major disruptions of capital markets, we anticipate a rather stable net income for 2014. Premium growth in 2014 will be mainly driven by our global insurance lines, the Anglo markets, emerging countries in Latin America and Asia, as well as by improvements in some of our core markets such as Germany, Italy and France. We believe the overall slow rise in prices we witnessed in 2013 to continue in 2014, contributing to the expected growth in our gross premiums. However, as in previous years, we will keep focusing on achieving outstanding underwriting results by adhering to our strict underwriting discipline and will be willing to accept a lower top line if target margins cannot be achieved. For 2014, we anticipate keeping the combined ratio below 96 % over the cycle (2013: 94.3 %). This rests on our expectation that the aggregate effect of improvements in pricing, claims management and productivity will more than compensate for underlying claims inflation. Despite the high volatility of natural catastrophes in recent years, we assume such claims will be in line with their expected aver- age level in 2014. As the low interest rate environment is likely to persist, invest- ment income will remain under pressure due to the rather short duration of investments in the Property-Casualty business segment. We will continue to take measures to adapt our investment strategy to ongoing market conditions. Overall, we expect our 2014 operating profit to be in the range of € 5.1 BN to € 5.7 BN (2013: € 5.3 BN). life/HealtH insuranCe We will continue to prioritize profitability over growth in 2014. We ex- pect revenues to be in the range of € 52.0 BN and € 56.0 BN, slightly below the 2013 level of € 56.8 BN, which represented significant growth com- pared to the prior year and included revenues of € 0.5 BN from our Inter- national Health business in France, which will be moved to the Prop- erty-Casualty business segment in 2014. Ultimately, volumes will be dictated by our ability to write profitable business, but are also depen- dent upon interest rate developments and the competitive landscape. In 2013, our operating profit of € 2.7 BN was within our target range of € 2.5 BN to € 3.1 BN. For 2014, we expect operating profit in our Life/Health business segment to be between € 2.7 BN and € 3.3 BN, sup- ported by growth in our underlying asset base along with the transfer of some small asset management entities from the Asset Manage- ment to the Life/Health business segment. Our outlook equates to a margin on reserves ranging between 50 and 70 basis points. property-Casualty insuranCe We expect our revenues to increase by more than 3.0 % in 2014 (2013: (0.7) %) on a nominal basis. We believe this moderate growth will be supported by favorable price and volume effects, the impact of our recent acquisition of Yapı Kredi Sigorta in Turkey and the reclassifica- tion of our International Health business in France from the Life/ Health to the Property-Casualty business segment, which combined will add approximately € 0.8 BN to our top line. As in 2013, we will continue to actively work on mitigating the impacts of the difficult market conditions, particularly low interest rates. This includes product and distribution actions, expense and asset/liability management as necessary, while exploring options to further optimize the use of capital. Still, it must be noted that market and accounting volatility along with the level of net harvesting can significantly affect the Life/Health business segment results and make precise predictions difficult. 90 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations asset ManaGeMent Economic conditions improved in the course of 2013 and growth expectations have been revised upwards. Nevertheless, uncertainty in the financial markets is likely to persist in 2014. Although we do not anticipate market movements and flows to have a major impact on the overall level of our assets under management, we expect them to increase only slightly in 2014. (As of 31 December 2013, our total assets under management decreased by 4.4 % compared to 31 Decem- ber 2012.) While equity flows are envisaged to make a positive contri- bution, fixed income flows are likely to remain subdued. After the strong profit growth recorded in previous years, we do not anticipate this development continuing in 2014 – mainly due to a lower expected level of performance fees and a lower expected aver- age U.S. Dollar. Asset driven revenues are also likely to remain under their 2013 level as a result of the expected lower average assets under management. Additionally, the transfer of certain asset management entities from the Asset Management to the Life/Health business seg- ment and Banking reportable segment will negatively impact our profitability. Therefore, we envisage our operating profit to be in the range of € 2.5 BN and € 2.9 BN in 2014 (2013: € 3.2 BN). We expect to maintain a cost income ratio of 60 % or below in 2014 (2013: 55.9 %), supported by our focus on expense discipline and oper- ational excellence. Corporate and otHer Our Corporate and Other business segment recorded an operating loss of € 1.0 BN in 2013. Due to improving results from our banking activities and slightly deteriorating operating results of the Holding & Treasury reportable segment – mainly driven by our technology investments – we predict an operating loss in the range of € 1.0 BN to € 1.2 BN for Corporate and Other (including consolidation) in 2014. Financing and liquidity development and capitalization The Allianz Group maintains a healthy liquidity position combined with superior financial strength and capitalization well above what supervisory authorities currently require. We expect to have steady access to financial markets at reason- able costs in order to maintain our strong financial flexibility. This is supported by prudent steering of our liquidity resources and a matu- rity profile focusing on a long-dated average remaining term. Based on current interest rate expectations, our average capital market financing costs in 2014 should be broadly in line with 2013. We closely monitor the capital positions of the Group and at the operating entity level. Additionally, we will continue to optimize our interest rate and spread sensitivities through asset/liability manage- ment and life product design. Expected dividend development As we continuously strive to protect our investors’ capital and pro- vide attractive returns and dividends, we aim to strike a balance between payout, solvency and sustainability when determining our dividend proposal. For 2013, we consider a payout ratio of 40 % of net income attributable to shareholders to allow us to retain the capital needed to support our growth and provide an attractive dividend. This policy is reflected in our proposed dividend of € 5.30 per share. In 2014, we will reevaluate our target payout ratio of 40 %. Management’s overall assessment of the current economic situation of the Allianz Group Overall, at the date of issuance of this Annual Report and given cur- rent information regarding natural catastrophes and capital market development – in particular foreign currency, interest rates and equi- ties – the Board of Management has no indication that the Allianz Group is facing any major adverse developments. Cautionary note regarding forward-looking statements The statements contained herein may include prospects, statements of future expectations and other forward-looking statements that are based on management’s current views and assump- tions and involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such forward-looking statements. Such deviations may arise due to, without limitation, (i) changes of the general economic conditions and competitive situation, particularly in the Allianz Group’s core business and core markets, (ii) performance of financial markets (particularly market volatility, liquidity and credit events) (iii) frequency and severity of insured loss events, including from natural catastrophes, and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions, including related integration issues, and reorganization measures, and (xi) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. No duty to update The company assumes no obligation to update any information or forward-looking statement contained herein, save for any information required to be disclosed by law. Annual Report 2013 Allianz Group 91 Balance Sheet Review − Shareholders’ equity remained stable at € 50.1 bn.1 − Solvency ratio strong at 182 %.2 Shareholders’1equity 1,3 23 Regulatory capital adequacy The Allianz Group is a financial conglomerate within the scope of the E.U. Financial Conglomerates Directive and the related German law in force since 2005. The law requires that financial conglomerates calculate the capital available to meet their solvency requirements on a consolidated basis, which we refer to as “eligible capital”. (0.6) % 50,388 50,084 Conglomerate SolvenCy1 ShareholderS’ equity € mn 70,000 60,000 50,000 40,000 30,000 20,000 10,000 10,122 11,451 28,815 6,741 € bn 14,473 28,870 12/31/2012 12/31/2013 Paid-in-capital Unrealized gains/losses (net) Retained earnings (includes foreign currency effects) As of 31 December 2013, shareholders’ equity amounted to € 50,084 mn, a decrease of € 304 mn compared to 31 December 2012 (as restated).1 The net income attributable to shareholders of € 5,996 mn substan- tially offset € 3,381 mn lower unrealized gains, our € 2,039 mn dividend payout in May 2013 and an additional € 1,239 mn drop in equity from negative foreign currency translation adjustments. The significant decline in unrealized gains, predominantly on sovereign and corpo- rate debt securities, was driven by a rise in interest rates and – to a much lesser extent – realizations. The unfavorable development of foreign currency translation adjustments was mainly due to the strengthening of the Euro against the U.S. Dollar, the Turkish Lira and the Australian Dollar. 1 2 3 As of 1 January 2013, our shareholders’ equity decreased by € 3.2 bn due to the amendments to IAS 19. Prior year figures have been restated to reflect the retrospective application of the amended standard IAS 19 – Employee Benefits, effective as of 1 January 2013. For further information, please refer to note 4 to the consolidated financial statements. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 31 December 2013 would be 173 % (2012 (pro forma restated): 171 %; 2012 (as published): 188 %). This does not include non-controlling interests of € 2,765 mn and € 2,575 mn as of 31 December 2013 and 31 December 2012, respectively. For further information, please refer to note 25 to the consolidated financial statements. Retained earnings include foreign currency translation adjustments of € (3,312) mn and € (2,073) mn as of 31 December 2013 and 31 December 2012, respectively. 92 Annual Report 2013 Allianz Group 197 % 181 % 182 % 48.4 44.4 46.5 24.6 24.6 25.6 50 40 30 20 10 12/31/2012 as published 12/31/2012 pro forma restated 12/31/2013 Solvency ratio Eligible capital Requirement 1 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 31 December 2013 would be 173 % (2012 (pro forma restated): 171 %; 2012 (as published): 188 %). After reflecting the negative impact of a change in accounting for pensions (pro forma restated), our conglomerate solvency ratio strengthened by one percentage point despite the redemption of a subordinated bond. Compared to year-end 2012 (as published), our conglomerate solvency ratio dropped by 15 percentage points to 182 %. This was mainly due to amendments to IAS 19,4 which reduced the Group’s eligible capital for solvency purposes by € 4.0 bn as of 1 Janu- ary 2013. In 2013, negative currency translation adjustments and the above-mentioned redemption of a subordinated bond further decreased our eligible capital by € 1.0 bn and € 1.5 bn (converted 4 For further details on the amendments to IAS 19, please refer to note 4 to the consolidated financial statements. C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations value), respectively. These effects were only partly offset by our net income (net of the proposed dividend). In total, our eligible capital was down from € 48.4 bn to € 46.5 bn, including off-balance sheet reserves of € 2.3 bn (31 December 2012: € 2.2 bn). The required funds increased by € 1.0 bn to € 25.6 bn, mainly due to higher aggregate po licy reserves in Life/Health and growth in our Asset Management business. As a result, our eligible capital exceeded the minimum legally stipulated level by € 20.9 bn. Total assets and total liabilities In the following sections, we show the asset allocation for our insur- ance and banking portfolio and analyze important developments in the balance sheets of our business segments. As of 31 December 2013, total assets amounted to € 711.5 bn and total liabilities were € 658.7 bn. Compared to year-end 2012, total assets and total liabilities increased by € 17.1 bn and € 17.2 bn, respectively. This section mainly focuses on our financial investments in debt instruments, equities, real estate and cash and other – as well as our insurance reserves and external financing – since these reflect the major developments in our balance sheet. market environment of different aSSet ClaSSeS The financial markets showed a mixed picture in 2013. Equity markets rallied, in particular during the second half of the year, fueled by the low interest rate environment. In contrast, selected major bond markets faced increasing government bond yields as the market anticipated an attenuation of the ultra-loose monetary policy of the Federal Reserve. German and particularly U.S. government bond yields consider- ably increased in 2013 – although starting from very low levels. In contrast, Italian and Spanish government bond yields decreased compared to 2012, with Spanish government bond yields showing the higher movement. Corporate credit spreads for A-rated debtors remained on a very low level in Europe and narrowed slightly in the United States during 2013. intereSt rate development in 2012 and 2013 10-year German government bond % 10-year u.S. government bond % 2.0 1.8 1.8 1.1 1.7 1.2 1.6 1.3 1.7 1.3 1.8 1.2 2.0 1.5 2.0 1.7 3.0 2.5 2.0 1.5 1.0 0.5 0 2.4 1.8 2.3 1.5 2.1 1.8 1.9 1.4 1.8 1.6 2.6 1.6 3.0 3.0 2.5 2.5 3.0 2.5 2.0 1.5 1.0 0.5 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2012 2013 2012 2013 High/low Yield at end of period Annual Report 2013 Allianz Group 93 Credit Spread development in 2012 and 2013 Spread Europe “A” % Spread u.S. “A” % 3.0 2.5 2.0 1.5 1.0 0.5 0 1.0 0.5 0.6 0.3 1Q 2Q 0.2 (0.2) 3Q 0.1 0.1 (0.1) (0.1) 4Q 1Q 0.2 0.0 2Q 0.1 0.0 3Q 0.1 0.0 4Q 3.0 2.5 2.0 1.5 1.0 0.5 0 2.4 2.3 1.8 1.8 2.0 1.5 1.5 1.3 1.4 1.2 1.6 1.3 1.5 1.1 1.4 1.0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2012 2013 2012 2013 High/low Spread at end of period StruCture of inveStmentS – portfolio overview Effective from this annual report, we changed the presentation of our investment portfolio in our Group Management Report. From now on, we also include investments of banking and asset management, which were excluded in the former presentation. We believe this will simplify a comparison with the figures presented in the notes to the financial statements. As a result, the following portfolio review covers all Allianz Group assets held for investment. The previous year’s fig- ures have been adjusted accordingly. Due to this change, our total investment portfolio was up by € 24.0 bn as of 31 December 2012 to € 531.5 bn (previously published: € 507.5 bn). aSSet alloCation Investment portfolio as of 31 December 2013: € 536.7 bn [as of 31 December 2012: € 531.5 bn] in % Real estate 2 [2] Equities 7 [6] Cash/Other 2 [2] Debt instruments 89 [90] Compared to the adjusted figures of 31 December 2012, our invest- ment portfolio increased by € 5.2 bn to € 536.7 bn. This increase was primarily driven by a larger gross exposure to equities and, to a lesser extent, by higher real estate investments. It was partly offset by lower net cash investments. Our gross exposure to equities of € 35.5 bn (31 December 2012: € 29.7 bn) increased by one percentage point and accounted for 7 % of our investment portfolio. This increase was mainly attributable to positive equity market developments but also to new investments. In line with this growth, our equity gearing1 increased by one percentage point to 25 %. Our exposure to real estate held for investment grew from € 9.7 bn to € 10.8 bn due to new investments and still accounted for 2 % of our investment portfolio. Our cash and other investments decreased from € 11.7 bn to € 9.8 bn, primarily as a result of new investments. Please refer to Liquidity and Funding Resources from page 99 onwards for further information on our liquidity position. The vast majority of our investment portfolio comprises diversi- fied debt instruments, which remained almost unchanged at € 480.6 bn (31 December 2012: € 480.4 bn). Reinvested interest flows offset declines in the fair value of our bonds, which were triggered by rising interest rates and adverse currency effects as well as realiza- tions. Given the growth of our total investment portfolio, the share of debt investments decreased by one percentage point to 89 %. 1 Equity gearing is defined as the ratio of our equity holdings allocated to the shareholder after policyholder participation and hedges to shareholders’ equity plus off-balance sheet reserves less goodwill. 94 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations fixed inCome portfolio Total fixed income portfolio as of 31 December 2013: € 480.6 bn [as of 31 December 2012: € 480.4 bn] in % Banks 7 [8] Other 11 [11] Other corporate bonds 24 [22] Our fixed income portfolio also includes 4 % of asset-backed securities (AbS), which amounted to € 18.4 bn, down € 1.1 bn. This decrease was driven by a reduction of mortgage-backed securities (mbS) issued by U.S. agencies, which are backed by the U.S. govern- ment. Their share declined from 21 % to 13 % of our AbS securities. Overall, 73 % of our AbS were related to mbS and 97 % of the AbS portfolio received an investment grade rating, with 87 % rated “AA” or better (31 December 2012: 88 %). Government bonds 37 [37] inveStment reSult Covered bonds 21 [22] inveStment inCome (net) € mn as of 31 December 2013 2012 Interest and similar income (net) 1 20,497 20,598 Group The allocation of our fixed income portfolio remained stable, with a slight increase in corporate bonds and a minor reduction in bank and covered bonds. About 95 % of this portfolio of debt instruments was invested in investment-grade bonds and loans. 1 Our government bond exposure remained almost flat at € 179.6 bn (31 December 2012: € 177.4 bn), representing 37 % of our fixed income portfolio. During 2013 we increased our exposure to supranational bonds and decreased our exposure to Italy. Our sovereign exposure in Italy and Spain equaled 6.0 % and 0.6 % of our fixed income portfolio, respectively. The corresponding unrealized gains (gross) amounted to € 1,922 mn in Italy and € 144 mn in Spain. Our government bond exposure in Portugal remained limited and we reduced substantially all our remaining exposure in Greece and Ireland at the beginning of the year. Our covered bonds portfolio decreased from € 107.1 bn to € 102.5 bn as the proceeds from matured covered bonds – mainly in Germany – were only partially reinvested in this fixed income class. 47 % of this portfolio was German Pfandbriefe, backed by either public sector loans or mortgage loans. Another 16 % and 9 % of the covered bonds were allocated to France and Spain, respectively. Covered bonds provide a cushion against real estate price deterioration and payment defaults through minimum required security buffers and over-collateralization. Our corporate bond portfolio increased from € 107.1 bn to € 116.3 bn as new investments exceeded fair value declines. We reduced our exposure to subordinated securities in banks by € 1.9 bn to € 4.8 bn in both Tier 1 and Tier 2 shares. Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Impairments of investments (net) Investment expenses Investment income (net) Delta (101) (1,331) (42) 323 (29) (1,842) 4,285 (611) (905) (511) 4,327 (934) (876) 21,424 22,604 (1,180) 1 Net of interest expenses (excluding interest expenses from external debt). Our investment income (net) decreased by € 1,180 mn to € 21,424 mn. This was mainly due to the decline in our net income from financial assets and liabilities carried at fair value through income. Income from financial assets and liabilities carried at fair value through income (net) worsened from a loss of € 511 mn to a loss of € 1,842 mn. This was primarily driven by the net of negative foreign currency effects and financial derivatives that are used to protect against equity and foreign currency fluctuations as well as to manage duration and other interest rate-related exposures, in particular in our German Life/Health business. The appreciation of the Euro against selected emerging markets currencies and the rise in interest rates were the main drivers. In addition, the drop also includes the absence of income from The Hartford warrants, which were sold in April 2012. Our interest and similar income (net)2 decreased only 0.5 % to € 20,497 mn. Lower income from debt investments, which was impacted by the low interest rate environment, was partly offset by higher income from equity-related investments and real estate. Overall, our interest and similar income (net) held up very well in this low-yield environment. The net interest result also benefited from reduced interest expenses. 1 Excluding self-originated German private retail mortgage loans. For 2 %, no ratings were available. 2 Net of interest expenses (excluding interest expenses from external debt). Annual Report 2013 Allianz Group 95 2013 2012 Reserves net Reserves ceded Changes (net) Impairments (net) decreased by more than one third to € 611 mn as the previous year had a high burden of impairments on our equity investments in the financial sector. Realized gains and losses (net) remained almost stable at € 4,285 mn as lower realizations on equities and real estate were almost offset by higher realizations on debt securities. Investment expenses increased by € 29 mn to € 905 mn, driven by new real estate investments. aSSetS and liabilitieS of the property-CaSualty buSineSS Segment Property-Casualty assets Compared to year-end 2012, our asset base in Property-Casualty decreased by € 4.3 bn to € 101.0 bn. This decrease, which primarily affected debt securities and loans and advances to banks and cus- tomers, was driven almost equally by net flows, market and foreign currency effects. € bn 12/31/2012 a b c d CompoSition of aSSet baSe – fair valueS1 € bn as of 31 December Financial assets and liabilities carried at fair value through income Equities Debt securities Other 2 Subtotal Investments 3 Equities Debt securities Cash and cash pool assets 4 Other Subtotal Loans and advances to banks and customers 0.4 0.1 – 0.5 5.0 67.0 4.9 7.5 84.4 16.1 0.3 0.2 – 0.5 3.9 69.8 5.1 7.7 86.5 18.3 Property-Casualty asset base 101.0 105.3 1 2 3 4 Loans and advances to banks and customers, held-to-maturity investments and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending on – among other factors – our ownership percentage. This comprises assets of € 0.1 bn and € 0.1 bn and liabilities of € (0.1) bn and € (0.1) bn as of 31 December 2013 and 31 December 2012, respectively. These do not include affiliates of € 8.9 bn and € 8.8 bn as of 31 December 2013 and 31 December 2012, respectively. Including cash and cash equivalents, as stated in our business segment balance sheet of € 2.8 bn and € 2.7 bn and receivables from cash pooling amounting to € 3.4 bn and € 2.8 bn, net of liabilities from securi- ties lending and derivatives of € (0.3) bn and € (0.2) bn, as well as liabilities from cash pooling of € (1.0) bn and € (0.2) bn as of 31 December 2013 and 31 December 2012, respectively. The business segment’s asset base comprised AbS of € 3.7 bn, repre- senting 3.7 % as of 31 December 2013. 96 Annual Report 2013 Allianz Group Property-Casualty liabilities development of reServeS for loSS and loSS adjuStment expenSeS1 55.8 6.9 62.7 (13.5) (1.7) (4.0) 12/31/2013 50.5 25 0 + 13.9 56.6 6.1 50 75 100 a Loss and loss adjustment expenses paid in current year relating to previous years b Loss and loss adjustment expenses incurred in previous years c Foreign currency translation adjustments and other changes, changes in the consolidated subsidiaries of the Allianz Group and reclassifications d Reserves for loss and loss adjustment expenses in current year 1 After business segment consolidation. For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty business segment, please refer to note 19 to the consolidated financial statements. Compared to year-end 2012, the gross reserves for loss and loss adjustment expenses for our Property-Casualty business decreased by € 6.1 bn to € 56.6 bn. On a net basis, our reserves were down from € 55.8 bn to € 50.5 bn over the same period. Effective from 1 January 2013, the Allianz Group changed its presentation of discounted loss reserves in the consolidated balance sheet from the line item “Reserves for loss and loss adjustment expenses” to the line item “Reserves for insurance and investment contracts”, which led to a reclassification effect of € (2.9) bn.1 Foreign currency translation adjustments and other changes amounted to € (1.2) bn. Excluding both effects, the net reserves decreased by € 1.2 bn. 1 For further information on changes in presentation, please refer to note 4 to the consolidated financial statements. C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations aSSetS and liabilitieS of the life/health buSineSS Segment Life/Health assets Our Life/Health asset base increased by € 14.7 bn, or 3.1 %, to € 487.0 bn. This was primarily driven by higher financial assets for unit-linked contracts and equities as a result of positive market developments and new investments, but also by higher debt securities and cash investments. finanCial aSSetS for unit-linked ContraCtS1 € bn 12/31/2012 a b c 12/31/2013 71.2 + 7.2 + 4.9 (2.2) 81.1 2013 2012 0 25 50 75 100 CompoSition of aSSet baSe – fair valueS € bn as of 31 December Financial assets and liabilities carried at fair value through income Equities Debt securities Other 1 Subtotal Investments 2 Equities Debt securities Cash and cash pool assets 3 Other Subtotal Loans and advances to banks and customers Financial assets for unit-linked contracts 4 Life/Health asset base 2.3 2.2 (4.2) 0.3 28.8 269.3 7.6 10.0 315.7 89.9 81.1 487.0 2.1 2.3 (3.5) 0.9 24.1 266.4 5.7 9.9 306.1 94.1 71.2 472.3 1 2 3 4 This comprises assets of € 1.7 bn and € 1.7 bn and liabilities (including the market value lia bility option) of € (5.9) bn and € (5.2) bn as of 31 December 2013 and 31 December 2012, respectively. These do not include affiliates of € 0.8 bn and € 0.7 bn as of 31 December 2013 and 31 December 2012, respectively. Including cash and cash equivalents, as stated in our business segment balance sheet, of € 5.8 bn and € 5.6 bn and receivables from cash pooling amounting to € 3.5 bn and € 2.6 bn, net of liabilities from securities lending and derivatives of € (1.7) bn and € (1.5) bn, as well as liabilities from cash pooling of € (0.0) bn and € (1.0) bn as of 31 December 2013 and 31 December 2012, respectively. Financial assets for unit-linked contracts represent assets owned by, and managed on behalf of, policy- holders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts. The International Financial Report- ing Standards (IFRS) require the classification of any contract written by an insurance company either as an insurance contract or as an investment contract, depending on whether an insurance component is included. This requirement also applies to unit-linked products. In contrast to unit-linked investment contracts, unit-linked insurance contracts include coverage for significant mortality or morbidity risk. As of 31 December 2013, AbS of € 13.8 bn represented 2.8 % of the busi- ness segment’s asset base. Compared to year-end 2012, this exposure decreased by € 1.5 bn as a result of the previously mentioned reduction of mbS issued by U.S. agencies. a Change in unit-linked insurance contracts b Change in unit-linked investment contracts c Foreign currency translation adjustments Financial assets for unit-linked contracts Changes 1 Financial assets for unit-linked contracts represent assets owned by, and managed on behalf of, policy- holders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts. The International Financial Report- ing Standards (IFRS) require the classification of any contract written by an insurance company either as an insurance contract or as an investment contract, depending on whether an insurance component is included. This requirement also applies to unit-linked products. In contrast to unit-linked investment contracts, unit-linked insurance contracts include coverage for significant mortality or morbidity risk. Financial assets for unit-linked contracts increased by € 9.9 bn, or 13.9 %, to € 81.1 bn. Unit-linked insurance contracts increased by € 7.2 bn to € 55.4 bn due to good fund performance (€ 5.5 bn) and premium inflows exceeding outflows by € 3.6 bn. Unit-linked investment con- tracts were up by € 4.9 bn to € 25.7 bn, with premium inflows signifi- cantly exceeding outflows (net € 3.0 bn). The main drivers of currency effects were the weaker U.S. Dollar (€ (1.0) bn) and Asian currencies (€ (0.9) bn).1 Life/Health liabilities Life/Health reserves for insurance and investment contracts grew by € 9.9 bn, or 2.6 %, to € 390.9 bn in 2013. The € 15.7 bn increase in aggre- gate policy reserves was mainly driven by our operations in Germany (€ 9.3 bn), the United States (€ 2.5 bn before currency effects), Luxem- bourg and Italy (€ 0.7 bn each). Reserves for premium refunds decreased by € 2.2 bn due to lower unrealized gains to be shared with policyholders. The currency impact of € (3.6) bn mainly resulted from the weaker U.S. Dollar (€ (2.3) bn) and Asian currencies (€ (0.9) bn).1 Annual Report 2013 Allianz Group 97 1 Based on the closing rate on the respective balance sheet dates. Within our Corporate and Other asset base AbS increased from € 0.4 bn to € 0.9 bn due to new investments. Accordingly, the AbS share of the business segment’s asset base increased from 0.9 % to 2.2 %. Corporate and Other liabilities As of 31 December 2013, subordinated liabilities remained almost unchanged at € 11.5 bn (31 December 2012: € 11.6 bn) as the repayment of a subordinated bond with a nominal amount of U.S. Dollar 2.0 bn and a coupon of 8.375 % was approximately offset by the issuance of a perpetual subordinated bond with a nominal amount of € 1.5 bn and a coupon of 4.75 %. Other liabilities went up from € 21.8 bn to € 23.6 bn, whereas certificated liabilities decreased by € 1.5 bn to € 13.2 bn.2 Off-balance sheet arrangements In the normal course of business, the Allianz Group may enter into arrangements that do not lead to the recognition of assets and liabil- ities in the consolidated financial statements under IFRS. Since the Allianz Group does not rely on off-balance sheet arrangements as a significant source of revenue or financing, our off-balance sheet exposure to loss is immaterial relative to our financial position. The Allianz Group enters into various commitments including loan and leasing commitments, purchase obligations and other commitments. Please refer to note 46 to the consolidated financial statements for more details. The Allianz Group has also entered into contractual relation- ships with various types of special purpose vehicles. They have been designed in such a way that their relevant activities are directed by means of contractual arrangements instead of voting or similar rights. Typically, special purpose vehicles have been set up in connec- tion with asset backed financings, certain investment fund products, commercial mortgage loans and collateralized debt obligations. For more details on our collateralized debt obligations, please refer to note 44 to the consolidated financial statements. Please refer to the Risk and Opportunity Report from page 105 onwards for a description of the main concentrations of risk and other relevant risk positions. aSSetS and liabilitieS of the aSSet management buSineSS Segment Asset Management assets The Asset Management business segment’s results are derived pri- marily from third-party asset management. In this section, we refer only to the business segment’s own assets.1 The main components of the business segment’s asset base were cash and cash pool assets and debt securities. Overall, the Asset Management asset base increased from € 3.8 bn to € 4.4 bn, entirely driven by higher cash and cash pool assets. Asset Management liabilities Liabilities in our Asset Management segment decreased by € 0.4 bn to € 4.0 bn. aSSetS and liabilitieS of the Corporate and other buSineSS Segment Corporate and Other assets Our Corporate and Other asset base slightly decreased from € 42.0 bn to € 41.3 bn. An increase in debt securities and loans and advances to banks and customers was more than offset by a drop in cash and cash pool assets. CompoSition of aSSet baSe – fair valueS € bn as of 31 December Financial assets and liabilities carried at fair value through income Equities Debt securities Other 1 Subtotal Investments 2 Equities Debt securities Cash and cash pool assets 3 Other Subtotal Loans and advances to banks and customers Corporate and Other asset base 2013 2012 – – (0.2) (0.2) 1.7 26.3 (5.0) 0.3 23.3 18.2 41.3 – – (0.2) (0.2) 1.7 23.8 (0.4) 0.2 25.3 16.9 42.0 1 2 3 This comprises assets of € 0.3 bn and € 0.2 bn and liabilities of € (0.5) bn and € (0.4) bn as of 31 December 2013 and 31 December 2012, respectively. These do not include affiliates of € 75.4 bn and € 74.3 bn as of 31 December 2013 and 31 December 2012, respectively. Including cash and cash equivalents, as stated in our business segment balance sheet, of € 1.5 bn and € 4.2 bn and receivables from cash pooling amounting to € 0.7 bn and € 0.2 bn, net of liabilities from securities lending and derivatives of € (0.2) bn and € (0.1) bn, as well as liabilities from cash pooling of € (7.0) bn and € (4.7) bn as of 31 December 2013 and 31 December 2012, respectively. 1 For further information on the development of these third-party assets, please refer to the Asset Manage- ment chapter. 2 For further information on Allianz SE debt as of 31 December 2013, please refer to notes 22 and 23 to the consolidated financial statements. 98 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations Liquidity and Funding Resources Organization The Allianz Group bases its liquidity management on policies and guidelines approved by the Board of Management of Allianz SE. It is the primary responsibility of Allianz SE and each of the operating sub- sidiaries to manage their respective liquidity positions while Allianz SE provides central liquidity pooling for the Group. Further- more, capital allocation is steered by Allianz SE for the entire Group. This organization enables the efficient use of liquidity and capital resources and allows Allianz SE to ensure that the Group and its oper- ating entities achieve the desired liquidity and capitalization levels. Liquidity management of our operating entities insUrAnCe operAtions The principal sources of liquidity for our operational activ ities include primary and reinsurance premiums received, reinsurance receivables collected, as well as investment income and proceeds generated from the maturity or sale of investments. Those funds are mainly used to pay property- casualty claims and related expenses, life policy benefits, surrenders and cancellations, acquisition costs as well as operating costs. We generate strong cash flows from our insurance operations as most premiums are received before payments of claims or policy benefits are required, allowing us to invest these funds in the interim. This enables us to generate investment income. Our insurance operations also carry a high proportion of liquid investments which can be converted into cash to pay for claims. Generally, our investments in fixed income secu rities are sequenced to mature when funds are expected to be needed. The overall liquidity of our insurance operations depends on capital market developments, interest rate levels and our ability to realize the market value of our investment portfolio to meet insur- ance claims and policyholder benefits. Additional factors affecting the liquidity of our Property- Casualty insurance operations include the timing, frequency and severity of losses underlying our policies as well as policy renewal rates. In our Life operations, liquidity needs are generally influenced by trends in actual mortality rates compared to the related assumptions underlying our life insurance reserves. They are also affected by the impact of market returns or crediting rates and by the behavior of our life insurance clients, for example regarding the level of surrenders and withdrawals. Asset mAnAgement operAtions Within our Asset Management operations, our primary sources of liquidity include fees generated from asset management activities. These funds are primarily used to cover operating expenses. BAnking operAtions The primary sources of liquidity in our Banking operations include customer deposits, interbank loans and interest and similar income from our lending transactions. The major uses of funds are the issu- ance of new loans and investments in fixed income securities. The liquidity of our Banking operations is largely dependent on the ability of our private and corporate customers to meet their payment obliga- tions arising from loans and other outstanding commitments. Equally important is our ability to retain our customers’ deposits. Liquidity management and funding of Allianz SE Allianz SE is responsible for managing the funding needs of the Group, maximizing access to liquidity sources and minimizing borrowing costs. Restrictions on the transferability of capital within the Group result mainly from the capital maintenance rules under applicable company laws and the regulatory solvency capital require- ments applicable for regulated group companies. LiQUiDitY resoUrCes AnD Uses Allianz SE ensures adequate access to liquidity and capital for our operating subsidiaries. The main sources of liquidity available for Allianz SE are dividends received from subsidia ries and funding pro- vided by capital markets. We define liquidity resources as assets that are readily available – namely cash, money market investments as well as highly liquid government bonds. The major uses of funds include paying interest expenses on our debt funding, operating costs, internal and external growth investments as well as dividends to our shareholders. FUnDing soUrCes Allianz SE’s access to external funds depends on various factors such as capital market conditions, access to credit facilities as well as 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 ordi- nary shares. Annual Report 2013 Allianz Group 99 Equity funding As of 31 December 2013, the issued capital registered at the Commer- cial Register was € 1,168,640,000. This was divided into 456,500,000 reg- istered shares with restricted transferability. As of 31 December 2013, Allianz SE held 2,761,795 (2012: 2,777,438) own shares. Allianz SE has the option to increase its equity capital base according to authorizations provided by our shareholders. The follow- ing table outlines Allianz SE’s capital authorizations as of 31 Decem- ber 2013: CApitAL AUthorizAtions oF ALLiAnz se CApitAL AUthorizAtion nominAL AmoUnt Authorized Capital 2010/i Authorized Capital 2010/ii Authorization to issue bonds carrying conversion and/or option rights Conditional Capital 2010 € 550,000,000 (214,843,750 shares) € 8,344,000 (3,259,375 shares) € 9,500,000,000 (nominal bond value) € 250,000,000 (97,656,250 shares) expirY DAte oF the AUthorizAtion 4 May 2015 4 May 2015 4 May 2015 (issuance of bonds) No expiry date for Conditional Capital 2010 (issuance in case option or conversion rights are exercised) mAtUritY strUCtUre oF ALLiAnz se’s senior AnD sUBorDinAteD BonDs As oF 31 DeCemBer 2013 nominal value in € Bn Please refer to chase shares. page 35 regarding authorizations to issue and repur- 5 4 3 2 1 1.51 1.5 1.5 0.5 1.5 1.0 0.75 4.4 2.5 1.5 0.9 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2041 2042 2043 perpetual Senior bonds Subordinated bonds 1 € 1.5 bn subordinated bond called for redemption effective January 15, 2014. Long-term debt funding As of 31 December 2013, Allianz SE had senior and subordinated bonds in a variety of maturities outstanding reflecting our focus on long-term financing. As the cost and availability of external funding may be negatively affected by general market conditions or by matters specific to the financial services industry or the Allianz Group, we seek to reduce refinancing risk by actively steering the maturity profile of our funding structure. Interest expenses on senior bonds decreased to € 261.1 MN (2012: € 306.8 MN). This was primarily driven by lower funding costs on new issuances compared to the bonds that matured in 2013. For subordi- nated bonds, interest expenses declined to € 610.0 MN (2012: € 614.1 MN). This was mainly due to the redemption of a U.S. Dollar bond with a high coupon and the issuance of a new Euro bond with a lower coupon in 2013. 100 Annual Report 2013 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations Short-term debt funding Short-term funding sources available are the Medium-Term Note Pro- gram and the Commercial Paper Program. As of 31 December 2013, Allianz SE had money market securities outstanding with a carrying value of € 869 MN: a € 311 MN decrease in the use of commercial paper compared to the previous year-end. Interest expenses on money market secu rities decreased to € 3.7 MN (2012: € 11.4 MN) due to a lower level of short-term interest rates on average in 2013. moneY mArket seCUrities oF ALLiAnz se Carrying value € mn 869 Interest expense € mn 3.7 as of 31 December 2013 Money market securities 2012 Money market securities 1,180 11.4 Average interest rate % 0.4 1.0 The Group maintained its A-1+/Prime-1 ratings for short-term issues. Thus we can continue funding our liquidity under the Euro Commer- cial Paper Program at an average rate below Euribor and under the U.S. Dollar Commercial Paper Program at an average rate below U.S. Libor. Further potential sources of short-term funding allowing the Allianz Group to fine-tune its capital structure are letter of credit facilities and bank credit lines. senior AnD sUBorDinAteD BonDs issUeD or gUArAnteeD BY ALLiAnz se 1 as of 31 December 2013 Senior bonds Subordinated bonds Total 2012 Senior bonds Subordinated bonds Total Nominal value € mn Carrying value € mn Interest expense € mn 6,651 10,926 17,577 6,000 10,976 16,976 6,581 10,856 17,437 5,942 10,895 16,837 261.1 610.0 871.1 306.8 614.1 920.9 Weighted average interest rate2 % 4.0 5.9 5.2 4.6 6.2 5.6 1 2 For further information on Allianz SE debt (issued or guaranteed) as of 31 December 2013, please refer to notes 23 and 24 to the consolidated financial statements. Based on nominal value. The table below details the long-term debt issuances and redemp- tions of Allianz SE during 2013 and 2012: issUAnCes AnD reDemptions oF ALLiAnz se’s senior AnD sUBorDinAteD BonDs € mn as of 31 December Issuances 1 Redemptions1 Issuances net of redemptions 2013 Senior bonds Subordinated bonds 2012 Senior bonds Subordinated bonds 1 Based on nominal value. 2,151 1,500 1,500 2,259 1,500 1,517 900 2,000 651 (17) 600 259 Funding in currencies other than the Euro enables us to diversify our investor base or to take advantage of favorable funding costs in those markets. Funds raised in non-Euro currencies are incorporated in our general hedging strategy. As of 31 December 2013, approximately 9.3 % (2012: 13.4 %) of long-term debt was issued or guaranteed by Allianz SE in currencies other than the Euro. CUrrenCY ALLoCAtion oF ALLiAnz se’s senior AnD sUBorDinAteD BonDs nominal value in € mn as of 31 December 2013 Euro Non-Euro Total Senior and sub ordinated bonds 15,950 1,627 17,577 2012 Senior and sub ordinated bonds 14,700 2,276 16,976 Annual Report 2013 Allianz Group 101  AlliAnz SE bondS1 outStAnding AS of 31 dEcEmbEr 2013 And intErESt ExpEnSES in 2013 1. SEnior bondS2 4.0 % bond issued by Allianz Finance ii b.V., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 1.375 % bond issued by Allianz Finance ii b.V., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 4.75 % bond issued by Allianz Finance ii b.V., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 3.5 % bond issued by Allianz Finance ii b.V., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 3.0 % bond issued by Allianz Finance ii b.V., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 4.5 % bond issued by Allianz Finance ii b.V., Amsterdam Volume Year of issue Maturity date iSin Interest expenses Total interest expenses for senior bonds 2. SubordinAtEd bondS3 6.5 % bond issued by Allianz Finance ii b.V., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 5.75 % bond issued by Allianz Finance ii b.V., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 5.625 % bond issued by Allianz SE Volume Year of issue Maturity date iSin Interest expenses 102 Annual Report 2013 Allianz Group € 1.5 bn 2006 11/23/2016 xS 027 588 026 7 € 0.5 bn 2013 3/13/2018 dE 000 A1H g1J 8 € 1.5 bn 2009 7/22/2019 dE 000 A1A KHb 8 € 1.5 bn 2012 2/14/2022 dE 000 A1g 0ru 9 € 0.75 bn 2013 3/13/2028 dE 000 A1H g1K 6 gbp 0.75 bn 2013 3/13/2043 dE 000 A1H g1l 4 € 1.0 bn 2002 1/13/2025 xS 015 952 750 5 € 2.0 bn 2011 7/8/2041 dE 000 A1gnAH1 € 1.5 bn 2012 10/17/2042 dE 000 A1rE1Q3 € 62.1 mn € 5.7 mn € 73.6 mn € 54.0 mn € 19.1 mn € 33.1 mn € 247.6 mn € 66.3 mn € 116.4 mn € 86.2 mn 5.5 % bond issued by Allianz SE 4 Volume Year of issue Maturity date iSin Interest expenses 4.375 % bond issued by Allianz Finance ii b.V., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 5.375 % bond issued by Allianz Finance ii b.V., Amsterdam Volume Year of issue Maturity date iSin Interest expenses 5.5 % bond issued by Allianz SE Volume Year of issue Maturity date iSin Interest expenses 4.75 % bond issued by Allianz SE Volume Year of issue Maturity date iSin Interest expenses Total interest expenses for subordinated bonds 3. iSSuES rEdEEmEd in 2013 8.375 % bond issued by Allianz SE Volume Year of issue Maturity date iSin Interest expenses 4. iSSuES mAturEd in 2013 5.0 % bond issued by Allianz Finance ii b.V., Amsterdam Volume Year of issue Maturity date iSin Interest expenses Sum of interest expenses 1 Interest expenses from external debt not presented in the table Total interest expenses from external debt € 1.5 bn 2004 pErpEtuAl bond xS 018 716 232 5 € 1.4 bn 2005 pErpEtuAl bond xS 021 163 783 9 € 0.8 bn 2006 pErpEtuAl bond dE 000 A0g npz 3 uSd 1.0 bn 2012 pErpEtuAl bond xS 085 787 2500 € 1.5 bn 2013 pErpEtuAl bond dE 000 A1Y cQ2 9 uSd 2.0 bn 2008 pErpEtuAl bond uS 018 805 200 7 € 1.5 bn 2008 3/6/2013 dE 000 A0t r7K 7 € 84.5 mn € 63.5 mn € 43.0 mn € 42.5 mn € 13.6 mn € 516.0 mn € 62.6 mn € 13.5 mn € 839.7 mn € 61.3 mn € 901.0 mn 1 2 3 4 For further information on Allianz SE debt (issued or guaranteed) as of 31 December 2013, please refer to notes 23 and 24 to the consolidated financial statements. Senior bonds provide for early termination rights in case of non-payment of amounts due under the bond (interest and principal) as well as in case of insolvency. The terms of the subordinated bonds do not explicitly provide for early termination rights in favor of the bondholder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. Nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments. € 1.5 bn subordinated bond called for redemption effective January 15, 2014. C Group Management Report Management Discussion and Analysis Business Environment 64 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations Moreover, we recorded lower net cash inflows from loans and advances to banks and customers especially in our Life/Health busi- ness in Germany. Net cash outflow used in financing activities amounted to € 1.4 bN in 2013, compared to € 2.0 bN in 2012. Contributing to this develop- ment were net cash inflows from liabilities to banks and customers (after net cash outflows in 2012), mainly attributable to our Banking operation in Italy. This increase was partially offset by lower net cash inflows from our refinancing activities 1. Cash and cash equivalents decreased by € 1.2 bN to € 11.2 bN as of 31 December 2013, mainly stemming from our Banking operation in Italy and Allianz SE. The decrease was partially offset by higher cash inflows at Allianz Life Insurance Company of North America due to maturities of investments. CAsh AnD CAsh eQUiVALents € mn as of 31 December Balances with banks payable on demand Balances with central banks Cash on hand Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks Total cash and cash equivalents 2013 6,574 449 202 3,982 11,207 2012 7,295 2,277 223 2,642 12,437 Allianz Group consolidated cash flows ChAnge in CAsh AnD CAsh eQUiVALents For the YeArs enDeD 31 DeCemBer 23,239 18,888 € mn 30,000 20,000 10,000 0 (10,000) (20,000) (30,000) 1,945 (2,036) (1,435) (1,230) (14,860) (22,802) Net cash flow provided by operating activities1 Net cash flow used in investing activities1 Net cash flow used in financing activities1 Change in cash and cash equivalents 2 2012 2013 1 2 The Allianz Group has changed the presentation of policyholders’ account deposits and withdrawals in its consolidated statements of cash flows from cash flow from financing activities to cash flow from operating activities. The change in presentation has been applied retrospectively. For further information please refer to note 4 to the consolidated financial statement. Includes effect of exchange rate changes on cash and cash equivalents of € (232) Mn and € (47) Mn in 2013 and 2012, respectively. Net cash flow provided by operating activities amounted to € 23.2 bN, up by € 4.4 bN compared to the previous year. Net cash flow provided by operating activities is comprised of net income plus adjustments for non-cash charges, credits and other items included in net earn- ings and 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 € 0.2 bN to € 8.8 bN in 2013. Additionally, operating cash flows from net changes in operating assets and liabilities, including other items, grew by € 4.1 bN to € 14.4 bN. This was driven by higher reserves for insurance and investment contracts in our Life/ Health business, mainly in Germany and the United States. We also recorded net cash inflows from financial assets and liabilities held for trading as well as higher positive net changes from our operating receivables/payables. Lower reserves for losses and loss adjustment expenses in particular in our Property-Casualty business in the United States – as a result of the changed structure in our crop business – partially offset these effects. Net cash outflow used in investing activities increased by € 7.9 bN to € 22.8 bN in 2013. This rise was mainly attributable to higher net cash outflows for available-for-sale investments at our Banking busi- ness in Italy and our Life/Health operation in the United States. Annual Report 2013 Allianz Group 103 1 Refers to cash flows from certificated liabilities and subordinated liabilities. Reconciliations The previous analysis is based on our consolidated financial state- ments and should be read in conjunction with them. In addition to our stated figures according to the International Financial Reporting Standards (IFRS), the Allianz Group uses operating profit and internal growth to enhance the understanding of our results. These additional measures should be viewed as complementary to, and not as a sub- stitute for, our figures determined according to IFRS. For further information, please refer to note 6 to the consolidated financial statements. Composition of total revenue growth We believe that an understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions and disposals (or “changes in scope of consolida- tion”) are analyzed separately. Accordingly, in addition to presenting nominal total revenue growth, we also present internal growth, which excludes these effects. reConCiliation of nominal total revenue growth to internal total revenue growth Composition of total revenues Total revenues comprise statutory gross premiums written in Property- Casualty and Life/Health, operating revenues in Asset Management, and total revenues in Corporate and Other (Banking). % 2013 Property-Casualty Life/Health Asset Management Corporate and Other Allianz Group 2012 2013 2012 46,579 46,889 Property-Casualty Life/Health 56,784 52,347 Asset Management Corporate and Other 7,162 6,786 Allianz Group Internal growth Changes in scope of consolidation Foreign currency translation Nominal growth (0.3) 9.1 8.5 (6.6) 4.7 2.5 (2.6) 15.4 3.0 0.5 2.0 0.5 (0.1) 0.0 1.1 0.3 (0.2) 0.2 1.1 0.1 (2.4) (1.1) (2.9) 0.0 (1.7) 1.9 1.8 7.7 0.0 2.1 (0.7) 8.5 5.5 (6.6) 4.1 4.7 (1.0) 23.3 4.1 2.7 Composition of total revenues € mn Property-Casualty Gross premiums written Life/Health Statutory premiums Asset Management Operating revenues consisting of: Net fee and commission income 7,127 6,731 Net interest income Income from financial assets and liabilities carried at fair value through income (net) Other income Corporate and Other Total revenues (Banking) consisting of: Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Fee and commission income Interest expenses Fee and commission expenses Consolidation effects (Banking within Corporate and Other) Consolidation 12 13 10 551 613 8 475 (281) (262) (2) (303) 24 16 15 590 719 14 456 (350) (247) (2) (229) Allianz Group total revenues 110,773 106,383 104 Annual Report 2013 Allianz Group C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 105 123 Controls over Financial Reporting and Risk Capital Risk and Opportunity Report − The Allianz risk management approach is designed to add value by focusing on both risk and return. − The Allianz Group is well capitalized and its solvency ratios are resilient. Allianz risk profile and management assessment Risk PRofile Allianz is exposed to a variety of risks through its core insurance and asset management activities. These include financial market, credit, insurance, operational, business and strategic risks. The three largest risks in terms of their contribution to Allianz’s internal model risk capital results are: − Financial market risk, especially interest rate risk, due to the duration mismatch between assets and liabilities for long-term savings products; − Credit and credit spread risk, again driven by assets backing long-term savings products; − Property-casualty premium and reserve risk, resulting from natural and man-made catastrophes as well as accident year claims uncertainty. Allianz’s risk profile is relatively stable over time as it is driven by Allianz’s risk appetite and steered by risk management practices and limits – which are described later in this report. However, Allianz continues to be exposed to two external forces which affect its risk profile and would not normally be associated with its core operating activities: the European sovereign debt crisis and regulatory developments – especially the European solvency directive, Solvency II. The European sovereign debt crisis The European sovereign debt crisis continues to have an impact on markets and has kept interest rates at low levels. Despite the stabili- zation of financial markets in 2013, many of the root causes of the crisis remain unresolved and markets could fluctuate widely again in the future, having adverse implications for Allianz’s balance sheet. sure to global financial institutions. This is supported by operational contingency planning for Allianz SE and its operating entities, with scenario analysis being conducted regularly for both the United States and Europe. In addition, we further adjusted our product design and pricing in the Life/Health business segment with respect to guarantees and surrender conditions. Looking forward, our robust action to deal with the various crisis scenarios has bolstered our financial and operational resilience to strong shock scenarios. Con- tinuous monitoring remains a priority to ensure the sustained effec- tiveness of our contingency measures. Regulatory developments In July 2013, the Financial Stability Board designated Allianz as one of nine G-SII companies (Global Systemically Important Insurers). In November 2013, the European Trialogue process involving the Coun- cil of the E.U. and the European Parliament came to an agreement on the Solvency II “Omnibus II” directive, allowing the new risk-based solvency capital framework for Europe to proceed with a planned introduction date of January 2016. Although details of future regulatory requirements, especially Solvency II and those applying to G-SIIs, are becoming clearer, the final rules are still evolving. This creates some uncertainties for our business and in terms of the ultimate capital requirements for Allianz. In addition, due to the market value balance sheet approach, the Solvency II regime will lead to higher volatility in regulatory capi- tal requirements compared to Solvency I. Finally, the potential for a multiplicity of different regulatory regimes, capital standards and reporting requirements will increase operational 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 the challenges of a rapidly chang- ing environment as well as day-to-day business needs. This confi- dence is based on several factors which are outlined in more detail in the sections that follow and are summarized here: In addition to continuously monitoring these developments, our management has responded decisively to these external events. During 2013, we continued to execute a derisking program focused primarily on peripheral European sovereign exposures and our expo- − The Allianz Group is well capitalized and is comfortably meeting its internal and regulatory solvency targets as of 31 December 2013. In March 2013, Standard & Poor’s not only reconfirmed Allianz’s "AA" rating, but also improved the outlook back to Annual Report 2013 Allianz Group 105 “stable”. With this rating, Allianz remains one of the highest- rated insurance groups in the world. − The Group’s management also believes that Allianz is well posi- tioned to deal with potential future adverse events, in part due to our strong internal limit framework defined by the Group’s risk appetite and risk management practices. − The Group has a conservative investment profile and disciplined business practices in the Property-Casualty, Life/Health and Asset Management business segments, leading to sustainable operating earnings with a well-balanced risk/return profile. − Finally, the Group has the additional advantage of being well diversified, both geographically and across a broad range of products. Capitalization For the benefit of shareholders and policyholders alike, our aim is to ensure that the Allianz Group is adequately capitalized at all times and that all operating entities meet their respective capital require- ments. Furthermore, risk capital and cost of capital are important aspects for making business decisions. Our internal risk capital model plays a significant role in the management of capital. In addition, we take into account the exter- nal requirements of regulators and rating agencies. While capital requirements imposed by regulators constitute a binding constraint, meeting rating agencies’ capital requirements and maintaining strong credit ratings are strategic business objectives of the Allianz Group. We closely monitor the capital positions of the Group and operating entities and apply regular stress tests based on standard adverse scenarios. This allows us to take appropriate measures to ensure our continued capital and solvency strength. Due to our effec- tive capital management, the Allianz Group is well capitalized and met its internal and regulatory solvency targets as of 31 December 2013. RegulatoRy caPital adequacy The Allianz Group is a financial conglomerate within the scope of the E.U. Financial Conglomerates Directive and the related German law in force since 1 January 2005. The law requires that a financial con- glomerate calculates the capital available to meet its solvency require- ments on a consolidated basis, which we refer to as “eligible capital”. Currently, the requirements for our insurance business are based on Solvency I. These capital requirements, as well as the definition and calculation of eligible capital, will be replaced by the Solvency II rules once the new regulation becomes binding. 106 Annual Report 2013 Allianz Group congloMeRate solvency 1 € Bn as of 31 December Requirement Eligible capital Solvency ratio 2013 25.6 46.5 182 % 2012 24.6 48.4 197 % 1 Off-balance sheet reserves are included in the calculation but accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 31 December 2013 would be 173 % (2012 (as published): 188 %). The conglomerate solvency ratio decreased by 15 percentage points to 182 %, mainly due to the retrospective application of the amend- ments to IAS 19 .1 exteRnal Rating agency caPital adequacy Rating agencies apply their own models to evaluate the relationship between the required risk capital of a company and its available capital resources. An assessment of capital adequacy is usually an integral part of the rating process. Following a review in March 2013, the Allianz Group’s "AA" rating was affirmed by Standard & Poor’s. In addition Standard & Poor’s revised the outlook from “negative” to “stable”, recognizing our capital strength, diverse business profile and very strong Enterprise Risk Management. Allianz Group has one of the highest ratings amongst its peers. The following table provides evidence of the sustainable financial strength of Allianz SE and our ability to meet ongoing obligations. Ratings of allianz se Ratings1 Insurer financial strength rating Counterparty credit rating Commercial paper (short-term) rating 2013 2012 2013 2012 2013 Standard & Poor’s Moody’s A.M. Best AA Stable outlook (affirmed Novem- ber 2013) Aa3 Negative outlook (affirmed Decem- ber 2013) A+ (affirmed Septem- ber 2013) AA Negative outlook Aa3 Negative outlook A+ AA Stable outlook (affirmed Novem- ber 2013) Aa3 Negative outlook (affirmed Decem- ber 2013)2 aa – (affirmed Septem- ber 2013) 2012 A–1+ AA Negative outlook A–1+ (affirmed Novem- ber 2013) AA Negative outlook 2 Prime –1 (affirmed Decem- ber 2013) Prime –1 aa – Not rated Not rated 1 2 Includes ratings for securities issued by Allianz Finance II B.V. and Allianz Finance Corporation. Rating reflects senior unsecured debt. 1 For further details on changes in eligible capital and solvency requirement, please refer to the chapter Balance Sheet Review from page 92 onwards. C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 105 123 Controls over Financial Reporting and Risk Capital As part of the long-term financial strength rating, Standard & Poor’s has a rating for Enterprise Risk Management (ERM). In 2013, Standard & Poor’s assigned Allianz its highest possible rating – “very strong” – for the ERM capabilities of our insurance operations. This indicates that Standard & Poor’s regards it as “unlikely that Allianz Group will expe- rience major losses outside its risk tolerance”. Standard & Poor’s stated that the assessment is based on our strong risk management culture, strong controls for the majority of key risks and strong stra- tegic risk management. In addition, Standard & Poor’s reviewed our internal capital model in 2012 and has given further credit to the capital position of the Allianz Group since 4Q 2012 by taking our inter- nal model results into account when determining the capital require- ments in order to meet specific rating classes. Internal capItal adequacy The Allianz Group’s available capital is based on shareholders’ equi- ty adjusted to reflect the full economic capital base available to absorb unexpected economic losses.1 Our objective is to maintain available capital at the Group level that is significantly above the minimum indicated requirements as determined by our internal risk capital model. We consistently steer the risk at the operating entity level based on the same internal model framework. avaIlable capItal and Internal rIsk capItal € bn as of 31 December Available capital Internal risk capital Capital ratio 2013 52.4 23.6 222 % 2012 49.3 24.8 199 % Overall, our internal model solvency ratio increased from 199 % to 222 %. This strong growth was attributable to two effects. First, an increase in our available capital – which was mostly driven by accu- mulated net income and the increasing present value of future profits. Second, to a decrease of € 1.2 bn in our required internal risk capital. This was mainly due to positive market effects, in particular, rising interest rates, rating improvements as well as reduced credit risk exposure. This Risk and Opportunity Report provides the Group’s internal risk capital results based on pre-diversified risk capital and diversifi- cation effects. Pre-diversified internal risk capital reflects the diversi- fication effect within each risk category (i.e. market, credit, under- writing, business and operational risk) but does not include the diversification effect across categories. Group-diversified internal risk capital also captures the diversification effect across all risk cat- egories. Pre-diversified internal risk capital is used to measure con- centration risks. As of 31 December 2013, the Group-diversified internal risk capi- tal before non-controlling interests of € 23.6 bn (2012: € 24.8 bn) repre- sented a diversification benefit of approximately 32 %2 (2012: 33 %) across risk categories and segments. Group-diversified internal risk capital is broken down as follows: allocated Internal rIsk capItal (total portfolIo before non-controllIng Interests) € mn Market risk Credit risk Underwriting risk Business risk Operational risk Diversification Total Pre-diversified (before tax) Group-diversified as of 31 December 2013 2012 2013 2012 2013 2012 Property-Casualty Life/Health Asset Management 3,669 3,933 11,653 13,404 685 559 Corporate and Other 1,987 1,519 1,881 3,591 169 277 2,144 4,127 119 671 9,627 801 – 191 9,848 1,089 – 180 2013 992 3,743 – – 2012 2013 2012 2013 2012 2013 2012 1,020 3,424 – – 1,268 1,287 (6,437) (7,319) 11,000 10,913 917 586 385 914 576 249 (6,448) (7,084) 14,257 15,874 (1) – (532) (512) 1,439 2,308 1,254 2,107 Total 17,994 19,415 5,918 7,061 10,619 11,117 4,735 4,444 3,156 3,026 (13,418) (14,915) 29,004 30,148 Tax impact Total Group (5,367) (5,386) 23,637 24,762 Detailed discussions of risk capital movements are provided in the sections that follow. 1 Available capital is calculated under consideration of liquidity premium and yield curve extension for the Life/Health business segment as described in the section Yield curve and liquidity premium assumptions. on page 108. 2 Diversification before tax. Annual Report 2013 Allianz Group 107 Internal risk capital framework We define internal risk capital as the capital required to protect us against unexpected, extreme economic losses. On a quarterly basis, we calculate and aggregate internal risk capital across all business segments – providing a common standard for measuring and com- paring risks across the wide range of different activities that we undertake as an integrated financial services provider. geneRal aPPRoach We utilize an internal risk capital model for the management of our risk and solvency position and are working towards meeting the forthcoming Solvency II internal model requirements. Our model is based on a best practice technical platform with an up-to-date meth- odology covering all modeled sources of quantifiable risks. This forms an integral part of our internal risk capital framework. The model framework is regularly assessed by the European College of supervisors in the course of the internal model pre-application pro- cess of Solvency II. inteRnal Risk caPital Model Our internal risk capital model is based on a Value-at-Risk (VaR) approach using a Monte Carlo simulation. Following this approach, we determine the maximum loss in the portfolio value of our busi- nesses in the scope of the model within a specified timeframe (“hold- ing period”) and probability of occurrence (“confidence level”). We assume a confidence level of 99.5 % and apply a holding period of one year. In the risk simulation, we consider market, credit, insurance and other business events (“sources of risk”) and calculate the port- folio value based on the net fair value of assets and liabilities under potentially adverse conditions. The required internal risk capital is defined as the difference between the current portfolio value and the portfolio value under adverse conditions dependent on the 99.5 % confidence level. Because we consider the impact of a negative or positive event on all sources of risks and covered businesses at the same time, all diversification effects across products and regions are taken into account. The results of our Monte Carlo simulation allow us to analyze our expo- sure to each source of risk, both separately and in aggregate. In addi- tion, for market risks we analyze several pre-defined stress scenarios based either on historically observed market movements or on hypo- thetical market movement assumptions. The modeling approach we apply therefore enables us to identify scenarios that have a positive impact on our solvency situation. Yield curve and liquidity premium assumptions When calculating the fair values of assets and liabilities, the assump- tions regarding the underlying risk-free yield curve are crucial in determining future cash flows and how to discount them. We apply the methodology as provided by the European Insurance and Occu- 108 Annual Report 2013 Allianz Group pational Pensions Authority (EIOPA) based on the latest guidance for the extension of the risk-free interest rate curves beyond the last liquid tenor. In addition, we adjust the risk-free yield curves for the Life/ Health business segment to make allowance for a liquidity premium. Valuation assumption: replicating portfolios Since efficient valuation and advanced, timely analysis is desired, we replicate the liabilities of our Life/Health insurance business. This technique enables us to represent all options and guarantees, both contractual and discretionary, by means of standard financial instru- ments. Using the replicating portfolio we determine and revalue these liabilities under all potentially adverse Monte Carlo scenarios. Diversification and correlation assumptions Our internal risk capital model considers concentration, accumula- tion and correlation effects when aggregating results at Group level, in order to reflect the fact that not all potential worst-case losses are likely to materialize at the same time. This effect is known as diversifica- tion and forms a central element of our risk management framework. We strive to diversify the risks to which we are exposed in order to limit the impact of any single source of risk and help increase the chances that the positive developments outweigh the negative. The degree to which diversification can be realized depends in part on the level of relative concentration of those risks as well as the joint move- ment of sources of risk. Where possible, we derive correlation parameters for each pair of market risks through statistical analysis of historical market data, considering weekly observations over several years. In case historical market data or other portfolio-specific observations are insufficient or not available, correlations are set according to a well-defined, Group-wide process. Correlations are determined by the Correlation Settings Committee, which combines the expertise of risk and busi- ness experts. In general, we set the correlation parameters to represent the joint movement of risks under adverse conditions. Based on these correlations, we use an industry-standard approach, the Gaussian copula approach, to determine the dependency structure of quantifi- able sources of risk within the applied Monte Carlo simulation. Actuarial assumptions Our internal risk capital model also includes non-market assump- tions on claims trends, inflation, mortality, longevity, morbidity, policyholder behavior, expense, etc. We use our own internal historical data for actuarial assumptions wherever possible and also consider recommendations from the insurance industry, supervisory author- ities and actuarial associations. The derivation of our actuarial assumptions is based on generally accepted actuarial methods. Within our internal risk capital and financial reporting framework comprehensive processes and controls exist for ensuring the reliabil- ity of those assumptions.1 1 For additional information regarding our internal controls over financial reporting, please refer to the chapter Controls over Financial Reporting and Risk Capital from page 123 onwards. C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 105 123 Controls over Financial Reporting and Risk Capital scoPe By design, our internal risk capital model takes into account the fol- lowing risk categories: market risk, credit risk, underwriting risk, busi- ness risk and operational risk whenever these risks are present. A further breakdown of the risk categories can be found in the section Quantifiable risks in the internal capital model. With the exception of the Asset Management business segment all business segments are exposed to the full range of stated risk categories. By contrast, the Asset Management business segment is mainly exposed to market, credit and operational risk. Our internal risk capital model covers: − All of our major insurance operations. − Our assets (including bonds, mortgages, investment funds, loans, equities and real estate) and liabilities (including the cash flow run-off profile of all technical reserves as well as deposits and issued securities). − For the Life/Health insurance products, options and guarantees embedded in insurance contracts including policyholder partici- pation rules.1 For our Asset Management business segment we assign internal risk capital requirements based on the sectoral regulatory capital requirements envisaged in Solvency II. The capital requirements of smaller insurance operating entities, that have an immaterial impact on the Group’s risk profile, are based on local regulatory require- ments. We allocate these requirements to the risk categories of our internal risk capital model, thereby allowing a consistent aggregation of internal risk capital for all business segments at Group level. Internal risk capital related to our European banking operations is allocated to the Corporate and Other business segment, based on the approach applied by banks under the local requirements with respect to the Basel regulation (Basel II/III standards). It represents an insignificant amount of approximately 1.7 % (2012: 1.6 %) of total pre-diversified internal risk capital. Therefore, risk management with respect to banking operations is not discussed further. liMitations Our internal risk capital model expresses the potential “worst-case” amount in economic value that we might lose at a certain confidence level. However, there is a statistically low probability of 0.5 % that actual losses could exceed this threshold at Group level in the course of one year. We use model and scenario parameters derived from historical data, where available, to characterize future possible risk events. If 1 For further information about participating life business, please refer to note 20 to the consolidated finan- cial statements. future market conditions differ substantially from the past, for exam- ple in an unprecedented crisis, our VaR approach may be too conser- vative or too liberal in ways that are too difficult to predict. In order to mitigate reliance on historical data we complement our VaR anal- ysis with stress testing. Our ability to back-test the model’s accuracy is limited because of the high confidence level of 99.5 %, the one-year holding period, as well as only limited data for some insurance risk events – such as natural catastrophes – being available. Furthermore, as historical data is used where possible to calibrate the model, it cannot be used for validation. Instead, we validate the model and parameters through sensitivity analyses, independent internal peer reviews and, where appropriate, external reviews by independent consulting firms focusing on methods for selecting parameters and control processes. Overall, we believe that our validation efforts are effective and that our model adequately assesses the risks to which we are exposed. As described previously, insurance liability values are derived from replicating portfolios of standard financial market instruments in order to allow for effective risk management. This replication is subject to the set of available replicating instruments and might therefore be too simple or restrictive to capture all factors affecting the change in value of liabilities. Nevertheless, we believe that the liabilities are adequately represented by the replicating portfolios due to our stringent data and process quality controls. Since internal risk capital takes into account the change in the economic fair value of our assets and liabilities, it is crucial to accu- rately estimate the market value of each item. For some assets and liabilities, it may be difficult, if not impossible – notably in distressed financial markets – to obtain either a current market price or to apply a meaningful mark-to-market approach. For certain assets and liabil- ities, where a market price for that instrument or similar instruments is currently not available, we apply a mark-to-model approach. Non- standardized derivative instruments – such as derivatives embedded in structured financial products – are represented by the most com- parable standard derivative types, because the volume of non-stan- dard instruments is not material at either the local or Group level. For some of our liabilities, the accuracy of fair values depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed. Model uPdates in 2013 In 2013 we kept the central risk capital models for all risk categories stable and performed only the regular exposure and assumption updates. The only local model update with material impact at Group level is the introduction of Surplus funds together with a Going Con- cern Reserve at Allianz Lebensversicherungs-AG in line with Solvency II and BaFin methodology. The introduction increases the Group’s capital requirement by € 0.4 bn, mainly affecting equity and credit spread risk. Annual Report 2013 Allianz Group 109 Internal risk assessment concentRation of Risks 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. Diversification helps us manage our risks efficiently by limiting the economic impact of any single event and by contributing to relatively stable results and risk profile in general. Therefore, our aim is to maintain a balanced risk profile without any disproportionately large risks. At Group level, we identify and measure concentration risks con- sistently across business segments in terms of pre-diversified inter- nal risk capital and in line with the risk categories covered by our internal risk capital model. In the following sections, all risks are presented on a pre-diversified basis and concentrations of single sources of risk are discussed accordingly. With respect to investments, top-down indicators – such as stra- tegic asset allocation benchmarks – are defined and closely moni- tored to ensure balanced investment portfolios. Limits on financial risk are in place for the Life/Health and Property-Casualty business segments at Group level. They are based on the internal risk capital model, complemented by stand-alone interest rate and equity sensi- tivity limits, in order to protect the economic capital position. In addi- tion, the Group’s policy is to require each operating entity to match liabilities in congruent currencies with assets – as far as possible – and take local currency risks only within pre-defined limits. We also closely monitor concentrations and accumulation of non-market risks already on a stand-alone basis (i.e. before the diver- sification effect) within a global limit framework in order to avoid substantial losses from single events (e.g. natural catastrophes, credit events). In order to manage counterparty concentration risk, we run a Group-wide country and obligor group limit management frame- work (CRisP 1), which covers credit and equity exposures and is based on data used by the investment and risk experts at Group and operat- ing entity levels. This limit framework forms the basis for discussions on credit actions and provides notification services with a quick and broad communication of credit-related decisions across the Group. Clearly defined processes ensure that exposure concentrations and limit utilizations are appropriately monitored and managed. The setting of country and obligor exposure limits from the Group’s perspective (i.e. the maximum concentration limit) takes into account the Allianz Group’s portfolio size and structure as well as our overall risk strategy. 1 Credit Risk Platform. 110 Annual Report 2013 Allianz Group It is the ultimate responsibility of the Board of Management to decide upon limit budgets. The Board of Management delegates authorities for limit setting and modification to the Group Risk Com- mittee and Group Chief Risk Officer by clearly defining maximum limit amounts. All limits are subject to annual review and approval according to the delegated authorities. quantifiaBle Risks in the inteRnal caPital Model The quantifiable risks that are considered in the risk model refer to market, credit, underwriting, business and operational risk. In the following sections, the evolution of the risk types in 2013 is explained. Market risk As an inherent part of our insurance operations, we collect premiums from our customers and invest them in a wide variety of assets. Therefore, the Allianz Group holds and uses many different financial instruments. The resulting investment portfolios ultimately cover the future claims and benefits to our customers. In addition, we invest shareholders’ capital, which is required to support the risks underwritten. As the fair values of our investment portfolios depend on financial markets, which may change over time, we are exposed to market risks. In order to limit the impact of any of these financial market changes and to ensure that assets adequately back policyholder lia- bilities we have several measures in place. One of these, for example, is asset/liability management linked to the internal model frame- work incorporating risks as well as return aspects stemming from our insurance obligations. In addition, we are selectively using deriva- tives to either hedge our portfolio against adverse market move- ments or to reduce our reinvestment risk, e.g. by using forwards or swaptions. Furthermore, we have a limit system in place comprising global indicators like strategic asset allocation benchmarks, as well as more detailed limits, in order to operatively manage and limit risks. The limit system is defined at Group level separately for the Life/Health and the Property-Casualty business segments and is based on a variety of different risk measures including Financial VaR, equity and interest rate sensitivities as well as investment limits around a benchmark portfolio approved by the Board of Manage- ment. Our limit-setting process ensures that prevailing statutory restrictions regarding the composition of investments are taken into account. This means that in case certain investments are restricted by statutory requirements to a certain amount – e.g. a given percent- age of total investments – our internal limit referring to those invest- ments cannot exceed the required percentage. Most statutory restric- tions apply at local level, where processes ensure bottom-up that the statutory restrictions are binding constraints. Based on this process, guidelines are derived within the group center for certain invest- ments, e.g. concerning the use of derivatives, and the compliance with those is controlled by the respective risk and controlling func- tions. C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 105 123 Controls over Financial Reporting and Risk Capital Furthermore, we have put in place standards for hedging activi- ties due to exposures to fair value options embedded in life insurance products. Life/Health operating entities carrying these exposures are required to follow these standards, including making a conscious decision on the amount of hedging.1 The hedging of risks stemming from investments is also an element applied to manage and limit risks efficiently. For example, protective puts are used to limit down- ward exposure of certain investments.2 In the following table, we present our Group-wide internal risk capital related to market risks: AllocAted internAl mArket risk cApitAl by business segment And source of risk (totAl portfolio before tAx And non-controlling interests) pre-diversified, € mn as of 31 December Property-Casualty Life/Health Asset Management Corporate and Other Total Group Interest rate Credit spread Equity Real estate Currency Total 2013 735 2012 402 2013 976 4,181 5,227 3,174 3 334 16 216 2 183 2012 1,309 2,795 – 259 2013 924 2012 768 2,996 3,570 32 707 66 607 2013 2012 2013 752 626 6 104 880 765 5 197 282 676 642 659 2012 574 2013 2012 3,669 3,933 1,047 11,653 13,404 472 240 685 1,987 559 1,519 5,253 5,861 4,335 4,363 4,659 5,011 1,488 1,847 2,259 2,333 17,994 19,415 Share of total Group- internal risk capital 42.4 % 43.1 % Our total pre-diversified internal market risk capital showed a decrease, mainly driven by market movements. In particular, rising interest rates and reduced volatilities lead to lower sensitivities of options and guarantees making our Life/Health business segment the biggest contributor to the reduction in market risk. With respect to equity risk, improved hedging activities as well as higher policy- holder participation more than offset a higher equity exposure due to rising markets and additional investments. Overall, this resulted in a decrease in equity risk. The following chart presents the sensitivity of the internal model solvency ratio under certain standard financial scenarios. These are defined by reasonably possible individual movements in key market parameters while keeping all other parameters constant with the effects impacting both the available capital and internal risk capital. impAct of stAndArd finAnciAl scenArios on internAl cApitAl rAtios (totAl port folio before non-controlling interests And After tAx And group diversificAtion) € mn as of 31 December Internal capital ratio Interest rates up by 1 % Interest rates down by 1 % Equity prices up by 30 % Equity prices down by 30 % Combined down scenarios 2013 222 230 194 232 210 182 2012 199 220 177 210 188 165 Interest rate risk As interest rates may fall below the rates guaranteed to policyholders in some Life/Health markets and given the long duration of insur- ance obligations, we are specifically exposed to interest rate risk when we have to reinvest maturing assets prior to the maturity of life contracts. This interaction of investment strategy and obligations to policyholders forms an integral part of our internal risk capital model. In addition, our asset/liability management approach is closely linked to the internal risk capital framework and designed to achieve investment returns over the long term in excess of the obligations related to insurance and investment contracts. These risks are reflected in the internal risk capital results and managed by interest rate sensitivity limits. A significant part of the Life/Health business segment’s pre-diversified internal risk capital for interest rate risk lies in Western Europe – 80.2 % as of 31 December 2013 (31 December 2012: 79.8 %) – mainly to cover traditional life insur- ance products with guarantees. We manage interest rate risk from a comprehensive corporate perspective: While the potential payments related to our liabilities in the Property-Casualty business segment are typically shorter in maturity than the financial assets backing them, the opposite usually holds true for our Life/Health business segment due to the long-term life insurance contracts. In part, this provides us with a natural hedge on an economic basis at Group level. 1 2 For further information about the risk concentration in the Life/Health business, please refer to note 20 to the consolidated financial statements. Further information on derivatives used for hedging can be found in note 43 to the consolidated financial statements. Annual Report 2013 Allianz Group 111 As of 31 December 2013, our interest rate sensitive investments excluding unit-linked business – amounting to a market value of € 457.3 bn – would gain € 32.7 bn or lose € 29.7 bn in value in case of changing interest rates by - 100 basis points and + 100 basis points, respectively. 1 Cyclical Premium approach and view the more relevant risk to be credit risk rather than credit spread. The advantage of being a long- term investor therefore gives us the opportunity to invest in bonds yielding spreads over the risk free return and earning this additional yield component. As described above, the risk related to interest rates lies in the fact that in the long run yields that can be achieved by reinvesting may not be sufficient enough to cover the guaranteed rates. In con- trast, opportunities may materialize when interest rates increase. This may result in higher returns from reinvestments than the guar- anteed rates. As the table above also demonstrates, our solvency ratio would increase by applying a 100 basis point upward parallel shift on the interest rate curve. Equity risk The Allianz Group’s insurance operating entities usually hold equity investments to diversify their portfolios and take advantage of attrac- tive long-term expected returns. Strategic asset allocation bench- marks and investment limits are used to manage and monitor these exposures. In addition, they fall within the scope of the CRisP to avoid a disproportionately large concentration of risk. As of 31 December 2013, our investments excluding unit-linked business that are sensitive to changing equity markets – amounting to a market value of € 35.3 bn – would lose € 9.3 bn in value assuming equity markets declined by 30 %. 2 Besides diversification we mainly invest in equities since, as a long-term investor, we expect to be able to earn an excess return on our investments. Risks from changes in equity prices are normally associated with decreasing share prices and increasing equity price volatilities. As stock markets also might increase above expectations, opportunities may arise from equity investments. The potentially positive effect of an increase in equity prices on our capital ratio can be seen in the table above. Credit spread risk Our internal model framework fully acknowledges the risk of declin- ing market values for our fixed income assets – such as bonds – due to the widening of credit spreads. However, for internal risk manage- ment and appetite, we also take into account the underlying econom- ics of our business model. For example, the cash flows of our insur- ance liabilities are to a large degree predictable, limiting to a great extent the risk that we would be forced to sell these bonds prior to maturity at a loss and allowing us to keep the bonds until the matu- rity date. Therefore, we reflect this in our model using a Counter Currency risk Based on our foreign exchange management limit framework, cur- rency risk is monitored and managed with the support of Group Trea- sury and Corporate Finance at the operating entity and Group level. The major part of foreign currency risk results from the economic value of our non-Euro operating entities. If non-Euro foreign exchange rates decline against the Euro from a Group perspective, the Euro equivalent net asset values also decrease. Real estate risk Because of the relative size of our real estate portfolio compared to total investments, real estate risk is currently of lesser relevance for the Allianz Group. As of 31 December 2013, about 3.5 % (31 December 2012: 4.1 %) of the total pre-diversified internal risk capital was related to real estate exposures. Credit risk The Allianz Group monitors and manages credit risk exposures and concentrations to ensure it is able to meet policyholder obligations when they are due and to maintain adequate capital and solvency positions for the operating entities and the Group as a whole. This objective is supported by the internal credit risk model and the CRisP as described in the section Concentration of risks. Group-wide credit data is collected following a centralized process and using standard obligor and obligor group mappings. Credit risk is measured as the potential economic loss in the value of our portfolio due to changes in the credit quality of our coun- terparts (“migration risk”) or the inability or unwillingness of the counterparty to fulfill contractual obligations (“default risk”). Our internal credit risk modeling framework covers counter- party risk and country risk. Counterparty risk arises from our fixed income investments, cash positions, derivatives, structured trans- actions, receivables from Allianz agents and other debtors – as well as reinsurance recoverables and credit insurance. 3 Country risk exposure is calculated as cross-border exposure to all obligors domi- ciled abroad from each operating entity perspective. 1 2 The stated market value includes all investments whose market value is sensitive to interest rate move- ments (excluding unit-linked business) and therefore is not based on classifications given by accounting principles. The stated market value includes all investments whose market value is sensitive to equity movements (excluding unit-linked business) and therefore is not based on classifications given by accounting principles. 3 Exposures to the national governments of OECD and EEA states are modeled as risk free in the credit risk internal model, if the exposure is issued in the local currency of the govern ment. This is in line with EIOPA’s advice on Level 2 Implementation Measures on Solvency II. For further information on receivables to poli- cyholders, agents and reinsurers, please refer to note 13 to the consolidated financial statements. 112 Annual Report 2013 Allianz Group C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 105 123 Controls over Financial Reporting and Risk Capital The internal credit risk capital model is a state-of-the-art tool which provides bottom-up analysis. The major drivers of credit risk for each instrument are exposure at default, ratings, seniority, col- laterals and maturity. Additional parameters assigned to obligors are migration probabilities and obligor asset correlations reflecting dependencies within the portfolio. Ratings are assigned to single obligors via an internal rating approach which is based on long-term ratings from rating agencies. It is dynamically adjusted using market implied ratings and the most recent information. The loss profile of a given portfolio is obtained through a Monte Carlo simulation taking into account interdependencies and expo- sure concentrations per obligor or segment. To reflect portfolio spe- cific diversification effects, the loss profiles are calculated at different levels of the Allianz Group structure (pre-diversified). They are then fed into the overall internal risk capital model for further aggregation across sources of risk to derive Group-diversified internal credit risk capital. allocated inteRnal cRedit Risk caPital By Business segMent (total PoRtfolio BefoRe tax and non-contRolling inteRests) PRe-diveRsified, € Mn as of 31 December Property-Casualty Life/Health Asset Management Corporate and Other Total Group internal credit risk capital Share of total Group internal risk capital 2013 1,881 3,591 169 277 5,918 14.0 % 2012 2,144 4,127 119 671 7,061 15.7 % Credit risk capital for the Group decreased due to the stabilizing credit environment and active portfolio management that aims to further improve risk diversification. Additionally, the decrease in Life/ Health and Corporate business segments is driven by a reduction of non-investment grade exposures as well as the divestment of strate- gic assets. The following table displays the sensitivities of credit risk capital to certain scenarios: deterioration of credit quality measured by issuer rating 1 downgrades and the decline of recovery rates in the event of a default (Loss-Given-Default, LGD). The sensitivities are cal- culated by applying each scenario to all exposures individually but keeping all other parameters constant.2 iMPact of selected cRedit scenaRios on inteRnal cRedit Risk caPital1 PRe-diveRsified, € Mn as of 31 December Base case Rating down by 1 notch Rating down by 2 notches lgd up by 10 % Total 2013 5,918 7,062 8,404 6,333 2012 7,061 8,349 9,879 7,597 1 A notch is referred to rating sub-classes, such as "AA+", "AA", "AA-" at Standard & Poor's scale or "Aa1", "Aa2", "Aa3" at Moody’s scale. Most of the credit risk capital requirements and impact of the sensi- tivities in the above table can be attributed to senior unsecured and lower investment grade borrowers. Different sources of Allianz credit risk exposure are described in the table below: allianz coMPonents of cRedit Risk exPosuRe allianz coMPonents of cRedit Risk descRiPtion investMent PoRtfolio ReinsuRance PoRtfolio cRedit insuRance PoRtfolio Premiums collected from our customers and shareholders’ capital, which is required to support the risks under written, are invested to a great extent in fixed income instruments. These investment portfolios ultimately cover the future claims to our customers. However, for certain life insurance products, losses due to credit events can be shared with the policyholder, as described in the context of market risks. Credit risk to external reinsurers appears when insurance risk exposures are transferred by us to external reinsurance companies to mitigate insurance risk. Potential losses can arise either due to non-recoverability of reinsurance receivables already present at the as-of date or default on benefits that are under reinsurance treaties in-force. Credit risk arises from potential claim payments on limits granted by Euler Hermes to its policyholders. Euler Hermes protects its policyholders (partially) from credit risk associated with short-term trade credits advanced to clients of the policyholder. If the client of the policyholder is unable to meet its payment obligations then Euler Hermes indemnifies the loss to the policyholder. 1 2 Credit risk capital calculations are based on issuer (borrower) ratings as opposed to issue (instrument) ratings. The difference between issue and issuer ratings is primarily due to collateralization and seniority and is reflected in loss-given-default (LGD). Scenarios are applied only to investment and reinsurance exposure positions in portfolios of Allianz operating entities. Annual Report 2013 Allianz Group 113 Credit risk – investment As of 31 December 2013, credit risk arising from the investment port- folio accounted for 81.8 % (2012: 83.4 %) of our total Group pre-diversi- fied internal credit risk capital. 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 corpo- rate bonds, covered bonds, self-originated mortgages and loans as well as a modest amount of derivatives. Due to the nature of the busi- ness, the fixed income securities in the Property-Casualty business segment tend to be short- to mid-term, which explains the lower credit risk consumption in this segment.1 Allianz has a well-diversified portfolio of Exchange- and OTC- traded derivatives, used as a part of efficient exposure management. The counterparty credit risk arising from derivatives is low, since the derivative's usage is governed by the Group-wide internal guidelines for collateralization of derivatives that stipulate master netting and collateral agreements with each counterpart and require high qual- ity and liquid collateral. In addition, Allianz closely monitors the credit ratings of counterparts and the exposure movements. Central clearing of certain classes of OTC derivatives as required by EMIR (European Market Infrastructure Regulation) and additional report- ing duties will contribute to further reducing counterparty credit risk and operational risk at Allianz. As of 31 December 2013, the rating distribution of our fixed income portfolio was as follows: 2 fixed incoMe investMents By Rating class – faiR values € Bn Type of issuer as of 31 December AAA AA A BBB BB B CCC CC C D Not rated Total Government & Agency Covered Bond Corporate Banks aBs / MBs Short-term Loan Other Total 2013 46.2 69.8 12.9 44.2 2.1 0.5 – – – – 2012 46.5 67.4 12.2 44.0 3.4 0.5 – – – – 2013 61.5 21.0 14.1 5.1 0.7 – – – – – 2012 73.2 16.2 12.6 4.9 0.1 – – – – – 3.9 3.4 0.1 0.1 2013 2012 2013 2012 2.0 9.1 35.3 56.4 6.3 2.6 0.2 0.1 – 0.4 3.9 3.0 8.9 32.3 47.0 5.9 2.6 0.1 – – 0.3 7.0 3.8 8.1 4.4 8.2 14.3 16.8 7.1 1.2 0.1 – – 0.7 – 0.2 5.6 1.0 0.2 – – – – 0.1 33.1 2013 13.8 2012 15.3 2.3 1.3 0.6 0.1 0.1 – 0.2 – – – 1.8 1.2 0.5 0.1 0.1 0.1 0.4 – – – 2013 2012 2013 2012 2013 2012 0.1 1.4 0.6 0.5 0.4 – – – – – 0.3 3.3 – 1.1 1.4 0.7 0.4 – – – – – 0.6 4.2 – 0.1 1.0 0.4 – – – – – – 1.4 2.9 – 0.1 1.1 0.4 0.1 – – – – – 1.0 2.7 127.4 111.8 79.5 142.4 103.7 77.6 112.8 104.6 10.6 11.2 3.4 0.2 0.3 – 0.4 9.7 3.3 0.2 0.4 0.7 0.3 12.3 456.1 456.7 179.6 177.4 102.5 107.1 116.3 107.1 38.7 18.4 19.5 Credit risk – reinsurance As of 31 December 2013, 2.5 % (31 December 2012: 2.1 %) of our total Group pre-diversified internal credit risk capital was allocated to reinsurance exposures – of which 59.1 % (2012: 57.5 %) was related to reinsurance counterparties in the United States and Germany. rating by Standard & Poor’s. As of 31 December 2013, non-rated rein- surance recoverables represented 17.9 % (31 December 2012: 21.7 %). Reinsurance recoverables without a Standard & Poor’s rating include exposures to brokers, companies in run-off and pools – where no rat- ing is available – as well as companies rated by A.M. Best. A dedicated team selects our reinsurance partners focusing on companies with strong credit profiles. We may also require letters of credit, cash deposits or other financial measures to further mitigate our exposure to credit risk. As of 31 December 2013, 80.6 % (31 Decem- ber 2012: 76.4 %) of the Allianz Group’s reinsurance recoverables were distributed among reinsurers that had been assigned at least an "A" 1 Additionally 4.6 % (2012: 4.1 %) of our total Group pre-diversified internal credit risk capital is allocated to receivables and potential future exposure for derivatives and reinsurance. 2 In accordance with the change in representation within the Group Management report, stated figures include investments of Banking and Asset Management, which were excluded in the former representa- tion. Due to this change our total investments increased by € 12.2 Bn as of 31 December 2012 to € 456.7 Bn (previously published: € 444.5 Bn). Table excludes private loans. 114 Annual Report 2013 Allianz Group C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 105 123 Controls over Financial Reporting and Risk Capital ReinsuRance RecoveRaBles By Rating class1 € Bn as of 31 December AAA AA+ to AA- A+ to A- BBB+ to BBB- Non-investment grade Not assigned Total 2013 0.02 5.99 3.38 0.18 – 2.08 11.65 2012 0.02 6.05 3.50 0.21 0.02 2.72 12.52 1 Represents gross exposure broken down by reinsurer. Credit risk – credit insurance Our credit insurance portfolio is modeled by Euler Hermes based on a proprietary model component, which is a local adaptation of the central internal credit risk module and is reviewed by Group Risk. The result is integrated in the Group’s internal credit risk capital to cap- ture the concentration and diversification effects. As of 31 December 2013, 11.1 % (31 December 2012: 10.4 %) of our total Group pre-diversified internal credit risk capital is allocated to Euler Hermes credit insur- ance exposures. By thoroughly managing our credit risk on the basis of our limit management and the credit risk modeling frameworks, we have com- posed a well-diversified credit portfolio. Our long-term investment strategy to hold investments through the cycle to maturity enables us to keep our portfolio stable even under adverse market conditions. It also gives us the opportunity to earn planned excess returns throughout the entire holding period of the investments. In our cred- it insurance business proactive credit management actions offer opportunities to keep losses from single credit events below expected levels and therefore strongly support writing business that contrib- utes to a balanced Group credit portfolio. Underwriting risk Underwriting risk consists of premium and reserve risks in the Prop- erty-Casualty business segment as well as biometric risks in the Life/ Health business segment. For the Asset Management business seg- ment and our banking operations underwriting risks are not relevant. The table below presents the average pre-diversified internal risk capital calculated for underwriting risks stemming from our insur- ance business over the four quarters of 2013 versus 2012, as well as the high and low quarterly internal risk capital amounts calculated in both years. 1 yeaR-end, aveRage, high and low allocated inteRnal undeRwRiting Risk caPital By souRce of Risk (total PoRtfolio BefoRe non-contRolling inteRests and BefoRe gRouP diveRsification)1 € Mn quaRteRly Results Year-end Average High Low Premium risk natural catastrophe Premium risk terror Premium risk non-catastrophe Reserve risk Biometric risk Total Group 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 427 432 458 420 353 401 442 353 24 23 25 19 21 20 21 20 3,809 3,829 3,848 3,809 3,790 3,712 3,790 3,648 5,834 5,949 6,093 5,835 6,040 5,785 6,099 5,186 525 673 878 502 913 928 1,113 731 10,619 10,906 11,070 10,619 11,117 10,846 11,117 10,254 1 As risks are measured by an integrated approach on an economic basis, internal risk capital takes reinsurance effects into account. As of 31 December 2013, underwriting risk slightly decreased mainly driven by slightly lower loss reserves decreasing our reserve risk. For biometric risk the biggest single driver for the reduction was the above mentioned model update in our Life/Health business segment. Premium risk As part of our Property-Casualty business operations, we receive pre- miums from our customers and provide insurance protection in return. Changes in profitability over time are measured based on loss ratios and their fluctuations.2 Underwriting risk – Property-Casualty Our Property-Casualty insurance businesses are exposed to premium risk related to the current year’s new and renewed business as well as reserve risks related to the business in force. 1 2 Prior year figures changed compared to last year's report due to reporting on pre-diversified basis compared to Group-diversified in 2012. Please refer to the section Property-Casualty Insurance Operations – Property-Casualty operations by reportable segments on page 76 for a regional breakdown of loss ratios over the past two years. Annual Report 2013 Allianz Group 115 We face the risk that underwriting profitability is lower than expected. The volatility of the underwriting profitability measured over one year defines our premium risk. property-casualty loss ratios 1 for the past ten years % 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Loss ratio 65.9 68.3 69.9 69.1 69.5 68.0 66.1 65.0 67.2 67.6 1 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). Premium risk is subdivided into natural catastrophe risk, terror risk and non-catastrophe risk. We calculate premium risk based on actu- arial models that are used to derive loss distributions. Premium risk is actively managed by the Allianz Group and its local operating enti- ties. Assessing the risks as part of the underwriting process is a key element of our risk management framework. There are clear under- writing limits, and restrictions are centrally defined and in place across the Group. In addition to the centrally defined underwriting limits, the local operating entities have limits in place that take into account their business environments. In addition, risks are mitigated by external reinsurance agreements. All these measures contribute to the limitation of risk accumulation. Natural disasters, such as earthquakes, storms and floods, rep- resent a significant challenge for risk management due to their accu- mulation potential and occurrence volatility. In order to measure such risks and better estimate the potential effects of natural disas- ters, we use special modeling techniques in which we combine data about our portfolio (such as the geographic distribution and charac- teristics of insured objects and their values) with simulated natural disaster scenarios to estimate the magnitude and frequency of poten- tial losses. Where such stochastic models do not exist, we use deter- ministic scenario-based approaches to estimate probable losses. The Group’s net exposure to natural catastrophes remained within our risk appetite in 2013. The top five perils contributing to the natural catastrophe risk capital were: European windstorm, U.S. hurri- cane, German hail as well as Californian and German earthquakes as of December 2013. Reserve risk We estimate and hold reserves for past claims that have not yet been settled. If the reserves are not sufficient to cover claims to be settled in the future due to unexpected changes, we would experience losses. The volatility of past claims measured over a one-year time horizon defines our reserve risk. An indicator of this coverage is the amount of net surplus 1 compared to the initial reserves.2 In general, our operating entities constantly monitor the devel- opment of reserves for insurance claims on a line of business level.3 In addition, the operating entities generally conduct annual reserve uncertainty analyses based on similar methods used for reserve risk calculations. The Allianz Group performs regular independent reviews of these analyses and Group representatives participate in the local reserve committee meetings. Underwriting risk – Life/Health Underwriting risks of our Life/Health operations (biometric risks) include mortality, disability, morbidity and longevity risks. − Mortality, disability, and morbidity risks are risks associated with the unexpected increase in the occurrence of death, dis- ability or medical claims on our traditional products including on our traditional life and health insurance products. − Longevity risk is the risk that due to changing biometric assump- tions the reserves covering our portfolio of life annuities and group pension products might not be sufficient. Biometric assumptions, such as life expectancy, play a significant role. We measure these risks within our internal risk capital model by distinguishing between the different sub-components, whenever relevant or material: absolute level, trend, volatility around the best estimate assumptions and pandemic risks. Depending on the nature and complexity of the risk involved, our Health business is repre- sented in the internal model according to Property-Casualty or Life/ Health calculation methods and is therefore included in the relevant Property-Casualty and Life/Health figures accordingly. However, most of our Health business is attributable to the Life/Health busi- ness segment. Thanks to effective product design, the diversity of our products and the substantial level of policyholder participation in Western European countries, there were no significant concentra- tions of underwriting risks within our Life/Health business as of 31 December 2013.4 Underwriting risk arises from lower profitability than expected. As profitability calculations are based on several parameters, like historical loss information, assumptions on inflation or on mortality and morbidity, the realized parameters can differ from the ones used for the calculation. For example, higher inflation than that incorpo- rated in the calculations may lead to a loss. However, deviations can 1 2 3 4 Net surplus represents the cumulative surplus from re-estimating the reserves for loss and loss adjust- ment expenses for previous years’ claims and includes foreign currency translation adjustments. For further information, please refer to note 19 to the consolidated financial statements. This figure is provided on a calendar year basis in note 19 to the consolidated financial statements. For further information, please refer to note 19 to the consolidated financial statements. For further information about insurance risk in the Life/Health business segment, please refer to note 20 to the consolidated financial statements. 116 Annual Report 2013 Allianz Group C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 105 123 Controls over Financial Reporting and Risk Capital also occur in the opposite direction, therefore being beneficial and leading to additional profit, e.g. a lower morbidity rate than expected will most likely result in lower expenses. Business risk Business risks include cost risks and policyholder behavior risks. Cost risks are associated with the risk that expenses incurred in administer- ing policies are higher than expected, or that new business volume decreases to a level that does not allow Allianz to absorb its fixed costs. Policyholder behavior risks are risks related to the unpredict- ability and adverse behavior of policyholders in exercising their different contractual options: early termination of contracts, surren- ders, partial withdrawals, renewals and annuity take-up options. Assumptions on policyholder behavior are set according to accepted actuarial methods and are based on our own historical data to the extent available, otherwise they are based on industry data or expert judgment. allocated inteRnal Business Risk caPital By Business segMent (total PoRtfolio BefoRe tax and non-contRolling inteRests) PRe-diveRsified, € Mn as of 31 December Property-Casualty Life/Health Asset Management Corporate and Other Total Group internal credit risk capital Share of total Group internal risk capital 2013 992 3,743 – – 4,735 11.2 % 2012 1,020 3,424 – – 4,444 9.9 % Business risk remained mostly stable in 2013. Small changes specifi- cally in the Life/Health business segment were mainly driven by changes in business volume and best estimate assumptions. As for underwriting risks, a positive deviation from the underlying parameters will lead to additional returns. For example, lower than expected expenses in our Property-Casualty business will lead to an improved combined ratio. Operational risk Operational risks represent losses resulting from inadequate or failed internal processes, from personnel and systems, or from external events – including legal and compliance risk but excluding losses from strategic and reputational risk. Operational risk remained mostly stable in the course of 2013. Small changes were driven by refinements in exposure coverage. Allianz has developed a Group-wide consistent operational risk management framework that focuses on the early recognition and proactive management of operational risks in all business and sup- porting functions. The framework defines roles and responsibilities, risk processes and methods and has been implemented in our major operating entities. Local risk managers ensure this framework is implemented in their respective operating entities. These identify and evaluate relevant operational risks and control weaknesses via a structured self-assessment. Furthermore, operational risk events are collected in a central loss database. An analysis of the causes of signif- icant losses is carried out to provide comprehensive and timely infor- mation to senior management and operating entities so they can implement measures aimed at avoiding or reducing future losses. allocated inteRnal oPeRational Risk caPital By Business segMent (total PoRtfolio BefoRe tax and non-contRolling inteRests) PRe-diveRsified, € Mn as of 31 December Property-Casualty Life/Health Asset Management Corporate and Other Total Group internal credit risk capital Share of total Group internal risk capital 2013 1,268 917 586 385 3,156 7.4 % 2012 1,287 914 576 249 3,026 6.7 % Major failures and disasters which could cause a severe disruption to our working environment, facilities and personnel represent signifi- cant operational risks for the Allianz Group and its operating entities. Our Business Continuity Management (bCM) framework strives to protect critical business functions from these shocks and enables them to carry out their core tasks on time and at the highest standard. Regularly enhanced, bCM activities and knowledge are embedded in the company’s risk management processes. Dedicated minimum-security standards are in place for IT sys- tems across the Allianz Group to ensure the proper use and protection of the Group’s information assets. With respect to financial state- ments, our internal control system is designed to mitigate opera- tional risks.1 In general, we aim to reduce operational failures by document- ing and sharing relevant methods, procedures, structures and pro- cesses in a comprehensive and timely manner across the Group, which is one of the fundamental principles of the Allianz Group Risk Policy. By measuring our operational risk and further developing miti- gation actions to manage the root causes we see the opportunity to reduce our operational risk exposure. otheR Risks There are certain risks that cannot be fully quantified across the Group using our internal risk capital model. For these risks, we also pursue a systematic approach with respect to identification, analysis, 1 For additional information regarding our internal control over financial reporting, please refer to the chapter Controls over Financial Reporting and Risk Capital from page 123 onwards. Annual Report 2013 Allianz Group 117 assessment and monitoring. In general, the risk assessment is based on qualitative criteria or scenario analyses. The most important of these other risks include strategic, liquidity and reputational risk. Strategic risk Strategic risk is the risk of an unexpected negative change in the com- pany’s value arising from the adverse effect of management decisions regarding business strategies and their implementation. This risk is evaluated and analyzed quarterly in the same way as reputational risk, as described below. To ensure proper implementa- tion of strategic goals in the current business plan, strategic controls are carried out by monitoring respective business targets. We also constantly monitor market and competitive conditions, capital mar- ket requirements, regulatory conditions, etc. to decide whether to make strategic adjustments. In addition, strategic decisions are dis- cussed in various Board of Management level committees (e. g. Group Capital Committee, Group Risk Committee, Group Finance Commit- tee). The assessment of the associated risks is a fundamental element in these discussions. Liquidity risk Liquidity risk is defined as the risk that short-term, current or future payment obligations cannot be met or can only be met on the basis of adversely altered conditions. Liquidity risk can arise primarily if there are mismatches in the timing of cash payments and funding obligations. Detailed information regarding Allianz Group’s liquidity risk exposure, liquidity and funding – including changes in cash and cash equivalents – is provided in the chapter Liquidity and Funding Resources from page 99 onwards and in notes 17, 23, 24 and 43 to the consolidated financial statements. The main goal of planning and managing Allianz SE’s liquidity position is to ensure that we are always able to meet payment obliga- tions. To comply with this objective, the liquidity position of Allianz SE is monitored and forecasted on a daily basis. Strategic liquidity planning over time horizons of 12 months and three years is reported to the Board of Management regularly. The accumulated short-term liquidity forecast is updated daily and is subject to an absolute minimum strategic cushion amount and an absolute minimum liquidity target. Both are defined for the Allianz SE cash pool in order to be protected against short-term liquidity crises. As part of our strategic planning, contingent liquidity requirements and sources of liquidity are taken into account to ensure that Allianz SE is able to meet any future payment obligations even under adverse conditions. Major contingent liquidity require- ments include non-availability of external capital markets, combined market and catastrophe risk scenarios for subsidiaries as well as lower than expected profits and dividends from subsidiaries. Our insurance operating entities manage liquidity risk locally, using asset-liability management systems designed to ensure that assets and liabilities are adequately matched. This decentralized 118 Annual Report 2013 Allianz Group approach guarantees sufficient flexibility in providing liquidity. The local investment strategies particularly focus on the quality of invest- ments and ensure a significant portion of liquid assets (e. g. govern- ment bonds or covered bonds) in the portfolios. This helps us to meet high liquidity requirements in the case of unlikely events. We employ actuarial methods for estimating our liabilities arising from insur- ance contracts. In the course of standard liquidity planning we recon- cile the cash flows from our investment portfolio with the estimated liability cash flows. These analyses are performed at the operating entity level and aggregated at Group level. Regarding our Asset Management business, forecasting and managing liquidity is a regular process designed to meet both regula- tory requirements and Group standards. This process is supported by the liquidity management framework implemented in Allianz Asset Management. Reputational risk Allianz’s reputation as a well-respected and socially aware provider of financial services is influenced by our behavior in a range of areas such as product quality, corporate governance, financial performance, customer service, employee relations, intellectual capital and corpo- rate responsibility. Reputational risk is the risk of an unexpected drop in the value of the Allianz share price, the value of the in-force business or the value of future business caused by a decline in our reputation. With the support of Group Communications, Group Compliance and the ESG Office 1, Group Risk defines sensitive business areas and applicable risk guidelines, which are mandatory for all operating enti- ties in the Allianz Group. All affected Group and operating entity func- tions cooperate in the identification of reputational risk. Group Com- munications is responsible for the risk assessment, based on a Group-wide methodology. Single reputational risk management decisions are integrated in the overall risk management framework and reputational risks are identified and assessed as part of a quar- terly Top Risk Assessment, during which senior management also decides on a risk management strategy and related actions. In addi- tion, reputational risk is managed on a case-by-case basis. Single cases with a potential impact on other operating entities or the Group have to be reported to Allianz SE for pre-approval. 1 The Allianz Environmental, Social, Governance (ESG) Board and ESG office are constituted as advisor to the Board of Management of Allianz SE and will further elevate environmental, social and governance aspects in corporate governance and decision-making processes of Allianz Group. C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 105 123 Controls over Financial Reporting and Risk Capital Risk governance Risk ManageMent fRaMewoRk As a provider of financial services, we consider risk management to be one of our core competencies. It is therefore an integral part of our business process. Our risk management framework covers, on a risk based approach, all operations including IT, processes, products and departments/subsidiaries within the Group. The key elements of our risk management framework are: − Promotion of a strong risk management culture supported by a robust risk governance structure. − Consistent application of an integrated risk capital framework across the Group to protect our capital base and support effective capital management. − Integration of risk considerations and capital needs into man- agement and decision-making processes through the attribution of risk and allocation of capital to the various segments. This comprehensive framework ensures that risks are identified, ana- lyzed, assessed and managed in a consistent manner across the Group. Our risk appetite is defined by a clear risk strategy and limit structure. Close risk monitoring and reporting allows us to detect potential deviations from our risk tolerance at an early stage at both the Group and operating entity levels. For the benefit of shareholders and policyholders alike, our risk management framework adds value to Allianz SE and its operating entities through the following four primary components: Risk underwriting and identification: A sound risk underwriting and identification framework forms the foundation for adequate risk taking and management decisions such as individual trans action approvals, new product approvals and strategic or tactical asset allo- cations. The framework includes risk assessments, risk standards, valuation methods and clear minimum standards for underwriting. Risk reporting and monitoring: Our comprehensive qualitative and quantitative risk reporting and monitoring framework provides senior management with the transparency and risk indicators to help them decide our overall risk profile and whether it falls within delegated limits and authorities. For example, risk dashboards, inter- nal risk capital allocation and limit consumption reports are regu- larly prepared, communicated and monitored. Risk strategy and risk appetite: Our risk strategy clearly defines our risk appetite. It ensures that rewards are appropriate for the risks taken and that the delegated authorities are in line with our overall risk-bearing capacity. The risk-return profile is improved through the integration of risk considerations and capital needs into decision- making processes. This also keeps risk strategy and business objec- tives consistent with each other and allows us to take opportunities within our risk tolerance. Communication and transparency: Finally, transparent and robust risk disclosure provides the basis for communicating this strategy to our internal and external stakeholders, ensuring a sus- tainable positive impact on valuation and financing. It also strength- ens the risk awareness and risk culture throughout the entire Group. Risk goveRnance stRuctuRe As a key element of our risk management framework, Allianz’s approach to risk governance enables integrated management of our local and global risks and ensures that our risk profile remains con- sistent with our risk strategy and our capacity to bear risks. Supervisory Board and Board of Management Within our risk governance system the Supervisory Board and Board of Management of Allianz SE have both Allianz SE and Group-wide responsibilities and have set up committees to provide them with support. Examples include: Supervisory Board The Risk Committee supervises the effectiveness of the Allianz risk management and monitoring framework. Furthermore, it focuses on risk-related developments as well as general risks and specific risk exposures. Board of Management The Board of Management formulates business objectives and a cor- responding, consistent risk strategy. The core elements of the risk framework are set out in the Allianz Group Risk Policy, which is approved by the Board of Management. − The Group Capital Committee supports the Board of Manage- ment with recommendations regarding risk strategy, capital and limit allocation. − The Group Risk Committee defines risk standards and forms the major limit-setting authority within the framework set by the Board of Management. − The Group Finance Committee is authorized by the Board of Management to oversee investment and financing activities, including the approval of significant transactions of Allianz SE and Allianz Group companies. Annual Report 2013 Allianz Group 119 All business line management functions with direct profit and loss responsibility (i.e. first line of defense, or “risk-taking units”) are in charge of active risk-return management through adherence to delegated limits and the operating entity policy framework. Second line of defense functions, where possible, support business functions in proactive risk management. A risk function that is independent from the business line man- agement is established by the operating entity. This function operates under the direction of the operating entity Chief Risk Officer who is responsible for overseeing the risk function. In addition, a local Risk Committee supports both the operating entity Board of Management and the Chief Risk Officer by acting as the primary risk controlling body. Group Risk is also represented on the local Risk Committees to enhance the risk dialogue between the Group and the operating entities. Other functions and bodies In addition to Group Risk and the operating entity Risk function, Legal and Compliance functions have been established at both Group and operating entity level, constituting additional compo- nents of the second line of defense. Group Legal and Compliance seeks to mitigate legal risks with support from other departments. Legal risks include legislative changes, major litigation and disputes, regulatory proceedings and contractual clauses that are unclear or construed differently by the courts. Compliance risk is the risk of legal or regulatory sanctions, material financial loss or loss to reputation that an undertaking may suffer as a result of not complying with applicable laws, regulations and administrative provisions. The objectives of Group Legal and Compliance are to ensure that laws and regulations are observed, to react appropriately to all impending legislative changes or new court rulings, to attend to legal disputes and litigation, and to provide legally appropriate solutions for transactions and business processes. Group Legal and Compliance is in addition responsible for integrity management – which aims to protect the Allianz Group, our operating entities and employees from regulatory risks. In order to adapt to a continually changing environment, the Global Issues Forum (GIF) supports the Group in the assessment of long-term trend changes in the risk landscape on a timely basis. As an active participant in the Emerging Risk Initiative of the Chief Risk Officer Forum, we monitor with other chief risk officers of major Euro- pean insurance companies and financial conglomerates the industry- wide risk landscape and raise awareness of major risks for the insur- ance industry. Overall risk organization and roles in risk management A comprehensive system of risk governance is achieved by setting standards related to organizational structure, risk strategy, written policies, limit systems, documentation and reporting. These stan- dards ensure the accurate and timely flow of risk-related information, as well as a disciplined approach towards decision-making and execution at both the global and local level. As a general principle, the “first line of defense” rests with busi- ness managers in the local operating entities and Allianz Investment Management units. They are responsible, in the first instance, for both the risks and returns of their decisions. Our “second line of defense” is made up of our independent, global oversight functions such as Risk, Compliance and Legal. Audit forms the “third line of defense”. On a periodic basis, Group Audit independently reviews risk governance implementation, performs quality reviews of risk pro- cesses and tests adherence to business standards including the inter- nal control framework. Group Risk Group Risk is headed by the Group Chief Risk Officer and reports to the Board member responsible for Finance, Controlling and Risk. Group Risk supports the aforementioned Allianz Group committees responsible for risk oversight through the analysis and communica- tion of risk management related information and by facilitating the communication and implementation of committee decisions. For example, Group Risk is operationally responsible for moni- toring limits and accumulation of specific types of risks across busi- ness lines, such as natural disasters and exposures to financial mar- kets and counterparties. In addition, Group Risk independently supports the adequacy of the operating entity risk management through the development of a common risk management framework and by monitoring adherence to Group minimum requirements for methods and processes. Group Risk strengthens and maintains the Group’s risk network through regular and close interaction with the operating entities’ management and key areas such as the local finance, risk, actuarial and investment departments. A strong risk network across the Group allows us to identify risks early and bring them to the attention of management. Operating entities Operating entities are responsible for their own risk management, including adherence to both external requirements (for example, those imposed by local regulators) and internal Group-wide standards. The operating entities’ Board of Management is responsible for setting and approving an operating entity risk strategy during the annual Strategic and Planning Dialogues with the Group and ensur- ing operating entity adherence to this risk strategy. 120 Annual Report 2013 Allianz Group C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 105 123 Controls over Financial Reporting and Risk Capital Risk management priorities for 2014 In addition to maintaining our high standards and practices in day- to-day risk management and control, we have set the following pri- orities for 2014. Our first priority is to continue to refine and improve our busi- ness steering frameworks in light of the lessons learned from the financial market uncertainty. This addresses in particular the Euro- pean sovereign debt crisis and a sustained low interest rate environ- ment. In addition we will reorganize our committee structure to further strengthen our risk governance and to foster efficient risk management decisions. In particular, we will merge the Group Risk Committee and Group Finance Committee into a new Group Finance and Risk Committee (GFRC). Furthermore, the Group Capital Com- mittee will be strengthened to speed up decision processes. Our second priority is to prepare for the Solvency II internal model application process. To this end, we will continue to actively participate in the pre-approval process for Solvency II with the rele- vant European supervisors. However, given the remaining uncer- tainty surrounding the final implementation measures and their interpretation, we will need to adapt our internal risk capital frame- work and risk processes as necessary to comply with the evolving Solvency II standards. In particular, we anticipate reviewing our transferability and fungibility restrictions, replacing the illiquidity premium with a so-called “volatility adjustment” for the valuation of life technical provisions, reviewing our credit and credit spread risk approach as well as our aggregation approach, each of which may have an impact on our internal model solvency ratio. Our third priority is to ensure that we also meet the emerging requirements being defined for G-SIIs, focusing especially in 2014 on developing a Recovery Plan. Further future challenges and opportunities1 The success of our business is heavily affected by a variety of global, long-term issues. To ensure our sustainable and profitable growth, our strategy places a high priority on monitoring, analyzing and responding to the challenges and opportunities these issues present, today and tomorrow. By consistently following our Group strategy, we are confident that the Allianz Group is in a privileged position to build on this trust and deal with the challenges and opportunities ahead. Key challenges and opportunities, as we see them, are outlined below. 1 For further information on the Cautionary note regarding forward-looking statements, please refer to the chapter Outlook 2014 from page 87 onwards. cliMate change and societal challenges Global warming threatens to change our climate. We are well aware that climate change could result in a range of compound risks and opportunities that affect our entire business. We have been imple- menting a Group-wide strategy covering climate-related risks and opportunities for our business and our customers. We finance and insure low-carbon energy projects, such as wind and solar, offer cus- tomers Green Solutions and provide them with advice on weather- related risk reduction. We incorporate environmental, social and governance factors into our asset management and reduce and offset our own carbon emissions. Demographic changes are creating both opportunities and chal- lenges for financial services providers. While the urban populations of Asia and Africa are expanding and their middle classes growing, Western populations are aging and their workforces shrinking. With more people over 60 years old than ever before, and declining birth rates, social security systems are under pressure and demand is growing for additional pension provisions. We are responding to these trends through integrated asset management and insurance solutions. Our solid market position in continental Europe and the United States, as well as our strong brand and well-diversified product portfolio put us in an excellent position to further benefit from pro- viding products and services for old-age, health care and assistance. In emerging economies, the need for formal social security sys- tems is growing due to the weakening of traditional family ties and support networks. From life to health and crop insurance, our growing microinsurance portfolio helps low-income families in developing countries to protect themselves against and better manage the risks in life to build a more secure future. Although financial returns from microinsurance are much lower than from traditional products, we believe that satisfied microinsurance policyholders will bring a mid- to long-term return on investment as many of them move up the economic ladder and graduate towards more regular Allianz products. The evolution of the digital world has dramatically changed the way customers consume media, search for information or recom- mendations and buy products. Social networks and other online channels are gaining in importance. In parallel, expectations of ser- vice levels are increasing. We are continuously adapting to this new digital lifestyle to stay connected with our stakeholders and improve customer service. In the framework of the Allianz Digital Target Picture program we leverage the opportunities that changing customer pref- erences provide. For more information, please refer to the chapter Progress in Sustainable Development from page 59 onwards. Annual Report 2013 Allianz Group 121 Capital allocation, ensuring that capital is available and allo- cated appropriately to finance growth initiatives and leveraging the Group's diversification benefits: In 2013, through our focus on capital allocation, we increased dividend payments from our operating entities to further allow the Group to support the financing of growth initiatives. The introduction of further refined return on capital metrics at the level of lines of business further supports the Group’s strategic decision making. Leverage Group synergies: We continue to leverage Group syner- gies via know-how and best practice sharing in underwriting, product development and operations through Global Property-Casualty and Global Life/Health units. At the same time, we are further developing shared services in various areas, especially in Operations and Finance. Numerous internal efforts are ongoing to identify improvement potentials and share best practices, e.g. in Operations and in Claims Management. In Human Resources, we are strengthening our efforts for international rotation of talents. Strategic Investments: Strategic investments also open up new business opportunities. For example, Allianz is growing its Business to Business to Customer (b2b2C) area. By pairing up value proposi- tions – Automotive with Roadside Assistance, and International Health with Corporate Assistance – under the roof of Allianz World- wide Partners, we are taking a distinctive position in the b2b2C market. One major advantage for us is to extend agreements with distributors across global markets in a seamless manner. Allianz also operates an incubator to develop and pilot innovative ideas before they are imple- mented across the Group. RegulatoRy and legal changes The insurance industry is faced with increased regulation in devel- oped markets, for example Solvency II in the European Union and the systemic risk discussions (G-SII) led by the Financial Stability Board. In July 2013, Allianz was identified as global systemically impor- tant insurer (G-SII). Policy measures applicable to G-SIIs include recovery and resolution planning requirements, enhanced group- wide supervision and – most likely – harmonized and potentially higher capital requirements. In any event, administrative costs relat- ing to recovery and resolution planning measures will increase. In addition, Solvency II in particular may heavily impact long- term savings businesses and may also make investments in equities and other asset classes less attractive. However, these regulatory trends could open up major opportu- nities as greater capital needs and regulation may lead to sector con- solidation where only financially sound insurance companies will survive. Risk and oPPoRtunity ManageMent stRategic investMents As previously described, the Group has a well-established strategy and planning process with all Group operating entities which allows us to understand and respond to local risks and opportunities. This strong diversification across markets, business segments and cus- tomer groups gives Allianz a powerful lever to identify new opportu- nities and manage risks. In addition to these joint efforts, Allianz has built four opera- tional and strategic pillars to help the Group create opportunities on a wider basis: Digitalization, enabling us to take advantage of new products through channels to new markets at lower cost: Digitalization is one of our major ongoing Group initiatives and affects all areas of Allianz, including our customers and our employees. This initiative spans everything from the design of new modular products, to new forms of access, to servicing existing customers in a better way. For example we are developing web-based and multi-access customer interaction tools to address changing customer behaviors. On the operational side, we are harmonizing systems across the Group to reduce com- plexity and improve efficiency. We are making considerable progress in this Group-wide digital transformation program and will invest approximately € 300 Mn in 2014 to build reusable assets in the three areas of the Allianz Digital Target Picture: Customer Interaction, Ana- lytics & Products and Productivity. These initiatives are based on multi-year strategic infrastructure programs. Allianz will invest approximately € 200 Mn in 2014 focused primarily on the consolidation of data center operations worldwide and on the implementation of a private global network. Digitalization is also the basis for enhanced management information systems to improve steering. When driv- ing digitalization, security and data confidentiality remain a major priority. 122 Annual Report 2013 Allianz Group C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 105 123 Controls over Financial Reporting and Risk Capital Controls over Financial Reporting and Risk Capital Statements pursuant to § 289 (5) and § 315 (2) no. 5 of the German Commercial Code (“Handelsgesetzbuch – HGB”) and explanatory report. accountIng and consolIdatIon processes The accounting and consolidation processes we use to produce con- solidated financial statements are based on a central consolidation and reporting IT solution and local general ledger solutions. The latter are largely harmonized throughout the Group, using standardized processes, master data, posting logics and interfaces for data delivery to the Holding. Access rights to accounting systems are managed according to strict authorization procedures. Accounting rules for the classification, valuation and disclosure of all items in the balance sheet, income statement and related notes of the annual and interim financial statements are primarily defined in our Group accounting manual. Internal controls are embedded in the accounting and consolidation processes to safeguard the accu- racy, completeness and consistency of the information provided in the financial statements. Internal controls over financial reporting In line with both our prudent approach to risk governance and com- pliance with regulatory requirements, we have created a structure to identify and mitigate the risk of material errors in our consolidated financial statements. Our internal control system over financial reporting (ICOFR) is based on the framework developed by the Com- mittee of Sponsoring Organizations of the Treadway Commission (COSO) in the year 1992 and is regularly reviewed and updated. Our approach also includes the following five interrelated components: Control Environment, Risk Assessment, Control Activities, Informa- tion and Communication, and Monitoring. These five components are covered by an Entity Level Control Assessment Process (ELCA), IT General Controls (ITGC) and controls at process levels. The ELCA framework contains controls such as a compliance program or com- mittee governance structure. In the ITGC framework we implemented, for example, controls regarding access right management or project and change management controls. Internal control system approach Internal control system approach Scoping Identify risks Implement key controls Assessment Determination of significant accounts and operating entities to be covered by system of internal control. Identification of risk scenarios that could result in a material financial misstatement. Implementation of key controls that prevent or detect errors or fraud resulting from risk scenarios. Assessment of the design and operating effectiveness of key controls. process Our approach can be summarized as follows: − We use a top-down, risk-based approach to determine the accounts and operating entities that should fall under the scope of our internal control system over financial reporting. The meth- odology is described in our ICOFR manual. During the scoping process, materiality and susceptibility to a misstatement are considered simultaneously. The final results are documented in the list of operating entities under the scope of ICOFR as well as in the list of significant accounts. In addition to the quantitative ICOFR calculation we also consider qualitative criteria – such as expected increase in business volume – which are provided by different Group Centers, Group Audit and external Audit. − Then, our local entities identify risks that could lead to material financial misstatements including all relevant root causes (i.e. human processing errors, fraud, system weaknesses, external factors, etc.). After identifying and analyzing the risks the potential impacts and occurrence probabilities are evaluated. Annual Report 2013 Allianz Group 123 Risk capital controls Similar to our ICOFR framework, we have also established a robust and comprehensive control concept in the risk capital calculation and aggregation process, since our internal risk capital calculations incorporate economic factors that are not fully reflected in the accounting results. We have put in place additional controls within our management reporting processes to ensure that these additional estimates are adequately controlled. These controls include the validation of models and assump- tions by independent reviews and continuous benchmarking to market and/or peer assumptions and practices. We benchmark and explain our non-market assumptions against practices in the industry, actuarial associations and guidance from supervisory authorities. During 2013, we worked on further improving the internal con- trol environment around the computation of our internal risk capital in anticipation of the future Solvency II regime. We will continue to make refinements as the Solvency II requirements evolve. − Preventive and detective key controls over the financial reporting process are put in place to reduce the likelihood and the impact of financial misstatements. If a potential risk materializes, actions are taken to reduce the impact of the financial misstate- ment. Given the strong dependence of financial reporting pro- cesses upon information technology systems, we also include IT controls. − Finally, we focus on ensuring that controls are appropriately designed and effectively executed. We have set consistent docu- mentation requirements across the Allianz Group for elements such as processes, related key controls and their execution. We conduct an annual assessment of our control system to maintain and continuously enhance its effectiveness. Group Audit and local internal audit functions ensure that the overall quality of our control system is subjected to regular control-testing, to assure reasonable design and operating effectiveness. Internal Audit does so through a comprehensive risk-based approach, which holistically assesses the key controls of the company’s internal procedures and processes, including local and Group internal controls over financial reporting. governance Responsibility for ensuring the completeness, accuracy and reliability of our consolidated financial statements rests with the Chairman of the Board of Management and the board member responsible for Finance, Controlling and Risk of Allianz SE, supported by Group Center functions, the Group Disclosure Committee and operating entities. The Group Disclosure Committee ensures that these board members are made aware of all material information that could affect our disclosures and assesses the completeness and accuracy of the information provided in the quarterly and annual financial reports. The committee meets on a quarterly basis before the financial reports are issued. Subsidiaries within the scope of our control system are individu- ally responsible for adhering to the Group’s internal control policy and for creating local Disclosure Committees that are similar to the Group-level committee. The entities’ CEOs and CFOs provide periodic sign-offs to the management of Allianz SE, certifying the effectiveness of their local system of internal controls as well as the completeness, accuracy and reliability of financial data reported to the Holding. Further control mechanIsms In our opinion, a strong internal control environment is key to man- age our company successfully and to reinforce trust with our stake- holders. In addition to ICOFR, for example, we have implemented an enhanced internal control environment across our largest Life insur- ance operating entities for the Market Consistent Embedded Value (MCEV) reporting process. 124 Annual Report 2013 Allianz Group Armin Sandhövel, CEO Allianz Climate Solutions, Germany * One success factOr in business is wOrking with nature. nOt against it. Our goal is to continually improve our service while doing business in a responsible way. For that reason, we have always attached great impor- tance to forward-looking investments, which lay the foundations for profit- able and sustainable growth in our segments. D _ cOnsOliDateD financial statements 127 Consolidated BalanCe sheets 128 Consolidated inCome statements 129 130 131 Consolidated statements of Comprehensive inCome Consolidated statements of Changes in equity Consolidated statements of Cash flows 134 notes to the Consolidated finanCial statements General Information Notes to the Consolidated Income Statements Pages 126 – 242 134 134 143 147 150 154  1 Nature of operations and basis of presentation  2 Summary of significant accounting policies  3 Use of estimates and assumptions  4 Recently adopted and issued accounting pronouncements and changes in the presentation of the consolidated financial statements  5 Consolidation  6 Segment reporting Notes to the Consolidated Balance Sheets 168 168 168 172 172 173 174 176 176 181 181 182 182 187 190 191 192 193 193 Financial assets carried at fair value through income Investments Loans and advances to banks and customers Non-current assets classified as held for sale Intangible assets Financial liabilities carried at fair value through income Liabilities to banks and customers  7 Cash and cash equivalents  8  9 10 11 Reinsurance assets 12 Deferred acquisition costs 13 Other assets 14 15 16 17 18 Unearned premiums 19 Reserves for loss and loss adjustment expenses 20 Reserves for insurance and investment contracts 21 Financial liabilities for unit-linked contracts 22 Other liabilities 23 Certificated liabilities 24 25 Subordinated liabilities Equity 126 annual report 2013 allianz group 196 196 197 198 198 198 199 200 200 201 201 201 201 201 202 202 202 26 Premiums earned (net) 27 28 Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Fee and commission income 29 Realized gains/losses (net) 30 31 Other income 32 Income and expenses from fully consolidated private equity investments 33 Claims and insurance benefits incurred (net) 34 Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses 35 36 37 38 39 Acquisition and administrative expenses (net) 40 41 Other expenses 42 Income taxes Fee and commission expenses Other Information 205 207 218 218 222 225 228 230 230 232 233 240 241 Financial instruments and fair value measurement 43 Derivative financial instruments 44 45 Related party transactions 46 Contingent liabilities, commitments, guarantees, and assets pledged and collateral 47 Pensions and similar obligations 48 Share-based compensation plans 49 Restructuring plans 50 Earnings per share 51 Other information 52 Subsequent events List of participations of the Allianz Group as of 31 December 2013 according to § 313 (2) HGB Responsibility statement Auditor’s report D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Consolidated balanCe sheets consolidated balance sheets € mn assets Cash and cash equivalents Financial assets carried at fair value through income 1 Investments 2 Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets classified as held for sale Intangible assets Total assets liabilities and eQUitY Financial liabilities carried at fair value through income Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Certificated liabilities Subordinated liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity as of 31 December 2013 as of 31 December 2012 as of 1 January 2012 Note 7 8 9 10 11 12 42 13 14 15 16 17 18 19 20 21 42 22 23 24 25 11,207 7,245 411,015 116,800 81,064 12,609 22,203 1,508 34,632 147 13,100 711,530 6,013 23,109 18,212 66,566 12,437 7,283 401,628 119,369 71,197 13,254 19,452 1,526 35,196 15 13,090 694,447 5,397 22,425 17,939 72,540 10,492 8,466 350,645 124,738 63,500 12,874 20,772 2,474 34,043 14 13,304 641,322 6,610 22,155 17,255 68,832 404,072 390,985 361,956 81,064 3,178 36,883 8,030 11,554 71,197 4,035 37,392 7,960 11,614 63,500 3,414 33,031 7,649 11,173 658,681 641,484 595,575 50,084 2,765 52,849 50,388 2,575 52,963 43,457 2,290 45,747 711,530 694,447 641,322 1 As of 31 December 2013 and 2012, no financial assets carried at fair value through income are pledged to creditors and can be sold or repledged. 2 As of 31 December 2013, € 2,112 mn (2012: € 2,460 mn) are pledged to creditors and can be sold or repledged. Annual Report 2013 Allianz Group 127 Consolidated inCome statements consolidated income statements € mn Gross premiums written Ceded premiums written Change in unearned premiums Premiums earned (net) Interest and similar income Income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Fee and commission income Other income Income from fully consolidated private equity investments Total income Claims and insurance benefits incurred (gross) Claims and insurance benefits incurred (ceded) Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Loan loss provisions Impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Amortization of intangible assets Restructuring charges Other expenses Expenses from fully consolidated private equity investments Total expenses Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Basic earnings per share (€) Diluted earnings per share (€) 128 Annual Report 2013 Allianz Group Note 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 15 49 41 32 42 50 50 2013 72,051 (4,541) (882) 66,628 20,918 (1,842) 4,285 10,492 209 726 2012 72,086 (5,336) (705) 66,045 21,084 (511) 4,327 9,812 214 788 101,416 101,759 (50,178) (51,744) 2,376 (47,802) (13,990) (1,322) (86) (611) (905) (22,865) (3,038) (136) (170) (106) (741) 2,871 (48,873) (14,360) (1,477) (111) (934) (876) (22,046) (2,895) (259) (268) (94) (847) (91,772) (93,040) 9,644 (3,300) 6,344 8,719 (3,161) 5,558 348 5,996 13.23 13.05 327 5,231 11.56 11.48 D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Consolidated statements of Comprehensive inCome consolidated statements of comprehensive income € mn Net income Other comprehensive income Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments Reclassifications to net income Changes arising during the year Subtotal Available-for-sale investments Reclassifications to net income Changes arising during the year Subtotal Cash flow hedges Reclassifications to net income Changes arising during the year Subtotal Share of other comprehensive income of associates Reclassifications to net income Changes arising during the year Subtotal Miscellaneous Reclassifications to net income Changes arising during the year Subtotal Items that may never be reclassified to profit or loss Actuarial gains and losses on defined benefit plans (see note 4) Total other comprehensive income 2013 6,344 2012 5,558 (1) (1,305) (1,306) (817) (2,537) (3,354) 10 (63) (53) – (82) (82) – 105 105 362 (4,328) – (84) (84) (689) 6,270 5,581 (2) 67 65 (1) 10 9 – 175 175 (1,816) 3,930 Total comprehensive income 2,016 9,488 Total comprehensive income attributable to: Non-controlling interests Shareholders 310 1,706 524 8,964 For further details concerning income taxes relating to components of the other comprehensive income, please see note 42. Annual Report 2013 Allianz Group 129 Consolidated statements of Changes in equity consolidated statements of changes in eQUitY € mn Balance as of 1 January 2012, as previously reported Adjustments (see note 4) Balance as of 1 January 2012, as reported Total comprehensive income 1 Paid-in capital Treasury shares Transactions between equity holders Dividends paid Balance as of 31 December 2012 Total comprehensive income 1 Paid-in capital Treasury shares Transactions between equity holders Dividends paid Paid-in capital 28,763 – 28,763 – 52 – – – 28,815 – 55 – – – Balance as of 31 December 2013 28,870 Foreign currency translation adjustments Unrealized gains and losses (net) Shareholders’ equity Non- controlling interests Total equity (1,996) (1) (1,997) (84) – – 8 – 4,626 – 4,626 5,493 – – 3 – (2,073) (1,234) 10,122 (3,382) – – (5) – – – 1 – (3,312) 6,741 44,915 (1,458) 43,457 8,964 52 5 (53) (2,037) 50,388 1,706 55 (2) (24) (2,039) 50,084 2,338 (48) 2,290 524 – – (62) (177) 2,575 310 – – 144 (264) 2,765 47,253 (1,506) 45,747 9,488 52 5 (115) (2,214) 52,963 2,016 55 (2) 120 (2,303) 52,849 Retained earnings 13,522 (1,457) 12,065 3,555 – 5 (64) (2,037) 13,524 6,322 – (2) (20) (2,039) 17,785 1 Total comprehensive income in shareholders’ equity for the year ended 2013 comprises net income attributable to shareholders of € 5,996 mn (2012: € 5,231 mn). 130 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Consolidated statements of Cash flows consolidated statements of cash flows € mn sUmmarY Net cash flow provided by operating activities Net cash flow used in investing activities Net cash flow used in financing activities Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period cash flow from operating activities Net income Adjustments to reconcile net income to net cash flow provided by operating activities Share of earnings from investments in associates and joint ventures Realized gains/losses (net) and impairments of investments (net) of: 2013 2012 23,239 (22,802) (1,435) (232) (1,230) 12,437 11,207 18,888 (14,860) (2,036) (47) 1,945 10,492 12,437 6,344 5,558 (146) (143) 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 (3,674) (3,393) Other investments, mainly financial assets held for trading and designated at fair value through income Depreciation and amortization Loan loss provisions Interest credited to policyholder accounts Net change in: Financial assets and liabilities held for trading Reverse repurchase agreements and collateral paid for securities borrowing transactions Repurchase agreements and collateral received from securities lending transactions Reinsurance assets Deferred acquisition costs Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Deferred tax assets/liabilities Other (net) Subtotal Net cash flow provided by operating activities 920 1,108 86 4,163 300 227 95 (207) (720) 832 (1,071) 12,005 375 2,602 16,895 23,239 518 1,124 111 4,790 (1,755) 256 724 (266) (656) 766 1,101 9,162 (68) 1,059 13,330 18,888 Annual Report 2013 Allianz Group 131 Consolidated statements of Cash flows – Continued 2013 2012 1,451 120,354 2,076 124,720 836 457 24 663 9,863 200 133,848 990 211 276 425 11,424 229 140,351 (860) (1,121) (143,928) (144,354) (653) (850) – (1,504) (6,940) (1,484) (1,012) (538) (229) (1,112) (5,811) (1,607) (156,219) (155,784) 81 (416) (695) 599 – (8) 330 251 (22,802) (14,860) 873 6,236 (419) 9,084 (6,204) (8,315) 47 13 (2,303) 7 (104) (1,435) 44 (115) (2,214) 6 (107) (2,036) consolidated statements of cash flows € mn cash flow from investing activities Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Non-current assets classified as held for sale Real estate held for investment Loans and advances to banks and customers (purchased loans) Property and equipment Subtotal Payments for the purchase or origination of: Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Non-current assets classified as held for sale Real estate held for investment Loans and advances to banks and customers (purchased loans) Property and equipment Subtotal Business combinations (note 5): Proceeds from sale of subsidiaries, net of cash disposed Acquisitions of subsidiaries, net of cash acquired Change in other loans and advances to banks and customers (originated loans) Other (net) Net cash flow used in investing activities cash flow from financing activities Net change in liabilities to banks and customers Proceeds from the issuance of certificated liabilities and subordinated liabilities Repayments of certificated liabilities and subordinated liabilities Cash inflow from capital increases Transactions between equity holders Dividends paid to shareholders Net cash from sale or purchase of treasury shares Other (net) Net cash flow used in financing activities 132 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Consolidated statements of Cash flows – Continued consolidated statements of cash flows € mn sUpplementarY information on the consolidated statements of cash flows Income taxes paid Dividends received Interest received Interest paid 2013 2012 (3,672) 1,355 18,657 (1,308) (2,233) 1,156 18,975 (1,503) Annual Report 2013 Allianz Group 133 Notes to the Consolidated Financial Statements General InformatIon 1 – Nature of operations and basis of presentation Nature of operatioNs Allianz SE and its subsidiaries (the Allianz Group) maintain Property- Casualty insurance, Life/Health insurance and Asset Management operations in over 70 countries, with the largest of its operations in Europe. The Allianz Group’s headquarters and Allianz SE as its parent company are located in Munich, Germany. Allianz SE is recorded in the Commercial Register of the municipal court in Munich under its registered address at Koeniginstraße 28, 80802 Munich. Allianz SE is a stock corporation in the form of a European Com- pany (Societas Europaea). Allianz SE shares are listed on all German stock exchanges and Allianz SE American Depositary Receipts (ADRs) are traded in the U.S. over the counter on OTCQX. The consolidated financial statements of the Allianz Group for the year ended 31 December 2013 were authorized for issue by the Board of Management on 24 February 2014. Basis of preseNtatioN The consolidated financial statements of the Allianz Group have been prepared in conformity with International Financial Reporting Standards (IFRS), as adopted under European Union (E.U.) regula- tions in accordance with § 315a of the German Commercial Code (HGB). Within these consolidated financial statements, the Allianz Group has applied all standards and interpretations issued by the IASB and endorsed by the E.U. that are compulsory as of 31 December 2013. IFRS comprise International Financial Reporting Standards (IFRS), International Accounting Standards (IAS) and interpretations developed by the IFRS Interpretations Committee (formerly called the IFRIC) or the former Standing Interpretations Committee (SIC). IFRS do not provide specific guidance concerning all aspects of the recognition and measurement of insurance contracts, reinsur- ance contracts and investment contracts with discretionary partici- pation features. Therefore, as envisioned in IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, to those aspects where specific guidance is not provided by IFRS 4, Insurance Contracts, the provisions embodied under accounting principles generally accepted in the United States of America (US GAAP) as at first-time adoption of IFRS 4 on 1 January 2005 have been applied. The accounting policies adopted are consistent with those of the previous financial year, except for recently adopted IFRS effective 1 January 2013. 134 Annual Report 2013 Allianz Group The consolidated financial statements are prepared as of and for the year ended 31 December and presented in millions of Euro (€), unless otherwise stated. 2 – Summary of significant accounting policies priNCipLes of CoNsoLiDatioN Scope of consolidation In line with IAS 27 and SIC 12, the consolidated financial statements of the Allianz Group comprise the financial statements of Allianz SE, its subsidiaries and certain investment funds and special purpose entities (SPEs). Subsidiaries, investment funds and SPEs, hereafter “subsidiaries”, which are directly or indirectly controlled by the Allianz Group, are consolidated. Control exists when the Allianz Group has the power to govern the financial and operating policies of the sub- sidiary generally either when the Allianz Group owns directly or indi- rectly more than half of the voting rights of the subsidiary or when control can be legally evidenced otherwise because of an agreement with other investors or of a specific corporate charter. In order to determine whether control exists, potential voting rights that are cur- rently exercisable or convertible are taken into consideration. If no control exists from a legal perspective, it is assessed whether control exists from an economic perspective, as in the case of SPEs. Subsidiaries are consolidated as from the date on which control is obtained by the Allianz Group. Subsidiaries are consolidated up to the date on which the Allianz Group no longer maintains control. Accounting policies of subsidiaries have been adjusted where neces- sary to ensure consistency with the accounting policies adopted by the Allianz Group. The effects of intra-Allianz Group transactions have been eliminated. Third-party assets held in an agency or fiduciary capacity are not assets of the Allianz Group and are not presented in these consoli- dated financial statements. Business combinations including acquisitions and disposals of non-controlling interests Business combinations are accounted for using the acquisition method. Non-controlling interests in the acquiree can be measured either at the acquisition date fair value or at the non-controlling interest’s proportionate share of the acquired’s identifiable net assets. This option is exercised on a case-by-case basis. D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Investments in associates and joint ventures In general, if the Allianz Group holds 20 % or more of voting power in an investee but does not control the investee, it assumes to exercise significant influence, unless it can be clearly demonstrated that this is not the case. Investments in associates over which the Allianz Group exercises significant influence are generally accounted for using the equity method. Joint ventures are entities over which the Allianz Group and one or more other parties have joint control. Joint ventures are generally accounted for using the equity method. The Allianz Group accounts for all material investments in asso- ciates on a time lag of no more than three months. Income from investments in associates and joint ventures, which reflects the earn- ings rather than the distributions of the associate or jointly con- trolled entity, is included in interest and similar income. Profits or losses resulting from transactions between the Allianz Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture. Accounting policies of associates and joint ventures have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group. foreiGN CurreNCY traNsLatioN Translation from any foreign currency into functional currency The individual financial statements of each of the Allianz Group’s subsidiaries are prepared in the prevailing currency in the primary economic environment where the subsidiary conducts its ordinary activities (its functional currency). Transactions recorded in curren- cies other than the functional currency (foreign currencies) are recorded at the exchange rate prevailing on the date of the trans- action. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the closing exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated at historical rates and non-monetary items that are measured at fair value are translated using the closing rate. Foreign currency gains and losses arising from foreign currency transactions are reported in income from financial assets and liabil- ities carried at fair value through income (net), except when the gain or loss on a non-monetary item measured at fair value is recognized in other comprehensive income. In this case, any foreign exchange component of that gain or loss is also recognized in other compre- hensive income. Translation to the presentation currency For the purposes of the consolidated financial statements, the results and financial position of each of the Allianz Group’s subsidiaries are expressed in Euro, the presentation currency of the Allianz Group. Assets and liabilities of subsidiaries not reporting in Euro are trans- lated at the closing rate on the balance sheet date and income and expenses are translated at the quarterly average exchange rate. Any foreign currency translation differences, including those arising from the equity method, are recorded in other comprehensive income. priNCipLes of aCCouNtiNG for fiNaNCiaL assets Recognition Financial assets are generally recognized and derecognized on the trade date, i.e. when the Allianz Group commits to purchase or sell securities or incur a liability. Financial instruments are initially recognized at fair value plus, in the case of financial instruments not carried at fair value through income, directly attributable transaction costs. Offsetting Financial assets and liabilities are offset and the net amount pre- sented in the balance sheet only when there is a legally enforceable right to offset the recognized amounts and there is an intention to either settle on a net basis, or to realize the asset and settle the liabil- ity simultaneously. Derecognition A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Allianz Group trans- fers the asset and substantially all of the risks and rewards of owner- ship. A financial liability is derecognized when it is extinguished. Securities lending and repurchase agreements The Allianz Group enters into securities lending transactions and repurchase agreements. If all of the risks and rewards of the securi- ties remain substantially with the Allianz Group these securities are not derecognized. Cash received as collateral in securities lending transactions is recognized together with a corresponding liability, whereas securities received as collateral are not recognized under the terms of the agreements if risks and rewards have not been trans- ferred. For repurchase agreements, the proceeds received from the sale are reported under liabilities to banks or customers. Interest expen- ses from repo transactions are accrued over the duration of the agree- ments and reported in interest expenses. If for reverse repo trans- actions all of the risks and rewards of the securities remain substantially with the counterparty over the entire lifetime of the agreement of the transaction, the securities concerned are not recog- nized as assets. The amounts of cash disbursed are recorded under loans and advances to banks and customers. Interest income on reverse repo agreements is accrued over the duration of the agree- ments and is reported in interest and similar income. Annual Report 2013 Allianz Group 135 Securities borrowing transactions generally require the Allianz Group to deposit cash with the security’s lender. Fees paid are reported as interest expenses. Impairment of available-for-sale and held-to-maturity investments as well as loans and advances to banks and customers A held-to-maturity or available-for-sale debt security, as well as a loan, is impaired if there is objective evidence that a loss event has occurred after initial recognition of the security and up to the rele- vant date of the Allianz Group’s consolidated balance sheet, and that loss event has negatively affected the estimated future cash flows, i.e. amounts due according to the contractual terms of the security are not considered collectible. For available-for-sale debt securities, the cumulative loss recognized in the other comprehensive income is reclassified to profit or loss. The cumulative loss corresponds to the difference between amortized cost and the current fair value of the investment. Further declines in fair value are recognized in other comprehensive income unless there is further objective evidence that such declines are due to a credit-related loss event. If in subse- quent periods objective evidence results in a fair value increase after the impairment loss was recognized, the impairment loss is reversed through the income statement. The reversal is measured as the less- er of the full original impairment loss previously recognized in the income statement and the subsequent increase in fair value. For held-to-maturity investments and loans, the impairment loss is mea- sured as the difference between the amortized cost and the expected future cash flows using the original effective interest rate. If the amount of the impairment of a held-to-maturity debt security or a loan subsequently increases or decreases due to an event occurring after the initial measurement of impairment, the change is recorded in the income statement. For banking entities, valuation allowances of their loan book are reported as loan loss allowances. For all non-banking entities, loans to banks and customers have investment character and valuation allowances are reported as ‘impairments of investments’. For the loan loss allowance reported by banking entities, please refer to notes 10 and 36. Allowances for loans to banks and customers by non-ban- king entities are reported in note 37. An available-for-sale equity security is considered to be impaired if there is objective evidence that the cost may not be recovered. Objective evidence that the cost may not be recovered, in addition to qualitative impairment criteria, includes a significant or prolonged decline in the fair value below cost. The Allianz Group’s policy consid- ers a decline to be significant if the fair value is below the weighted average cost by more than 20 %. A decline is considered to be pro- longed if the fair value is below the weighted average cost for a period of more than nine months. If an available-for-sale equity security is impaired, any further declines in the fair value at subsequent report- ing dates are recognized as impairments. Therefore, at each reporting period, for an equity security that was determined to be impaired, additional impairments are recognized for the difference between the fair value and the original cost basis, less any previously recog- nized impairment. Reversals of impairments of available-for-sale equity securities are not recorded through the income statement but recycled out of other comprehensive income when sold. Please refer to note 3, where the processes and controls for ensuring an appropriate use of estimates and assumptions are explained. Hedge accounting For derivative financial instruments used in hedge transactions that meet the criteria for hedge accounting, the Allianz Group designates the derivative as a hedging instrument in a fair value hedge, cash flow hedge, or hedge of a net investment in a foreign entity. The Allianz Group documents the hedge relationship, as well as its risk manage- ment objective and strategy for entering into the hedge transaction. The Allianz Group assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative financial instruments that are used for hedging transactions are highly effective in offsetting chang- es in fair values or cash flows of the hedged items. Fair value hedges are hedges of a change in the fair value of a recognized financial asset or liability or a firm commitment due to a specified risk. Changes in the fair value of a derivative financial instrument, together with the change in fair value of the hedged item attributable to the hedged risk, are recognized in income from finan- cial assets and liabilities carried at fair value through income (net). Cash flow hedges offset the exposure to variability in expected future cash flows that is attributable to a particular risk associated with a recognized asset or liability or a forecasted transaction. Changes in the fair value of a derivative financial instrument that represent an effective hedge are recorded in unrealized gains and losses (net) in other comprehensive income, and are transferred to the consolidated income statement when the offsetting gain or loss associated with the hedged item is recognized. Any ineffectiveness of the cash flow hedge is recognized directly in income from financial assets and liabilities carried at fair value through income (net). Furthermore, hedge accounting may be applied to derivative financial instruments used to hedge the foreign currency risk associ- ated with a net investment in a foreign entity. The effective propor- tion of gains or losses arising from the valuation of the derivative financial instrument is recognized in foreign currency translation adjustments in other comprehensive income, while any ineffective- ness is recognized directly in income from financial assets and liabil- ities carried at fair value through income (net). Derivative financial instruments that meet the criteria for hedge accounting are included in other assets or other liabilities. The Allianz Group discontinues hedge accounting prospectively when the hedge is no longer highly effective, when the derivative financial instrument or the hedged item expires, or is sold, terminated 136 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows or exercised, or when the Allianz Group decides that hedge accounting is no longer appropriate. Derivative financial instruments designated in hedge account- ing relationships are included in the line item other assets and liabil- ities. Freestanding derivatives are included in the line item financial assets or liabilities held for trading. For further information on deriv- atives, please refer to note 43. Disclosures relating to financial assets The following table summarizes the relationship between the balance sheet positions and the classes of financial instruments according to IFRS 7. The balance sheet positions are the same as the IAS 39 catego- ries except when noted in parentheses. BaLaNCe sheet LiNe items, ias 39 CateGories aND ifrs 7 CLasses of fiNaNCiaL iNstrumeNts fiNaNCiaL assets Cash and cash equivalents Financial assets carried at fair value through income Financial assets held for trading Financial assets designated at fair value through income Investments Available-for-sale investments Held-to-maturity investments Loans and advances to banks and customers (Loans and receivables) Financial assets for unit-linked contracts Other assets Measurement basis Nominal value Fair value Fair value Fair value Amortized cost Amortized cost Fair value Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments Fair value fiNaNCiaL LiaBiLities Financial liabilities carried at fair value through income Financial liabilities held for trading Financial liabilities designated at fair value through income Fair value Fair value Liabilities to banks and customers (Other liabilities) Amortized cost Reserves for insurance and investment contracts Non-unit-linked investment contracts Financial liabilities for unit-linked contracts Other liabilities Amortized cost Fair value Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments Fair value Financial liabilities for puttable equity instruments Redemption amount Certificated liabilities (Other liabilities) Subordinated liabilities (Other liabilities) off-BaLaNCe sheet Financial guarantees Irrevocable loan commitments Amortized cost Amortized cost Nominal value Nominal value Please refer to note 44 for details on fair value measurement and fur- ther disclosures under IFRS 7. Please refer to note 3, where the pro- cesses and controls for ensuring an appropriate use of estimates and assumptions are explained. Cash aND Cash eQuiVaLeNts Cash and cash equivalents include balances with banks payable on demand, balances with central banks, cash on hand, treasury bills to the extent they are not included in financial assets held for trading, as well as checks and bills of exchange which are eligible for refinanc- ing at central banks, subject to a maximum term of three months from the date of acquisition. fiNaNCiaL assets aND LiaBiLities CarrieD at fair VaLue throuGh iNCome Financial assets and liabilities carried at fair value through income include financial assets and liabilities held for trading and financial assets and liabilities designated at fair value through income. Finan- cial assets and liabilities held for trading consist of debt and equity securities that have been principally acquired for the purpose of gen- erating a profit from short-term fluctuations in price or for the pur- pose of selling in the near future as well as of derivative financial instruments, which include bifurcated embedded derivatives of hy- brid financial instruments and of insurance contracts. Financial assets and liabilities are designated at fair value through income to eliminate or significantly reduce an accounting mismatch. Subsidiaries must reach out to the Group Accounting and Reporting department for approval before designating any financial asset or liability as at fair value through income. iNVestmeNts Available-for-sale investments Available-for-sale investments comprise debt and equity securities that are designated as available-for-sale or are not classified as held- to-maturity, loans and advances, or financial assets carried at fair value through income. Available-for-sale investments are initially recognized and subsequently measured at fair value. Unrealized gains and losses, which are the difference between fair value and cost or amortized cost, are recognized as a separate component of other comprehensive income, net of deferred taxes and the latent reserve for premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual reg- ulations when they are realized. When an available-for-sale invest- ment is derecognized or determined to be impaired, the cumulative gain or loss previously recorded in other comprehensive income is transferred and recognized in the consolidated income statement. Realized gains and losses on securities are generally determined by applying the average cost method at the subsidiary level. Annual Report 2013 Allianz Group 137 Held-to-maturity investments Held-to-maturity investments are debt securities with fixed or deter- minable payments and fixed maturities for which the Allianz Group has the positive intent and ability to hold to maturity. These securi- ties are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method. Funds held by others under reinsurance contracts assumed Funds held by others under reinsurance contracts assumed relate to cash deposits to which the Allianz Group is entitled, but which the ceding insurer retains as collateral for future obligations of the Allianz Group. The cash deposits are recorded at face value, less any impairment for balances that are deemed not to be recoverable. Investments in associates and joint ventures Please see the section Principles of Consolidation for details on the accounting for investments in associates and joint ventures. Real estate held for investment Real estate held for investment (i.e. real estate and rights equivalent to real property and buildings, including buildings on leased land) is carried at cost less accumulated depreciation and impairments. Real estate held for investment is depreciated on a straight-line basis over its estimated life, with a maximum of 50 years. At each reporting date or whenever there are any indications that the carrying amount may not be recoverable, real estate is tested for impairment by determin- ing its recoverable amount. Subsequent costs are capitalized if they extend the useful life or increase the value of the asset; otherwise they are expensed as incurred. LOANS AND ADVANCES tO bANkS AND CuStOmErS Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and which are not classified as financial assets held for trading, desig- nated at fair value through income or designated as available for sale. Loans and advances are initially recognized at fair value. Subse- quently, they are recorded at amortized cost using the effective inter- est method. Interest income is accrued on the unpaid principal bal- ance, net of impairments. Using the effective interest method, net deferred fees and premiums or discounts are recorded as an adjust- ment of other interest income yield over the lives of the related loans. FINANCIAL ASSEtS FOr uNIt-LINkED CONtrACtS Financial assets for unit-linked contracts are recorded at fair value with changes in fair value recorded in net income together with the offsetting changes in fair value of the corresponding financial liabili- ties for unit-linked contracts. rEINSurANCE ASSEtS Assets and liabilities related to reinsurance are reported on a gross basis. Reinsurance assets include balances expected to be recovered from reinsurance companies. The amount of reserves ceded to 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 receiv- ables on reinsurance contracts which are deemed uncollectible. DEFErrED ACQuISItION COStS Deferred acquisition costs (DAC) Costs that vary with and are directly related to the acquisition and renewal of insurance contracts and investment contracts with dis- cretionary participation features are deferred by recognizing a DAC asset. DAC generally consists of commissions, underwriting expenses and policy issuance costs. At inception, DAC is tested to ensure that it is recoverable over the life of the contracts. Subsequently, loss recog- nition tests at the end of each reporting period ensure that only the amount of DAC that is covered by future profits is carried on the con- solidated balance sheet. Please refer to the section reserves for insur- ance and investment contracts, where details on the corresponding liability adequacy test are explained. For short-duration, traditional long-duration, and limited-pay- ment insurance contracts, DAC is amortized in proportion to premi- um revenue recognized. For universal life-type and participating life insurance contracts as well as investment contracts with discretion- ary participation features, DAC is generally amortized over the life of a book of contracts based on estimated gross profits (EGP) or esti- mated gross margins (EGM), respectively. EGP and EGM are based on historical and anticipated experience, which is determined on a best estimate basis and evaluated at the end of each reporting period, with the effect of changes being recognized in the net income in the period revised. Acquisition costs for unit-linked investment contracts without discretionary participation features accounted for under IAS 39 at fair value are deferred in accordance with IAS 18 if the costs are incremen- tal. For non-unit-linked investment contracts without discretionary participation features accounted for under IAS 39 at amortized cost, acquisition costs that meet the definition of transaction costs under IAS 39 are considered in the aggregate policy reserves. Please refer to note 3, where the processes and controls for ensur- ing an appropriate use of estimates and assumptions are explained. Present value of future profits (PVFP) The value of an insurance business or an insurance portfolio acquired is measured by the PVFP, which is the present value of net cash flows 138 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows anticipated in the future from insurance contracts in force at the date of acquisition. It is amortized over the life of the related contracts. a straight-line basis over the estimated useful service lives or contrac- tual terms. Deferred sales inducements Sales inducements on insurance contracts are deferred and amor- tized using the same methodology and assumptions as for deferred acquisition costs when they meet the following criteria: the sales inducements are recognized as part of the reserves, are explicitly identified in the contract at inception and incremental to amounts credited on similar contracts without sales inducements and higher than the contract’s expected ongoing crediting rates for periods after the inducement. Shadow accounting For insurance contracts and investment contracts with discretionary participation features, shadow accounting is applied to DAC, PVFP and deferred sales inducements in order to include the effect of unre- alized gains or losses in the measurement of these assets in the same way as it is done for realized gains or losses. Accordingly, the assets are adjusted with corresponding charges or credits recognized directly in other comprehensive income as a component of the related unrealized gain or loss. When the gains or losses are realized, they are recorded in the income statement through recycling and prior adjustments due to shadow accounting are reversed. DeferreD taX assets The calculation of deferred tax assets is based on tax loss carry for- wards, unused tax credits and on temporary differences between the Allianz Group’s carrying amounts of assets or liabilities in its con- solidated balance sheet and their tax bases. The tax rates used for the calculation of deferred taxes are the local rates applicable in the countries concerned; changes to tax rates which have been substan- tively enacted prior to or as of the consolidated balance sheet date are taken into account. Deferred tax assets on losses carried forward are recognized only to the extent it is probable that sufficient future taxable income will be available for their realization. Please refer to note 3, where the processes and controls for ensur- ing an appropriate use of estimates and assumptions are explained. other assets Other assets primarily consist of receivables, accrued dividends, interest and rent as well as own-used property and equipment. Receivables are generally recorded at face value less any pay- ments received, net of valuation allowances. Own-used property and equipment generally is carried at cost less accumulated depreciation and impairments. The assets are depreciated on a straight-line basis over their estimated useful lives. Software, which includes software purchased from third parties or developed internally, is initially recorded at cost and amortized on The Allianz Group also records the fixed assets of its fully con- solidated private equity investments and alternative investments within property and equipment. These assets are carried at cost less accumulated depreciation and impairments. Depreciation is gener- ally computed using the straight-line method over the estimated use- ful lives of the assets. The table below summarizes estimated useful lives for real estate held for own use, equipment, software and fixed assets of alter- native investments. estimateD usefuL LiVes (iN Years) Real estate held for own use Software Equipment Fixed assets of alternative investments Years max. 50 2 – 10 2 – 10 4 – 25 iNtaNGiBLe assets Intangible assets with indefinite useful lives mainly consist of good- will resulting from business combinations. It is initially recorded at cost and subsequently measured at cost less accumulated impair- ments. Goodwill is allocated to each of the Allianz Group’s cash gener- ating units expected to benefit from the business combination. The Allianz Group conducts an annual impairment test of goodwill dur- ing the fourth quarter or more frequently if there is an indication that goodwill is not recoverable. The impairment test includes comparing the recoverable amount to the carrying amount, including goodwill, of all relevant cash generating units. A cash generating unit is impaired if the carrying amount is greater than the recoverable amount. The impairment amount is allocated to first reduce any goodwill, followed by allocation to the carrying amount of any remaining non-financial assets of the cash generating unit. Impairments of goodwill are not reversed. Gains or losses realized on the disposal of subsidiaries include any related goodwill. Intangible assets with finite useful lives primarily consist of dis- tribution agreements. They are initially recorded at cost which gener- ally is the purchase price plus directly attributable costs or, when acquired with business combinations, at fair value if the intangible asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Distribution agreements are subsequently recorded at cost less accumulated depreciation and impairments. The assets generally are depreciated on a straight-line basis over their useful lives or contractual term. Please refer to note 3, where the processes and controls for ensuring an appropriate use of estimates and assumptions are explained. Annual Report 2013 Allianz Group 139 priNCipLes of aCCouNtiNG for iNsuraNCe, iNVestmeNt aND reiNsuraNCe CoNtraCts Insurance and investment contracts Insurance contracts under which the Allianz Group accepts signifi- cant insurance risk and investment contracts with discretionary par- ticipating features are accounted for under the insurance accounting provisions of US GAAP as at first-time adoption of IFRS 4 on 1 January 2005 when IFRS 4 does not provide specific guidance. Investment con- tracts without discretionary participation features are accounted for as financial instruments in accordance with IAS 39. Reinsurance contracts The Allianz Group’s consolidated financial statements reflect the effects of ceded and assumed reinsurance contracts. Assumed rein- surance refers to the acceptance of certain insurance risks by the Allianz Group that other companies have underwritten. Ceded rein- surance refers to the transfer of insurance risk, along with the respec- tive premiums, to one or more reinsurers who will share in the risks. When the reinsurance contracts do not transfer significant insur- ance risk, deposit accounting is applied as required under the related reinsurance accounting provisions of US GAAP or under IAS 39. Assumed reinsurance premiums, commissions and claim settlements, as well as the reinsurance element of technical provisions are accounted for in accordance with the conditions of the reinsurance contracts and with consideration of the original contracts for which the reinsur- ance was concluded. Insurance liability adequacy testing Liability adequacy tests are performed for each insurance portfolio on the basis of estimates of future claims, costs, premiums earned and proportionate investment income. For short-duration contracts, a premium deficiency is recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policy- holders, capitalized DAC, and maintenance expenses exceeds related unearned premiums while considering anticipated investment income. For traditional long-duration contracts and limited-payment contracts, if actual experience regarding investment yields, mortality, morbidity, terminations or expense indicate that existing contract liabilities, along with the present value of future gross premiums, will not be sufficient to cover the present value of future benefits and to recover capitalized DAC, a premium deficiency is recognized. For other long-duration contracts, if the present value of esti- mated gross profits or margins, plus unearned revenue liability if applicable, will not be sufficient to recover capitalized DAC, a premium deficiency is recognized. Please refer to note 3, where the processes and controls for ensuring an appropriate use of estimates and assumptions are explained. 140 Annual Report 2013 Allianz Group uNearNeD premiums For short-duration insurance contracts, like most of the property and casualty contracts, premiums to be earned in future years are recorded as unearned premiums. These premiums are earned in subsequent periods in relation to the insurance coverage provided. Amounts charged as consideration for origination of certain long-duration insurance contracts (i.e. initiation or front-end fees) are reported as unearned revenue which are included in unearned premiums. These fees are recognized using the same amortization methodology as DAC. reserVes for Loss aND Loss aDJustmeNt eXpeNses Reserves are established for the payment of losses and loss adjust- ment 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 LAE relating to such claims. The estimates reflect the informed judg- ment of claims personnel based on general insurance reserving prac- tices and knowledge of the nature and value of a specific type of claim. These case reserves are regularly re-evaluated in the ordinary course of the settlement process and adjustments are made as new informa- tion becomes available. IBNR reserves are established to recognize the estimated cost of losses that have occurred but where the Allianz Group has not yet been notified. IBNR reserves, similar to case reserves for reported claims, are established to recognize the estimated costs, including expenses, necessary to bring claims to final settlement. The Allianz Group relies on its past experience, adjusted for current trends and any other relevant factors to estimate IBNR reserves. IBNR reserves are estimates based on actuarial and statistical projections of the expect- ed cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other societal and economic factors. Trends in claim frequency, severity and time lag in reporting are examples of factors used in projecting the IBNR reserves. IBNR reserves are reviewed and revised periodically as additional information becomes available and actual claims are reported. In general, reserves for loss and loss adjustment expenses are not discounted, except when payment amounts are fixed and timing is reasonably determinable. Discounted loss reserves as well as their unwinding are presented within reserves for insurance and invest- ment contracts to better reflect the nature of the reserves and to only reflect the net underwriting result within the key performance indi- cator combined ratio. D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows reserVes for iNsuraNCe aND iNVestmeNt CoNtraCts Reserves for insurance and investment contracts include aggregate policy reserves, reserves for premium refunds and other insurance reserves. Aggregate policy reserves The aggregate policy reserves for participating life insurance con- tracts are calculated using the net level premium method based on assumptions for mortality, morbidity and interest rates that are guar- anteed in the contract or used in determining the policyholder divi- dends (or premium refunds). For traditional long-duration insurance contracts, such as tradi- tional life and health products, aggregate policy reserves are com- puted using the net level premium method based on best estimate assumptions adjusted for a provision for adverse deviation for mor- tality, morbidity, expected investment yields, surrenders and expen- ses at the policy inception date, which remain locked in thereafter unless a premium deficiency occurs. The aggregate policy reserves for universal life-type insurance contracts are equal to the account balance, which represents premi- ums received and investment return credited to the policy less deductions for mortality costs and expense charges. The aggregate policy reserve for universal life-type contracts includes insurance reserves for unit-linked insurance contracts and investment con- tracts with discretionary participation features as well as liabilities for guaranteed minimum death and similar mortality and morbidity benefits related to non-traditional contracts with annuitization options. Universal life-type and investment-type insurance contracts fea- tures which are not closely related to the underlying insurance con- tracts are bifurcated from the insurance contracts and accounted for as derivatives in line with IFRS 4 and IAS 39. The assumptions used for aggregate policy reserves are deter- mined using current and historical client data, industry data, and in the case of assumptions for interest reflect expected earnings on assets, which back the future policyholder benefits. The information used by the Allianz Group’s actuaries in setting such assumptions includes, but is not limited to, pricing assumptions, available experi- ence studies, and profitability analyses. The interest rate assump- tions used in the calculation of deferred acquisition costs and aggre- gate policy reserves were as follows: iNterest rate assumptioNs Deferred acquisition costs Aggregate policy reserves Traditional long-duration insurance contracts Participating life insurance contracts 2.5 – 6.0 % 2.5 – 6.0 % 2.2 – 5.0 % 0.8 – 4.3 % The Allianz Group has recognized all rights and obligations related to issued insurance contracts according to its accounting policies, and thus has not separately recognized an unbundled deposit com- ponent in respect of any of its insurance contracts. Non-unit-linked investment contracts without discretionary participating features are accounted for under IAS 39. The aggregate policy reserve for those contracts is initially recognized at fair value, or the amount of the deposit by the contract holder, net of the trans- action costs that are directly attributable to the issuance of the con- tract. Subsequently, those contracts are measured at amortized cost using the effective interest rate method. Please refer to note 3, where the processes and controls for ensuring an appropriate use of estimates and assumptions are explained. Reserves for premium refunds Reserves for premium refunds include the amounts allocated under the relevant local statutory or contractual regulations to the accounts of the policyholders and the amounts resulting from the differences between these IFRS-based financial statements and the local finan- cial statements (latent reserve for premium refunds), which will reverse and enter into future profit participation calculations. Unre- alized gains and losses recognized for available-for-sale investments are recognized in the latent reserve for premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual regulations when they are real- ized, based on and similar to shadow accounting. The profit partici- pation allocated to participating policyholders or disbursed to them reduces the reserve for premium refunds. fiNaNCiaL LiaBiLities for uNit-LiNkeD CoNtraCts The fair value of financial liabilities for unit-linked contracts is equal to the fair value of the financial assets for unit-linked contracts. DeferreD taX LiaBiLities Deferred tax liabilities are recognized for temporary differences be- tween the Allianz Group’s carrying amounts of assets or liabilities in its consolidated balance sheet and their tax bases. other LiaBiLities Other liabilities primarily consist of payables, provisions for pensions and similar obligations, employee-related provisions, deposits retained for reinsurance ceded, and financial liabilities for puttable equity instruments. Pensions and similar obligations For defined benefit plans, the Allianz Group uses the projected unit credit method to determine the present value of its defined benefit obligations and the related service cost and, where applicable, past service cost. All actuarial gains and losses are recognized immedi- Annual Report 2013 Allianz Group 141 ately in other comprehensive income (OCI). While all remeasure- ments and experience adjustments need to be recognized in OCI, service and interest costs are recognized in the profit or loss account. The long-term return on plan assets is calculated using the same interest rate used to discount the defined benefit obligation, i.e. high- quality corporate bonds at the end of the reporting period. Please refer to note 3, where the processes and controls for ensuring an appropriate use of estimates and assumptions are explained. Share-based compensation plans The share-based compensation plans of the Allianz Group are classi- fied as either equity-settled or cash-settled plans. Equity-settled plans are measured at fair value on the grant date and recognized as an expense, with a corresponding increase to shareholders’ equity, over the vesting period. 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 a com- pensation expense over the vesting period. Upon vesting, any change in the fair value of any unexercised awards is also recognized as a compensation expense. Restructuring provisions Restructuring provisions are recognized when programs materially change the scope of business performed by an operating entity or business unit or the manner in which business is conducted and when a detailed formal plan has been announced. Please refer to note 3, where the processes and controls for ensur- ing an appropriate use of estimates and assumptions are explained. Financial liabilities for puttable equity instruments Financial liabilities for puttable equity instruments primarily in- clude the non-controlling interests in shareholders’ equity of con- trolled mutual funds. These interests qualify as a financial liability of the Allianz Group, as they give the holder the right to put the instru- ment back to the Allianz Group for cash or another financial asset (puttable instrument). These liabilities are generally required to be recorded at the redemption amount with changes recognized in income. CertifiCateD LiaBiLities aND suBorDiNateD LiaBiLities Certificated liabilities and subordinated liabilities are subsequently measured at amortized cost, using the effective interest method to amortize the premium or discount to the redemption value over the life of the liability. eQuitY Issued capital represents the mathematical per share value received from the issuance of shares. Capital reserves represent the premium, or additional paid-in capital, received from the issuance of shares. Retained earnings comprise the net income of the current year, not yet distributed earnings of prior years and treasury shares as well as any amounts directly recognized in equity according to IFRS. Trea- sury shares are deducted from shareholders’ equity. No gain or loss is recognized on the sale, issuance, acquisition or cancellation of these shares. Any consideration paid or received is recorded directly in shareholders’ equity. Unrealized gains and losses (net) include unrealized gains and losses from available-for-sale investments and derivative financial instruments that meet the criteria for cash hedge accounting or hedges of a net investment in a foreign entity. Please refer to the above sections for foreign currency, where foreign currency changes that are recognized in other comprehensive income are explained. Non-controlling interests represent equity in subsidiaries, not attributable directly or indirectly, to Allianz as parent. premiums Premiums for short-duration insurance contracts are recognized as revenues over the period of the contract in proportion to the amount of insurance protection provided. Unearned premiums are calculated separately for each individual policy to cover the unexpired portion of written premiums. Premiums for long-duration insurance contracts are recognized as earned when due. Long-duration insurance contracts are contracts that are not cancelable by the insurance company, guaranteed to be renewable and expected to remain in force over an extended period of time. Revenues for universal life-type and investment contracts repre- sent charges assessed against the policyholders’ account balances for the front-end loads, net of the change in unearned revenue liabil- ity, cost of insurance, surrenders and policy administration, and are included within premiums earned (net). Premiums ceded for reinsurance are deducted from premiums earned. iNterest aND simiLar iNCome aND iNterest eXpeNses Interest income and interest expenses are recognized on an accrual basis. Interest income is recognized using the effective interest method. This line item also includes dividends from available-for-sale equity securities and income from investments in associates and joint ven- tures. Dividends are recognized in income when the right to receive the dividend is established. Share of earnings from investments in associates and joint ventures represents the share of net income from entities accounted for using the equity method. 142 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows 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 includes all investment income, and realized and unrealized gains and losses from financial assets and liabilities carried at fair value through income. In addition, commissions attributable to trading operations and related interest expenses and transaction costs are included in this line item. Foreign currency gains and losses on monetary items are also reported within income from financial assets and liabilities carried at fair value through income (net). fee aND CommissioN iNCome Fee and commission income primarily consists of asset management fees that are recognized when the service is provided. CLaims aND iNsuraNCe BeNefits iNCurreD Benefits charged to expense consist of claims and insurance benefits incurred during the period, including benefit claims in excess of pol- icy account balances and interest credited to policy account balances. Furthermore, it includes claim handling costs that are directly related to the processing and settlement of claims. Reinsurance recoveries are deducted from claims and insurance benefits. iNCome taXes Income tax expense consists of current taxes on taxable income actually charged to the individual Allianz Group companies and changes in deferred tax assets and liabilities. Expense and income from interest and penalties to or from tax authorities are included in current taxes. Please refer to note 3, where the processes and controls for ensur- ing an appropriate use of estimates and assumptions are explained. 3 – Use of estimates and assumptions The preceding note 2 describes the accounting policies that the Allianz Group follows in preparing its consolidated financial statements. The section below describes how certain reported figures can be sig- nificantly affected by the use of estimates and assumptions, and the processes the Allianz Group has in place to control the judgments which are made. Both sides of the Allianz Group’s balance sheet have a high degree of estimation and numerous assumptions embedded in the valuation of assets and liabilities. The estimation process and selec- tion of appropriate assumptions requires significant judgment to be applied and management decisions to be taken in order to establish appropriate values for these assets and liabilities. Any change in the assumptions and estimates could, in certain circumstances, signifi- cantly affect the reported results and values because the range of reasonable judgment in some cases may be very large. The Allianz Group understands the degree of impact that these judgments may have and has established a strong system of governance as well as controls, procedures and guidelines to ensure consistency and soundness over these judgments. Subsidiaries of the Allianz Group are required to establish con- trols which promote a culture of good judgment and sound decision- making around accounting estimates. These include providing train- ing programs, hiring people with the right background for the job (i.e. certified or experienced accountants, actuaries and finance profes- sionals), and providing formalized policies and procedures manuals for accounting and internal controls. At the Allianz Group level, processes and committees have been established to ensure sound judgment and consistent application of the Allianz Group’s standards. Furthermore, the Allianz Group has a culture that is strongly committed to reliability, encourages open and transparent discussions, provides a venue for asking questions and admitting mistakes, recognizes experts and expertise, and respects the four eyes principle of review. Committees, none of which are chaired by the CFO of the Allianz Group, ensure that judgmental deci- sions and selection of assumptions are discussed in an open setting among experts and that inconsistencies are identified and resolved. Complex accounting areas that are especially sensitive to the estimates and assumptions are described in the following sections. reserVes for Loss aND Loss aDJustmeNt eXpeNses, reserVes for iNsuraNCe aND iNVestmeNt CoNtraCts aND DeferreD aCQuisitioN Costs As of 31 December 2013, the Allianz Group reported:1 − reserves for loss and loss adjustments expenses of € 66,566 MN mainly for the Property-Casualty operations, including run-off business and reinsurance business assumed, − reserves for insurance and investment contracts of € 404,072 MN mainly for the Life/Health operations and − deferred acquisition costs of € 22,203 MN. Life/Health reserves are dependent on estimates and assumptions, especially on the life expectancy of an insured individual (mortality and longevity risk) and on the development of interest rates and investment returns (asset-liability mismatch risk). These assump- tions also have an impact on the presentation of costs arising from the origination of insurance business (acquisition costs and sales inducements) and the value of acquired insurance business (PVFP). To ensure consistency in the application of actuarial methods and 1 Please refer to note 2 Summary of significant accounting policies. For further details, please refer to note 12 Deferred acquisition costs, note 19 Reserves for loss and loss adjustment expenses and note 20 Reserves for insurance and investment contracts. Annual Report 2013 Allianz Group 143 assumptions in the Life/Health reserving process, the Allianz Group has designed a two-stage reserving process. In a first stage, Life/ Health reserves are calculated by qualified local staff experienced in the business of the subsidiaries. Actuaries in the local entities also conduct tests of the adequacy of the premiums and reserves to cover future claims and expenses (liability adequacy tests). The process follows Group-wide standards for applying consistent and plausible assumptions. The appropriateness of the reserves and compliance with the Group-wide standards is confirmed by the local actuary. In a second stage, the Allianz Group Actuarial Department regularly reviews the local reserving processes, including the appropriateness and consistency of assumptions, and analyzes the movements of reserves. Any adjustments to reserves and other insurance-related reporting items are reported to and analyzed together with the Allianz Group Reserve Committee. Property-Casualty reserves are particularly dependent on the use of estimates and judgment regarding the development of loss reserves. Similar to Life/Health, a two-stage reserving process is in place. In a first stage, in each jurisdiction, reserves are calculated for individual lines of business, taking into consideration a wide range of local factors. This local reserving process begins with local reserv- ing actuaries gathering data, typically dividing reserving data into the smallest possible homogeneous segments, while maintaining sufficient volume to form the basis for stable projections. Once data is collected, they derive patterns of loss payment and emergence of claims based on historical data organized into development trian- gles arrayed by accident year versus development year. Loss payment and reporting patterns are selected based on observed historical development factors and also on the judgment of the reserving actu- ary using an understanding of the underlying business, claims pro- cesses, data and systems as well as the market, economic, societal and legal environment. Expected loss ratios are then developed, which are derived from the analysis of historical observed loss ratios, adjusted for a range of factors such as loss development, claims infla- tion, changes in premium rates, changes in portfolio mix and changes in policy terms and conditions. Using the development patterns and expected loss ratios described above, local reserving actuaries produce estimates of ulti- mate loss and allocated loss adjustment expenses using several methods, such as Loss Development or Chain-Ladder Method, Bornhuetter-Ferguson Method, or Frequency-Severity Methods. Using the above estimate of ultimate loss and LAE by accident year – with respect to the origin year of losses – subsidiaries of the Allianz Group directly estimate the total loss and LAE reserves by sub- tracting cumulative payments for claims and LAE through the rele- vant balance sheet date. Finally, local reserving actuaries calculate the relevant IBNR reserves as the difference between − the total loss and LAE reserves, and − the case reserves as established by claims adjusters on a case- by-case basis. Estimates for the current accident year determine the loss ratios and profitability of the business of the most recent year. For all prior acci- dent years the change in estimates is reported as a run-off – adverse or favorable – in the consolidated income statement. As loss reserves represent estimates of uncertain future events, the local reserving actuaries determine a range of reasonably possi- ble outcomes. To analyze the variability of loss reserve estimates, actuaries employ a range of methods and approaches, including simple sensitivity testing using alternative assumptions, as well as more sophisticated stochastic techniques. The Allianz Group’s reserving standards require that all local reserve committees in Allianz subsidiaries meet quarterly to discuss and document reserv- ing decisions as well as to select the best estimate of the ultimate amount of reserves within a range of possible outcomes and to docu- ment the rationale for that selection for the particular entity. In a second stage, the Allianz Group Actuarial department regu- larly reviews the local reserving processes, including the appropriate- ness and consistency of assumptions. Significant aspects are reported to the Allianz Group Reserve Committee to initiate actions when necessary. For Life/Health and for Property-Casualty the central oversight process includes the following key components: Group-wide standards and guidelines: They define the reserving practices which must be conducted by each subsidiary including aspects of assumptions and estimates. This includes the organiza- tion and structure, data, methods, and reporting. The Allianz Group Actuarial Department monitors compliance with these standards and guidelines. Regular site visits: The Allianz Group Actuarial Department regu- larly visits Allianz subsidiaries in order to ensure that they apply the Group-wide standards and guidelines. The on-site review focuses on all significant changes in assumptions and methodologies as well as on procedures and professional practices relevant for the reserving process. Furthermore, these meetings are to update knowledge of the underlying local business developments. Regular quantitative and qualitative reserve monitoring: On a quarterly basis, the Allianz Group Actuarial Department monitors re serve levels, movements and trends across the Allianz Group. This monitoring is conducted on the basis of quarterly data submitted by the subsidiaries as well as through frequent dialogue with local actu- aries. The oversight and monitoring of the Allianz Group’s reserves culminate in quarterly meetings of the Allianz Group Reserve Com- mittee, which is the supervising body that governs all significant reserves. It particularly monitors key developments across the Allianz Group affecting the adequacy of loss reserves. 144 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows fair VaLue aND impairmeNts of fiNaNCiaL iNstrumeNts As of 31 December 2013, the Allianz Group reported financial instru- ments carried at fair value as follows:1 − € 161,490 MN of the financial assets and € 81,324 MN of the finan- cial liabilities carried at fair value are classified within level 1 of the fair value hierarchy (quoted prices in active markets) − € 308,650 MN of the financial assets and € 4,281 MN of the financial liabilities carried at fair value are classified within level 2 of the fair value hierarchy (valuation techniques with mainly observ- able market inputs) − € 10,267 MN of the financial assets and € 4,694 MN of the financial liabilities carried at fair value are classified within level 3 of the fair value hierarchy (valuation techniques with significant input being non-observable). Level 3 financial assets represent 2.1 % of the Allianz Group’s total financial assets carried at fair value. Financial liabilities classified as Level 3 represent 5.2 % of the Allianz Group’s total financial liabilities carried at fair value. Estimates and assumptions are particularly significant when deter- mining the fair value of financial instruments for which at least one significant input is not based on observable market data (classified within 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 infor- mation that represents actual market activity or binding quotations from brokers or dealers. When appropriate, values are adjusted on the basis of available market information including pricing, credit- related factors, volatility levels, and liquidity considerations. If suffi- cient market information is unavailable, management’s best estimate of a particular input is used to determine the value. The evaluation of whether a financial debt security is impaired requires analysis of the underlying credit risk/ quality of the relevant issuer and involves significant management judgment. In particular, current publicly available information relating to the issuer and the particular security is considered relating to factors including, but not limited to, evidence of significant financial difficulty of the issuer and breach of contractual obligations of the security, such as a default or delinquency on interest or principal payments. The 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 by itself represent objective evidence of a loss event, but may represent objective evidence of a loss event when considered with other available information. In general, the subsidiaries assume responsibility for assessing fair values and evaluating impairments of financial instruments. This process is consistent with the decentralized organizational structure and reflects the fact that local managers are often best suited to analyze securities trading in local markets. Nevertheless, the subsidiaries are responsible for adhering to the Allianz Group’s inter- nal control policy regarding impairment assessment, measurement and disclosure. Subsidiaries must report all impairment decisions on debt securities to the Allianz Group Accounting and Reporting department, which then reviews them for consistency and resolves discrepancies. GooDWiLL As of 31 December 2013, the Allianz Group reported total goodwill of € 11,544 MN, of which: 2 − € 2,273 MN related to the Property-Casualty business − € 2,159 MN related to the Life/Health business − € 6,805 MN related to the Asset Management business and − € 307 MN related to the business segment Corporate and Other. Goodwill represents the excess of the consideration transferred in a business combination over the net identifiable assets acquired. Upon acquisition, goodwill is allocated to the cash generating units (CGU) that are expected to benefit from the acquisition. Since good- will is not amortized, the Allianz Group must evaluate at least annu- ally whether the carrying value per CGU is deemed recoverable. This is assumed as long as the carrying value is not in excess of the unit’s estimated recoverable amount. If it is not deemed recoverable, the excess goodwill will need to be impaired. The recoverable amounts of all cash generating units are typi- cally determined on the basis of value in use calculations. The deter- mination of a CGU’s recoverable amount requires significant judg- ment regarding the selection of appropriate valuation techniques and assumptions. These assumptions include selection of appropri- ate discount rates, planning horizons, capitalization requirements and the expected future business results. Assumptions may need to change as economic, market and business conditions change. As such, the Allianz Group continuously evaluates external conditions and the operating performances of the CGUs. The Allianz Group’s processes and controls around the estimation of recoverable amounts are generally applied at the Allianz Group level and are designed to minimize subjectivity. For example, the assumptions used are required to be consistent with the parameters 1 Please refer to the consolidated financial statements note 2 Summary of significant accounting policies, note 37 Impairments of investments (net) and note 44 Financial instruments for further details regarding financial instruments and impairments. 2 Please refer to note 2 Summary of significant accounting policies and note 15 Intangible assets for further details. Annual Report 2013 Allianz Group 145 of the well-defined planning and controlling processes. Important input factors for those calculations are the business plan, the esti- mate of the sustainable returns and eternal growth rates, as is further explained in note 15. The Allianz Group also performs sensitivity tests with regard to key value drivers, such as projected long-term com- bined ratios or discount rates. Furthermore, the Allianz Group reviews market-based business transaction multiples where avail- able. This information is used to assess reasonableness since directly comparable market value information is not generally available. The Allianz Group believes that the controls over assessing the recover- ability of goodwill ensure both consistent and reliable results. DeferreD taX assets As of 31 December 2013, the Allianz Group reported deferred tax assets of € 1,508 MN. The deferred tax assets before netting with deferred tax liabilities amounted to € 15,555 MN. € 1,561 MN thereof resulted from tax losses which are carried forward to future periods.1 Deferred taxes are determined based on tax loss carry forwards, unused tax credits and on temporary differences between the Allianz Group’s carrying amounts of assets and liabilities in its consolidated balance sheet and their tax bases. Deferred tax assets are recognized only to the extent it is probable that sufficient future taxable income will be available for their realization. Assessments as to the recover- ability of deferred tax assets require the use of judgment regarding assumptions related to estimated future taxable profits. This includes the character and amounts of taxable future profits, the periods in which those profits are expected to occur as well as the availability of tax planning opportunities. The analysis and forecasting required in this process, and as a result the determination of the deferred tax assets, is performed for individual jurisdictions by qualified local tax and financial profession- als. Given the potential significance surrounding the underlying esti- mates and assumptions, Group-wide policies and procedures have been designed to ensure consistency and reliability around the recov- erability assessment process. Forecasted operating results are based upon approved business plans which are themselves subject to a well- defined process of control. As a matter of policy, especially strong evidence supporting the recognition of deferred tax assets is required if an entity has suffered a loss in either the current or preceding period. Recognition and recoverability of all significant deferred tax assets are reviewed by tax professionals at Group level and the Allianz Group Tax Committee. 2 peNsioN LiaBiLities aND simiLar oBLiGatioNs As of 31 December 2013, the Allianz Group reported a defined benefit obligation for defined benefit plans of € 19,110 MN which is offset by the fair value of plan assets of € 11,668 MN.2 Liabilities for pension and similar obligations and related net pension expenses are determined in accordance with actuarial valu- ation models. These valuations rely on extensive assumptions. Key assumptions including discount rates, inflation rates, compensation increases, pension increases and rates of medical cost trend are defined centrally at the Allianz Group level considering the circumstances in the particular countries. In order to ensure their thorough and con- sistent determination, all input parameters are discussed and defined, taking into consideration economic developments, peer reviews, cur- rently available market and industry data. The discount rate assump- tions are determined by reference to yields of high-quality corporate bonds of appropriate duration and currency at the balance sheet date. In countries where there is no deep market in such bonds, mar- ket yields on government bonds are generally used as discount rates. Due to changing market and economic conditions, the underly- ing assumptions may differ from actual developments. Potential financial impacts from deviations in certain critical assumptions based on respective sensitivity analyses are disclosed in note 47. restruCturiNG proVisioNs As of 31 December 2013, the Allianz Group reported a provision for restructuring programs of € 214 MN.3 Provisions for restructuring programs are recognized when the Allianz Group has a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or by announcing its main features. The detailed formal plan of a restructuring pro- gram is based on several estimates and assumptions, such as the number of employees to be dismissed, amount of compensation pay- ments, impacts of onerous contracts, possibilities of sub-leases, tim- ing of the various steps of the program and in consequence timing of the expected cash flows. Generally, the subsidiaries, which are undertaking the restruc- turing program, set up a formal plan and determine all underlying estimates and assumptions. Therefore, it is the Allianz Group’s policy that the subsidiaries are responsible for an adequate planning pro- cess, controlling the execution of the program, and for the fulfillment of all requirements of IFRS. The respective documentation has to be submitted to the Allianz Group Accounting and Reporting department, where qualified staff members review all restructuring programs. This includes a review of all estimates and assumptions, and an assessment of whether all requirements for setting up a restructuring provision are satisfied, including which cost components can be treated as restructuring charges. 1 2 Please refer to note 2 Summary of significant accounting policies and note 42 Income taxes for further details. Please refer to note 2 Summary of significant accounting policies and note 47 Pensions and similar obliga- tions for further details. 3 Please refer to note 2 Summary of significant accounting policies and note 49 Restructuring plans for further details. 146 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows 4 – Recently adopted and issued accounting pronouncements and changes in the presentation of the consolidated financial statements recently adopted accounting pronouncements effective 1 January 2013 Amendments to ias 19, Employee Benefits The amendments eliminate the corridor approach and require all actuarial gains and losses to be recognized immediately in other comprehensive income (OCI). While all remeasurements need to be recognized in OCI, service and interest costs have to be recognized in the profit or loss account. The long-term return on plan assets has to be calculated using the same interest rate used to discount the defined benefit obligation (DBO). The amendments to IAS 19 are applied retrospectively. The following tables present the impacts of the adoption of the amendments to IAS 19 on the consolidated balance sheet as of 1 Jan- uary 2012 and as of 31 December 2012. cHange oF consolidated Balance sHeet relating to amendments to ias 19, employee BeneFits as oF 1 January 2012 € mn as of 1 January 2012 Deferred tax assets Other assets Total assets Reserves for insurance and investment contracts Deferred tax liabilities Other liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity As previously reported Amendments to ias 19 2,321 34,346 641,472 361,954 3,881 31,210 594,219 44,915 2,338 47,253 153 (303) (150) 2 (467) 1,821 1,356 (1,458) (48) (1,506) As reported 2,474 34,043 641,322 361,956 3,414 33,031 595,575 43,457 2,290 45,747 cHange oF consolidated Balance sHeet relating to amendments to ias 19, employee BeneFits as oF 31 decemBer 2012 € mn as of 31 December 2012 Deferred tax assets Other assets Total assets Reserves for insurance and investment contracts Deferred tax liabilities Other liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity As previously reported Amendments to ias 19 1,270 35,626 694,621 390,987 5,169 33,175 638,403 53,553 2,665 56,218 256 (430) (174) (2) (1,134) 4,217 3,081 (3,165) (90) (3,255) As reported 1,526 35,196 694,447 390,985 4,035 37,392 641,484 50,388 2,575 52,963 Total liabilities and equity 694,621 (174) 694,447 The adoption of the amendments to IAS 19 on the consolidated income statement for the year ended 31 December 2012 led to an increase in income before income taxes of € 88 mn and an increase in income taxes of € 21 mn. This resulted in an increase in the earnings per share of 14 cents. The impact on the total other comprehensive income was € (1,816) mn for the year ended 31 December 2012. The impact on the consolidated statements of cash flows was immaterial. Further adopted accounting pronouncements In addition to the amendments to IAS 19, Employee Benefits, the fol- lowing new standard, amendments and revisions to existing stan- dards became effective for the Allianz Group’s consolidated financial statements as of 1 January 2013: − IAS 1, Presentation of Financial Statements – Amendment to Presentation of Items of Other Comprehensive Income, Total liabilities and equity 641,472 (150) 641,322 − IFRS 7, Financial Instruments: Disclosures – Amendments to Off- setting Financial Assets and Financial Liabilities, − IFRS 13, Fair Value Measurement, − Annual Improvements to IFRS 2009-2011. The Allianz Group adopted the new standard, the revisions and amendments as of 1 January 2013, with no material impact on its financial results or financial position. Annual Report 2013 Allianz Group 147 recently issued accounting pronouncements effective on or after 1 January 2014 and not adopted early iFrs 9, Financial Instruments: Classification and Measurement IFRS 9, Financial Instruments: Classification and Measurement, was issued by the IASB in November 2009 and is part of the project to replace IAS 39 with a new standard. The project is divided into three phases: classification and measurement, impairment and hedge accounting. The IASB announced that the effective date for IFRS 9 will be 1 January 2018. The Allianz Group is currently evaluating the impact of IFRS 9 on its consolidated financial statements. iFrss 10, 11, 12, Amendments to ias 27 and 28 – Consolidation As part of the consolidation project, the IASB issued IFRSs 10, 11 and 12 as well as amendments to IAS 27 and IAS 28 in May 2011. Further amendments were issued in 2012 on transition guidance and invest- ment entities. These new standards and amendments are generally effective for periods beginning on or after 1 January 2013. However, the E.U. endorsed these IFRSs with a mandatory effective date for peri- ods beginning on or after 1 January 2014. The aim of the consolidation project was to develop a single consolidation model that applies the same criteria for all entities. In this context, the IASB reaffirmed the control concept as the primary determinant for consolidation, revised the definition of ‘control’ and enhanced related disclosure require- ments. IFRS 10, Consolidated Financial Statements, supersedes the requirements of IAS 27, Consolidated and Separate Financial State- ments, for consolidated financial statements as well as SIC-12, Con- solidation – Special Purpose Entities. Financial reporting in separate financial statements is set out by the amended version of IAS 27. The revised version of IAS 28, Investments in Associates and Joint Ven- tures, supersedes the former IAS 28, Investments in Associates. It defines ‘significant influence’, provides guidance on the application of the equity method of accounting and describes how impairment is assessed in associates and joint ventures. IFRS 11, Joint Arrange- ments, supersedes IAS 31, Interests in Joint Ventures, as well as SIC-13, Jointly Controlled Entities – Non-Monetary Contributions by Ven- tures. The standard requires entities to define their rights and obliga- tions arising from a joint arrangement such as joint operations or joint ventures and provides guidance on how to account for these rights and obligations. IFRS 12, Disclosure of Interests in Other Entities, contains disclosure requirements previously set out in IASs 27, 28 and 31. Furthermore, IFRS 12 includes disclosure requirements regarding interests in unconsolidated Structured Entities. The Allianz Group will apply these new standards and amendments for periods begin- ning on or after 1 January 2014. The adoption of these standards and the amendments are not expected to have a material impact on the financial position and financial results of the Allianz Group. Further amendments and interpretations In addition to the above-mentioned recently issued accounting pro- nouncements, the following amendments and revisions to standards and interpretations have been issued by the IASB but are not yet effective for or early adopted by the Allianz Group. FurtHer amendments and interpretations standard/interpretation eFFectiVe date ias 19, Defined Benefit Plans: Employee Contributions Annual periods beginning on or after 1 July 2014 ias 36, Impairment of assets: Recoverable Amount Disclosures for Non-Financial Assets Annual periods beginning on or after 1 January 2014 ias 39, Financial Instruments: Recognition and Measurement: Novation of Derivatives and Continuation of Hedge Accounting Annual periods beginning on or after 1 January 2014 iFrs 14, Regulatory Deferral Accounts iFric 21, Levies Annual Improvements to iFrs 2010-2012 Annual Improvements to iFrs 2011-2013 Annual periods beginning on or after 1 January 2016 Annual periods beginning on or after 1 January 2014 Annual periods beginning on or after 1 July 2014 Annual periods beginning on or after 1 July 2014 The amendments and interpretations are not expected to have a material impact on the financial position and financial results of the Allianz Group. Early adoption is generally allowed but not intended by the Allianz Group. 148 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Change in presentation of consolidated statements of cash flows The Allianz Group has changed the presentation of policyholders’ account deposits and withdrawals in its consolidated statements of cash flows from cash flow from financing activities to cash flow from operating activities. The change in presentation has been applied retrospectively. The Allianz Group believes this change in presentation results in information that is more relevant to the economic decision-making needs of users of financial statements as those cash flows relate to the insurance activities of the Allianz Group. The change in presenta- tion results in a consistent presentation of all cash flows from insur- ance activities as cash flows from operating activities. The following table presents the impact of the change in presen- tation of policyholders’ account deposits and withdrawals on the consolidated statements of cash flows. cHange oF consolidated statement oF casH FloWs relating to cHange in presentation oF policyHolders’ account deposits and WitHdraWals € mn 2012 Net cash flow provided by operating activities Net cash flow used in financing activities Cash and cash equivalents at end of period As previously reported Change in presentation As reported 17,793 1,095 18,888 (941) (1,095) (2,036) 12,437 – 12,437 otHer reclassiFications Certain prior-period amounts have been reclassified to conform to the current period presentation. cHanges in tHe presentation oF tHe consolidated Financial statements Change in presentation of discounted loss reserves in the business segment Property-Casualty Effective 1 January 2013, the Allianz Group prospectively changed its presentation of discounted loss reserves in the consolidated balance sheet from the line item “Reserves for loss and loss adjustment expenses” to the line item “Reserves for insurance and investment contracts”. In the consolidated income statement, the unwinding of the discounted loss reserves is now presented in “Change in reserves for insurance and investment contracts (net)”. The Allianz Group believes this change in presentation results in information that is more relevant to the economic decision-making needs of users of financial statements as it better reflects the nature of the reserves in the financial statements. In addition, the key per- formance indicator “combined ratio” reflects the net underwriting result. The following tables present the impacts of the change in pre- sentation of discounted loss reserves. cHange oF consolidated Balance sHeet relating to cHange in presentation oF discounted loss reserVes € mn as of 31 December 2013 Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Total liabilities Before change in presentation Change in presentation As reported 69,773 (3,207) 66,566 400,865 658,681 3,207 – 404,072 658,681 cHange oF consolidated income statement relating to cHange in presentation oF discounted loss reserVes € mn 2013 Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Net income Loss ratio in % Combined ratio in % Before change in presentation Change in presentation As reported (47,890) 88 (47,802) (13,902) 6,344 66.1 94.5 (88) – (0.2) (0.2) (13,990) 6,344 65.9 94.3 Annual Report 2013 Allianz Group 149 5 – Consolidation scope oF consolidation In addition to Allianz SE, the consolidated financial statements for the period ended 31 December 2013 generally include all German and foreign operating companies in which Allianz SE directly or indirectly holds a majority of voting rights, or whose activities it can in some other way control. The companies are consolidated from the date on which Allianz SE is able to exercise control. The companies listed in the table below are consolidated in addition to the parent company Allianz SE. scope oF consolidation Number of fully consolidated companies (subsidiaries) 1 Germany Other countries Subtotal Number of fully consolidated investment funds Germany Other countries Subtotal Number of fully consolidated special purpose entities (spes) Total number of fully consolidated entities Number of joint ventures valued at equity Number of associates valued at equity 2013 2012 130 689 819 38 38 76 7 902 23 108 130 701 831 40 34 74 7 912 17 125 1 Includes 4 (2012: 5) subsidiaries, in which the Allianz Group owns less than the majority of the voting power, namely CreditRas Vita S.p.A., CreditRas Assicurazioni S.p.A. (CreditRas), Antoniana Veneta Popolare Vita S.p.A. (Antoniana) and BAWAG Allianz Vorsorgekasse AG. The Allianz Group controls these entities on the basis of distinctive rights stipulated by shareholder agreements between the Allianz Group sub- sidiary owning 50.0 % of each such entity and the other shareholders. Pursuant to the shareholder agree- ment of CreditRas, the Allianz Group has the power to appoint the majority of the members of the board of directors, which is the relevant body that governs the financial and operating policies of CreditRas. Pursuant to the shareholder agreement of Antoniana, the Allianz Group has the power to appoint half of the members of the board of directors, including the chairman, who is vested with a casting vote. The board of directors is the relevant body that governs the financial and operating policies of Antoniana. Pursuant to the shareholder agreement of BAWAG Allianz Vorsorgekasse AG, the Allianz Group is entitled to appoint the majority of the members of the supervisory board, who are entitled to vote for the members of the management board. The management board is the relevant body that governs the financial and operating policies of BAWAG Allianz Vorsorgekasse AG. All subsidiaries, joint ventures and associates are individually listed in the list of participations of the Allianz Group from page 233 of this Annual Report onwards. 150 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows signiFicant acquisitions signiFicant acquisitions 2013 HsBc Taiwan Life branch, Taipei Yapı Kredi Sigorta a.Ş., Istanbul Business portfolios from Pastor Vida s.a. de Seguros y Reaseguros, Madrid 2012 Equity interest Date of initial consolidation Segment % – 21 June 2013 Life/Health 94.0 12 July 2013 Property-Casualty – 31 December 2013 Life/Health / Asset Management Insurance activities of Mensura cca, Brussels Brokerage portfolio-related activities of Gan Eurocourtage, Paris – – 1 August 2012 Property-Casualty 1 October 2012 Property-Casualty 1 At the date of initial consolidation. Goodwill 1 € mn Transaction – 222 – (3) 67 Acquisition Acquisition Acquisition Acquisition Acquisition The impact of the acquisition of the HSBC Taiwan Life branch on the total revenues and net income of the Allianz Group since the acquisi- tion date, as well as if the acquisition date had been 1 January 2013, was not material. Yapı Kredi Sigorta a.Ş. On 12 July 2013, the Allianz Group acquired Yapı Kredi Bank’s 93.94 % shareholding in the Turkish property-casualty insurance company Yapı Kredi Sigorta, including its life and pension insurance subsidiary Yapı Kredi Emeklilik. Yapı Kredi Bank ultimately retains a 20 % stake in Yapı Kredi Emeklilik to support the long-term strategic partnership with Allianz. This transaction is consistent with the Allianz Group’s strategy to access growth through strategic relationships in high- growth insurance markets. The consideration paid, net of proceeds received from the sale of the Yapı Kredi Emeklilik stake to Yapı Kredi Bank, amounted to € 639 mn (TRY 1,603 mn), while the total gross con- sideration paid in cash to Yapı Kredi Bank amounted to € 714 mn (TRY 1,791 mn). For the year ended 31 December 2013, acquisition- related expenses in the amount of approximately € 6 mn were included in administrative expenses. The following two tables summarize the consideration trans- ferred, the recognized amounts of assets acquired and liabilities assumed as well as the determination of goodwill: In the following section all significant acquisitions during the year ended 31 December 2013 are described. HsBc Taiwan Life branch On 21 June 2013, the Allianz Group acquired the assets and assumed the liabilities of the Taiwan branch of HSBC Life (International) Lim- ited as part of the regional cooperation with HSBC and integrated it into Allianz Taiwan. The total consideration paid in cash amounted to € 14 mn. The following table summarizes the consideration transferred and amounts recognized for major classes of identifiable assets acquired and liabilities assumed: HsBc taiWan liFe BrancH – consideration transFerred and identiFiaBle assets and liaBilities € mn Consideration transferred Cash consideration transferred Purchase price adjustment Total consideration transferred Identifiable assets acquired and liabilities assumed Cash and cash equivalents Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Deferred acquisition costs Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Total net identifiable assets Fair value 14 (14) – 6 69 3 35 15 (90) (35) (2) (1) – Annual Report 2013 Allianz Group 151 yapi Kredi sigorta a.Ş. and yapi Kredi emeKliliK a.Ş. – consideration transFerred and identiFiaBle assets and liaBilities € mn Consideration transferred Cash paid for 93.94 % Yapı Kredi Sigorta shares Cash received for sale of 19.93 % Yapı Kredi Emeklilik stake Total consideration transferred Identifiable assets acquired and liabilities assumed Cash and cash equivalents (excluding 19.93 % Yapı Kredi Emeklilik sale) Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs (pVFp) Other assets Intangible assets Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Total net identifiable assets Fair value 714 (75) 639 334 247 7 1,612 133 214 197 232 (264) (174) (193) (1,612) (82) (127) 524 yapi Kredi sigorta a.Ş. and yapi Kredi emeKliliK a.Ş. – determination oF goodWill As a result of the purchase of shares representing 93.94 % of the share capital of Yapı Kredi Sigorta on 12 July 2013, after confirmation by the Turkish Capital Market Board, Allianz SE made a mandatory tender offer of TRY 18.8114 per share for the remaining shares of Yapı Kredi Sigorta. On 14 October 2013, Allianz SE started the purchases. Until the end of the mandatory tender offer on 18 November 2013, Allianz SE has purchased shares in the amount of € 41 mn and increased its ownership in Yapı Kredi Sigorta to 99.78 %. Additional shares could be acquired during an additional mandatory tender offer in the context of the planned delisting of the company. Terms of this offer are subject to requested regulatory approval. Business portfolios of Pastor Vida s.a. de Seguros y Reaseguros On 31 December 2013, the Allianz Group acquired the assets and assumed the liabilities related to a life-risk insurance business and to the pension-funds management business from Pastor Vida S.A. de Seguros y Reaseguros, Madrid, which is a subsidiary of Banco Popular Espanol S.A., Madrid. The acquisition of the life and pension business from Pastor Vida represents an opportunity for the Allianz Group to expand its existing market presence in Spain and to realize further scale benefits. For the year ended 31 December 2013, acquisition- related expenses in the amount of approximately € 1 mn were included in administrative expenses. The following table summarizes the consideration transferred and the recognized amounts of assets acquired and liabilities assumed: Fair value Business portFolios From pastor Vida – consideration transFerred and identiFiaBle assets and liaBilities € mn Goodwill recognition Total consideration transferred Total net identifiable assets Non-controlling interests 1 Goodwill € mn 639 524 (107) 222 Consideration transferred Cash consideration transferred Total consideration transferred 1 Based on their proportionate interest in the recognized amounts of the assets and liabilities of the acquiree. Goodwill from the transaction amounted to € 222 mn and primarily reflects anticipated growth opportunities in the Turkish insurance market. The impact of Yapı Kredi Sigorta and Yapı Kredi Emeklilik on the Allianz Group’s total revenues and net income since the acquisi- tion was € 475 mn and € 3 mn, respectively. The gross premiums writ- ten, total revenues and net income of the combined entity ( Allianz Group including Yapı Kredi Sigorta and Yapı Kredi Emeklilik) for the year ended 31 December 2013 would have been € 72,433 mn, € 111,575 mn and € 6,369 mn, respectively, if the acquisition date was 1 January 2013. Identifiable assets acquired and liabilities assumed Cash and cash equivalents Reinsurance assets Deferred acquisition costs (pVFp) Other assets Intangible assets Unearned premiums Reserves for loss and loss adjustment expenses Deferred tax liabilities Total net identifiable assets 152 Annual Report 2013 Allianz Group Fair value 50 50 14 1 25 1 20 (6) (4) (1) 50 D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows The impact on the total revenues and the net income of the combined entity for the year ended 31 December 2013, as if the acquisition date had been as of 1 January 2013, was not material. signiFicant disposals and deconsolidations During 2013 and 2012, no significant disposals or deconsolidations occurred. signiFicant cHanges in non-controlling interests acquisitions oF signiFicant non-controlling interests Date of acquisition Equity interest change 2013 Protexia France s.a., Paris Antoniana Veneta Popolare Assicurazioni S.p.A., Trieste pt Asuransi Allianz Utama Indonesia Ltd., Jakarta Yapı Kredi Sigorta a.Ş., Istanbul 5 March 2013 20 September 2013 12 November 2013 from 14 October until 18 November 2013 2012 Alida Grundstücksgesellschaft mbH & Co. Kg, Hamburg Allianz-Slovenská poist’ovna a.s., Bratislava Allianz Insurance plc, Guildford 4 April 2012 1 June 2012 3 September 2012 % 34.0 50.0 22.8 5.8 39.8 15.0 2.0 Costs of acquisition € mn 22 9 9 41 22 144 29 Increase / (decrease) in shareholders’ equity Decrease in non-controlling interests € mn (11) – (4) (12) 12 (49) (2) € mn (11) (9) (5) (29) (34) (95) (27) disposals oF signiFicant controlling interests 2012 Euler Hermes Real Estate opci, Paris 12 December 2012 (40.0) 55 Date of disposal Equity interest change % Price of sale € mn Increase in shareholders’ equity Increase in non-controlling interests € mn 7 € mn 48 Annual Report 2013 Allianz Group 153 Asset Management The reportable segment Asset Management operates as a global pro- vider of institutional and retail asset manage ment products and ser- vices to third-party investors and provides investment management services to the Allianz Group’s insurance operations. The products for retail and institutional customers include equity and fixed income funds as well as alternative products. The United States and Germany as well as France, Italy and the Asia-Pacific region represent the pri- mary asset management markets. Corporate and Other The reportable segment Holding & Treasury includes the manage- ment and support of the Allianz Group’s businesses through its stra- tegy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources and technology functions. The reportable segment Banking consists of the banking activities in Germany, France, Italy, the Netherlands and Bulgaria. The banks offer a wide range of products for corporate and retail clients, with a pri- mary focus on the latter. The reportable segment Alternative Invest- ments provides global alternative investment management services in the private equity, real estate, renewable energy and infrastructure sectors, mainly on behalf of the Allianz Group’s insurance opera- tions. The reportable segment Alternative Investments also includes a fully consolidated private equity investment. The income and expenses of this investment are included in the non-operating result. general segment reportIng InformatIon Prices for transactions between reportable segments are set on an arm’s length basis in a manner similar to trans actions with third par- ties. Transactions between reportable segments are eliminated in the Consolidation. For the reportable segment Asset Management, inte- rest revenues are reported net of interest expenses. Financial infor- mation is recorded based on reportable segments. Cross-segmental country-specific information is not determined. 6 – Segment reporting IdentIfIcatIon of reportable segments The business activities of the Allianz Group are first organized by pro- duct and type of service: insurance activities, asset management activities and corporate and other activ ities. Due to differences in the nature of products, risks and capital allocation, insurance activi- ties are further divided into the Property-Casualty and Life/Health cat egories. In accordance with the responsibilities of the Board of Management, each of the insurance categories is grouped into the following reportable segments: − German Speaking Countries, − Western & Southern Europe, − Iberia & Latin America, − USA, − Global Insurance Lines & Anglo Markets, − Growth Markets, − Allianz Worldwide Partners (Property-Casualty only). Asset management activities represent a separate reportable seg- ment. Due to differences in the nature of products, risks and capital allocation, corporate and other activities are divided into three repor- table segments: Holding & Treasury, Banking and Alternative Invest- ments. In total, the Allianz Group has identified 17 reportable seg- ments in accordance with IFRS 8, Operating Segments. The types of products and services from which reportable seg- ments derive revenue are described below. Property-Casualty In the Property-Casualty category, reportable segments offer a wide variety of insurance products to both private and corporate custo- mers, including motor liability and own damage, accident, general liability, fire and property, legal expense, credit and travel insurance. Life/Health In the Life/Health category, reportable segments offer a comprehen- sive range of life and health insurance products on both an individual and a group basis, including annuities, endowment and term insu- rance, unit-linked and investment-oriented products as well as full private health and supplemental health and long-term care insurance. 154 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Against this general rule, the following exceptions apply: − In all reportable segments, income from financial assets and liabilities carried at fair value through income (net) is treated as operating profit if the income relates to operating business. − For Life/Health insurance business and Property-Casualty insur- ance products with premium refunds, all items listed above are included in operating profit if the profit sources are shared with policyholders. This is also applicable to tax benefits, which are shared with policyholders. IFRS requires that the consolidated income statements present all tax benefits in the income taxes line item, even though these belong to policyholders. In the seg- ment reporting, the tax benefits are reclassified and shown within operating profit in order to adequately reflect the policy- holder participation in tax benefits. Operating profit should be viewed as complementary to, and not as a substitute for, income before income taxes or net income as deter- mined in accordance with IFRS. Effective 1 January 2013, all restructuring charges are presented within operating profit. This change does not impact recognition and measurement of the restructuring charges, shareholders’ equity and net income. reportable segments measure of profIt or loss The Allianz Group uses operating profit to evaluate the performance of its reportable segments and the Allianz Group as a whole. Opera- ting profit highlights the portion of income before income taxes attri- butable to the ongoing core operations of the Allianz Group. The Allianz Group considers the presentation of operating profit to be useful and meaningful to investors because it enhances the under- standing of the Allianz Group’s underlying operating performance and the comparability of its operating performance over time. To better understand the ongoing operations of the business, the Allianz Group generally excludes the following non-operating effects: − acquisition-related expenses and the amortization of intangible assets, as these relate to business combinations, − interest expenses from external debt, as these relate to the capi- tal structure of the Allianz Group, − income from fully consolidated private equity investments (net), as this represents income from industrial holdings, which is out- side the Allianz Group’s normal scope of operating business, − income from financial assets and liabilities carried at fair value through income (net), as this does not reflect the Allianz Group’s long-term performance, − realized capital gains and losses (net) or impairments of invest- ments (net), as the timing of sales that would result in such real- ized gains or losses is largely at the discretion of the Allianz Group and impairments are largely dependent on market cycles or issuer-specific events over which the Allianz Group has little or no control and which can and do vary, sometimes materially, through time. Annual Report 2013 Allianz Group 155 busIness segment InformatIon – consolIdated balance sheets busIness segment InformatIon – consolIdated balance sheets Property-Casualty Life/Health Asset Management Corporate and Other Consolidation 2013 2012 2013 2012 2013 2012 2013 2012 2,773 643 88,409 16,131 – 7,922 4,354 1,083 21,664 131 2,478 145,588 2,707 624 90,168 18,331 – 8,432 4,323 1,096 21,633 – 2,336 149,650 5,828 6,165 308,919 89,922 81,064 4,717 17,690 261 17,850 – 2,640 535,056 5,574 6,150 301,111 94,080 71,197 4,858 14,990 245 16,753 12 2,207 517,177 Property-Casualty Life/Health Asset Management Corporate and Other Consolidation 2013 2012 78 1,189 15,367 56,614 13,389 – 2,154 17,109 37 – 100 1,146 15,328 62,711 10,174 – 2,562 16,887 25 – 2013 5,869 2,260 2,855 9,961 390,873 81,064 2,420 14,507 12 95 2012 5,255 1,972 2,618 9,854 380,993 71,197 3,276 14,107 – 95 105,937 108,933 509,916 489,367 (752) (468) (91,189) (7,868) (1,567) (360) (90,849) (10,333) (30) (36) (1,684) (14,527) (2,289) (11,076) – – – – – – – – (116,518) (116,510) 2013 1,861 598 1,149 449 – – 159 167 2,188 16 7,268 13,855 1 – – – – 124 2,562 – 14 4,015 2012 1,514 699 1,116 395 – – – 139 257 2,316 7,407 13,843 – – – – – 174 2,780 – 14 4,366 1,497 307 103,727 18,166 1,681 7,457 714 133,549 – – – – – – – – 4,209 170 100,082 16,896 2,217 5,570 1,140 130,287 – – – 3 – – – – 2013 2012 2013 2012 2013 2012 1,314 1,398 534 21,337 403 22,791 (469) (2,991) (10) (9) (190) – (1,684) (20,900) (5,205) (64) (31,522) (361) (4,882) (7) (25) (182) – (2,289) (18,135) (6,740) (64) (32,685) Total equity Total liabilities and equity 164 23,605 13,186 11,509 70,335 312 21,753 14,675 11,569 71,503 Group 2013 11,207 7,245 411,015 116,800 81,064 12,609 22,203 1,508 34,632 147 13,100 711,530 Group 2013 6,013 23,109 18,212 66,566 404,072 81,064 3,178 36,883 8,030 11,554 658,681 52,849 711,530 2012 12,437 7,283 401,628 119,369 71,197 13,254 19,452 1,526 35,196 15 13,090 694,447 2012 5,397 22,425 17,939 72,540 390,985 71,197 4,035 37,392 7,960 11,614 641,484 52,963 694,447 € mn as of 31 December assets Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Non-current assets classified as held for sale Intangible assets Total assets € mn as of 31 December lIabIlItIes and eQuItY Financial liabilities carried at fair value through income Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Certificated liabilities Subordinated liabilities Total liabilities 156 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows busIness segment InformatIon – consolIdated balance sheets busIness segment InformatIon – consolIdated balance sheets Property-Casualty Life/Health Asset Management Corporate and Other Consolidation 2013 1,861 598 1,149 449 – – 159 167 2,188 16 7,268 13,855 2012 1,514 699 1,116 395 – – 139 257 2,316 – 7,407 13,843 2013 2012 2013 2012 1,497 307 103,727 18,166 – – – 1,681 7,457 – 714 133,549 4,209 170 100,082 16,896 – – – 2,217 5,570 3 1,140 130,287 (752) (468) (91,189) (7,868) – (30) – (1,684) (14,527) – – (1,567) (360) (90,849) (10,333) – (36) – (2,289) (11,076) – – (116,518) (116,510) Property-Casualty Life/Health Asset Management Corporate and Other Consolidation 2013 1 1,314 – – – – 124 2,562 – 14 4,015 2012 – 1,398 – – – – 174 2,780 – 14 4,366 2013 2012 2013 2012 534 21,337 – – – – 164 23,605 13,186 11,509 70,335 403 22,791 – – – – 312 21,753 14,675 11,569 71,503 (469) (2,991) (10) (9) (190) – (1,684) (20,900) (5,205) (64) (31,522) Total equity Total liabilities and equity (361) (4,882) (7) (25) (182) – (2,289) (18,135) (6,740) (64) (32,685) € mn as of 31 December assets Cash and cash equivalents Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets Intangible assets Total assets Non-current assets classified as held for sale € mn as of 31 December lIabIlItIes and eQuItY Financial liabilities carried at fair value through income Liabilities to banks and customers Unearned premiums Reserves for loss and loss adjustment expenses Reserves for insurance and investment contracts Financial liabilities for unit-linked contracts Deferred tax liabilities Other liabilities Certificated liabilities Subordinated liabilities Total liabilities 2013 2012 2013 2012 2,773 643 88,409 16,131 – 7,922 4,354 1,083 21,664 131 2,478 145,588 78 1,189 15,367 56,614 13,389 – 2,154 17,109 37 – 2,707 624 90,168 18,331 – 8,432 4,323 1,096 21,633 – 2,336 149,650 100 1,146 15,328 62,711 10,174 – 2,562 16,887 25 – 5,828 6,165 308,919 89,922 81,064 4,717 17,690 261 17,850 – 2,640 535,056 2013 5,869 2,260 2,855 9,961 390,873 81,064 2,420 14,507 12 95 2013 2012 5,574 6,150 301,111 94,080 71,197 4,858 14,990 245 16,753 12 2,207 517,177 2012 5,255 1,972 2,618 9,854 380,993 71,197 3,276 14,107 – 95 105,937 108,933 509,916 489,367 Group 2013 11,207 7,245 411,015 116,800 81,064 12,609 22,203 1,508 34,632 147 13,100 711,530 Group 2013 6,013 23,109 18,212 66,566 404,072 81,064 3,178 36,883 8,030 11,554 658,681 52,849 711,530 2012 12,437 7,283 401,628 119,369 71,197 13,254 19,452 1,526 35,196 15 13,090 694,447 2012 5,397 22,425 17,939 72,540 390,985 71,197 4,035 37,392 7,960 11,614 641,484 52,963 694,447 Annual Report 2013 Allianz Group 157 busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group € mn Total revenues 1 Premiums earned (net) Operating investment result Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Interest expenses, excluding interest expenses from external debt Operating impairments of investments (net) Investment expenses Subtotal Fee and commission income Other income 2013 46,579 42,047 3,595 (76) 69 (52) (11) (315) 3,210 1,226 47 2012 46,889 41,705 3,770 (46) 168 (47) (17) (307) 3,521 1,165 35 Claims and insurance benefits incurred (net) (27,713) (28,491) Change in reserves for insurance and investment contracts (net) 2 Loan loss provisions Acquisition and administrative expenses (net), excluding acquisition-related expenses Fee and commission expenses Restructuring charges Other expenses Reclassification of tax benefits Operating profit (loss) Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) Subtotal Income from fully consolidated private equity investments (net) Interest expenses from external debt Acquisition-related expenses Amortization of intangible assets Reclassification of tax benefits Non-operating items Income (loss) before income taxes Income taxes Net income (loss) Net income (loss) attributable to: Non-controlling interests Shareholders (384) – (11,942) (1,141) (61) (21) – 5,268 26 520 (217) 329 – – – (33) – 296 5,564 (1,746) 3,818 168 3,650 (430) – (11,634) (1,088) (146) (23) – 4,614 (80) 671 (232) 359 – – – (31) – 328 4,942 (1,437) 3,505 179 3,326 2013 56,784 24,581 16,766 (1,829) 3,293 (81) (331) (839) 16,979 646 157 (20,096) (13,556) – (5,603) (251) (50) (98) – 2,709 27 88 (16) 99 – – – (15) – 84 2,793 (852) 1,941 80 1,861 2012 52,347 24,393 16,832 (727) 3,044 (84) (428) (759) 17,878 534 154 (20,386) (13,971) – (5,316) (228) (27) (88) – 2,943 13 132 (49) 96 – – – (4) – 92 3,035 (1,001) 2,034 84 1,950 (28) (28) (623) 2013 7,162 – 40 13 8,611 25 10 (3,995) (1,484) (6) – – – – – – – – – 2 – 2 – – – (31) (26) (55) 3,106 (1,181) 1,925 93 1,832 2012 6,786 – 52 16 – – – – – – – – 8,041 40 15 (3,770) (1,310) (63) – 26 (1) 25 – – – (94) (45) (114) 2,839 (1,029) 1,810 51 1,759 2013 551 903 40 (83) 237 687 – – – 1 – – (86) (1,295) (493) (53) (2) – (46) 346 (80) 220 (17) (901) (2) (106) – (806) (1,810) 476 (1,334) 7 (1,341) 2012 590 980 30 (765) (103) 142 614 – – – 8 – – (111) (1,238) (494) (32) (3) – 236 166 (222) 180 (26) (991) (7) (203) – (1,047) (2,161) 307 (1,854) 13 (1,867) 3,161 2,953 (1,004) (1,114) 2013 (303) – (386) (14) (29) 363 44 332 310 (678) (6) (50) 7 – 3 331 15 – – (68) 17 (4) – 13 2 – – 44 – 59 (9) 3 (6) – (6) 2012 (229) (53) (550) (542) 6 3 438 24 293 214 2 4 41 – 13 – 20 17 225 (59) 41 117 (9) 149 (33) – – 24 (17) 123 64 (1) 63 – 63 2013 110,773 66,628 20,918 (1,866) 3,333 (421) (298) (905) 20,761 10,492 209 (47,802) (13,990) (86) (22,832) (3,038) (170) (106) – 10,066 24 952 (313) 663 (15) (901) (33) (136) – (422) 9,644 (3,300) 6,344 348 5,996 2012 106,383 66,045 21,084 (721) 3,215 (486) (421) (876) 21,795 9,812 214 (48,873) (14,360) (111) (21,945) (2,895) (268) (94) 17 9,337 210 1,112 (513) 809 (59) (991) (101) (259) (17) (618) 8,719 (3,161) 5,558 327 5,231 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operat- ing revenues in Asset Management and total revenues in Corporate and Other (Banking). 2 For the year ended 31 December 2013, includes expenses for premium refunds (net) in Property-Casualty of € (162) mn (2012: € (292) mn). 158 Annual Report 2013 Allianz Group busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) busIness segment InformatIon – total revenues and reconcIlIatIon of operatIng profIt (loss) to net Income (loss) to net Income (loss) € mn Total revenues 1 Premiums earned (net) Operating investment result Interest and similar income Investment expenses Subtotal Fee and commission income Other income Loan loss provisions Fee and commission expenses Restructuring charges Other expenses Reclassification of tax benefits Operating profit (loss) Interest expenses from external debt Acquisition-related expenses Amortization of intangible assets Reclassification of tax benefits Non-operating items Income (loss) before income taxes Income taxes Net income (loss) Net income (loss) attributable to: Non-controlling interests Shareholders Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Interest expenses, excluding interest expenses from external debt Operating impairments of investments (net) Claims and insurance benefits incurred (net) (27,713) (28,491) Change in reserves for insurance and investment contracts (net) 2 Acquisition and administrative expenses (net), excluding acquisition-related expenses (11,942) (1,141) (11,634) (1,088) Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through Non-operating realized gains/losses (net) Non-operating impairments of investments (net) income (net) Subtotal Income from fully consolidated private equity investments (net) 2013 46,579 42,047 3,595 (76) 69 (52) (11) (315) 3,210 1,226 47 (384) – (61) (21) – 5,268 26 520 (217) 329 – – – – (33) 296 5,564 (1,746) 3,818 168 3,650 2012 46,889 41,705 3,770 (46) 168 (47) (17) (307) 3,521 1,165 35 (430) – (146) (23) – 4,614 (80) 671 (232) 359 – – – – (31) 328 4,942 (1,437) 3,505 179 3,326 2013 56,784 24,581 16,766 (1,829) 3,293 (81) (331) (839) 16,979 646 157 (20,096) (13,556) – (5,603) (251) (50) (98) – 2,709 27 88 (16) 99 – – – – 84 (15) 2,793 (852) 1,941 80 1,861 2012 52,347 24,393 16,832 (727) 3,044 (84) (428) (759) 17,878 534 154 (20,386) (13,971) – (5,316) (228) (27) (88) – 2,943 13 132 (49) 96 – – – – (4) 92 3,035 (1,001) 2,034 84 1,950 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operat- 2 For the year ended 31 December 2013, includes expenses for premium refunds (net) in Property-Casualty ing revenues in Asset Management and total revenues in Corporate and Other (Banking). of € (162) mn (2012: € (292) mn). D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group 2013 7,162 – 40 13 – (28) – – 25 8,611 10 – – – (3,995) (1,484) (6) – – 3,161 – 2 – 2 – – (31) (26) – (55) 3,106 (1,181) 1,925 93 1,832 2012 6,786 – 52 16 – (28) – – 40 8,041 15 – – – (3,770) (1,310) (63) – – 2013 551 – 903 40 – (623) – (83) 237 687 1 – – (86) (1,295) (493) (53) (2) – 2012 590 – 980 30 – (765) – (103) 142 614 8 – – (111) (1,238) (494) (32) (3) – 2,953 (1,004) (1,114) – 26 (1) 25 – – (94) (45) – (114) 2,839 (1,029) 1,810 51 1,759 (46) 346 (80) 220 (17) (901) (2) (106) – (806) (1,810) 476 (1,334) 7 (1,341) 236 166 (222) 180 (26) (991) (7) (203) – (1,047) (2,161) 307 (1,854) 13 (1,867) 2013 (303) – (386) (14) (29) 363 44 332 310 (678) (6) 7 (50) – 3 331 – 15 – (68) 17 (4) – 13 2 – – 44 – 59 (9) 3 (6) – (6) 2012 (229) (53) (550) 6 3 438 24 293 214 (542) 2 4 41 – 13 225 – 20 17 (59) 41 117 (9) 149 (33) – – 24 (17) 123 64 (1) 63 – 63 2013 110,773 66,628 20,918 (1,866) 3,333 (421) (298) (905) 20,761 10,492 209 (47,802) (13,990) (86) (22,832) (3,038) (170) (106) – 10,066 24 952 (313) 663 (15) (901) (33) (136) – (422) 9,644 (3,300) 6,344 348 5,996 Annual Report 2013 Allianz Group 2012 106,383 66,045 21,084 (721) 3,215 (486) (421) (876) 21,795 9,812 214 (48,873) (14,360) (111) (21,945) (2,895) (268) (94) 17 9,337 210 1,112 (513) 809 (59) (991) (101) (259) (17) (618) 8,719 (3,161) 5,558 327 5,231 159 reportable segments – propertY-casualtY reportable segments – propertY-casualtY € mn Gross premiums written Ceded premiums written Change in unearned premiums Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit (loss) Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) Amortization of intangible assets Non-operating items Income (loss) before income taxes Income taxes Net income (loss) Net income (loss) attributable to: Non-controlling interests Shareholders Loss ratio 2 in % Expense ratio 3 in % Combined ratio 4 in % German Speaking Countries Western & Southern Europe Iberia & Latin America Growth Markets Allianz Worldwide Partners Consolidation and Other Property-Casualty USA 1 Global Insurance Lines & Anglo Markets 2013 11,748 (1,882) (5) 9,861 1,125 (53) 69 149 35 2012 11,630 (1,955) (1) 9,674 1,197 (4) 168 147 29 2013 10,547 (725) (87) 9,735 880 15 – 23 7 2012 9,496 (655) (158) 8,683 868 5 – 20 4 2013 4,620 (738) (72) 3,810 203 6 – – – 2012 4,659 (830) (147) 3,682 208 20 – 1 – 11,186 11,211 10,660 9,580 4,019 3,911 2,224 2,892 13,484 14,215 2,630 2,572 2,801 2,566 (96) (150) 46,908 46,797 (7,134) (322) (20) (11) (98) (2,534) (132) (3) (16) (6,704) (385) (76) (17) (96) (2,584) (148) (81) (18) (6,070) (5,642) (2,611) (2,533) (1,376) (2,683) (7,574) (8,186) (1,491) (1,438) (1,457) (1,305) (27,713) (28,491) (40) (11) – (98) – (9) – (86) (2,637) (2,332) (35) (53) (4) (34) (26) (4) (4) (3) – (14) (992) – – – (1) (9) – (14) (939) (1) (11) – (8) (1) (3) (683) (3) (752) (10,270) (10,109) (8,948) (8,133) (3,624) (3,508) (2,070) (3,438) (11,699) (12,361) (2,428) (2,340) (2,699) (2,444) 150 (41,640) (42,183) 916 1,102 1,712 1,447 395 403 154 (546) 1,785 1,854 202 232 102 122 5,268 4,614 13 114 (32) (2) 93 1,009 (283) 726 (4) 730 72.3 25.7 98.0 (26) 321 (88) (3) 204 1,306 (331) 975 3 972 69.3 26.7 96.0 12 216 (150) (18) 60 1,772 (684) 1,088 15 1,073 62.3 27.1 89.4 (47) 147 (90) (7) 3 1,450 (604) 846 17 829 64.9 26.9 91.8 5 18 (15) (2) 6 401 (127) 274 7 267 68.6 26.0 94.6 (3) (64) (17) (2) (86) 317 (104) 213 8 205 68.8 25.5 94.3 2013 2,058 (125) 55 1,988 236 – – – – – – – – – 2 5 – – 7 161 (34) 127 – 127 69.2 34.4 103.6 2012 3,550 (962) 66 2,654 239 (1) – – – – – – 1 – (13) 59 1 – 47 (499) 203 (296) – (296) 101.1 28.3 129.4 2013 15,969 (3,841) (158) 11,970 970 (45) 589 – – (10) (26) – (92) (3,493) (498) (6) – (6) 153 (16) (7) 124 1,909 (529) 1,380 119 1,261 63.3 29.2 92.5 2012 16,577 (3,832) (181) 12,564 1,129 (61) 582 – 1 (46) (20) – (95) (3,528) (472) (13) (1) 6 200 (18) (13) 175 2,029 (514) 1,515 123 1,392 65.2 28.0 93.2 2013 3,211 (674) (150) 2,387 161 1 – 3 78 (3) – – (9) (852) (72) – (1) – 10 (4) (8) (2) 200 (53) 147 29 118 62.5 35.7 98.2 2012 3,057 (716) 7 2,348 166 (4) – 61 1 (3) 2 – (9) (822) (65) (5) – 2 7 (20) (13) (24) 208 (48) 160 26 134 61.3 35.0 96.3 2013 2,507 (78) (133) 2,296 33 – – 1 471 (2) – – (1) (763) (477) 1 – – 4 – – 4 106 (36) 70 2 68 63.5 33.2 96.7 2012 2,186 (43) (43) 2,100 34 (1) 433 – – (1) 1 – (4) (692) (432) (11) – 1 1 – – 2 124 (39) 85 2 83 62.1 33.0 95.1 2013 2012 2013 2012 (4,081) (4,266) 4,081 4,266 (13) (71) (84) (79) 46,579 (3,982) (550) 42,047 3,595 (76) 69 1,226 47 46,889 (4,727) (457) 41,705 3,770 (46) 168 1,165 35 13 12 73 98 – – – – 1 – – – – – – 2 – – – 4 4 6 – 6 – 6 71 15 64 – – – – – – – – – – – – – – – 7 7 7 – 7 – 7 –5 –5 –5 –5 –5 –5 (384) (52) (11) (315) (430) (47) (17) (307) (11,942) (11,634) (1,141) (1,088) (61) (21) (146) (23) 26 520 (217) (33) 296 (80) 671 (232) (31) 328 5,564 4,942 (1,746) (1,437) 3,818 3,505 168 3,650 65.9 28.4 94.3 179 3,326 68.3 27.9 96.2 1 2 3 The reserve strengthening for asbestos risks in 2012 at Fireman’s Fund Insurance Company of € 71 mn had no impact on the financial results of the Allianz Group and Fireman’s Fund’s combined ratio under IFRS. Represents claims and insurance benefits incurred (net) divided by premiums earned (net). Represents acquisition and administrative expenses (net) divided by premiums earned (net). 4 5 Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). Presentation not meaningful. 160 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows German Speaking Countries Western & Southern Europe Iberia & Latin America USA 1 Global Insurance Lines & Anglo Markets Growth Markets Allianz Worldwide Partners Consolidation and Other Property-Casualty reportable segments – propertY-casualtY reportable segments – propertY-casualtY € mn Gross premiums written Ceded premiums written Change in unearned premiums Premiums earned (net) Interest and similar income income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Operating income from financial assets and liabilities carried at fair value through Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Operating impairments of investments (net) Interest expenses Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit (loss) Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) Amortization of intangible assets Non-operating items Income (loss) before income taxes Income taxes Net income (loss) Net income (loss) attributable to: Non-controlling interests Shareholders Loss ratio 2 in % Expense ratio 3 in % Combined ratio 4 in % (2,637) (2,332) 2013 11,748 (1,882) (5) 9,861 1,125 (53) 69 149 35 (7,134) (322) (20) (11) (98) (2,534) (132) (3) (16) 13 114 (32) (2) 93 1,009 (283) 726 (4) 730 72.3 25.7 98.0 2012 11,630 (1,955) (1) 9,674 1,197 (4) 168 147 29 (6,704) (385) (76) (17) (96) (2,584) (148) (81) (18) (26) 321 (88) (3) 204 1,306 (331) 975 3 972 69.3 26.7 96.0 2013 10,547 (725) (87) 9,735 880 15 – 23 7 (40) (11) – (98) (35) (53) (4) 12 216 (150) (18) 60 1,772 (684) 1,088 15 1,073 62.3 27.1 89.4 2012 9,496 (655) (158) 8,683 868 5 – 20 4 (9) – – (86) (34) (26) (4) (47) 147 (90) (7) 3 1,450 (604) 846 17 829 64.9 26.9 91.8 2013 4,620 (738) (72) 3,810 203 6 – – – – – – (4) (3) – (14) (992) 5 18 (15) (2) 6 401 (127) 274 7 267 68.6 26.0 94.6 2012 4,659 (830) (147) 3,682 208 20 – 1 – (1) (9) – (14) (939) (1) (11) – (3) (64) (17) (2) (86) 317 (104) 213 8 205 68.8 25.5 94.3 1 The reserve strengthening for asbestos risks in 2012 at Fireman’s Fund Insurance Company of € 71 mn had 4 Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits no impact on the financial results of the Allianz Group and Fireman’s Fund’s combined ratio under IFRS. incurred (net) divided by premiums earned (net). Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 5 Presentation not meaningful. Represents acquisition and administrative expenses (net) divided by premiums earned (net). 2 3 2013 2,058 (125) 55 1,988 236 – – – – 2012 3,550 (962) 66 2,654 239 (1) – – – 2013 15,969 (3,841) (158) 11,970 970 (45) – 589 – 2012 16,577 (3,832) (181) 12,564 1,129 (61) – 582 1 2013 3,211 (674) (150) 2,387 161 1 – 78 3 2012 3,057 (716) 7 2,348 166 (4) – 61 1 11,186 11,211 10,660 9,580 4,019 3,911 2,224 2,892 13,484 14,215 2,630 2,572 2013 2,507 (78) (133) 2,296 33 – – 471 1 2,801 2012 2,186 (43) (43) 2,100 34 (1) – 433 – 2,566 (6,070) (5,642) (2,611) (2,533) (1,376) (2,683) (7,574) (8,186) (1,491) (1,438) (1,457) (1,305) (8) – – (3) (683) – – – (1) – – (3) (752) – 1 – (10) (26) – (92) (3,493) (498) (6) – (46) (20) – (95) (3,528) (472) (13) (1) – (3) – (9) (852) (72) – (1) 2 (3) – (9) (822) (65) (5) – – (2) – (1) (763) (477) 1 – 1 (1) – (4) (692) (432) (11) – (10,270) (10,109) (8,948) (8,133) (3,624) (3,508) (2,070) (3,438) (11,699) (12,361) (2,428) (2,340) (2,699) (2,444) 916 1,102 1,712 1,447 395 403 154 (546) 1,785 1,854 202 232 102 122 2 5 – – 7 161 (34) 127 – 127 69.2 34.4 103.6 (13) 59 1 – 47 (499) 203 (296) – (296) 101.1 28.3 129.4 (6) 153 (16) (7) 124 1,909 (529) 1,380 119 1,261 63.3 29.2 92.5 6 200 (18) (13) 175 2,029 (514) 1,515 123 1,392 65.2 28.0 93.2 – 10 (4) (8) (2) 200 (53) 147 29 118 62.5 35.7 98.2 2 7 (20) (13) (24) 208 (48) 160 26 134 61.3 35.0 96.3 – 4 – – 4 106 (36) 70 2 68 63.5 33.2 96.7 1 1 – – 2 124 (39) 85 2 83 62.1 33.0 95.1 Annual Report 2013 Allianz Group 2013 2012 2013 2012 (4,081) (4,266) 4,081 4,266 – – – – (13) (71) – – (84) 1 (96) – – 13 – – 12 73 – – 98 2 – – – 4 4 6 – 6 – 6 –5 –5 –5 46,579 (3,982) (550) 42,047 3,595 (76) 69 1,226 47 46,889 (4,727) (457) 41,705 3,770 (46) 168 1,165 35 – – (79) – (150) 46,908 46,797 – – 71 – – 15 64 – – (27,713) (28,491) (384) (52) (11) (315) (430) (47) (17) (307) (11,942) (11,634) (1,141) (1,088) (61) (21) (146) (23) 150 (41,640) (42,183) – – – – 7 7 7 – 7 – 7 –5 –5 –5 5,268 4,614 26 520 (217) (33) 296 (80) 671 (232) (31) 328 5,564 4,942 (1,746) (1,437) 3,818 3,505 168 3,650 65.9 28.4 94.3 179 3,326 68.3 27.9 96.2 161 reportable segments – lIfe/health reportable segments – lIfe/health € mn Statutory premiums 1 Ceded premiums written Change in unearned premiums Statutory premiums (net) Deposits from insurance and investment contracts Premiums earned (net) Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Changes in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net) Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit Non-operating income from financial assets and liabilities carried at fair value through income (net) Non-operating realized gains/losses (net) Non-operating impairments of investments (net) Amortization of intangible assets Non-operating items Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Margin on reserves 2 in basis points German Speaking Countries Western & Southern Europe Iberia & Latin America USA Growth Markets Consolidation Life/Health Global Insurance Lines & Anglo Markets 2013 2012 2013 2012 22,251 (166) (163) 21,922 (6,350) 15,572 8,935 (1,139) 2,647 49 126 20,758 (161) (194) 20,403 (4,879) 15,524 8,782 48 2,277 44 134 19,830 (1,086) 22 18,766 16,897 (1,102) 45 15,840 (14,183) (11,572) (1,078) (6,312) (6,322) (3,300) (3,454) (31,223) (27,013) 4,583 3,878 138 487 437 31 4,268 3,999 (50) 587 350 20 26,190 26,809 9,554 9,174 1,096 1,064 3,022 3,213 3,366 3,565 (65) (60) 43,614 44,230 (13,139) (13,942) (9,273) (9,278) (98) (275) (556) (97) (231) (512) (1,565) (1,302) (19) (3) (88) (18) (18) (78) (4,113) (2,364) (24) (76) (213) (1,795) (208) (16) (10) (3,804) (2,377) (27) (193) (179) (1,678) (171) (8) (10) (25,016) (25,476) (8,819) (8,447) (938) (941) (2,535) (2,756) (428) (418) (3,235) (3,309) 66 60 (40,905) (41,287) 1,174 1,333 – – – (1) (1) 1,173 (410) 763 – 763 53 – – – (3) (3) 1,330 (439) 891 – 891 64 735 (5) 35 (13) (5) 12 747 (208) 539 20 519 53 727 (2) 67 (33) (1) 31 758 (293) 465 33 432 57 (93) (99) (337) (352) (1,788) (1,594) (1,346) (1,497) (472) (707) (20,096) (20,386) (13,556) (13,971) (207) (1,054) (1,077) (88) (80) (902) (1) (5,603) (5,316) (24) (41) 2013 1,786 (19) (4) 1,763 685 371 21 16 3 – (626) (99) (3) (1) (7) (201) (1) – – – – – – – 158 (46) 112 23 89 2012 1,520 (30) – 1,490 (786) 704 370 22 (38) 6 – (595) (127) (3) – (7) (1) (1) – – – – – – 123 (35) 88 20 68 2013 7,317 (115) (7) 7,195 883 2,734 (781) 106 80 – (7) 23 (34) – – 487 32 28 – (1) 59 – 398 70 2012 7,289 (121) 2 7,170 848 2,823 (717) 194 65 – (7) – (35) – – 457 15 6 (5) – 16 – 319 69 546 (148) 398 473 (154) 319 2013 515 (82) (3) 430 – 430 76 (1) – – 451 (54) (2) (1) – – – – – – – – – – 23 (7) 16 – 16 111 2012 484 (59) 425 – – 425 76 (35) (1) – – 465 15 (1) – – – – – – – – – – 47 (9) 38 – 38 208 2013 6,174 (269) (177) 5,728 2,428 836 (16) 37 81 – (10) (2) (29) (1) (31) – 131 – 25 (3) (8) 14 145 (33) 112 37 75 49 2012 6,453 (274) (101) 6,078 2,624 841 3 24 73 – (7) (4) (26) (971) – – – 256 (11) – 59 – 48 304 (71) 233 31 202 99 2013 2012 (1,089) (1,054) 1,089 1,054 (64) (59) (3) (3) 62 58 2013 56,784 (648) (332) 55,804 24,581 16,766 (1,829) 3,293 646 157 (81) (331) (839) (251) (50) (98) 27 88 (16) (15) 84 2,793 (852) 1,941 2012 52,347 (693) (248) 51,406 24,393 16,832 (727) 3,044 534 154 (84) (428) (759) (228) (27) (88) 13 132 (49) (4) 92 3,035 (1,001) 2,034 80 1,861 84 1,950 – – – – 2 – – – – – – 3 – – – – – – – – – – – – – – – – – 2 – – – – – – 2 2 – – 1 – – – – – 1 – 1 – 1 158 123 23 47 2,709 2,943 201 171 –3 –3 58 67 1 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction. 2 3 Represents operating profit divided by the average of the current and previous year-end net reserves, where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. Presentation not meaningful. 162 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows German Speaking Countries Western & Southern Europe Iberia & Latin America USA Global Insurance Lines & Anglo Markets Growth Markets Consolidation Life/Health Deposits from insurance and investment contracts (14,183) (11,572) Operating income from financial assets and liabilities carried at fair value through income (net) 2013 1,786 (19) (4) 1,763 (1,078) 685 371 21 16 3 – 2012 1,520 (30) – 1,490 (786) 704 370 22 (38) 6 – 2013 7,317 (115) (7) 7,195 2012 7,289 (121) 2 7,170 (6,312) (6,322) 883 2,734 (781) 106 80 – 848 2,823 (717) 194 65 – 26,190 26,809 9,554 9,174 1,096 1,064 3,022 3,213 2013 515 (82) (3) 430 – 430 76 (54) – (1) – 451 2012 484 (59) – 425 – 425 76 (35) – (1) – 465 2013 6,174 (269) (177) 5,728 2012 6,453 (274) (101) 6,078 (3,300) (3,454) 2,428 836 (16) 37 81 – 2,624 841 3 24 73 – 3,366 3,565 (93) (99) (337) (352) (1,788) (1,594) (472) (707) (626) (99) (3) (1) (7) (201) (1) – – (595) (127) (3) – (7) (1,346) (1,497) (7) 23 (34) (7) – (35) (207) (1,054) (1,077) (1) (1) – (24) (41) – – – – (2) (1) – – (88) – – – 15 (1) – – (10) (2) (29) (80) (902) – – – (1) (31) – (7) (4) (26) (971) – – – 2013 2012 (1,089) (1,054) 1,089 1,054 – – – – – – – – (64) (59) 2013 56,784 (648) (332) 55,804 2012 52,347 (693) (248) 51,406 (31,223) (27,013) 24,581 16,766 (1,829) 3,293 646 157 24,393 16,832 (727) 3,044 534 154 43,614 44,230 (20,096) (20,386) (13,556) (13,971) (81) (331) (839) (84) (428) (759) 2 – (3) – (60) – – 58 – – (1) (5,603) (5,316) 3 – – (251) (50) (98) (228) (27) (88) 2 – (3) – (65) – – 62 – – 2 2 – – (25,016) (25,476) (8,819) (8,447) (938) (941) (2,535) (2,756) (428) (418) (3,235) (3,309) 66 60 (40,905) (41,287) 1,174 1,333 158 123 – – – – – 158 (46) 112 23 89 – – – – – 123 (35) 88 20 68 201 171 487 32 28 – (1) 59 457 15 6 (5) – 16 546 (148) 398 473 (154) 319 – 398 70 – 319 69 23 47 – – – – – 23 (7) 16 – 16 111 – – – – – 47 (9) 38 – 38 208 131 – 25 (3) (8) 14 145 (33) 112 37 75 49 256 – 59 (11) – 48 304 (71) 233 31 202 99 1 – – – – – 1 – 1 – 1 – – – – – – – – – – – 2,709 2,943 27 88 (16) (15) 84 2,793 (852) 1,941 13 132 (49) (4) 92 3,035 (1,001) 2,034 80 1,861 84 1,950 –3 –3 58 67 Annual Report 2013 Allianz Group 163 reportable segments – lIfe/health reportable segments – lIfe/health € mn Statutory premiums 1 Ceded premiums written Change in unearned premiums Statutory premiums (net) Premiums earned (net) Interest and similar income Operating realized gains/losses (net) Fee and commission income Other income Operating revenues Claims and insurance benefits incurred (net) Changes in reserves for insurance and investment contracts (net) Interest expenses Investment expenses Operating impairments of investments (net) Acquisition and administrative expenses (net) Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit Non-operating realized gains/losses (net) Non-operating impairments of investments (net) Amortization of intangible assets Non-operating items Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Margin on reserves 2 in basis points Non-operating income from financial assets and liabilities carried at fair value through income (net) 2013 2012 2013 2012 22,251 (166) (163) 21,922 (6,350) 15,572 8,935 (1,139) 2,647 49 126 20,758 (161) (194) 20,403 (4,879) 15,524 8,782 48 2,277 44 134 (13,139) (13,942) (9,273) (9,278) (1,565) (1,302) (98) (275) (556) (19) (3) (88) – – – (1) (1) 1,173 (410) 763 – 763 53 (97) (231) (512) (18) (18) (78) – – – (3) (3) 1,330 (439) 891 – 891 64 19,830 (1,086) 22 18,766 4,583 3,878 138 487 437 31 (4,113) (2,364) (24) (76) (213) (1,795) (208) (16) (10) 735 (5) 35 (13) (5) 12 747 (208) 539 20 519 53 16,897 (1,102) 45 15,840 4,268 3,999 (50) 587 350 20 (3,804) (2,377) (27) (193) (179) (1,678) (171) (8) (10) 727 (2) 67 (33) (1) 31 758 (293) 465 33 432 57 1 Statutory premiums are gross premiums written from sales of life and health insurance policies, as well 2 Represents operating profit divided by the average of the current and previous year-end net reserves, as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with where net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and the statutory accounting practices applicable in the insurer’s home jurisdiction. investment contracts and financial liabilities for unit-linked contracts less reinsurance assets. 3 Presentation not meaningful. 2013 7,127 12 13 10 2012 6,731 24 16 15 7,162 6,786 (3,995) (6) (4,001) 3,161 2 – (31) (26) (55) 3,106 (1,181) 1,925 93 1,832 55.9 (3,770) (63) (3,833) 2,953 26 (1) (94) (45) (114) 2,839 (1,029) 1,810 51 1,759 56.5 reportable segments – asset management reportable segments – asset management € mn Net fee and commission income 1 Net interest income 2 Income from financial assets and liabilities carried at fair value through income (net) Other income Operating revenues Administrative expenses (net), excluding acquisition-related expenses Restructuring charges Operating expenses Operating profit Realized gains/losses (net) Impairments of investments (net) Acquisition-related expenses Amortization of intangible assets Non-operating items Income before income taxes Income taxes Net income Net income attributable to: Non-controlling interests Shareholders Cost-income ratio 3 in % 1 2 3 Represents fee and commission income less fee and commission expenses. Represents interest and similar income less interest expenses. Represents operating expenses divided by operating revenues. 164 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Annual Report 2013 Allianz Group 165 reportable segments – corporate and other reportable segments – corporate and other € mn Interest and similar income Operating income from financial assets and liabilities carried at fair value through income (net) Fee and commission income Other income Operating revenues Interest expenses, excluding interest expenses from external debt Loan loss provisions Investment expenses Administrative expenses (net), excluding acquisition-related expenses Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit (loss) Non-operating income from financial assets and liabilities carried at fair value through income (net) Realized gains/losses (net) Impairments of investments (net) Income from fully consolidated private equity investments (net) Interest expenses from external debt Acquisition-related expenses Amortization of intangible assets Non-operating items Income (loss) before income taxes Income taxes Net loss Net loss attributable to: Non-controlling interests Shareholders Holding & Treasury Banking Alternative Investments Consolidation Corporate and Other 2013 278 31 53 – 362 (341) – (79) (684) (231) 34 – 2012 245 18 17 6 286 (414) – (101) (591) (249) (32) – (1,301) (1,387) (1,187) (1,223) (151) (147) (939) (44) 295 (79) – (901) (2) (10) (741) (1,680) 456 (1,224) – (1,224) (1,101) 229 72 (220) – (991) (7) (114) (1,031) (2,132) 311 (1,821) – (1,821) Cost-income ratio 1 for the reportable segment Banking in % 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses, restructuring charges and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt and fee and commission expenses. 166 Annual Report 2013 Allianz Group (91) (34) 24 22 (1,004) (1,114) 2013 613 475 8 – 1,096 (281) (86) – (468) (262) (88) (2) – 23 (1) – – – – 22 (69) 20 (49) 5 (54) 100.9 2012 719 14 456 – 1,189 (350) (111) (1) (511) (247) – (3) – 13 (2) – – – – 11 (23) 3 (20) 7 (27) 87.0 2013 12 (1) 163 1 175 (2) – (5) – 1 – 1 – – – – (96) (112) (88) 5 (83) 2 (85) (145) (142) (17) (26) 2012 17 (1) 149 4 169 (2) – (3) – – – 2 – – – – (89) (113) (91) (7) (98) 6 (104) 2013 (4) (2) – 2 – 1 – 1 2 – – – 4 2 – – – – – (3) 28 25 27 (5) 22 – 22 2012 (1) (1) (8) (2) (12) 1 – 2 6 2 – – 11 (1) 5 81 – – – – – 86 85 – 85 – 85 2013 903 40 687 1 1,631 (623) (86) (83) (1,295) (493) (53) (2) (2,635) (46) 346 (80) (17) (901) (2) (106) (806) (1,810) 476 (1,334) 7 (1,341) 2012 980 30 614 8 1,632 (765) (111) (103) (1,238) (494) (32) (3) (2,746) 236 166 (222) (26) (991) (7) (203) (1,047) (2,161) 307 (1,854) 13 (1,867) reportable segments – corporate and other reportable segments – corporate and other € mn Operating income from financial assets and liabilities carried at fair value through income (net) Interest expenses, excluding interest expenses from external debt Administrative expenses (net), excluding acquisition-related expenses Non-operating income from financial assets and liabilities carried at fair value through income (net) Income from fully consolidated private equity investments (net) Interest and similar income Fee and commission income Other income Operating revenues Loan loss provisions Investment expenses Fee and commission expenses Restructuring charges Other expenses Operating expenses Operating profit (loss) Realized gains/losses (net) Impairments of investments (net) Interest expenses from external debt Acquisition-related expenses Amortization of intangible assets Non-operating items Income (loss) before income taxes Income taxes Net loss Net loss attributable to: Non-controlling interests Shareholders Cost-income ratio 1 for the reportable segment Banking in % 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses, other income, interest expenses, excluding interest expenses from external debt and fee and commission restructuring charges and other expenses divided by interest and similar income, operating income from expenses. financial assets and liabilities carried at fair value through income (net), fee and commission income, D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Holding & Treasury Banking Alternative Investments Consolidation Corporate and Other 2013 278 31 53 – 362 (341) – (79) (684) (231) 34 – (939) (44) 295 (79) – (901) (2) (10) (741) (1,680) 456 (1,224) – (1,224) 2012 245 18 17 6 286 (414) (101) (591) (249) (32) – – (1,101) 229 72 (220) – (991) (7) (114) (1,031) (2,132) 311 (1,821) – (1,821) 2013 613 8 475 – 1,096 (281) (86) – (468) (262) (88) (2) 2012 719 14 456 – 1,189 (350) (111) (1) (511) (247) – (3) 2013 12 (1) 163 1 175 (2) – (5) 2012 17 (1) 149 4 169 (2) – (3) (145) (142) – 1 – – – – (1,301) (1,387) (1,187) (1,223) (151) (147) (91) (34) – 23 (1) – – – – 22 (69) 20 (49) 5 (54) 100.9 – 13 (2) – – – – 11 (23) 3 (20) 7 (27) 87.0 24 1 – – (17) – – (96) (112) (88) 5 (83) 2 (85) 22 2 – – (26) – – (89) (113) (91) (7) (98) 6 (104) 2013 – 2 (4) – (2) 1 – 1 2 – – – 4 2 (3) 28 – – – – – 25 27 (5) 22 – 22 2012 (1) (1) (8) (2) (12) 1 – 2 6 2 – – 11 (1) 5 81 – – – – – 86 85 – 85 – 85 2013 903 40 687 1 1,631 (623) (86) (83) (1,295) (493) (53) (2) (2,635) 2012 980 30 614 8 1,632 (765) (111) (103) (1,238) (494) (32) (3) (2,746) (1,004) (1,114) (46) 346 (80) (17) (901) (2) (106) (806) (1,810) 476 (1,334) 7 (1,341) 236 166 (222) (26) (991) (7) (203) (1,047) (2,161) 307 (1,854) 13 (1,867) Annual Report 2013 Allianz Group 167 Notes to the coNsolidated balaNce sheets 7 – Cash and cash equivalents 9 – Investments cash and cash equIvalents € mn as of 31 December Balances with banks payable on demand Balances with central banks Cash on hand Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks Total 2013 6,574 449 202 3,982 11,207 2012 7,295 2,277 223 2,642 12,437 Investments € mn as of 31 December Available-for-sale investments Held-to-maturity investments Funds held by others under reinsurance contracts assumed Investments in associates and joint ventures Real estate held for investment Total 2013 392,023 4,140 894 3,175 10,783 411,015 2012 383,254 4,321 1,188 3,219 9,646 401,628 As of 31 December 2013, compulsory deposits on accounts with national central banks under restrictions due to required reserves from the European Central Bank totaled € 169 mn (2012: € 305 mn). 8 – Financial assets carried at fair value through income FInancIal assets carrIed at FaIr value through Income € mn as of 31 December Financial assets held for trading Debt securities Equity securities Derivative financial instruments Subtotal Financial assets designated at fair value through income Debt securities Equity securities Subtotal Total 2013 2012 360 139 2,013 2,512 2,008 2,725 4,733 7,245 328 153 1,865 2,346 2,349 2,588 4,937 7,283 debt and equIty securItIes Included In FInancIal assets held For tradIng Debt and equity securities included in financial assets held for trading are primarily marketable and listed securities. As of 31 December 2013, the debt securities include € 30 mn (2012: € 29 mn) from public sector issuers and € 330 mn (2012: € 299 mn) from other issuers. 168 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows avaIlable-For-sale Investments avaIlable-For-sale Investments € mn as of 31 December Debt securities Government and agency mortgage-backed securities (residential and commercial) Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Germany Italy France United States Spain Belgium Greece Portugal Ireland Hungary Supranationals All other countries Subtotal Corporate bonds 1 Other Subtotal Equity securities 2 Total 2013 2012 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Fair Value 2,515 11,226 3,460 14,852 26,304 31,410 8,411 2,813 5,968 1 196 38 773 14,571 49,596 154,933 168,353 2,223 342,710 22,819 365,529 103 693 210 918 2,001 2,471 239 178 613 2 2 1 60 663 2,328 9,476 9,212 324 20,018 9,624 29,642 (16) (86) (40) (46) (91) (177) (171) (35) (3) – (2) – – (56) (878) (1,459) (1,397) (4) (3,002) (146) (3,148) 2,602 4,026 291 (2) 4,315 11,833 3,630 15,724 28,214 33,704 8,479 2,956 6,578 3 196 39 833 15,178 51,046 162,950 176,168 2,543 359,726 32,297 392,023 10,778 2,532 13,066 29,762 31,300 8,179 2,582 6,077 7 251 76 662 8,131 45,936 146,029 161,150 2,574 327,089 17,950 345,039 1,202 276 1,521 1,483 4,421 803 32 1,060 4 1 3 42 1,029 4,670 15,069 14,142 266 31,246 8,632 39,878 (107) (27) (5) (206) (34) (10) (136) (1) – (11) – – (1) (51) (455) (954) (23) (1,568) (95) (1,663) 11,873 2,781 14,582 31,039 35,687 8,972 2,478 7,136 11 241 79 704 9,159 50,555 160,643 174,338 2,817 356,767 26,487 383,254 1 Includes bonds issued by Spanish banks with a fair value of € 418 MN (2012: € 508 MN), thereof subordinated bonds with a fair value of € 115 MN (2012: € 107 MN). 2 Includes shares invested in Spanish banks with a fair value of € 402 MN (2012: € 279 MN). held-to-maturIty Investments held-to-maturIty Investments € mn as of 31 December Government and government agency bonds Corporate bonds 1 Other Total 1 Also includes corporate mortgage-backed securities. 2013 2012 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Fair Value 2,411 1,729 – 4,140 375 144 – 519 (4) (8) – (12) 2,782 1,865 – 4,647 2,598 1,723 – 4,321 331 68 – 399 – (1) – (1) 2,929 1,790 – 4,719 Annual Report 2013 Allianz Group 169 unrealIzed losses on avaIlable-For-sale Investments and held-to-maturIty Investments The following table sets forth gross unrealized losses on available- for-sale investments and held-to-maturity investments and the related fair value, broken down by investment category and length of time such investments have been in a continuous unrealized loss position as of 31 December 2013 and 2012. unrealIzed losses on avaIlable-For-sale Investments and held-to-maturIty Investments € mn as of 31 December 2013 Debt securities Government and agency mortgage-backed securities (residential and commercial) Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other Subtotal Equity securities Total 2012 Debt securities Government and agency mortgage-backed securities (residential and commercial) Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other Subtotal Equity securities Total Less than 12 months Greater than 12 months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses 608 1,114 668 36,119 37,148 77 75,734 2,661 78,395 86 402 208 3,881 5,759 434 10,770 1,377 12,147 (15) (31) (30) (1,258) (1,094) (3) (2,431) (144) (2,575) (1) (26) (10) (80) (88) (22) (227) (90) (317) 12 817 224 2,217 3,651 12 6,933 81 7,014 9 782 228 5,528 8,623 5 15,175 33 15,208 (1) (55) (10) (205) (311) (1) (583) (2) (585) (1) (81) (17) (375) (867) (1) (1,342) (5) (1,347) 620 1,931 892 38,336 40,799 89 82,667 2,742 85,409 95 1,184 436 9,409 14,382 439 25,945 1,410 27,355 (16) (86) (40) (1,463) (1,405) (4) (3,014) (146) (3,160) (2) (107) (27) (455) (955) (23) (1,569) (95) (1,664) Corporate mortgage-backed securities (residential and commercial) Total unrealized losses amounted to € 86 mn as of 31 December 2013. The unrealized loss positions mainly stem from issues in the securities markets of certain European countries. Based on a detailed analysis of the underlying securities and collaterals, the Allianz Group did not consider these investments to be impaired as of 31 December 2013. Government and government agency bonds Total unrealized losses amounted to € 1,463 mn as of 31 December 2013. The Allianz Group holds a large variety of government bonds, mostly of OECD countries (Organization of Economic Cooperation and Development). In general, the credit risk of government and gov- ernment agency bonds is rather moderate since they are backed by the fiscal capacity of the issuers who typically hold an “investment grade” country- and/or issue-rating. The unrealized losses on the Allianz Group’s investment in gov- ernment bonds were mainly caused by investments in certain Euro- pean countries and the U.S. During 2013, government and govern- ment agency bond performance has been negative, due to a rising interest rate level in certain countries, resulting in an increase of unrealized losses of € 1,008 mn. Based on a detailed analysis of the underlying securities, the Allianz Group did not consider these invest - ments to be impaired as of 31 December 2013. 170 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Investments In assocIates and joInt ventures As of 31 December 2013, loans to associates and joint ventures and available-for-sale debt securities issued by associates and joint ven- tures held by the Allianz Group amounted to € 577 mn (2012: € 290 mn). real estate held For Investment real estate held For Investment € mn Cost as of 1 January Accumulated depreciation as of 1 January Carrying amount as of 1 January Additions Changes in the consolidated subsidiaries of the Allianz Group Disposals Reclassifications Reclassifications into non-current assets classified as held for sale Foreign currency translation adjustments Depreciation Impairments Reversals of impairments Carrying amount as of 31 December Accumulated depreciation as of 31 December Cost as of 31 December 2013 12,443 (2,797) 9,646 706 807 (349) 377 (117) (43) (211) (55) 22 10,783 3,054 13,837 2012 11,383 (2,719) 8,664 978 317 (192) 84 (20) 20 (190) (48) 33 9,646 2,797 12,443 As of 31 December 2013, real estate held for investment pledged as security and other restrictions on title were € 36 mn (2012: € 37 mn). Corporate bonds Total unrealized losses amounted to € 1,405 mn as of 31 December 2013. The Allianz Group holds a large variety of bonds issued by cor- porations mostly domiciled in OECD countries. For the vast majority of the Allianz Group’s corporate bonds, issuers and/or issues are of “investment grade”. The increase in unrealized losses of € 450 mn is spread over almost all sectors, due to a rising interest environment. Based on a detailed analysis of the underlying securities, the Allianz Group did not consider these investments to be impaired as of 31 December 2013. Equity securities As of 31 December 2013, unrealized losses from equity securities amounted to € 146 mn. These unrealized losses concern equity securi- ties that did not meet the criteria of the Allianz Group’s impairment policy for equity securities as described in note 2. The major part of the unrealized losses have been in a continuous loss position for less than 6 months. contractual term to maturIty The amortized cost and fair value of available-for-sale debt securities and held-to-maturity debt securities as of 31 December 2013, by con- tractual term to maturity, are as follows: contractual term to maturIty € mn as of 31 December 2013 avaIlable-For-sale debt securItIes Due in 1 year or less Due after 1 year and up to 5 years Due after 5 years and up to 10 years Due after 10 years Total held-to-maturIty debt securItIes Due in 1 year or less Due after 1 year and up to 5 years Due after 5 years and up to 10 years Due after 10 years Total Amortized Cost Fair Value 32,793 90,833 94,354 124,730 342,710 181 1,661 898 1,400 4,140 31,467 96,673 96,402 135,184 359,726 204 1,751 977 1,715 4,647 Actual maturities may deviate from the contractually defined matur- ities because certain security issuers have the right to call or repay certain obligations ahead of schedule, with or without redemption or early repayment penalties. Investments that are not due at a single maturity date are, in general, not allocated over various maturity buckets, but are shown within their final contractual maturity dates. Annual Report 2013 Allianz Group 171 10 – Loans and advances to banks and customers loans and advances to banks and customers € mn as of 31 December Short-term investments and certificates of deposit Reverse repurchase agreements Collateral paid for securities borrowing transactions and derivatives Loans Other Subtotal Loan loss allowance Total 1 Primarily include covered bonds. 2013 Customers – – – 51,595 15 51,610 (194) 51,416 Banks 3,275 613 315 60,5111 670 65,384 – 65,384 Total 3,275 613 315 112,106 685 116,994 (194) 116,800 2012 Customers – – – 49,633 42 49,675 (152) 49,523 Banks 4,207 789 365 64,0491 436 69,846 – 69,846 Total 4,207 789 365 113,682 478 119,521 (152) 119,369 loans and advances to banks and customers by contractual maturIty loans and advances to banks and customers by contractual maturIty € mn as of 31 December 2013 Loans and advances to banks Loans and advances to customers Total Up to 3 months > 3 months up to 1 year > 1 year up to 3 years > 3 years up to 5 years Greater than 5 years 3,852 3,059 6,911 3,544 3,034 6,578 7,754 6,343 14,097 10,457 5,736 16,193 39,777 33,438 73,215 Total 65,384 51,610 116,994 The following table presents information relating to the Allianz Group’s impaired loans: 11 – Reinsurance assets ImpaIred loans € mn as of 31 December Impaired loans Impaired loans with specific allowances Average balance of impaired loans Interest income recognized on impaired loans reInsurance assets € mn as of 31 December Unearned premiums Reserves for loss and loss adjustment expenses Aggregate policy reserves Other insurance reserves Total 2013 786 784 818 8 2012 881 875 830 10 2013 1,537 6,494 4,463 115 2012 1,546 7,318 4,295 95 12,609 13,254 172 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Changes in aggregate policy reserves ceded to reinsurers are as fol- lows: 12 – Deferred acquisition costs changes In aggregate polIcy reserves ceded to reInsurers € mn Carrying amount as of 1 January Foreign currency translation adjustments Changes recorded in the consolidated income statements Other changes Carrying amount as of 31 December 2013 4,295 (131) 10 289 4,463 2012 4,364 (47) 66 (88) 4,295 deFerred acquIsItIon costs € mn as of 31 December Deferred acquisition costs Property-Casualty Life/Health Asset Management Subtotal Present value of future profits Deferred sales inducements Total deFerred acquIsItIon costs changes In deFerred acquIsItIon costs € mn property-casualty Carrying amount as of 1 January Additions Changes in the consolidated subsidiaries of the Allianz Group Foreign currency translation adjustments Amortization Carrying amount as of 31 December lIFe/health Carrying amount as of 1 January Additions Foreign currency translation adjustments Shadow accounting Amortization Carrying amount as of 31 December asset management Total Changes in the reserves for loss and loss adjustment expenses ceded to reinsurers in the business segment Property-Casualty are shown in the respective table in note 19. The Allianz Group reinsures a portion of the risks it underwrites in an effort to control its exposure to losses and events and to protect its capital resources. For natural catastrophe events, the Allianz Group maintains a centralized program that pools exposures from its subsidiaries by internal reinsurance agreements. Allianz SE limits exposures in this portfolio through external reinsurance. For other risks, the subsidiaries of the Allianz Group have individual reinsur- ance programs in place. Allianz SE participates as a reinsurer with a significant share on an arm’s length basis in these programs. Reinsurance involves credit risk and is subject to aggregate loss limits. Reinsurance does not legally discharge the respective Allianz company from primary liability under the reinsured policies. Although the reinsurer is liable to this company to the extent of the business ceded, the Allianz company remains primarily liable as the direct insurer on all the risks it underwrites, including the share that is reinsured. The Allianz Group monitors the financial condition of its reinsurers on a regular basis and reviews its reinsurance arrange- ments periodically in order to evaluate the reinsurer’s ability to fulfill its obligations to the Allianz Group companies under existing and planned reinsurance contracts. The Allianz Group’s evaluation crite- ria, which include the degree of creditworthiness, capital levels and marketplace reputation of its reinsurers, are such that the Allianz Group believes that its reinsurance credit risk is not significant, and historically has not experienced noteworthy difficulty in collecting claims from its reinsurers. Additionally, and as appropriate, the Allianz Group may also require letters of credit, deposits, or other financial guarantees to further minimize its exposure to credit risk. In certain cases, however, the Allianz Group does establish an allow- ance for doubtful amounts related to reinsurance as appropriate, although this amount was not significant as of 31 December 2013 and 2012. The Allianz Group primarily maintains business relations with highly rated reinsurers. 2013 2012 4,354 15,837 159 20,350 1,046 807 22,203 4,323 13,521 139 17,983 945 524 19,452 2013 2012 4,323 5,530 (3) (135) (5,361) 4,354 13,521 2,813 (390) 2,204 (2,311) 15,837 159 20,350 4,197 5,359 2 3 (5,238) 4,323 14,579 2,621 (27) (1,668) (1,984) 13,521 139 17,983 Annual Report 2013 Allianz Group 173 present value oF Future proFIts 13 – Other assets present value oF Future proFIts € mn Cost as of 1 January Accumulated amortization as of 1 January Carrying amount as of 1 January Additions Changes in the consolidated subsidiaries of the Allianz Group Foreign currency translation adjustments Shadow accounting Amortization 1 Carrying amount as of 31 December Accumulated amortization as of 31 December Cost as of 31 December 2013 2,783 (1,838) 945 40 214 (57) 20 (116) 1,046 1,908 2,954 2012 2,778 (1,725) 1,053 – – 5 (24) (89) 945 1,838 2,783 1 During the year ended 31 December 2013, includes interest accrued on unamortized PVFP of € 50 MN (2012: € 59 MN). As of 31 December 2013, the percentage of PVFP that is expected to be amortized in 2014 is 16.58 % (11.21 % in 2015, 9.72 % in 2016, 8.70 % in 2017 and 8.02 % in 2018). deFerred sales Inducements deFerred sales Inducements € mn Carrying amount as of 1 January Additions Foreign currency translation adjustments Shadow accounting Amortization Carrying amount as of 31 December 2013 524 114 (47) 347 (131) 807 2012 797 138 (17) (253) (141) 524 other assets € mn as of 31 December Receivables Policyholders Agents Reinsurers Other Less allowance for doubtful accounts Subtotal Tax receivables Income taxes Other taxes Subtotal Accrued dividends, interest and rent Prepaid expenses Interest and rent Other prepaid expenses Subtotal Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments Property and equipment Real estate held for own use Software Equipment Fixed assets of alternative investments Subtotal Other assets 1 Total 2013 2012 5,489 4,424 1,844 4,160 (720) 15,197 2,159 1,215 3,374 7,706 13 255 268 75 2,423 1,832 1,173 1,304 6,732 1,280 6,005 4,497 2,421 4,054 (730) 16,247 1,363 1,278 2,641 7,780 17 300 317 129 2,885 1,590 967 1,225 6,667 1,415 34,632 35,196 1 As of 31 December 2013, includes prepaid benefit costs for defined benefit plans of € 94 MN (2012: € 59 MN). As of 31 December 2013, other assets due within one year totaled € 27,547 mn (2012: € 27,367 mn), and those due in more than one year totaled € 7,085 mn (2012: € 7,829 mn). 174 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows property and equIpment Real estate held for own use real estate held For own use € mn Cost as of 1 January Accumulated depreciation as of 1 January Carrying amount as of 1 January Additions Changes in the consolidated subsidiaries of the Allianz Group Disposals Reclassifications Reclassifications into non-current assets classified as held for sale Foreign currency translation adjustments Depreciation Reversals of impairments Carrying amount as of 31 December Accumulated depreciation as of 31 December Cost as of 31 December 2013 4,021 (1,136) 2,885 93 17 (66) (379) (16) (43) (68) – 2,423 1,074 3,497 2012 4,022 (1,216) 2,806 198 60 (45) (85) – 14 (71) 8 2,885 1,136 4,021 Equipment equIpment € mn Cost as of 1 January 2013 3,640 2012 3,480 Accumulated depreciation as of 1 January (2,673) (2,631) Carrying amount as of 1 January Additions Changes in the consolidated subsidiaries of the Allianz Group Disposals Reclassifications Foreign currency translation adjustments Depreciation Impairments Carrying amount as of 31 December Accumulated depreciation as of 31 December Cost as of 31 December Fixed assets of alternative investments FIxed assets oF alternatIve Investments1 As of 31 December 2013, assets pledged as security and other restric- tions on title were € 108 mn (2012: € 113 mn). € mn Software soFtware € mn Cost as of 1 January Cost as of 1 January Accumulated depreciation as of 1 January Carrying amount as of 1 January Additions Changes in the consolidated subsidiaries of the Allianz Group Disposals Foreign currency translation adjustments 2013 5,057 2012 4,584 Accumulated amortization as of 1 January (3,467) (3,191) Depreciation Carrying amount as of 31 December Accumulated depreciation as of 31 December Cost as of 31 December 1 Includes fixed assets of wind parks, solar parks and Selecta. Carrying amount as of 1 January Additions Changes in the consolidated subsidiaries of the Allianz Group Disposals Foreign currency translation adjustments Amortization Impairments Carrying amount as of 31 December 1 Accumulated amortization as of 31 December Cost as of 31 December 1,590 657 6 (19) (17) (384) (1) 1,832 3,800 5,632 1,393 638 (1) (42) 5 (393) (10) 1,590 3,467 5,057 1 As of 31 December 2013, includes € 1,122 MN (2012: € 980 MN) for software developed in-house and € 710 MN (2012: € 610 MN) for software purchased from third parties. Annual Report 2013 Allianz Group 967 534 10 (74) 6 (27) (242) (1) 1,173 2,655 3,828 2013 1,804 (579) 1,225 48 161 (8) (2) (120) 1,304 701 2,005 849 485 (8) (110) (3) – (244) (2) 967 2,673 3,640 2012 1,573 (460) 1,113 120 117 (7) – (118) 1,225 579 1,804 175 14 – Non-current assets classified as held for sale non-current assets classIfIed as held for sale € mn as of 31 December Real estate held for investment Investments in associates and joint ventures Real estate held for own use Total 15 – Intangible assets IntangIble assets € mn as of 31 December 2013 – 131 16 147 2012 15 – – 15 Intangible assets with indefinite useful lives Goodwill Brand names 1 Subtotal Intangible assets with finite useful lives Distribution agreements 2 Customer relationships 3 2013 2012 11,544 296 11,840 995 149 116 1,260 13,100 11,679 302 11,981 826 183 100 1,109 13,090 Other 4 Subtotal Total 1 2 3 4 Includes primarily the brand name of Selecta AG, Muntelier. Includes primarily the long-term distribution agreements with Commerzbank AG of € 373 mn (2012: € 410 mn), Banco Popular S.A. of € 369 mn (2012: € 386 mn), Yapı Kredi Bank of € 151 mn (2012: € – mn) and HSBC in Asia and Turkey of € 78 mn (2012: € – mn). Includes primarily customer relationships from the acquisition of Selecta AG of € 118 mn (2012: € 152 mn) and Yapı Kredi Sigorta A.Ş. of € 10 mn (2012: € – mn). The renewal rights of € 19 mn (2012: € 31 mn), which were acquired in the context of business combinations, were reclassified from the line item “Other” to the line item “Customer relationships”. Includes primarily acquired business portfolios of € 76 mn (2012: € 42 mn) and heritable building rights of € 17 mn (2012: € 15 mn). The other distribution rights of € 17 mn (2012: € 20 mn) and the bancassurance agreements of € 7 mn (2012: € 10 mn) were reclassified from the line item “Other” to the line item “Dis- tribution agreements”. IntangIble assets wIth IndefInIte useful lIves Goodwill goodwIll € mn Cost as of 1 January Accumulated impairments as of 1 January Carrying amount as of 1 January Additions Disposals Foreign currency translation adjustments Impairments Carrying amount as of 31 December Accumulated impairments as of 31 December Cost as of 31 December 2013 12,573 (894) 11,679 226 – (265) (96) 11,544 990 12,534 2012 12,527 (805) 11,722 72 – (26) (89) 11,679 894 12,573 As of 31 December 2012, the non-current assets classified as held for sale comprised only real estate held for investment which was sold as expected during the first quarter of 2013. Non-current assets classified as held for sale comprise an invest- ment of € 131 mn in an Italian real estate company. The real estate company is recorded as an associate allocated to the reportable seg- ment Western and Southern Europe (Property-Casualty). The sale of the asset will be completed in 2014. Upon measurement of the non- current asset classified as held for sale at fair value less costs to sell, no significant impairment loss was recognized. Prior to the classifica- tion as non-current asset held for sale, an impairment loss of € 81mn was recognized for the Italian real estate company for the year ended 31 December 2013. Real estate held for own use comprises an office building allo- cated to the reportable segment Asset Management. The sale is expected to be completed during the first quarter of 2014. No impair- ment was recognized for the year ended 31 December 2013. 176 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows 2013 Additions of 2013 mainly include goodwill from the acquisition of 93.94 % in Yapı Kredi Sigorta A.Ş., Istanbul. Impairment test for goodwill and intangible assets with indefinite useful lives The allocated goodwill of the Cash Generating Unit (CGU) Selecta AG was impaired by € 96 mn in the business segment Corporate and Other. This impairment was triggered by a slower recovery of Selecta’s major European vending markets and lower multiples. Allocation principles For the purpose of impairment testing, the Allianz Group has allo- cated goodwill to CGU1. These CGU represent the lowest level at which goodwill is monitored for internal management purposes. 2012 Additions of 2012 mainly include goodwill from the acquisition relat- ing to the brokerage portfolio of Gan Eurocourtage S.A., Paris. The allocated goodwill of the CGU Selecta AG was impaired by € 89 mn in the business segment Corporate and Other. This impair- ment was triggered by lower expectations regarding future economic developments of Selecta’s core markets and lower multiples. Brand names The position brand names consists primarily of the brand name “Selecta”. The brand name “Selecta” has an indefinite life, as there is no foreseeable end to its economic life. The fair value of this brand name, registered as a trade name, was determined using a royalty savings approach. Due to the rebranding activities of the Allianz Group in the Rus- sian market, the brand name of the Russian People’s Insurance Society “ROSnO” was amortized by € 5 mn in 2013. The brand name will be com- pletely amortized over the next two years. CGU in the Property-Casualty business segment are: − German Speaking Countries, − Insurance Western & Southern Europe including France, the Netherlands, Turkey, Belgium, Italy, Greece, Luxembourg and Africa, − Iberia & Latin America including South America, Mexico, Portu- gal and Spain, − Asia-Pacific and Middle East, − Central and Eastern Europe including Bulgaria, Croatia, the Czech Republic, Hungary, Slovakia, Poland, Romania, Ukraine and Russia, − Global Insurance Lines & Anglo Markets including United Kingdom, Ireland and Australia, − Specialty Lines I including Allianz SE Re, Allianz Global Corporate & Specialty, ART and Credit Insurance, − Specialty Lines II including Travel Insurance and Assistance Services. CGU in the Life/Health business segment are: − German Speaking Countries, − Health Germany, − Insurance Western & Southern Europe including France, the Netherlands, Turkey, Belgium, Italy, Greece, Luxembourg and Africa, − Asia-Pacific and Middle East, − Insurance USA. The business segment Asset Management is represented by the CGU Asset Management. The CGU in the Corporate and Other business segment consists of Selecta AG. Annual Report 2013 Allianz Group 177 1 The following paragraphs include all cGU that contain goodwill. The carrying amounts of goodwill and brand names are allocated to the Allianz Group’s CGU as of 31 December 2013 and 2012 as follows: allocatIon oF carryIng amounts oF goodwIll and brand names to cgu € mn as of 31 December cgu property-casualty German Speaking Countries Insurance Western & Southern Europe Iberia & Latin America Asia-Pacific and Middle East Central and Eastern Europe Global Insurance Lines & Anglo Markets Specialty Lines I Specialty Lines II Subtotal lIFe/health German Speaking Countries Health Germany Insurance Western & Southern Europe Asia-Pacific and Middle East Insurance usa Subtotal asset management corporate and other Selecta ag Subtotal Total 2013 2012 Goodwill Brand names Goodwill Brand names 284 1,086 21 83 427 314 38 20 2,273 593 326 633 171 436 2,159 6,805 – – – – 10 – – 10 – – – – – – – 284 924 21 89 467 323 38 18 2,164 592 325 645 171 442 2,175 6,937 – – – – 16 – – – 16 – – – – – – – 307 307 11,544 286 286 296 403 403 11,679 286 286 302 Valuation techniques The recoverable amounts for all CGU are determined on the basis of value in use calculations. The Allianz Group applies generally acknowledged valuation principles to determine the value in use. For all CGU in the Property-Casualty business segment and for the CGU Asset Management, the Allianz Group uses the discounted earnings method to derive the value in use. Generally, the basis for the determination of the discounted earnings value is the business plan (“detailed planning period”) as well as the estimate of the sus- tainable returns and eternal growth rates which can be assumed to be realistic on a long-term basis (“terminal value”) for the operating entities included in the CGU. The discounted earnings value is calcu- lated by discounting the future earnings using an appropriate dis- count rate. The business plans applied in the value in use calculations are the results of the structured management dialogues between the Board of Management of the Allianz Group and the operating entities 178 Annual Report 2013 Allianz Group in connection with a reporting process integrated into these dialogues. Generally, the business plans comprise a planning horizon of three years and are based on the current market environment. The terminal values are largely based on the expected profits of the final year of the detailed planning period. Where necessary, the planned profits are adjusted to reflect long-term sustainable earnings. The financing of the assumed eternal growth in the terminal values is accounted for by appropriate profit retention. For all CGU in the Life/Health business segment the value in use is based on an Appraisal Value method which is derived from the Embedded Value and new business value calculation. As a starting point for the impairment test for the CGU 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. The mCEV is an industry-specific valuation method to assess the current value of the in force portfolio and is in compliance with the general principles of the discounted earnings methods. The mCEV approach applied is based on the CFO Forum Principles and the Allianz Group’s Embedded Value guidelines. It is a risk-neutral valua- tion that includes explicit allowance for non-financial risk as well as allowance for options and guarantees using market-consistent sto- chastic simulations that are in line with market prices for similar financial instruments. In the cases where no adequate valuation reflecting a long-term view in line with management judgment and market experience could be derived from a market-consistent methodology (mCEV), the Appraisal Value was derived from the Traditional Embedded Value (TEV) and new business calculation. The TEV and the new business calculation were used in the impairment test in the Life/Health busi- ness segment for Allianz Taiwan Life Insurance Co. Ltd., Taipei. Significant assumptions In determining the business plans, certain key assumptions were taken in order to project future earnings. For entities included in the CGU of the Property-Casualty busi- ness segment, the business plans are mainly based on key assump- tions including expense ratio, loss ratio, investment income, risk capital, market share, premium rate changes and taxes. The basis for determining the values assigned to the key assumptions are current market trends and earnings projections. The discount rate is based on the capital asset pricing model (CAPm) and appropriate eternal growth rates. The assumptions, including the risk free interest rate, market risk premium, segment beta and leverage ratio, used to calculate the discount rates are in general consistent with the parameters used in the Allianz Group’s planning and controlling process. The discount rates and eternal growth rates for the CGU in the Property-Casualty business segment are as follows: D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows dIscount rates and eternal growth rates For the cgu In the property-casualty busIness segment reFerence rates and rIsk dIscount rates For the cgu In the lIFe/health busIness segment % cgu in the Property-Casualty business segment Discount rate Eternal growth rate cgu in the Life/Health business segment German Speaking Countries Health Germany Reference rate for entities with Appraisal Value based on mcev and risk discount rate for entities with Appraisal Value based on tev mcev: Euro swap curve minus 10 bps credit risk adjustment plus 23 bps illiquidity premium chF swap curve minus 10 bps credit risk adjustment plus 0 bps illiquidity premium mcev: Euro swap curve minus 10 bps credit risk adjustment plus 23 bps illiquidity premium Insurance Western & Southern Europe mcev: Euro swap curve minus 10 bps credit risk adjustment plus 23 bps illiquidity premium Asia-Pacific and Middle East Insurance usa mcev: Local swap curve minus 10 bps credit risk adjustment plus 0 bps illiquidity premium tev: 6.17 % for Allianz Taiwan Life Insurance Co. Ltd. mcev: Local swap curve minus 10 bps credit risk adjustment plus 45 bps illiquidity premium 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 busi- ness is generally derived from the achieved value of new business. The new business multiple accounts for the risk and the growth asso- ciated with future new business in analogy to the discount rate and the growth rate in a discounted earnings method. For all CGU in the Life/Health business segment, a multiple of not more than ten times the value of new business is applied. For entities included in the CGU of the Asset Management busi- ness segment, key assumptions include assets under management growth, cost-income ratio and risk capital. The key assumptions are based on the current market environment. The discount rate is 9.6 % and the eternal growth rate is 1.0 % for the CGU Asset Management. For the CGU Selecta AG, the calculation of the recoverable amount is based on a multiple valuation, assuming an exit scenario to occur in the near future. The multiple is derived from industry peer companies and management judgment and is applied to Selecta AG’s underlying financial results. German Speaking Countries Insurance Western & Southern Europe Iberia & Latin America Asia-Pacific and Middle East Central and Eastern Europe Global Insurance Lines & Anglo Markets Specialty Lines I Specialty Lines II 7.5 8.6 14.0 10.4 9.4 8.7 7.7 7.9 1.0 1.0 3.0 3.0 3.0 1.0 1.0 1.0 For entities included in the CGU of the business segment Life/Health, the projection of profits underlying the mCEV and the TEV calculations is based on assumptions set with allowance for profit-sharing as well as a projection of unrealized capital gains and unallocated premium reserves. The profits estimated for the mCEV and the TEV calculations consist of premium income, investment return on technical reserves, expenses, commissions, death and morbidity claims, surrender claims, maturity claims, increases in technical reserves, taxation and levies. For projecting future profits, assumptions have to be made on the asset performance of the operating entity. This requires consid- eration of the development of the market together with assumptions on the operating entity’s investment strategy as well as the current asset portfolio and allocation. The projection of investment returns includes the consideration of projection of returns for the current asset portfolio and a projection of returns for reinvestments. All assumptions have been developed by management under consider- ation of internal and external sources. For the calculation of the mCEV the projected future profits are discounted using risk-neutral discount rates, as the risks are already explicitly allowed for in the market-consistent valuation. Time- dependent and scenario-dependent discount factors are applied. As a reference rate, the swap yield curve with appropriate adjustments for, e.g., credit risk and illiquidity premium, was used for determining the mCEV. For the calculation of the TEV a discount rate based on 10-year government bonds plus 4.5 % Equity Risk Premium was used. For the valuation of the TEV the underlying government bonds were consistently used for the valuation of starting asset values as well as for the projection of the cash flows. The following table provides an overview of the discount rates for the CGU in the Life/Health business segment: Annual Report 2013 Allianz Group 179 Sensitivity analysis Sensitivity analyses were performed with regard to discount rates and key value drivers of the business plans. For the CGU in the business segments Property-Casualty and Asset Management, sensitivity analyses were performed in respect to the long-term sustainable combined ratios and cost-income ratios. For all CGU, excluding Property-Casualty Asia-Pacific and Middle East as well as Property-Casualty Central and Eastern Europe, discounted earnings value sensitivities still exceeded their respective carrying values. An increase of more than 0.2 % points in the discount rate or the combined ratio may result in the recoverable amount for the CGU Central and Eastern Europe getting close to its carrying value. The recoverable amount of the CGU Asia-Pacific and Middle East may decline to its carrying value as a result of an increase in the discount rate or in the combined ratio of more than 0.5 % points. In the Life/Health business segment, for life entities where the Appraisal Value is based on mCEV, sensitivity analyses were performed based on mCEV sensitivity testing on the reference rate. For Allianz Taiwan Life Insurance Co. Ltd. where the Appraisal Value is based on TEV, sensitivity analyses were performed with respect to the risk dis- count rate. For the CGU Asia-Pacific and Middle East, an increase in the risk discount rate for Allianz Taiwan Life Insurance Co. Ltd. of 100 basis points would lead to the Appraisal Value still exceeding its car- rying value assuming five times the new business value. It has to be noted, however, that the sensitivity analysis for the TEV with an adverse variation in the risk discount rate was performed on a ceteris paribus basis. Investment income and the respective asso- ciated profits underlying the TEV were not adjusted correspondingly. IntangIble assets wIth FInIte useFul lIves Amortization expenses of intangible assets with finite useful lives are estimated to be € 144 mn in 2014, € 137 mn in 2015, € 132 mn in 2016, € 114 mn in 2017 and € 95 mn in 2018. Thereof, the amortization expens- es relating to the intangible assets of Selecta AG are included in the line item “Expenses from fully consolidated private equity invest- ments”. The long-term distribution agreements with Commerzbank AG have useful lives of 13.5 years and 15 years, which were determined by contractual agreements. They are amortized on a straight-line basis over the remaining useful life of 10 years. The long-term distribu- tion agreements with Banco Popular S.A. have useful lives of 25 years, which were determined by contractual agreements. They are amor- tized on a straight-line basis over the remaining useful lives of 23 years. The long-term distribution agreements with Hongkong & Shanghai Banking Corporation Holdings PLC (HSBC) in Asia and Turkey have useful lives of 11 years and 10 years, which were determined by con- tractual agreements. They are amortized on a straight-line basis over the remaining useful lives of 10 years and 9.5 years. The long-term distribution agreements with Yapı Kredi Bank have useful lives of 15 years, which were determined by contractual agreements. They are amortized on a straight-line basis over the remaining useful lives of 14.5 years. The customer relationships of Selecta AG have useful lives of 10 years, which were determined by the multi-period excess earnings method. The customer relationships of Selecta AG are amortized on a straight-line basis over the remaining useful lives of 3.5 years. The customer relationships of Yapı Kredi Sigorta A.Ş. have useful lives of 10 years, which were determined by reference to customer churn rates that reflect the period over which the Allianz Group expects to receive economic benefits. They are amortized in relation to the expected value added over the remaining useful lives of 9 years. 180 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows 16 – Financial liabilities carried at fair value through income Financial liabilities carried at Fair value through income € mn as of 31 December Financial liabilities held for trading Derivative financial instruments Other trading liabilities Subtotal Financial liabilities designated at fair value through income Total 2013 2012 6,010 3 6,013 – 6,013 5,395 2 5,397 – 5,397 17 – Liabilities to banks and customers liabilities to banks and customers € mn as of 31 December Payable on demand Savings deposits Term deposits and certificates of deposit Repurchase agreements Collateral received from securities lending transactions and derivatives Other Total 2013 Banks Customers 696 – 979 1,028 2,216 5,050 9,969 4,473 2,873 2,157 3 – 3,634 13,140 Total 5,169 2,873 3,136 1,031 2,216 8,684 23,109 2012 Banks Customers 135 – 986 743 1,793 5,420 9,077 4,724 2,897 1,651 656 – 3,420 13,348 liabilities to banks and customers by contractual maturity liabilities to banks and customers by contractual maturity € mn as of 31 December 2013 Liabilities to banks Liabilities to customers Total Up to 3 months > 3 months up to 1 year > 1 year up to 3 years > 3 years up to 5 years Greater than 5 years 5,230 10,312 15,542 582 867 1,449 1,748 267 2,015 698 64 762 1,711 1,630 3,341 As of 31 December 2013, liabilities to customers include € 1,560 mn (2012: € 1,625 mn) of non-interest bearing deposits. Annual Report 2013 Allianz Group Total 4,859 2,897 2,637 1,399 1,793 8,840 22,425 Total 9,969 13,140 23,109 181 18 – Unearned premiums unearned premiums € mn as of 31 December Property-Casualty Life/Health Consolidation Total 19 – Reserves for loss and loss adjustment expenses reserves For loss and loss adjustment expenses € mn as of 31 December Property-Casualty Life/Health Consolidation Total 2013 56,614 9,961 (9) 66,566 2012 62,711 9,854 (25) 72,540 2013 15,367 2,855 (10) 18,212 2012 15,328 2,618 (7) 17,939 Reserves for loss and loss adjustment expenses for the Property- Casualty business segment are described in detail in the following sections. change in reserves For loss and loss adjustment expenses The following table reconciles the beginning and ending reserves of the Allianz Group, including the effect of reinsurance ceded, for the Property-Casualty business segment for the years ended 31 Decem- ber 2013 and 2012. Gross 62,711 31,831 (2,185) 29,646 (16,136) (15,099) (31,235) (1,433) 132 59,821 (3,207) 56,614 2013 2012 Ceded (6,905) (2,429) 496 (1,933) 687 1,568 2,255 265 (59) (6,377) 306 (6,071) Net 55,806 29,402 (1,689) 27,713 (15,449) (13,531) (28,980) (1,168) 73 53,444 (2,901) 50,543 Gross 59,493 32,108 (1,271) 30,837 (15,016) (15,132) (30,148) (96) 2,625 62,711 – Ceded (6,658) (2,410) 64 (2,346) 574 1,747 2,321 (2) (220) (6,905) – 62,711 (6,905) Net 52,835 29,698 (1,207) 28,491 (14,442) (13,385) (27,827) (98) 2,405 55,806 – 55,806 change in reserves For loss and loss adjustment expenses € mn As of 1 January Loss and loss adjustment expenses incurred Current year Prior years Subtotal Loss and loss adjustment expenses paid Current year Prior years Subtotal Foreign currency trans lation adjustments and other changes 1 Changes in the consolidated subsidiaries of the Allianz Group Subtotal Reclassification of discounted loss reserves 2 As of 31 December 1 Includes effects of foreign currency translation adjustments for prior years claims of gross € (1,371) mn (2012: € 47 mn) and of net € (1,184) mn (2012: € 70 mn) and for current year claims of gross € (295) mn (2012: € (156) mn) and of net € (253) mn (2012: € (127) mn). 2 Effective 1 January 2013, the Allianz Group changed its presentation of discounted loss reserves in the consolidated balance sheet from the line item “Reserves for loss and loss adjustment expenses” to the line item “Reserves for insurance and investment contracts”. For further information please see note 4. 182 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Prior years’ net loss and loss adjustment expenses incurred reflect the changes in estimation charged or credited to the consolidated income statement in each year with respect to the reserves for loss and loss adjustment expenses established as of the beginning of that year. During the year ended 31 December 2013, the Allianz Group recorded additional income of € 1,689 mn (2012: € 1,207 mn) net in respect of losses occurring in prior years. During the year ended 31 December 2013, this amount as a percentage of the net balance of the beginning of the year was 3.0 % (2012: 2.3 %). changes in historical reserves For loss and loss adjustment expenses (lae) The analysis of loss and LAE reserves by actuaries and management is conducted by line of business and separately for specific claim types such as asbestos and environmental claims. The origin year of losses is taken into consideration by analyzing each line of business by accident year. While this determines the estimates of reserves for loss and LAE by accident year, the effect in the consolidated income statement in the respective calendar year combines the accident year loss ratio for the current year with the favorable or adverse develop- ment from prior years (run-off). Although discounted loss reserves have been reclassified to “Reserves for insurance and investment contracts” in the balance sheet, the underlying business development of these non-life reserves is still considered in the loss ratio. Therefore the tables below show the loss development by accident year including the business develop- ment of discounted loss reserves. The run-off triangle, also known as the “loss triangle” is a tabular representation of loss-related data (such as payments, loss reserves, ultimate losses) in two, time-related dimensions. One of these is the calendar year, while the other is the accident year (year of loss occur- rence). Run-off triangles – as the basis for measuring loss reserves – make clear how the loss reserves change over the course of time due to payments made and new estimates of the expected ultimate loss at the respective balance sheet date. The run-off triangles are not prepared on a currency-adjusted basis. This means all figures are translated from the respective local currency into the Allianz Group presentation currency (Euro), con- sistently using the exchange rates applicable at the reporting date. This ensures that the reserves reconcile with reserves in the consoli- dated balance sheet. Loss payments for the individual accident years (per calendar year, net) loss payments For the individual accident years (per calendar year, net) € mn Accident year Calendar year 2004 & Prior 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 23,253 10,716 5,610 3,793 2,807 2,219 1,574 1,147 1,211 1,149 11,881 6,632 2,058 1,158 531 432 294 197 201 11,760 6,403 1,643 955 586 397 265 266 12,631 6,397 1,744 934 687 483 323 13,130 7,350 2,151 1,034 716 497 13,368 6,688 1,725 1,107 712 14,094 6,945 1,972 1,113 14,316 7,434 2,090 14,442 7,180 15,449 Annual Report 2013 Allianz Group 23,253 22,597 24,002 24,885 25,135 26,167 26,459 26,545 27,827 28,980 183  Reserves for loss and loss adjustment expenses for the individual accident years at the respective reporting date (net) reserves For loss and loss adjustment expenses For the individual accident years at the respective reporting date (net) € mn Accident year as of 31 December 2004 & Prior 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 45,479 34,879 27,244 22,174 18,389 16,042 14,462 13,682 13,750 12,554 14,777 8,238 4,878 3,248 2,334 1,811 1,442 1,640 1,334 13,848 7,612 4,488 3,432 2,815 2,440 2,026 1,662 14,012 7,449 5,038 3,911 2,973 2,417 1,953 14,222 7,620 5,666 4,337 3,249 2,601 14,074 7,456 5,147 4,061 3,117 14,729 7,218 5,238 3,837 15,596 7,861 5,190 15,564 7,239 13,957 45,479 49,656 49,330 48,676 47,796 48,540 50,850 52,835 55,806 53,444 Ultimate loss for the individual accident years at the respective reporting date (net) ultimate loss For the individual accident years at the respective reporting date (net) € mn Accident year as of 31 December 2004 & Prior 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Surplus 1 Reduction 2013 to 2012 2 68,732 68,848 66,823 65,546 64,568 64,440 64,434 64,801 66,080 66,033 2,699 47 26,658 26,751 25,449 24,977 24,594 24,503 24,428 24,823 24,718 1,940 105 25,608 25,775 24,294 24,193 24,162 24,184 24,035 23,937 1,671 98 26,643 26,477 25,810 25,617 25,366 25,293 25,152 1,491 141 27,352 28,100 28,297 28,002 27,630 27,479 (127) 151 27,442 27,512 26,928 26,949 26,717 725 232 28,823 28,257 28,249 27,961 862 288 29,912 29,611 29,030 882 581 30,006 28,861 1,145 1,145 29,406 –3 –3 11,288 2,788 1 2 Includes effects from foreign currency translation adjustments and other changes. The total reduction 2013 to 2012 of € 2,788 mn represents the cumulative surplus from reestimating the ultimate loss for prior year claims. Considering foreign currency translation adjustments of net € (1,184) mn as well as changes in the consolidated subsidiares and other changes of in total € 85 mn, this leads to an effective run-off result of net € 1,689 mn, which can be found in the table “Change in the reserves for loss and loss adjustment expenses” within this note. Presentation not meaningful. 3 184 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Calendar year premiums earned and ultimate loss ratio for the individual accident years at the respective reporting date (net) calendar year premiums earned and ultimate loss ratio For the individual accident years at the respective reporting date (net) as of 31 December 2005 2006 2007 2008 2009 2010 2011 2012 2013 Premiums earned (net) € mn 37,686 37,950 38,553 38,213 37,828 39,303 39,898 41,705 42,047 2005 % 70.7 71.0 67.5 66.3 65.3 65.0 64.8 65.9 65.6 2006 % 67.5 67.9 64.0 63.7 63.7 63.7 63.3 63.1 2007 % 69.1 68.7 66.9 66.4 65.8 65.6 65.2 Accident year 2008 % 2009 % 2010 % 2011 % 2012 % 2013 % 71.6 73.5 74.1 73.3 72.3 71.9 72.5 72.7 71.2 71.2 70.6 73.3 71.9 71.9 71.1 75.0 74.2 72.8 71.9 69.2 69.9 The ultimate loss of an accident year comprises all payments made for that accident year up to the reporting date, plus the loss reserve at the reporting date. Given complete information regarding all losses incurred up to the balance sheet date, the ultimate loss for each accident-year period would remain the same. 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 pay- ments plus the loss reserve, and not the incurred loss from the profit or loss account. This means that effects like changes in consolidated subsidiaries, foreign currency translation and reclassification of unwinding of discounted loss reserves are presented differently. changes in reserves For loss and lae during 2013 As noted above, prior year loss and LAE reserves of the Allianz Group developed favorably during 2013 by € 1,689 mn net of reinsurance, rep- resenting 3.0 % of net reserves as of 31 December 2012. The following table provides a breakdown of these amounts by line of business. changes in reserves For loss and lae during 2013 Net reserves as of 31 December 2013 Net reserves as of 31 December 2012 Net development related to prior years € mn 16,040 9,632 5,192 3,441 5,501 1,277 2,373 1,083 6,159 2,746 € mn 16,705 9,827 5,379 3,675 6,085 1,259 2,316 1,010 6,258 3,292 € mn 748 (40) (9) 396 119 59 (7) 152 257 14 Motor General Liability Workers Compensation / Employers Liability Property Inwards and Group Internal Reinsurance Personal Accident Construction Damage and Liability Credit Insurance agcs Other Allianz Group 53,444 55,806 1,689 1 In % of net reserves as of 31 December 2012. % 1 4.5 (0.4) (0.2) 10.8 2.0 4.7 (0.3) 15.0 4.1 0.4 3.0 The major highlights of the reserve developments in 2013 are dis- cussed by line of business below. The discussion is based on net loss and LAE reserves of the relevant local operating entity before consoli- dation and converted into Euro for uniform presentation. Only sig- nificant developments for the Allianz Group’s major operating enti- ties are included and therefore the amounts do not fully reconcile to the line of business totals in the above table. Annual Report 2013 Allianz Group 185 Motor For Motor, net loss and LAE reserves developed favorably during 2013 by € 748 mn, or 4.5 % of reserves at 31 December 2012. Favorable develop- ment was seen for different effects across several operating entities. The following subsidiaries were the largest contributors: € 274 mn at Allianz Italy. The reduction is due to the impact of claim initiatives being greater than expected as well as due to the introduction of more granular segmentation in the analysis. € 103 mn at Allianz Australia mainly related to a favorable court appeal and lower claims severity resulting from faster claims final- ization. € 82 mn at Allianz Spain. The reduction was driven by lower claim frequency and severity due to the economic environment, more favorable price agreements with external suppliers and the increased number of small claims managed directly by Allianz Global Assistance with the benefit of a lower cost to the company. € 71 mn at Allianz Germany mainly due to an ongoing review of methods and assumptions for motor third party liability and overall improved claim handling processes. € 67 mn at Allianz Suisse. The favorable development of bodily injury claims continues based on active claims management, port- folio cleaning as well as a change in jurisdiction for whiplash injuries. General Liability For General Liability, net loss and LAE reserves developed unfavorably during 2013 by € 40 mn, or 0.4 % of reserves at 31 December 2012. This overall minor development consists of several offsetting develop- ments at different operating entities. Unfavorable development was observed at Allianz Italy mainly due to the introduction of a more granular segmentation in the analysis and at Fireman’s Fund Insur- ance Company mainly due to a large loss. Offsetting effects were noted at Allianz United Kingdom and for large losses at Allianz France. Property For Property Insurance, net loss and LAE reserves developed favorably during 2013 by € 396 mn, or 10.8 % of reserves at 31 December 2012. Favorable development was seen for different effects across several operating entities. The following subsidiaries were the largest con- tributors: € 102 mn at Fireman’s Fund Insurance Company due to favorable experience on natural catastrophe claims. € 90 mn at Allianz Italy due to lower than expected claim pay- ments on attritional and large losses as well as favorable develop- ment on 2012 earthquake losses. € 80 mn at Allianz Germany mainly due to a lower claims severity based on overall improved claims handling processes. Inwards and Group Internal Reinsurance For Inwards and Group Internal Reinsurance, net loss and LAE reserves developed favorably during 2013 by € 119 mn or 2.0 % of reserves at 31 December 2012. At Allianz Re a favorable development of € 132 mn was seen mainly driven by natural catastrophe losses and Group internal quota share arrangements. Credit Insurance Credit Insurance is underwritten in the Allianz Group by Euler Hermes. During 2013, Euler Hermes experienced a favorable development of € 152 mn net of reinsurance or 15.0 % of reserves at 31 December 2012, mainly driven by a better than expected development of the previ- ous years claims in almost all regions where Euler Hermes operates. Allianz Global Corporate and Specialty Allianz Global Corporate and Specialty (AGCS) is the Allianz Group’s global carrier for corporate and specialty risks. Overall AGCS experi- enced € 257 mn of favorable development in 2013 net of reinsurance, or 4.1 % of net reserves as at 31 December 2012. The major contributors of the favorable run-off included € 83 mn from the German entity’s corporate property portfolio, € 71 mn from the German entity’s corporate liability portfolio and € 55 mn from the North American entity’s aviation and marine portfolio, due to the release of IBnR on prior year reserves based on better than expected experience. asbestos and environmental (a & e) loss reserves There are significant uncertainties in estimating A & E reserves for loss and LAE. Reserves for asbestos-related illnesses and environmen- tal clean up losses cannot be estimated using traditional actuarial techniques due to the long latency period and changes in the legal, socio-economic and regulatory environment. Case reserves are established when sufficient information is available to indicate the involvement of a specific insurance policy. In addition, IBnR reserves are established to cover additional expo- sures on both known and not yet reported claims. To the extent pos- sible, A & E loss reserve estimates are based not only on claims reported to date, but also on a survey of policies that may be exposed to claims reported in the future (i.e. an exposure analysis). In establishing liabilities for A & E claims, the management con- siders facts currently known and the current state of the law and cov- erage litigation. However, given the expansion of coverage and liability by the courts and the legislatures in the past and the possibilities of similar interpretation in the future, there is significant uncertainty regarding the extent of insurer liability. As a result, the range of rea- sonable potential outcomes for A & E liabilities provided in these analyses is particularly large. Given this inherent uncertainty in esti- mating A & E liabilities, significant deviation from the currently carried A & E reserve position is possible. 186 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows While the U.S. A & E claims still represent a majority of the total A & E claims reported to the Allianz Group, the insurance industry is facing an increased prominence in exposures to A & E claims on a global basis. The Allianz Group continues to monitor these A & E expo- sures. During 2013, claim payments of € 282 mn and changes from claims development and foreign exchange of € 73 mn reduced A & E liabilities from € 3,066 mn to € 2,711 mn. The following table summarizes the gross and net loss and LAE reserves for A & E claims. gross and net reserves For loss and lae For a & e claims aggregate policy reserves changes in aggregate policy reserves € mn As of 1 January Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Changes recorded in the consolidated income statement Premiums collected Separation of embedded derivatives € mn as of 31 December a & e net reserves a & e gross reserves As percentage of the Allianz Group’s Property-Casualty gross reserves 2013 2,303 2,711 4.8 % 2012 Interest credited 2,537 3,066 4.9 % Dividends allocated to policyholders Releases upon death, surrender and withdrawal Policyholder charges Portfolio acquisitions and disposals Other changes Reclassification of discounted loss reserves 1 2013 350,244 (3,441) 168 4,827 18,833 960 4,163 1,360 (13,527) (1,292) (383) 400 3,207 2012 338,318 (189) – 4,613 17,467 171 4,790 1,506 (15,334) (1,464) (91) 457 – The following table shows total A & E loss activity for the years ended 31 December 2013 and 2012. change in a & e gross reserves For loss and loss adjustment expenses As of 31 December 365,519 350,244 1 Effective 1 January 2013, the Allianz Group changed its presentation of discounted loss reserves in the consolidated balance sheet from the line item “Reserves for loss and loss adjustment expenses” to the line item “Reserves for insurance and investment contracts”. For further information please see note 4. € mn Reserves for loss and LAE as of 1 January Loss and lae payments Change in reserves for loss and lae Reserves for loss and LAE as of 31 December 2013 3,066 (282) (73) 2,711 2012 3,124 (188) 130 3,066 As of 31 December 2013, participating life business represented approximately 56 % (2012: 56 %) of the Allianz Group’s gross insurance in force. During the year ended 31 December 2013, participating poli- cies represented approximately 65 % (2012: 65 %) of gross statutory premiums written and 64 % (2012: 63 %) of life premiums earned. 20 – Reserves for insurance and investment contracts reserves For insurance and investment contracts € mn as of 31 December Aggregate policy reserves Reserves for premium refunds Other insurance reserves Total 2013 365,519 37,772 781 2012 350,244 40,031 710 404,072 390,985 discounting oF reserves For loss and loss adjustment expenses As of 31 December 2013 and 2012, the Allianz Group’s consolidated Property-Casualty reserves included discounted reserves of € 3,207 mn and € 3,197 mn, respectively. In general, reserves for loss and loss adjustment expenses are not discounted, except when payment amounts are fixed and timing is reasonably determinable. The following table shows, by line of business, the carrying amounts of reserves for loss and LAE that have been discounted, and the interest rates used for discounting for the years ended 31 Decem- ber 2013 and 2012. Annual Report 2013 Allianz Group 187 discounting oF reserves For loss and lae as of 31 December Motor Liability General Liability Personal Accident Workers Compensation / Employers Liability Other 3 Total Discounted reserves 1 Amount of the discount 1 2013 € mn 954 234 494 1,500 25 3,207 2012 € mn 916 235 458 1,562 26 3,197 2013 € mn 786 188 272 700 11 2012 € mn 762 183 257 734 12 1,957 1,948 Interest rate used for discounting 2 2013 % 1.75 – 5.52 1.75 – 5.52 1.75 – 3.50 0.58 – 5.52 1.75 – 5.52 2012 % 1.75 – 5.52 1.75 – 5.52 1.75 – 3.64 0.58 – 5.52 1.75 – 5.52 1 2 Prior year figures adjusted due to a correction of the determination of discounted reserves. The range of interest rates is the result of the presentation of the above information by line of business thus each line reflecting interest rates used in various countries. Overall, due to the low interest rate environ- ment, interest rates used for discounting reduced. 3 The line of business “Other” includes reserves assumed by Allianz Re, for which the Allianz Group does not apply explicit discounting, but which are already discounted by the primary insurer at a discount rate not known to the Allianz Group. reserves For premium reFunds reserves For premium reFunds € mn Amounts already allocated under local statutory or contractual regulations As of 1 January Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Changes As of 31 December Latent reserves for premium refunds As of 1 January Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Changes due to fluctuations in market value Changes due to valuation differences charged to income As of 31 December Total concentration oF insurance risk in the liFe/health business segment The Allianz Group’s Life/Health business segment provides a wide variety of insurance and investment contracts to individuals and groups in over 30 countries around the world. Individual contracts include both traditional contracts and unit-linked contracts. Without taking policyholder participation into account, traditional contracts generally incorporate significant investment risk for the Allianz Group, while unit-linked contracts generally result in the contract holder assuming the investment risk. Traditional contracts include life, endowment, annuity, and health contracts. Traditional annuity contracts are issued in both deferred and immediate types. In addi- tion, the Allianz Group’s life insurance operations in the United States issue a significant amount of equity-indexed deferred annui- ties. In certain markets, the Allianz Group also issues group life, group health and group pension contracts. As of 31 December 2013 and 2012, the Allianz Group’s deferred acquisition costs and reserves for insurance and investment con- tracts for the business segment Life/Health per reportable segment are summarized as follows: 2013 2012 11,979 (5) – 1,257 13,231 28,052 (48) 10 (4,337) 864 24,541 37,772 12,124 4 (1) (148) 11,979 10,744 7 – 14,690 2,611 28,052 40,031 188 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows concentration oF insurance risk in the liFe/health business segment per reportable segment € mn as of 31 December 2013 German Speaking Countries Western & Southern Europe Iberia & Latin America USA Global Insurance Lines & Anglo Markets Growth Markets Consolidation Total 2012 German Speaking Countries Western & Southern Europe Iberia & Latin America USA Global Insurance Lines & Anglo Markets Growth Markets Consolidation Total Deferred acquisition costs Aggregate policy reserves Reserves for premium refunds Other insurance reserves Total non-unit-linked reserves Liabilities for unit-linked contracts 8,566 2,508 55 4,321 73 2,167 – 17,690 8,232 2,366 31 2,225 50 2,086 – 14,990 186,627 92,856 7,395 51,699 1,877 16,357 (2,985) 353,826 176,912 89,634 6,991 51,488 2,187 16,875 (2,312) 341,775 29,705 5,903 505 – – 297 – 36,410 31,984 6,146 297 – – 248 – 38,675 203 291 – – 6 142 (5) 637 194 265 – – 6 84 (6) 543 216,535 99,050 7,900 51,699 1,883 16,796 (2,990) 390,873 209,090 96,045 7,288 51,488 2,193 17,207 (2,318) 380,993 6,228 43,169 106 22,314 – 9,247 – 81,064 5,648 36,457 62 19,471 – 9,559 – 71,197 Total 222,763 142,219 8,006 74,013 1,883 26,043 (2,990) 471,937 214,738 132,502 7,350 70,959 2,193 26,766 (2,318) 452,190 As a result of the considerable diversity in types of contracts issued, including the offsetting effects of mortality risk and longevity risk inherent in a combined portfolio of life insurance and annuity products, and the geographic diversity of the Allianz Group’s Life/ Health business segment, as well as the substantial level of policy- holder participation in mortality/morbidity risk in certain countries in Western Europe, the Allianz Group does not believe its Life/Health segment has any significant concentrations of insurance risk, nor does it believe its net income or shareholders’ equity is highly sensi- tive to insurance risk. The Allianz Group’s Life/Health business segment is exposed to significant investment risk as a result of guaranteed minimum inter- est rates included in most of its non-unit-linked contracts. The weighted average guaranteed minimum interest rates of the Allianz Group’s largest operating entities in the business segment Life/ Health (comprising 87 % of non-unit-linked reserves in both 2013 and 2012) can be summarized by country as follows: The majority of the Allianz Group’s Life/Health business segment operations are conducted in Europe. Insurance laws and regulations in Europe have historically been characterized by legal or contrac- tual minimum participation of contract holders in the profits of the insurance company issuing the contract. In particular, Germany, Switzerland and Austria, which comprise approximately 49 % (2012: 49 %) of the Allianz Group’s reserves for insurance and investment contracts as of 31 December 2013, include a substantial level of poli- cyholder participation in all sources of profit including mortality/ morbidity, investment and expense. As a result of this policyholder participation, the Allianz Group’s exposure to insurance, investment and expense risk is mitigated. Furthermore, all of the Allianz Group’s annuity policies issued in the United States meet the criteria for classification as insurance contracts under IFRS 4, because they include options for contract holders to elect a life-contingent annuity. These contracts currently do not expose the Allianz Group to significant longevity risk, nor are they expected to do so in the future, as the projected and observed annuitization rates are very low. Additionally, many of the Allianz Group’s traditional contracts issued in France and Italy do not incor- porate significant insurance risk, although they are accounted for as insurance contracts because of their discretionary participation fea- tures. Similarly, a significant portion of the Allianz Group’s unit- linked contracts in France and Italy do not incorporate significant insurance risk. Annual Report 2013 Allianz Group 189 weighted average guaranteed minimum interest rates oF liFe insurance entities as of 31 December 2013 2012 Germany France Italy United States Switzerland South Korea Belgium Guaranteed rate Non-unit-linked reserves % of non-unit-linked reserves Guaranteed rate Non-unit-linked reserves % of non-unit-linked reserves % 3.0 0.6 2.3 1.1 2.1 4.7 3.2 € bn 146.8 53.4 27.7 55.9 9.8 8.5 8.0 % 97.5 77.5 56.9 71.5 92.7 89.3 96.1 % 3.1 0.7 2.5 1.3 2.2 4.7 3.4 € bn 138.9 52.1 27.0 54.9 9.7 8.6 7.6 % 97.7 79.2 60.0 73.8 92.5 90.4 96.7 In most of these markets, the effective interest rates earned on the investment portfolio exceed these guaranteed minimum interest rates. In addition, the operations in these markets may also have sig- nificant mortality and expense margins. However, the Allianz Group’s Life/Health operations in Switzerland, Belgium, South Korea and Tai- wan have high guaranteed minimum interest rates on older con- tracts in their portfolios and, as a result, may be sensitive to declines in investment rates or a prolonged low interest rate environment. As of 31 December 2013 the Allianz Group has written off deferred acqui- sition costs and established premium deficiency reserves on the most endangered part of the portfolio in South Korea, with an overall impact of € (111) mn on the consolidated income statement. As a result, as of 31 December 2013, the Allianz Group does not believe that it is exposed to further significant risk of premium deficiencies in its business segment Life/Health. 21 – Financial liabilities for unit-linked contracts changes in Financial liabilities For unit-linked insurance contracts and unit-linked investment contracts € mn As of 1 January Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Premiums collected Interest credited Releases upon death, surrender and withdrawal Policyholder charges Portfolio acquisitions and disposals Reclassifications 1 As of 31 December Unit-linked insurance contracts 2013 Unit-linked investment contracts 50,078 (1,909) – 8,065 5,524 (4,689) (1,466) (31) (215) 55,357 21,119 (347) 1,477 6,989 601 (3,993) (98) (19) (22) 25,707 Unit-linked insurance contracts 43,446 (520) – 7,754 5,467 (4,423) (1,287) (18) (341) 50,078 Total 71,197 (2,256) 1,477 15,054 6,125 (8,682) (1,564) (50) (237) 81,064 2012 Unit-linked investment contracts 20,054 41 – 4,438 1,623 (4,957) (78) (3) 1 21,119 Total 63,500 (479) – 12,192 7,090 (9,380) (1,365) (21) (340) 71,197 1 These reclassifications mainly relate to insurance contracts when policyholders change their contract from a unit-linked to a universal life-type contract. 190 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows 22 – Other liabilities other liabilities € mn as of 31 December Payables Policyholders Reinsurance Agents Subtotal Payables for social security Tax payables Income taxes Other taxes Subtotal Accrued interest and rent Unearned income Interest and rent Other Subtotal Provisions Pensions and similar obligations Employee related Share-based compensation plans Restructuring plans Loan commitments Contingent losses from non-insurance business Other provisions Subtotal Deposits retained for reinsurance ceded Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments Financial liabilities for puttable equity instruments Other liabilities Total 2013 2012 4,911 1,170 1,604 7,685 395 2,580 1,269 3,849 681 16 261 277 7,594 2,104 685 214 42 130 1,617 12,386 1,874 158 3,064 6,514 36,883 4,710 1,845 1,529 8,084 458 2,680 1,143 3,823 671 5 288 293 8,069 2,100 558 304 67 166 1,632 12,896 1,834 462 2,601 6,270 37,392 As of 31 December 2013, other liabilities due within one year amounted to € 25,223 mn (2012: € 25,121 mn) and those due after more than one year amounted to € 11,660 mn (2012: € 12,271 mn). Annual Report 2013 Allianz Group 191 23 – Certificated liabilities certiFicated liabilities € mn 1 Allianz se 2 Senior bonds 3 Fixed rate Contractual interest rate Money market securities Fixed rate Contractual interest rate Total Allianz SE 2 Banking subsidiaries Senior bonds Fixed rate Contractual interest rate Floating rate Current interest rate Total banking subsidiaries All other subsidiaries Certificated liabilities Floating rate Current interest rate Total all other subsidiaries Total Contractual Maturity Date 2014 2015 2016 2017 2018 Thereafter as of 31 December 2013 as of 31 December 2012 – – 869 0.40 % 869 68 2.68 % – – 68 – – – 937 – – – – – 53 1.32 % – – 53 – – – 53 1,494 4.00 % – – 1,494 72 1.36 % – – 72 – – – 1,566 – – – – – – – – – – – – – – 499 1.38 % – – 499 – – – – – – – – 4,588 4.02 % – – 4,588 – – 387 0.53 % 387 – – – 6,581 – 869 – 7,450 193 – 387 – 580 – – – 5,942 – 1,180 – 7,122 409 – 404 – 813 25 – 25 499 4,975 8,030 7,960 1 2 Except for the interest rates. The interest rates represent the weighted average. Includes senior bonds issued by Allianz Finance II B.V., guaranteed by Allianz SE and money market securi- ties issued by Allianz Finance Corporation, a wholly-owned subsidiary of Allianz SE, which are fully and unconditionally guaranteed by Allianz SE. 3 Change due to the issuance of senior bonds in the amount of € 2.1 Bn in the first quarter of 2013 and the repayment of a € 1.5 Bn bond in the first quarter of 2013. 192 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows 24 – Subordinated liabilities subordinated liabilities € mn 1 Allianz se 2 Subordinated bonds 3 Fixed rate Contractual interest rate Floating rate Current interest rate Total Allianz SE 2 Banking subsidiaries Subordinated bonds Fixed rate Contractual interest rate Total banking subsidiaries All other subsidiaries Subordinated liabilities Fixed rate Contractual interest rate Hybrid equity Floating rate Current interest rate Total all other subsidiaries Total Contractual Maturity Date 2014 2015 2016 2017 2018 Thereafter – – 1,5004 5.50 % 1,500 48 5.04 % 48 – – – – – 1,548 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 15 5.61 % 15 83 4.27 % 83 20 4.35 % 20 – – – – – 15 – – – – – 83 – – – – – 20 1,519 5.43 % 7,837 5.42 % 9,356 88 4.60 % 88 399 4.63 % 45 1.74 % 444 9,888 as of 31 December 2013 as of 31 December 2012 1,519 – 9,337 – 10,856 3,063 – 7,833 – 10,896 254 – 254 399 – 45 – 444 274 – 274 399 – 45 – 444 11,554 11,614 1 2 Except for interest rates. Interest rates represent the weighted average. Includes subordinated bonds issued by Allianz Finance II B.V. and guaranteed by Allianz SE. 3 4 Change due to redemption of a USD 2.0 Bn bond in the second quarter of 2013 and the issuance of a € 1.5 Bn subordinated bond in the fourth quarter of 2013. € 1.5 Bn subordinated bond called for redemption effective 15 January 2014. 25 – Equity equity € mn as of 31 December Shareholders’ equity Issued capital Capital reserves Retained earnings 1 Foreign currency translation adjustments Unrealized gains and losses (net) 2 Subtotal Non-controlling interests Total 2013 2012 1,169 27,701 17,785 (3,312) 6,741 50,084 2,765 52,849 1,167 27,648 13,524 (2,073) 10,122 50,388 2,575 52,963 1 2 As of 31 December 2013, includes € (220) mn (2012: € (218) mn) related to treasury shares. As of 31 December 2013, includes € 203 mn (2012: € 256 mn) related to cash flow hedges. issued capital Issued capital as of 31 December 2013 amounted to € 1,169 mn divided into 456,500,000 registered shares. The shares have no par value but a mathematical per share value of € 2.56 each as a proportion of the issued capital. authorized capital As of 31 December 2013, Allianz SE had authorized capital for the issu- ance of 214,843,750 shares until 4 May 2015, with a notional amount of € 550 mn (Authorized Capital 2010/I). The shareholders’ subscrip- tion rights can be excluded for capital increases against contribution in kind. For a capital increase against contributions in cash, the share- holders’ 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 pur- suant to § 186 (3) sentence 4 of the German Stock Corporation Law (Aktiengesetz) do not exceed 10 % of the share capital, (iii) to the extent necessary to grant a subscription right for new shares to the holders of bonds that carry conversion or option rights or provide for Annual Report 2013 Allianz Group 193 In October 2013, 550,000 (2012: 650,000) shares were issued for cash out of the Authorized Capital 2010/II at a price of € 99.45 (2012: € 79.25) per share, enabling employees of Allianz Group subsidiaries in Ger- many and abroad to purchase shares. As a result, issued capital increased by € 1 mn and capital reserves by € 53 mn. The Authorized Capital 2010/II was created to enable Allianz SE to issue new shares for such employee offerings. To be able to offer the new shares to employees, the shareholders’ subscription rights to these new shares were excluded with the consent of the Supervisory Board pursuant to the authorization granted by the AGm on 5 May 2010. All shares issued during the years ending 31 December 2013 and 2012 are qualifying shares from the beginning of the year of issue. dividends For the year ending 31 December 2013, the Board of Management will propose to shareholders at the Annual General Meeting the distribu- tion of a dividend of € 5.30 per qualifying share. For the year ended 31 December 2012, Allianz SE paid a dividend of € 4.50 per qualifying share. treasury shares As of 31 December 2013, Allianz SE held 2,761,795 (2012: 2,777,438) own shares. Of these, 155,626 (2012: 171,269) shares were held for covering subscriptions by employees of the Allianz Group in the context of the Employee Stock Purchase Plan 2014, whereas 2,606,169 (2012: 2,606,169) shares were held as a hedge for obligations from the Allianz Equity Incentive Program (former Group Equity Incentive Program). In the fourth quarter of 2013, 550,000 (2012: 650,000) new Allianz shares were issued in the context of a capital increase for the Employee Stock Purchase Plan 2013. In 2013, 565,643 (2012: 627,118) shares were sold to employees of Allianz SE and its subsidiaries. Of these, 171,269 (2012: 148,387) originated from the capital increase for the Employee Stock Purchase Plan in 2012 and 394,374 (2012: 478,731) from the capital increase for the Employee Stock Purchase Plan in 2013. Employees of the Allianz Group purchased shares at prices ranging from € 71.03 (2012: € 52.17) to € 100.84 (2012: € 75.19) per share. The remaining 155,626 (2012: 171,269) shares in 2013 will be used for the Employee Stock Purchase Plan of Allianz SE and its subsidiaries in 2014. The total change of holdings in Allianz SE own shares for the year ending 31 December 2013, amounted to a decrease of 15,643 (2012: increase of 22,882) shares, which corresponds to € 40,046 (2012: € 58,578) or 0.003 % (2012: 0.005 %) of issued capital. mandatory conversion, and (iv) if the new shares are issued in con- nection with a listing of Allianz shares on a stock exchange in the People’s Republic of China, the issue price for the new shares is not significantly below the market price, and the new shares do not exceed 10 % of the share capital. An overall limit for the exclusion of subscription rights of up to € 232 mn (corresponding to 20 % of the share capital at year-end 2009) applies for the Authorized Capital 2010/I and the Conditional Capital 2010. In addition, Allianz SE has authorized capital (Authorized Capi- tal 2010/II) for the issuance of shares against cash until 4 May 2015. The shareholders’ subscription rights can be excluded in order to issue new shares to employees of Allianz SE and its subsidiaries. As of 31 December 2013, the Authorized Capital 2010/II amounted to € 8 mn (3,259,375 shares). Further, as of 31 December 2013, Allianz SE had conditional cap- ital totaling € 250 mn (97,656,250 shares) (Conditional Capital 2010). This conditional capital increase will only be carried out if conversion or option rights attached to bonds which Allianz SE or its Group com- panies have issued against cash payments according to the resolu- tion of the Annual General Meeting (AGm) on 5 May 2010, are exer- cised or the conversion obligations under such bonds are fulfilled, and only insofar as no other methods are used in serving these rights. Convertible subordinated notes totaling € 500 mn which may be converted into Allianz shares were issued against cash in July 2011. Within 10 years after the issuance a mandatory conversion of the notes into Allianz shares at the then prevailing share price may apply at the occurrence of certain events, subject to a floor price of at least € 75.39 per share. Within the same period, the investors have the right to convert the notes into Allianz shares at a price of € 188.47 per share. Both conversion prices are subject to anti-dilution provisions. The subscription rights of shareholders for these convertible notes have been excluded with the consent of the Supervisory Board and pursu- ant to the authorization of the AGm on 5 May 2010. The granting of new shares to persons entitled under such convertible notes is secured by the Conditional Capital 2010. On or before 31 December 2013, there was no conversion of any such notes into new shares. changes in the number oF issued shares outstanding number oF issued shares outstanding 2013 2012 Issued shares outstanding as of 1 January 453,171,976 452,473,025 Capital increase for employee shares 550,000 650,000 Change in treasury shares held for non-trading purposes 14,643 48,951 Issued shares outstanding as of 31 December 453,736,619 453,171,976 Treasury shares Total number of issued shares 2,763,381 2,778,024 456,500,000 455,950,000 194 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Number of shares Issued capital Changes in the treasury shares were: changes in treasury shares as of 31 December Acquisition costs € mn 2013 Allianz se Other Total 2012 Allianz se Other Total 220 – 220 218 – 218 2,761,795 1,586 2,763,381 2,777,438 586 2,778,024 non-controlling interests non-controlling interests € mn as of 31 December Unrealized gains and losses (net) Share of earnings Other equity components Total 2013 93 348 2,324 2,765 % 0.61 – 0.61 0.61 – 0.61 2012 135 327 2,113 2,575 capital requirements The Allianz Group’s capital requirements are primarily dependent on the type of business that it underwrites, the industry and geographic locations in which it operates and the allocation of the Allianz Group’s investments. During the Allianz Group’s annual planning dialogues with its operating entities, capital requirements are deter- mined through business plans regarding the levels and timing of capital expenditures and investments. Regulators impose minimum capital requirements at the level of the Allianz Group’s operating entities and the Allianz Group as a whole. On 1 January 2005, the Financial Conglomerates Directive (FCD), a supplementary European Union (E.U.) directive, became effective in Germany. Under this directive, a financial conglomerate is defined as any financial parent holding company that, together with its sub- sidiaries, has significant cross-border and cross-sector activities. The Allianz Group is a financial conglomerate within the scope of the directive and the related German laws. The directive requires that the financial conglomerate calculates the capital needed to meet the respective solvency requirement on a consolidated basis. As of 31 December 2013, the Allianz Group’s eligible capital for the solvency margin, required for the insurance segments and the Asset Management and Banking business, was € 46.5 Bn (2012 as pub- lished: € 48.4 Bn) including off-balance sheet reserves 1 of € 2.3 Bn (2012: € 2.2 Bn), surpassing the minimum legally stipulated level by € 20.9 Bn (2012: € 23.8 Bn). This margin resulted in a preliminary cover ratio of 182 % (2012 as published: 197 %) as of 31 December 2013. The decrease in the cover ratio was mainly driven by an approximately 16 %-points decrease due to amendments to IAS 19. In addition to regulatory capital requirements, Allianz SE also uses an internal risk capital model to determine how much capital is required to absorb any unexpected volatility in results of operations and to steer its operations. Going forward, with the planned introduction of Solvency II in January 2016, the Allianz Group expects the Solvency II rules to become the binding regulatory constraint for the Group. Insurance subsidiaries of the Allianz Group including Allianz SE prepare individual financial statements based on local laws and regulations. These laws establish to some extent additional restric- tions 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, volume of premiums written or claims paid, amount of insurance reserves, investment risks, mortality risks, credit risks, underwriting risks and off-balance sheet risks. As of 31 December 2013, the Allianz Group’s insurance subsid- iaries were in compliance with all applicable regulatory solvency and capital adequacy requirements. Some insurance subsidiaries are subject to regulatory restric- tions on the amount of dividends which can be remitted to Allianz SE without prior approval by the appropriate regulatory body. Such restrictions provide that a company may only pay dividends up to an amount in excess of certain regulatory capital levels or based on the levels of undistributed earned surplus or current year income or a percentage thereof. By way of example only, the operations of the Allianz Group’s insurance subsidiaries located in the United States are subject to limitations on the payment of dividends to their parent company under applicable state insurance laws. Dividends paid in excess of these limitations generally require prior approval of the insurance commissioner of the state of domicile. The Allianz Group believes that these restrictions will not affect the ability of Allianz SE to pay dividends to its shareholders in the future. 1 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not submitted an application so far. The solvency ratio excluding off-balance sheet reserves would be 173 % (2012: 188 %). Annual Report 2013 Allianz Group 195 Notes to the CoNsolidated iNCome statemeNts 26 – Premiums earned (net) 27 – Interest and similar income interest and similar income € mn Interest from held-to-maturity investments Dividends from available-for-sale investments Interest from available-for-sale investments Share of earnings from investments in associates and joint ventures Rent from real estate held for investment Interest from loans to banks and customers Other interest Total 2013 182 1,354 13,202 146 791 5,067 176 20,918 2012 204 1,156 13,325 143 741 5,368 147 21,084 Premiums earned (net) € mn 2013 Premiums written Direct Assumed Subtotal Ceded Net Change in unearned premiums Direct Assumed Subtotal Ceded Net Premiums earned Direct Assumed Subtotal Ceded Net 2012 Premiums written Direct Assumed Subtotal Ceded Net Change in unearned premiums Direct Assumed Subtotal Ceded Net Premiums earned Direct Assumed Subtotal Ceded Net Property- Casualty Life/Health Consoli- dation Group 43,967 2,612 46,579 (3,982) 42,597 (442) (71) (513) (37) (550) 43,525 2,541 46,066 (4,019) 42,047 43,824 3,065 46,889 (4,727) 42,162 (587) (18) (605) 148 (457) 43,237 3,047 46,284 (4,579) 41,705 24,805 725 25,530 (617) 24,913 (323) (7) (330) (2) (332) 24,482 718 25,200 (619) 24,581 24,693 610 25,303 (662) 24,641 (243) – (243) (5) (248) 24,450 610 25,060 (667) 24,393 – (58) (58) 58 – – (1) (1) 1 – – (59) (59) 59 – (53) (53) (106) 53 (53) – 4 4 (4) – (53) (49) (102) 49 (53) 68,772 3,279 72,051 (4,541) 67,510 (765) (79) (844) (38) (882) 68,007 3,200 71,207 (4,579) 66,628 68,464 3,622 72,086 (5,336) 66,750 (830) (14) (844) 139 (705) 67,634 3,608 71,242 (5,197) 66,045 196 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows 28 – 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 2013 Property- Casualty Life/Health Asset Management Corporate and Other Consolidation Income (expenses) from financial assets and liabilities held for trading (net) 33 (567) Income (expenses) from financial assets and liabilities designated at fair value through income (net) Income (expenses) from financial liabilities for puttable equity instruments (net) Foreign currency gains and losses (net) Total 2012 Income (expenses) from financial assets and liabilities held for trading (net) Income (expenses) from financial assets and liabilities designated at fair value through income (net) Income (expenses) from financial liabilities for puttable equity instruments (net) Foreign currency gains and losses (net) Total 11 (2) (92) (50) (98) (25) 46 (49) (126) 339 (197) (1,377) (1,802) (832) 454 (240) (96) (714) – 62 (49) – 13 (2) 72 (50) (4) 16 30 1 – (37) (6) 237 (1) – 30 266 5 (2) – – 3 48 (1) – – 47 Group (499) 411 (248) (1,506) (1,842) (647) 499 (244) (119) (511) income (exPenses) from financial assets and liabilities held for trading (net) Business segment Life/Health For the year ended 31 December 2013, income and expenses from financial assets and liabilities held for trading (net) in the business segment Life/Health includes expenses of € 600 mn (2012: € 878 mn) from derivative financial instruments. Included in this is income of € 245 mn (2012: € 107 mn) from financial derivative positions of Ger- man entities, of which expenses of € 317 mn (2012: income of € 466 mn) relate to duration management, income of € 34 mn (2012: expenses of € 396 mn) relates to protection against equity fluctuations and income of € 540 mn (2012: € 37 mn) relates to protection against foreign exchange rate fluctuations. Also included are expenses related to fixed-indexed annuity products and guaranteed benefits under unit- linked contracts of € 790 mn (2012: € 736 mn) from U.S. entities. Business segment Corporate and Other For the year ended 31 December 2013, income and expenses from financial assets and liabilities held for trading (net) in the business segment Corporate and Other includes income of € 152 mn (2012: € 354 mn) from derivative financial instruments. This includes income of € 70 mn (2012: expenses of € 14 mn) from financial derivative instru- ments to protect investments and liabilities against foreign exchange rate fluctuations. In 2013, hedging of strategic equity investments not designated for hedge accounting produced no income (2012: € 3 mn). Financial derivatives related to The Hartford investment produced no income (2012: € 180 mn) as The Hartford Warrants were sold by the Allianz Group in April 2012. Expenses of € 125 mn (2012: € 126 mn) from the hedges of share-based compensation plans (restricted stock units) are also included. income (exPenses) from financial assets and liabilities designated at fair value through income (net) For the year ended 31 December 2013, income and expenses from financial assets and liabilities designated at fair value through income (net) in the business segment Life/Health includes income from equity investments of € 228 mn (2012: € 273 mn) and income of € 111 mn (2012: € 181 mn) from debt investments. foreign currency gains and losses (net) Foreign currency gains and losses are reported within income from financial assets and liabilities carried at fair value through income (net). These foreign currency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated in a for- eign currency that are monetary items. This excludes exchange dif- ferences arising on financial assets and liabilities measured at fair value through profit or loss, which do not have to be disclosed sepa- rately. The Allianz Group uses freestanding derivatives, included in the line item income (expenses) from financial assets and liabilities held for trading (net), to hedge against foreign currency fluctuations. For these derivatives, income in the amount of € 653 mn (2012: € 20 mn) was recognized for the year ended 31 December 2013. Annual Report 2013 Allianz Group 197 29 – Realized gains/losses (net) 30 – Fee and commission income realized gains/losses (net) € mn realized gains Available-for-sale investments Equity securities Debt securities Subtotal Investments in associates and joint ventures 1 Real estate held for investment Loans and advances to banks and customers Non-current assets classified as held for sale fee and commission income 2013 2012 € mn ProPerty-casualty Fees from credit and assistance business 2,102 2,308 4,410 73 147 412 104 2,524 2,325 4,849 15 221 829 36 Service agreements Investment advisory Subtotal life/health Service agreements Investment advisory Subtotal asset management Management fees Loading and exit fees Performance fees Other Subtotal corPorate and other Service agreements Investment advisory and banking activities (377) (1,230) (1,607) (8) (2) (6) – (1,623) 4,327 Subtotal Subtotal 5,146 5,950 realized losses Available-for-sale investments Equity securities Debt securities Subtotal Investments in associates and joint ventures 2 Real estate held for investment Loans and advances to banks and customers Non-current assets classified as held for sale Subtotal Total (253) (578) (831) (12) (11) (4) (3) (861) 4,285 1 2 During the year ended 31 December 2013, includes realized gains from the disposal of subsidiaries and businesses of € 48 mN (2012: € 12 mN). During the year ended 31 December 2013, includes no realized losses from the disposal of subsidiaries (2012: € 8 mN). consolidation Total 31 – Other income other income € mn Income from real estate held for own use Realized gains from disposals of real estate held for own use Other income from real estate held for own use Subtotal Income from alternative investments Other Total 198 Annual Report 2013 Allianz Group 2013 2012 753 473 – 1,226 75 571 646 7,317 715 510 69 8,611 62 625 687 (678) 10,492 721 443 1 1,165 69 465 534 6,528 635 766 112 8,041 19 595 614 (542) 9,812 2013 2012 34 – 34 169 6 209 23 8 31 169 14 214 D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows 32 – Income and expenses from fully consolidated private equity investments income and exPenses from fully consolidated Private equity investments € mn Income Sales and service revenues Subtotal Expenses Cost of goods sold General and administrative expenses Interest expenses Subtotal 1 Total 1 2013 2012 726 726 (219) (492) (32) (743) (17) 788 788 (250) (523) (41) (814) (26) 1 The presented subtotal for expenses and total income and expenses from fully consolidated private equity investments for the year ended 31 December 2013 differs from the amounts presented in the “Consolidated Income Statements” and in “Total revenues and reconciliation of Operating profit (loss) to Net income (loss)”. This difference is due to a consolidation effect of € 2 mN (2012: € (33) mN) for the year ended 31 December 2013. This consolidation effect results from the deferred policyholder participa- tion, recognized on the result from fully consolidated private equity investments within operating profit in the Life/Health segment, that was reclassified into expenses from fully consolidated private equity investments in non-operating profit to ensure a consistent presentation of the Allianz Group‘s operating profit. Annual Report 2013 Allianz Group 199 33 – Claims and insurance benefits incurred (net) 34 – Change in reserves for insurance and investment contracts (net) Claims and insuranCe benefits inCurred (net) Change in reserves for insuranCe and investment ContraCts (net) € mn 2013 Gross Claims and insurance benefits paid Change in loss and loss adjustment expenses Subtotal Ceded Claims and insurance benefits paid Change in loss and loss adjustment expenses Subtotal Net Claims and insurance benefits paid Change in loss and loss adjustment expenses Total 2012 Gross Claims and insurance benefits paid Change in loss and loss adjustment expenses Subtotal Ceded Claims and insurance benefits paid Change in loss and loss adjustment expenses Subtotal Net Claims and insurance benefits paid Change in loss and loss adjustment expenses Total Property- Casualty Life/Health Consoli- dation Group (31,235) (20,215) 32 (51,418) 1,589 (353) (29,646) (20,568) 4 36 1,240 (50,178) 2,255 (322) 1,933 462 10 472 (26) 2,691 (3) (29) (315) 2,376 € mn 2013 Gross Property- Casualty Life/Health Consoli- dation Group Aggregate policy reserves (232) (7,545) Other insurance reserves 7 (208) (4) – (7,781) (201) Expenses for premium refunds Subtotal Ceded Aggregate policy reserves Other insurance reserves Expenses for premium refunds Subtotal Net (161) (5,959) (386) (13,712) (46) (50) (6,166) (14,148) 3 – (1) 2 140 9 7 156 – – – – 143 9 6 158 (28,980) (19,753) 1,267 (343) (27,713) (20,096) 6 1 7 925 (47,802) Expenses for premium refunds (48,727) Aggregate policy reserves (229) (7,405) Other insurance reserves 7 (199) (4) – (7,638) (192) (162) (5,952) (384) (13,556) (46) (50) (6,160) (13,990) Total 2012 Gross (30,148) (20,529) 25 (50,652) (689) (411) (30,837) (20,940) 8 33 (1,092) (51,744) 2,321 25 2,346 479 75 554 (22) 2,778 (7) (29) 93 2,871 Aggregate policy reserves (135) (7,666) Other insurance reserves (5) (78) Expenses for premium refunds Subtotal Ceded Aggregate policy reserves Other insurance reserves Expenses for premium refunds Subtotal (292) (6,377) (432) (14,121) 2 – – 2 131 6 13 150 (27,827) (20,050) (664) (336) (28,491) (20,386) 3 1 4 (47,874) Net (999) (48,873) Aggregate policy reserves (133) (7,535) Other insurance reserves (5) (72) Expenses for premium refunds Total (292) (6,364) (430) (13,971) 50 – (9) 41 – – – – 50 – (9) 41 (7,751) (83) (6,678) (14,512) 133 6 13 152 (7,618) (77) (6,665) (14,360) 200 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows 35 – Interest expenses 38 – Investment expenses interest expenses € mn Liabilities to banks and customers Deposits retained on reinsurance ceded Certificated liabilities Subordinated liabilities Other Total investment expenses € mn Investment management expenses Depreciation of real estate held for investment Other expenses from real estate held for investment Total 2013 (259) (49) (272) (642) (100) 2012 (339) (51) (341) (649) (97) (1,322) (1,477) 2013 (527) (211) (167) (905) 2012 (525) (190) (161) (876) 37 – Impairments of investments (net) 36 – Loan loss provisions loan loss provisions € mn Additions to allowances including direct impairments Amounts released Recoveries on loans previously impaired Total impairments of investments (net) € mn impairments Available-for-sale investments Equity securities Debt securities Subtotal Investments in associates and joint ventures 1 Real estate held for investment Loans and advances to banks and customers Non-current assets classified as held for sale Subtotal reversals of impairments Available-for-sale investments Debt securities Real estate held for investment Loans and advances to banks and customers Subtotal Total 39 – Acquisition and administrative expenses (net) 2013 (166) 62 18 (86) aCquisition and administrative expenses (net) 2012 € mn (207) 77 19 (111) property-Casualty Acquisition costs Incurred Commissions and profit received on reinsurance business ceded Deferrals of acquisition costs Amortization of deferred acquisition costs Subtotal Administrative expenses Subtotal life/health Acquisition costs Incurred 2013 2012 Commissions and profit received on reinsurance business ceded Deferrals of acquisition costs Amortization of deferred acquisition costs Subtotal Administrative expenses Subtotal asset management Personnel expenses (804) (87) (891) (23) (48) (58) (3) (1,023) Non-personnel expenses Subtotal 17 33 39 89 Corporate and other Administrative expenses Subtotal Consolidation Total (611) (934) (392) (56) (448) (108) (55) (24) (31) (666) 18 22 15 55 2013 2012 (9,829) (9,471) 479 5,868 (5,705) (9,187) (2,755) 498 5,715 (5,605) (8,863) (2,771) (11,942) (11,634) (4,591) (4,535) 67 2,980 (2,571) (4,115) (1,488) (5,603) (2,607) (1,419) (4,026) 110 2,790 (2,241) (3,876) (1,440) (5,316) (2,578) (1,286) (3,864) (1,297) (1,297) (1,245) (1,245) 3 13 (22,865) (22,046) 1 For the twelve months ended 31 December 2013, includes an impairment of an associated alternative investment entity in the amount of € (23) mn. The fair value is classified as level 3 in the fair value hierarchy and based on a discounted cash flow approach. Annual Report 2013 Allianz Group 201 40 – Fee and commission expenses 42 – Income taxes fee and Commission expenses € mn property-Casualty Fees from credit and assistance business Service agreements Subtotal life/health Service agreements Investment advisory Subtotal asset management Commissions Other Subtotal Corporate and other Service agreements Investment advisory and banking activities Subtotal Consolidation Total 41 – Other expenses other expenses € mn Realized losses from disposals of real estate held for own use Expenses from alternative investments Other Total 202 Annual Report 2013 Allianz Group inCome taxes € mn Current income taxes Deferred income taxes Total 2013 2012 (755) (386) (711) (377) (1,141) (1,088) 2013 (2,899) (401) (3,300) 2012 (3,324) 163 (3,161) (39) (212) (251) (1,403) (81) (1,484) (230) (263) (493) 331 (42) (186) (228) For the years ended 31 December 2013 and 2012, the income taxes relating to components of other comprehensive income consist of the following: inCome taxes relating to Components of other Comprehensive inCome (1,243) (67) (1,310) (247) (247) (494) 225 € mn Items that may be reclassified to profit or loss in future periods Foreign currency translation adjustments Available-for-sale investments Cash flow hedges Share of other comprehensive income of associates (3,038) (2,895) Miscellaneous Items that may never be reclassified to profit or loss Actuarial gains (losses) on defined benefit plans Total 2013 2012 (23) 1,451 21 6 96 (11) (2,522) (27) – 42 (171) 1,380 785 (1,733) 2013 (2) (85) (19) (106) 2012 (3) (88) (3) (94) During the year ended 31 December 2013, current income taxes included expenses of € 138 mn (2012: € 264 mn) related to prior years. Of the deferred income taxes for the year ended 31 December 2013, expenses of € 47 mn (2012: income of € 399 mn) are attributable to the recognition of deferred taxes on temporary differences and expenses of € 356 mn (2012: € 233 mn) are attributable to tax losses car- ried forward. Additionally, changes of applicable tax rates due to changes in tax law produced deferred tax income of € 2 mn (2012: expenses of € 3 mn). The recognized income taxes for the year ended 31 December 2013 are € 418 mn (2012: € 589 mn) above the expected income taxes. The following table shows the reconciliation from the expected income taxes of the Allianz Group to the effectively recognized taxes. The Allianz Group’s reconciliation is a summary of the individual company-related reconciliations, which are based on the respective country-specific tax rates after taking into consideration consolida- tion effects with an impact on the Group result. The expected tax rate for domestic Allianz Group companies applied in the reconciliation includes corporate tax, trade tax and the solidarity surcharge, and amounts to 31.0 % (2012: 31.0 %). D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows The effective tax rate is determined on the basis of the effective deferred tax assets and liabilities income tax expenses on income before income taxes. deferred tax assets and liabilities € mn as of 31 December Deferred tax assets Financial assets carried at fair value through income Investments Deferred acquisition costs Other assets Intangible assets Tax losses carried forward Insurance reserves Pensions and similar obligations Other liabilities Total deferred tax assets Non-recognition or valuation allowance for deferred tax assets on tax losses carried forward Effect of netting Net deferred tax assets Deferred tax liabilities Financial assets carried at fair value through income Investments Deferred acquisition costs Other assets Intangible assets Insurance reserves Pensions and similar obligations Other liabilities Total deferred tax liabilities Effect of netting Net deferred tax liabilities Net deferred tax assets (liabilities) 2013 2012 23 3,112 1,158 1,363 119 2,213 3,862 3,317 1,040 34 2,871 1,984 1,184 156 2,548 3,935 3,364 992 16,207 17,068 (652) (714) (14,047) (14,828) 1,508 1,526 158 5,732 4,335 725 400 2,691 2,430 754 91 7,884 4,371 580 381 2,420 2,254 882 17,225 (14,047) 3,178 (1,670) 18,863 (14,828) 4,035 (2,509) Taxable temporary differences associated with investments in Allianz Group companies, for which no deferred tax liabilities are recognized as the Allianz Group is able to control the timing of their reversal and which will not reverse in the foreseeable future, amount to € 757 mn (2012: € 520 mn). Deductible temporary differences arising from investments in Allianz Group companies, for which no deferred tax assets are recognized as it is not probable that they will reverse in the foreseeable future, amount to € 183 mn (2012: € 185 mn). effeCtive tax rate € mn Income before income taxes Expected income tax rate Expected income taxes Trade tax and similar taxes Net tax exempt income Effects of tax losses Other effects Income taxes Effective tax rate 2013 9,644 29.9 % 2,882 244 (185) 9 350 3,300 34.2 % 2012 8,719 29.5 % 2,572 237 (189) 2 539 3,161 36.3 % In Italy, a decree law was issued in November 2013 and was converted into law by the Parliament in January 2014, which increased the cor- porate income tax rate (IRES) for bank and insurance companies by 8.5 % (from 27.5 % to 36 %). This tax rate increase is applied retroactively from beginning of 2013 and only for the financial year 2013. It resulted in an additional tax burden on the Allianz Group operations in Italy of € 119 mn. This one-off effect is included in the above table in the other effects. In the tax reconciliation for 2012, the other effects of € 539 mn include € 373 mn current and deferred taxes for prior years and a one- off tax expense from a tax law change in France of € 64 mn. For the year ended 31 December 2013, the write-down of deferred tax assets on tax losses carried forward resulted in deferred tax expenses of € 4 mn (2012: € – mn). The non-recognition of deferred taxes on tax losses for the current fiscal year increased the tax expenses by € 17 mn (2012: € 52 mn). Due to the use of tax losses carried forward for which no deferred tax asset was recognized, the current income tax expenses decreased by € 3 mn (2012: € 8 mn). Deferred tax income of € 9 mn (2012: € 42 mn) resulted from the recognition of deferred tax assets on tax losses carried forward from earlier periods for which no deferred taxes had yet been recognized. The above men- tioned effects are shown in the reconciliation statement as “effects of tax losses”. The tax rates used in the calculation of the Allianz Group’s deferred taxes are the applicable national rates, which in 2013 ranged from 10.0 % to 40.0 %. Changes to tax rates already adopted on 31 De- cember 2013 are taken into account. Deferred tax assets on losses carried forward are recognized to the extent to which it is more likely than not that sufficient future taxable profits will be available for realization. Entities which suffered a tax loss in either the current or the preceding period recognized deferred tax assets in excess of deferred tax liabilities amounting to € 149 mn (2012: € 332 mn). Annual Report 2013 Allianz Group 203 tax losses Carried forward Tax losses carried forward at 31 December 2013 of € 9,885 mn (2012: € 10,894 mn) resulted in recognition of deferred tax assets to the extent that there is sufficient certainty that the unused tax losses will be utilized. € 8,848 mn (2012: € 9,779 mn) of the tax losses carried forward can be used without time limitation. Tax losses carried forward are scheduled according to their expiry periods as follows: tax losses Carried forward € mn 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 >10 years Unlimited Total 2013 54 72 132 56 73 111 43 20 65 94 317 8,848 9,885 204 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Other InfOrmatIOn 43 – Derivative financial instruments Derivative financial instruments € mn as of 31 December Interest rate contracts, consisting of: OTC Forwards Swaps Swaptions Caps Options Exchange traded Futures Forwards Swaps Subtotal Equity/Index contracts, consisting of: OTC Forwards Swaps Floors Options Warrants Exchange traded Futures Forwards Options Warrants Subtotal Foreign exchange contracts, consisting of: OTC Futures Forwards Swaps Options Exchange traded Futures Subtotal Credit contracts, consisting of: OTC Swaps Floors Exchange traded Swaps Subtotal Real estate contracts, consisting of: OTC Forwards Options Subtotal Total Annual Report 2013 Allianz Group 2013 Maturity by notional amount Up to 1 year 1 – 5 years Over 5 years Notional principal amounts Positive fair values Negative fair values Notional principal amounts 2012 Positive fair values Negative fair values 774 530 – 11 – 4,498 – – 5,813 596 1,609 – 104,036 – 12,458 15 6,316 1,620 126,650 124 33,815 50 14 3 34,006 263 – – 263 – – – 166,732 671 4,437 25,429 4,933 – 23 – – 35,493 – 78 – 2,380 – – – 49 7 2,514 429 213 81 32 – 755 2,014 1 – 2,015 – 6 6 40,783 160 19,204 5,072 8 – – – – 24,444 50 1,393 – 223 2,679 149 – 1,454 – 5,948 – 78 97 – – 175 231 – 6 237 1,605 24,171 30,501 4,952 – 4,521 – – 65,750 646 3,080 – 106,639 2,679 12,607 15 7,819 1,627 135,112 553 34,106 228 46 3 34,936 2,508 1 6 2,515 77 342 404 1 – 1 – – 825 124 6 – 469 3 95 – 61 126 884 1 332 6 11 – 350 26 – 3 29 (14) (949) (18) (3) – (44) – – (1,028) (10) (51) – (4,671) (143) (109) – (30) – (5,014) (21) (74) (7) – – (102) (23) (1) – (24) 635 21,681 26,027 4,974 26 1,641 200 450 55,634 1,181 5,207 2 85,251 1,225 5,653 13 3,780 1,231 103,543 664 21,336 175 13 – 22,188 1,912 – 6 1,918 77 878 140 – 5 4 23 24 1,151 89 27 – 278 – 13 – 29 84 520 2 287 5 – – 294 15 – 3 18 (2) (431) (65) (14) (5) (51) – (39) (607) (236) (88) (2) (4,714) (66) (20) – (17) – (5,143) (11) (45) (3) – – (59) (48) – – (48) – – – 30,804 – 6 6 238,319 – – – 2,088 – – – (6,168) 291 6 297 183,580 10 1 11 1,994 – – – (5,857) 205 Additionally, the Allianz Group uses fair value hedges to hedge its equity portfolio against equity market risk. As of 31 December 2013, the derivatives used as hedging instruments in the related fair value hedges had a total fair value of € – mn (2012: total negative fair value of € 209 mn). For the year ended 31 December 2013, the Allianz Group recog- nized for fair value hedges a net gain of € 36 mn (2012: net loss of € 210 mn) on the hedging instruments and a net loss of € 54 mn (2012: net gain of € 168 mn) on the hedged items attributable to the hedged risk. Cash flow hedges During the year ended 31 December 2013, cash flow hedges were used to hedge the exposure to the variability from cash flows arising from interest rate or exchange rate fluctuations as well as inflation. As of 31 December 2013, the derivative instruments utilized had a total positive fair value of € 41 mn (2012: € 75 mn). Unrealized gains and losses (net) in shareholders’ equity decreased by € 53 mn (2012: increased by € 6 5 mn). Amounts accumulated in the other compre- hensive income are reclassified to profit or loss in the periods when the hedged item affects profit or loss. This is the case when the fore- cast transactions that are hedged take place. Hedge of net investment in foreign operations As of 31 December 2013, the Allianz Group hedges part of its U.S. Dollar net investments through the issuance of U.S. Dollar denominated liabilities with a nominal amount of USD 1.0 bn as well as the use of forward sales of USD with a notional of USD 1.5 bn and a total positive fair value of € 2 mn (2012: total fair value of € – mn). offsetting The Allianz Group mainly enters into enforceable master netting arrangements and similar arrangements for derivatives transactions (gross amount of financial assets in the amount of € 1.8 bn and finan- cial liabilities in the amount of € 1.3 bn). None of these enforceable master netting arrangements or similar arrangements meet the requirements for offsetting in line with IAS 32. Credit risk associated with netting arrangements is further mit- igated by collateral. For further information on collateral, please refer to note 46 – Contingent liabilities, commitments, guarantees, and assets pledged and collateral. The table above shows the fair value and notional amounts for all freestanding derivatives as well as derivatives for which hedge accounting is applied by the Allianz Group as of 31 December 2013 and 2012, respectively. The notional principal amounts indicated in the table are cumulative as they include the absolute value of the notional principal amounts of derivatives with positive and negative fair values. Although these notional principal amounts reflect the degree of the Allianz Group’s involvement in derivative transactions, they do not represent amounts exposed to risk. Further information on the use of derivatives to hedge risks can be found in the sections on market and credit risk in the Risk Report which forms part of the Group Management Report. freestanDing Derivative financial instruments As of 31 December 2013, freestanding derivatives, included in the line item financial assets and liabilities held for trading, had a notional principal amount of € 233.0 bn (2012: € 179.0 bn), as well as a positive fair value of € 2.0 bn (2012: € 1.9 bn) and a negative fair value of € 6.0 bn (2012: € 5.4 bn). Out of the total allocated to the freestanding derivatives, € 115.6 bn (2012: € 91.7 bn) of the notional principal relate to annuity products. These products are equity-indexed or contain certain embedded options or guarantees which are considered embedded derivatives under IAS 39. For these embedded derivatives, the notional principal amounts included in the table refer to the account value of the related insurance contracts. The total negative fair value of these embedded derivatives amounts to € 4.2 bn (2012: € 4.4 bn). Further information on the fair value measurement of these derivatives, can be found in note 44 – Financial instruments and fair value measurement. Derivative financial instruments useD in accounting heDges As of 31 December 2013, derivatives which form part of hedge accounting relationships, included in the line items other assets and other liabilities, had a notional amount of € 5.3bn (2012: € 4.6 bn), as well as a positive fair value of € 75 mn (2012: € 129 mn) and a negative fair value of € 158 mn (2012: € 462 mn). These hedging instruments mainly include interest rate swaps with a total negative fair value of € 126 mn (2012: € 193 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. As of 31 December 2013, the derivative financial instruments used for the related fair value hedges of the Allianz Group had a total negative fair value of € 126 mn (2012: € 199 mn). Within the Allianz Group’s Banking business, derivatives to hedge against interest rate changes are implemented for individual transactions (micro hedges) or for a portfolio of similar assets or liabilities (macro hedges). 206 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows 44 – Financial instruments and fair value measurement Certain risk disclosure requirements of IFRS 7 are reflected in the following sections within the Risk Report in the Group Management Report: − Internal Risk Capital Model including all subsections, − Limitations, − Concentration of risks, − Quantifiable risks in the internal capital model including all subsections other than Business risk and Operational risk, − Liquidity risk. fair values anD carrying amounts of financial instruments The following table compares the carrying amount with the fair value of the Allianz Group’s financial assets and financial liabilities: fair values anD carrying amounts of financial instruments € mn as of 31 December financial assets Cash and cash equivalents Financial assets held for trading Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Loans and advances to banks and customers Financial assets for unit-linked contracts Derivative financial instruments and firm commitments included in other assets financial liabilities Financial liabilities held for trading Liabilities to banks and customers Financial liabilities for unit-linked contracts Derivative financial instruments and firm commitments included in other liabilities Financial liabilities for puttable equity instruments Certificated liabilities and subordinated liabilities The Allianz Group carries certain financial instruments at fair value and discloses the fair value of most other assets and liabilities. The fair value of an asset or liability is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The maximum exposure to credit risk of financial assets, without taking collateral into account, is represented by their carrying amount except for available-for-sale financial assets, for which it is represented by the amortized cost amount. The degree of judgment used in measuring the fair value of financial instruments closely correlates with the level of non-market observable inputs. The Allianz Group maximizes the use of observ- able inputs and minimizes the use of non-market observable inputs when measuring fair value. Observability of input parameters is influenced by various factors such as type of the financial instrument, 2013 2012 Carrying amount Fair value Carrying amount Fair value 11,207 2,512 4,733 392,023 4,140 116,800 81,064 75 6,013 23,109 81,064 158 3,064 19,584 11,207 2,512 4,733 392,023 4,647 129,528 81,064 75 6,013 23,282 81,064 158 3,064 20,899 12,437 2,346 4,937 383,254 4,321 119,369 71,197 129 5,397 22,425 71,197 462 2,601 19,574 12,437 2,346 4,937 383,254 4,719 137,215 71,197 129 5,397 23,140 71,197 462 2,601 21,174 whether a market is established for the particular instrument, spe- cific transaction characteristics, liquidity as well as general market conditions. If the fair value cannot be measured reliably, amortized cost is used as a proxy for determining fair values. As of 31 December 2013, fair values could not be reliably measured for equity investments with carrying amounts totaling € 214 mn (2012: € 223 mn). These invest- ments are primarily investments in privately held corporations and partnerships. During the year ended 31 December 2013, such invest- ments with carrying amounts of € 35 mn (2012: € 99 mn) were sold leading to gains of € 2 mn (2012: no gains or losses). Annual Report 2013 Allianz Group 207 fair value hierarchy Assets and liabilities measured or disclosed at fair value in the con- solidated financial statements are measured and classified in accordance with the fair value hierarchy in IFRS 13, which categorizes the inputs to valuation techniques used to measure fair value into three levels. In general, the subsidiaries assume responsibility for assessing fair values and hierarchies of assets and liabilities. This is consistent with the decentralized organizational structure of the Allianz Group and reflects market insights of local managers. Estimates and assumptions 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 within level 3 of the fair value hierarchy). The availability of market information is determined by the relative trading levels of identical or similar instru- ments in the market, with emphasis placed on information that represents actual market activity or binding quotations from brokers or dealers. If no sufficient market information is available, manage- ment’s best estimate of a particular input is used to determine the value. Quoted prices in active markets – Fair value level 1: The level 1 inputs of financial instruments that are traded in active markets are based on unadjusted quoted market prices or dealer price quotations on the last exchange trading day prior to or at the balance sheet date, if the latter is a trading day. Furthermore, level 2 applies if the market for a financial instru- ment is not active or when the fair value is determined by using valu- ation techniques based on observable input parameters. Such market inputs are observable substantially over the full term of the asset or liability and include references to formerly quoted prices for identical instruments from an active market, quoted prices for identical instruments from an inactive market, quoted prices for similar instruments from active markets and quoted prices for similar instruments from inactive markets. Market observable inputs also include interest rate yield curves, volatilities and foreign currency exchange rates. Valuation techniques – Non-market observable inputs – Fair value level 3: Where observable market inputs are not available, the fair value is based on valuation techniques using non-market observable inputs. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which observable market prices exist and other valuation models. Appropriate adjustments are made for credit risks. In particular, when observable market inputs are not available, the use of estimates and assumptions may have a high impact on the valuation outcome. fair value measurement on a recurring basis The following financial assets and liabilities are carried at fair value on a recurring basis: Valuation techniques – Market observable inputs – Fair value level 2: At the end of 2013, the Institute of Public Auditors in Germany (IDW) published a new interpretation of IFRS 13 (IDW RS HFA 47). For prices provided by third parties; HFA 47 states that composite prices gen erally have to be classified in level 2 of the fair value hierarchy and only single (unadjusted) quotes could qualify for level 1. As the Allianz Group uses prices provided by service agencies on a consensus level, the Allianz Group shifted most fixed income securities from level 1 to level 2 due to this new interpretation. However, the interpretation is still subject to discussion and, depending on the final outcome, re- transfers are possible in subsequent reporting periods. − Financial assets and liabilities held for trading, − Financial assets and liabilities designated at fair value through income, − Available-for-sale investments, − Financial assets and liabilities for unit-linked contracts, − Derivative financial instruments and firm commitments included in other assets and other liabilities and − Financial liabilities for puttable equity instruments. 208 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows The following tables present the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of 31 December 2013 and 2012. fair value hierarchy as of 31 December 2013 (items carrieD at fair value) € mn financial assets Financial assets carried at fair value through income Financial assets held for trading Debt securities Equity securities Derivative financial instruments Subtotal Financial assets designated at fair value through income Debt securities Equity securities Subtotal Subtotal Available-for-sale investments Equity securities Government and agency mortgage-backed securities (residential and commercial) Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other debt securities Subtotal Financial assets for unit-linked contracts Derivative financial instruments and firm commitments included in other assets Total financial liabilities Financial liabilities held for trading Derivative financial instruments Other trading liabilities Subtotal Financial liabilities for unit-linked contracts Derivative financial instruments and firm commitments included in other liabilities Financial liabilities for puttable equity instruments Total Level 1 – Quoted prices in active markets Level 2 – Market observable inputs Level 3 – Non-market observable inputs Total fair value – 22 284 306 – 2,466 2,466 2,772 25,979 – – – 35,570 18,939 – 80,488 78,230 – 161,490 136 – 136 78,230 – 2,958 81,324 360 103 1,691 2,154 2,007 – 2,007 4,161 765 2,602 11,800 3,418 127,324 154,080 1,770 301,759 2,655 75 308,650 1,447 3 1,450 2,655 158 18 4,281 – 14 38 52 1 259 260 312 5,553 – 33 212 56 3,149 773 9,776 179 – 10,267 4,427 – 4,427 179 – 88 4,694 360 139 2,013 2,512 2,008 2,725 4,733 7,245 32,297 2,602 11,833 3,630 162,950 176,168 2,543 392,023 81,064 75 480,407 6,010 3 6,013 81,064 158 3,064 90,299 Annual Report 2013 Allianz Group 209 fair value hierarchy as of 31 December 2012 (items carrieD at fair value) € mn financial assets Financial assets carried at fair value through income Financial assets held for trading Debt securities Equity securities Derivative financial instruments Subtotal Financial assets designated at fair value through income Debt securities Equity securities Subtotal Subtotal Available-for-sale investments Equity securities Government and agency mortgage-backed securities (residential and commercial) Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other debt securities Subtotal Financial assets for unit-linked contracts Derivative financial instruments and firm commitments included in other assets Total financial liabilities Financial liabilities held for trading Derivative financial instruments Other trading liabilities Subtotal Financial liabilities for unit-linked contracts Derivative financial instruments and firm commitments included in other liabilities Financial liabilities for puttable equity instruments Total Level 1 – Quoted prices in active markets Level 2 – Market observable inputs Level 3 – Non-market observable inputs Total fair value 102 69 36 207 1,945 2,355 4,300 4,507 19,933 37 26 80 138,690 33,512 1,390 193,668 68,508 – 266,683 58 – 58 68,508 – 2,495 71,061 226 84 1,670 1,980 404 – 404 2,384 1,291 4,278 11,817 2,465 21,915 137,705 960 180,431 2,504 129 185,448 756 2 758 2,504 462 26 3,750 – – 159 159 – 233 233 392 5,263 – 30 236 38 3,121 467 9,155 185 – 9,732 4,581 – 4,581 185 – 80 4,846 328 153 1,865 2,346 2,349 2,588 4,937 7,283 26,487 4,315 11,873 2,781 160,643 174,338 2,817 383,254 71,197 129 461,863 5,395 2 5,397 71,197 462 2,601 79,657 210 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Valuation methodologies of financial instruments carried at fair value The Allianz Group follows the new interpretation of IFRS 13 (IDW RS HFA 47) by the Institute of Public Auditors in Germany (IDW) and clas- sifies composite prices in level 2 of the fair value hierarchy. As the Allianz Group uses prices provided by pricing agencies on a consen- sus level, the Allianz Group shifted most fixed income securities from level 1 to level 2 due to this new interpretation. Furthermore, the Allianz Group uses valuation techniques con- sistent with the three widely used classes of valuation techniques listed in IFRS 13: − Market approach: Prices and other relevant information gener- ated by market transactions involving identical or comparable assets or liabilities. − Cost approach: Amount that would be currently required to replace the service capacity of an asset (replacement cost). − Income approach: Conversion of future amounts such as cash flows or income to a single current amount (present value technique). There is no one-to-one connection between valuation technique and hierarchy level. Depending on whether the valuation techniques are based on significant observable or unobservable inputs, financial instruments are classified in the fair value hierarchy. Financial assets carried at fair value through income Financial assets held for trading – Debt and equity securities The fair value is mainly determined using the market approach. In some cases, the fair value is determined based on the income approach using interest rates and yield curves observable at com- monly quoted intervals. Financial assets held for trading – Derivative financial instruments For level 2, the fair value is mainly determined based on the income approach using present value techniques and the Black-Scholes- Merton model. Primary inputs to the valuation include volatilities, interest rates, yield curves, and foreign exchange rates observable at commonly quoted intervals. For level 3, derivatives are mainly priced by third-party vendors. Controls are in place to monitor the valuations of these derivatives. Valuations are mainly derived based on the income approach. Financial assets designated at fair value through income – Debt securities The fair value is determined using the market approach. Financial assets designated at fair value through income – Equity securities For level 2, the fair value is determined using the market approach. For level 3, equity securities mainly represent private equity funds. The fair value is in most cases derived from the net asset value based on the valuation of the underlying private equity companies as pro- vided by third-party vendors. Available-for-sale investments Available-for-sale investments – Equity securities For level 2, the fair value is mainly determined using the market approach or net asset value techniques for funds. For certain pri vate equity investments, the funds are priced based on transaction prices using the cost approach. As there are only few holders of these funds, the market is not liquid and transactions are only known to partici- pants. For level 3, the fair value is mainly determined using net asset values. The net asset values are based on the fair value meas urement of the underlying investments and are mainly provided by fund managers. For certain level 3 equity securities, the invested capital is considered to be a reasonable proxy for the fair value. Available-for-sale investments – Debt securities Debt securities include: − Government and agency mortgage-backed securities (residential and commercial), − Corporate mortgage-backed securities (residential and com- mercial), − Other asset-backed securities, − Government and government agency bonds, − Corporate bonds and − Other debt securities. The valuation techniques for these debt securities are similar. For level 2 and level 3, the fair value is determined using the market and the income approach. Primary inputs to 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 a present value technique 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 in level 2 or level 3. Annual Report 2013 Allianz Group 211 Financial assets for unit-linked contracts For level 2, the fair value is determined using the market or the income approach. For the income approach, primary observable inputs include yield curves observable at commonly quoted intervals. For level 3, the fair value is mainly determined based on the net asset value provided by third-party vendors. Financial liabilities for unit-linked contracts are valued based on their corresponding assets. Derivative financial instruments and firm commitments included in other assets The fair value of the derivatives is mainly determined based on the income approach using present value techniques. Primary inputs include yield curves observable at commonly quoted intervals. The derivatives are mainly used for hedging purposes. Certain derivatives are priced by Bloomberg functions, such as Black-Scholes Option Pricing or the swap manager tool. Financial liabilities held for trading – Derivative financial instruments For level 2, the fair value is mainly determined using the income approach. Valuation techniques applied for the income approach mainly include discounted cash flow models as well as the Black- Scholes-Merton model. Main observable input parameters include volatilities, yield curves observable at commonly quoted intervals and credit spreads observable in the market. For level 3, the fair value is mainly determined based on the income approach using deter- ministic discounted cash flow models. A significant proportion of derivative liabilities represent derivatives embedded in certain life and annuity contracts. Significant non-market observable input parameters include mortality rates and surrender rates. Financial liabilities held for trading – Other trading liabilities The fair value is mainly determined based on the income approach using present value techniques. Primary inputs comprise swap curves, share prices and dividend estimates. Derivative financial instruments and firm commitments included in other liabilities For level 2, the fair value is mainly determined using the income approach. Primary inputs include interest rates and yield curves observable at commonly quoted intervals. Financial liabilities for puttable equity instruments Financial liabilities for puttable equity instruments are generally required to be recorded at the redemption amount with changes recognized in income. For level 2, the fair value is mainly determined based on the income approach using present value techniques. For level 3, equity securities mainly represent private equity funds. The fair value is in most cases derived from the net asset value based on the valuation of the underlying private equity companies as provided by third-party vendors. Significant transfers of financial instruments carried at fair value In general, financial assets and liabilities are transferred from level 1 to level 2 when liquidity, trade frequency and activity are no longer indicative of an active market. Conversely, the same policy applies for transfers from level 2 to level 1. At the end of 2013, the Allianz Group follows the new interpreta- tion of IFRS 13 (IDW RS HFA 47) by the Institute of Public Auditors in Germany (IDW) and transfers most fixed income securities from level 1 to level 2. Re-transfers in subsequent reporting periods are possible given that the interpretation is still under discussion. After a reassessment of the input parameters, € 735 mn of avail- able-for-sale securities were transferred from level 2 to level 3 in the fourth quarter of 2013. Significant level 3 portfolios – Narrative description and sensitivity analysis Available-for-sale investments – Equity securities Equity securities within available-for-sale investments classified as level 3 mainly comprise private equity fund investments as well as Alternative Investments of the Allianz Group and are in most cases delivered as net asset values by the fund managers (€ 5.5 bn). The net asset values are calculated using material non-public information about the respective private equity companies. The Allianz Group has only limited insight into the specific inputs used by the fund man- agers and hence a narrative sensitivity analysis is not applicable. The fund’s asset manager generally prices the underlying single portfolio companies in line with the International Private Equity and Venture Capital Valuation (IPEV) guidelines using discounted cash flow (income approach) or multiple methods (market approach). For certain investments, the invested capital is considered to be a rea- sonable proxy for the fair value. In these cases, sensitivity analyses are also not applicable. 212 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Available-for-sale investments – Corporate bonds Corporate bonds within available-for-sale investments classified as level 3 are mainly priced based on the income approach (€ 2.8 bn). The primary non-market observable input used in the discounted cash flow method is an option adjusted spread taken from a bench- mark security. A significant yield increase of the benchmark securi- ties in isolation could result in a decreased fair value, while a signifi- cant yield decrease could result in an increased fair value. However, a 10 % stress of the main non-market observable inputs only has an immaterial impact on fair value. Financial liabilities held for trading Financial liabilities held for trading mainly include embedded de rivative financial instruments relating to annuity products that are priced internally using discounted cash flow models (€ 4.3 bn). A sig- nificant decrease (increase) in surrender rates, mortality rates or 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 only has an immaterial impact on fair value. Quantification of significant non-market observable inputs The following table shows the quantitative description of valuation technique(s) and input(s) used for the level 3 portfolios described above. Quantitative Description of valuation techniQue(s) anD non-market observable input(s) useD € mn Description Available-for-sale investments Equity securities Corporate bonds Financial liabilities held for trading Derivative financial instruments Fixed indexed annuities Fair value as of 31 December 2013 Valuation technique(s) Non-market observable input(s) 4,072 Net asset value n/a Range n/a 2,798 Discounted cash flow method Option adjusted spread 36 bps – 604 bps 4,298 4,186 Present value of insurance cash flow Annuitizations Surrenders Mortality Withdrawal benefit election Volatility 0 % – 25 % 0 % – 25 % 0 % – 100 % 0 % – 50 % n/a 0.5 % – 35 % 0 % – 100 % Variable annuities 112 Deterministic discounted cash flow Surrenders Mortality Annual Report 2013 Allianz Group 213 Reconciliation of level 3 financial instruments The following tables show a reconciliation of the financial instruments carried at fair value and classified as level 3. reconciliation of level 3 financial assets € mn financial assets Financial assets carried at fair value through income Financial assets held for trading Debt securities Equity securities Derivative financial instruments Subtotal Financial assets designated at fair value through income Debt securities Equity securities Subtotal Available-for-sale investments Equity securities Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other debt securities Subtotal Financial assets for unit-linked contracts Total financial assets at fair value reconciliation of level 3 financial liabilities € mn financial liabilities Financial liabilities held for trading Derivative financial instruments Financial liabilities for unit-linked contracts Financial liabilities for puttable equity instruments Total financial liabilities at fair value 214 Annual Report 2013 Allianz Group Carrying value (fair value) as of 1 January 2013 Additions through purchases and issues Net transfers into (out of) level 3 Disposals through sales and settlements Net gains (losses) recognized in consolidated Net gains (losses) recognized in other Foreign currency subsidiaries of the Changes in the consolidated Carrying value (fair value) as of income statement comprehensive income Impairments transla tion adjustments Allianz Group 31 December 2013 – – 159 159 – 233 233 5,263 30 236 38 3,121 467 9,155 185 9,732 5 13 11 29 1 15 16 925 – 12 42 503 79 1,561 3 1,609 – – – – 1 2 3 453 2 (3) – (37) 237 652 8 663 (5) – (596) (601) (1) (7) (8) (726) (4) (48) (18) (134) (10) (940) (17) (1,566) Carrying value (fair value) as of 1 January 2013 Additions through purchases and issues Net transfers into (out of) level 3 Disposals through sales and settlements Net losses (gains) recognized in consolidated Net losses (gains) recognized in other Foreign currency transla tion adjustments Changes in the consolidated subsidiaries of the Carrying value (fair value) as of income statement comprehensive income Impairments Allianz Group 31 December 2013 4,581 185 80 4,846 961 3 – 964 – 8 2 10 (673) (17) – (690) (1) – – (1) (197) – – (197) – – – – – – – (115) – (1) (3) – (17) (136) (1) (137) – – (1) (1) – – – (76) (1) (6) (1) (132) (216) – – (217) – 1 465 466 – 16 16 (64) (1) 3 3 1 – 1 (58) 425 (245) 1 5 (239) (116) 3 19 (1) (173) (250) 18 – (250) – – – – – – – – – 1 1 Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date – 1 11 12 – – – – – – – – – – – 12 549 – – 549 Net losses (gains) in profit or loss attributable to a change in unrealized gains or losses for financial liabilities held at the reporting date – 14 38 52 1 259 260 5,553 33 212 56 3,149 773 9,776 179 10,267 4,427 179 88 4,694 (1) – – – – – – – 9 – – – – 8 – 8 – – – – D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Reconciliation of level 3 financial instruments The following tables show a reconciliation of the financial instruments carried at fair value and classified as level 3. reconciliation of level 3 financial assets € mn financial assets Financial assets carried at fair value through income Financial assets held for trading Debt securities Equity securities Derivative financial instruments Subtotal Financial assets designated at fair value through income Debt securities Equity securities Subtotal Available-for-sale investments Equity securities Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other debt securities Subtotal Financial assets for unit-linked contracts Total financial assets at fair value reconciliation of level 3 financial liabilities € mn financial liabilities Financial liabilities held for trading Derivative financial instruments Financial liabilities for unit-linked contracts Financial liabilities for puttable equity instruments Total financial liabilities at fair value Carrying value (fair value) as of 1 January 2013 purchases and issues into (out of) level 3 sales and settlements Additions through Net transfers Disposals through Net gains (losses) recognized in consolidated income statement Net gains (losses) recognized in other comprehensive income Impairments Foreign currency transla tion adjustments Changes in the consolidated subsidiaries of the Allianz Group Carrying value (fair value) as of 31 December 2013 Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date – – 159 159 – 233 233 5,263 30 236 38 3,121 467 9,155 185 9,732 5 13 11 29 1 15 16 925 – 12 42 503 79 1,561 3 1,609 – – – – 1 2 3 (37) 453 2 (3) – 237 652 8 663 (5) – (596) (601) (1) (7) (8) (726) (4) (48) (18) (134) (10) (940) (17) (1,566) – 1 465 466 – 16 16 (64) 3 3 (1) 1 – (58) 1 425 – – – – – – – (116) 3 19 (1) (173) 18 (250) – (250) – – – – – – – (115) – (1) (3) – (17) (136) (1) (137) – – (1) (1) – – – (76) (1) (6) (1) (132) – (216) – (217) – – – – – – – 9 – – – – (1) 8 – 8 – 14 38 52 1 259 260 5,553 33 212 56 3,149 773 9,776 179 10,267 – 1 11 12 – – – – – – – – – – – 12 Carrying value (fair value) as of 1 January 2013 purchases and issues into (out of) level 3 settlements Additions through Net transfers through sales and Disposals Net losses (gains) recognized in consolidated income statement Net losses (gains) recognized in other comprehensive income Foreign currency transla tion adjustments Changes in the consolidated subsidiaries of the Allianz Group Carrying value (fair value) as of 31 December 2013 Impairments 4,581 185 80 4,846 961 3 – 964 – 8 2 10 (673) (17) – (690) (245) 1 5 (239) – – 1 1 – (1) – (1) (197) – – (197) – – – – 4,427 179 88 4,694 Annual Report 2013 Allianz Group Net losses (gains) in profit or loss attributable to a change in unrealized gains or losses for financial liabilities held at the reporting date 549 – – 549 215 fair value measurement on a non-recurring basis Certain financial assets are measured at fair value on a non-recurring basis when events or changes in circumstances indicate that the carrying amount may not be recoverable. If financial assets are measured at fair value on a non-recurring basis at the time of impairment, corresponding disclosures can be found in note 37 – Impairments of investments (net). If fair value less cost to sell is used as the measurement basis under IFRS 5, corre- sponding disclosures can be found in note 14 – Non-current assets classified as held for sale. fair value information about financial assets anD liabilities not carrieD at fair value fair value hierarchy as of 31 December 2013 (items not carrieD at fair value) € mn Level 1 – Quoted prices in active markets Level 2 – Market observable inputs Level 3 – Non-market observable inputs Total fair value 981 393 – 402 – 1,776 6,588 – – 6,588 3,664 54 – 90,443 – 94,161 1,977 7,863 12,042 21,882 2 3,227 15,625 38,683 3,626 61,163 14,717 713 281 15,711 4,647 3,674 15,625 129,528 3,626 157,100 23,282 8,576 12,323 44,181 Loans and advances to banks and customers For loans and advances to banks and customers, quoted market prices are rarely available. Level 1 consists mainly of highly liquid advances, e. g. short-term investments. The fair value for these assets in level 2 and level 3 is mainly derived based on the income approach using deterministic discounted cash flow models. Liabilities to banks and customers Level 1 consists mainly of highly liquid liabilities, e. g. payables on demand. The fair value for liabilities in level 2 and level 3 is mainly derived based on the income approach using future cash flows dis- counted with risk-specific interest rates. Main non-market observ- able inputs include credit spreads. In some cases, the carrying amount (amortized cost) is considered to be a reasonable estimate of the fair value. financial assets Held-to-maturity investments Investments in associates and joint ventures Real estate held for investment Loans and advances to banks and customers Real estate held for own use Total assets financial liabilities Liabilities to banks and customers Certificated liabilities Subordinated liabilities Total liabilities Held-to-maturity investments For level 2, the fair value is mainly determined based on the income approach using deterministic discounted cash flow models. For level 3, the carrying amount (amortized cost) is considered to be a rea sonable estimate for the fair value. Investments in associates and joint ventures For level 2, fair values are mainly derived based on the market approach using market multiples derived from a set of comparables as the valuation technique. For level 3, fair values are mainly based on an income approach using a discounted cash flow method or net asset values as provided by third-party vendors. Real estate Fair values are mainly determined based on the income approach. In some cases, a market approach is applied using market prices of identical or comparable assets in markets which 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. 216 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows Certificated liabilities and subordinated liabilities For level 2, 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. 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. reclassification of financial assets On 31 January 2009, certain USD-denominated CDOs were reclassified from financial assets held for trading to loans and advances to banks and customers in accordance with IAS 39. As of 31 December 2012, the carrying amount and fair value of the CDOs was € 370 mn and € 366 mn, respectively. As of 31 December 2013, the carrying amount and fair value of the CDOs was € 166 mn and € 156 mn, respectively. For the twelve months ended 31 December 2013, the net profit related to the CDOs was € 51 mn, which was primarily due to realized gains recognized in the third quarter as a result of the liquidation of two CDO tranches. maturity of financial liabilities Tabular disclosure of contractual obligations The table sets forth the Allianz Group’s contractual obligations as of 31 December 2013. Contractual obligations do not include contingent liabilities or commitments. Only transactions with parties outside the Allianz Group are considered. The table includes only liabilities that represent fixed and deter- minable amounts. The table excludes interest on floating rate long- term debt obligations and interest on money market securities, as the contractual interest rate on floating rate obligations is not fixed and determinable. The amount and timing of interest on money mar- ket securities is not fixed and determinable since these instruments have a daily maturity. For further information, see notes 23 and 24 to the consolidated financial statements. As of 31 December 2013, the income tax obligations amounted to € 2,580 mn. The Allianz Group expects to pay € 1,665 mn thereof within the twelve months after the balance sheet date. For the remaining amount of € 915 mn, an estimate of the timing of cash outflows is not reasonably possible. The income tax obligations are not included in the table below. contractual obligations € mn Financial liabilities Financial liabilities carried at fair value through income Liabilities to banks and customers 1 Derivative financial instruments and firm commitments included in other liabilities Financial liabilities for puttable equity instruments Certificated liabilities and subordinated liabilities 1 Insurance liabilities Future policy benefits 2 Reserves for loss and loss adjustment expenses Other liabilities Operating lease obligations 3 Purchase obligations 4 Contractual cash flows as of 31 December 2013 Due in 2014 Due in 2015 – 2018 Due after 2018 Total 4,654 16,991 14 3,064 2,485 43,536 15,852 353 485 374 2,777 63 – 2,236 155,867 19,070 1,249 1,188 985 3,341 81 – 14,863 955,603 18,522 1,401 122 6,013 23,109 158 3,064 19,584 1,155,006 53,444 3,003 1,795 1 2 3 For materiality reasons, the carrying amount is split up into the different contractual maturities. Including investment contracts with policyholders and financial liabilities for unit-linked contracts. The amount of € 3,003 mn is gross of € 60 mn related to subleases, which represent cash inflow to the Allianz Group. 4 Purchase obligations only include transactions related to goods and services; purchase obligations for financial instruments are not included. Future policy benefits Reserves for insurance and investment contracts of € 1,155,006 mn presented in the table include contracts where the timing and amount of payments are considered fixed and determinable, and con- tracts which have no specified maturity dates and may result in a payment to the contract beneficiary depending on mortality and morbidity experience and the incidence of surrenders, lapses or maturities. Furthermore, the amounts presented in the table above Annual Report 2013 Allianz Group 217 are undiscounted and therefore exceed the reserves for insurance and investment contracts presented in the consolidated balance sheet that reflect the time value of the money. For contracts without fixed and determinable payments, the Allianz Group has made assumptions to estimate the undiscounted cash flows of contractual policy benefits including mortality, morbid- ity, interest crediting rates, policyholder participation in profits and future lapse rates. These assumptions represent current best esti- mates and may differ from the estimates originally used to establish the reserves for insurance and investment contracts as a result of the lock-in of assumptions on the issue dates of the contracts as required by the Allianz Group’s established accounting policy. The effect of discounting and the differences between locked-in and best estimate assumptions is € 516,977 mn. For further information, see note 2 to the consolidated financial statements. Due to the uncertainty of the assumptions used, the amount presented could be materially different from the actual incurred payments in future periods. Furthermore, these amounts do not include € 178,822 mn of pre- miums and fees expected to be received, expenses incurred to parties other than the policyholders such as agents and administrative expenses; nor do they include investment income earned. In addition, these amounts are presented net of reinsurance expected to be received as a result of these cash flows. For further information on reserves for insurance and investment contracts, see note 20 of the consolidated financial statements. Transfers of financial asseTs As of 31 December 2013, the Allianz Group substantially retained all the risks and rewards out of the ownership of transferred assets. There were no transfers of financial assets that were derecognized in full or partly, in which Allianz continues to control the transferred assets. Transfers of financial assets mainly relate to securities lending and repurchase agreement transactions. Transferred financial assets in repurchase agreement and securities lending transactions are mainly available-for-sale debt and equity securities for which substantially all of the risks and rewards are retained. As of 31 December 2013, the carrying amount of the assets transferred for securities lending trans- actions amounted to € 6,836 mn (2012: € 1,531 mn). For repurchase agreements, the carrying amount of the assets transferred amounted to € 991 mn (2012: € 952 mn) and the carrying amount of the associated liabilities amounted to € 1,001 mn (2012: € 951 mn). Assets pledged and collateral are described in note 46 – Contingent liabilities, commit- ments, guarantees, and assets pledged and collateral. 45 – Related party transactions Information on the remuneration of Board members and transac- tions with these persons can be found in the Remuneration Report, starting on page 37. 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. 46 – Contingent liabilities, commitments, guarantees, and assets pledged and collateral conTingenT liabiliTies Litigation Allianz Group companies are involved in legal, regulatory, and arbi- tration proceedings in Germany and a number of foreign jurisdic- tions, including the United States. Such proceedings arise in the ordinary course of businesses, including, amongst others, their activities as insurance, banking and asset management companies, employers, investors and taxpayers. It is not feasible to predict or determine the ultimate outcome of the pending or threatened pro- ceedings. Management does not believe that the outcome of these proceedings, including those discussed below, will have a material adverse effect on the financial position and the results of operations of the Allianz Group, after consideration of any applicable reserves. On 24 May 2002, pursuant to a statutory squeeze-out procedure, the general meeting of Dresdner Bank AG resolved to transfer shares from its minority shareholders to Allianz as principal shareholder in return for payment of a cash settlement amounting to € 51.50 per share. Allianz established the amount of the cash settlement on the basis of an expert opinion, and its adequacy was confirmed by a court appointed auditor. Some of the former minority shareholders applied for a court review of the appropriate amount of the cash settlement in a mediation procedure (“Spruchverfahren”). In September 2013, the district court (“Landgericht”) of Frankfurt dismissed the minority shareholders’ claims in their entirety. This decision has been appealed to the higher regional court (“Oberlandesgericht”) of Frank- furt. 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. 218 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows The U.S. Department of Justice (DOJ) is conducting an investiga- tion into whether certain employees of Fireman’s Fund Insurance Company (FFIC), a subsidiary of Allianz SE, engaged in violation (criminal or civil) of the False Claims Act in connection with FFIC’s involvement as a provider of federal crop insurance from 1997 to 2003. The investigation concerns the issue of whether FFIC employees sub- mitted false claims to the government through various practices, including backdating and inappropriately designating new producer status. Two former FFIC claims employees and one contract adjuster have pled guilty to assisting farmers in asserting fraudulent crop claims. The DOJ and FFIC are in negotiations to reach a final resolution of this matter. The outcome cannot be predicted at this stage. Allianz Life Insurance Company of North America (Allianz Life) has been named as a defendant in class action lawsuits in connection with the marketing and sale of deferred annuity products. Two of those lawsuits are pending as certified class actions in California. Those two lawsuits have been consolidated and the complaints allege generally that the defendant engaged in, among other practices, deceptive trade practices and misleading advertising in connection with the sale of such products. The ultimate outcome of these cases cannot yet be determined. In November 2013, Allianz SE reached an agreement with the Italian Tax Authority closing a controversy regarding several inde- pendent tax issues. The result of the settlement is covered by Allianz Group’s provision and has therefore no negative impact on its income statement. The settlement includes an alleged tax liability of Allianz SE of € 1.4 bn including penalties and interest, as declared by a tax assessment notice from the Italian Tax Authority received by Allianz SE in January 2013. The Italian Tax Authority asserted that the combination of the businesses in Italy following the cross-border merger of the Italian Riunione Adriatica di Sicurtà (RAS) with and into the former Allianz AG in 2006, which led to the change of legal form into Allianz SE, represented a taxable event. Other contingencies In accordance with § 5 (10) of the Statutes of the Joint Fund for Secur- ing Customer Deposits (“Einlagensiche rungsfonds”), Allianz SE has undertaken to indemnify the Federal Association of German Banks (“Bundesverband deutscher Banken e.V.”) for any losses it may incur by reason of supporting measures taken in favor of Oldenburgische Landes bank AG (OLb), Münster ländische Bank Thie & Co. KG and Bankhaus W. Fortmann & Söhne KG. With the sale of Dresdner Bank becoming effective on 12 January 2009, Allianz terminated the indemnification undertaking issued in 2001 in favor of the Federal Association of German Banks with respect to Dresdner Bank. As a result, the indemnification is only relevant for supporting measures that are based on facts that were already existing at the time of the termination. Allianz and HT1 Funding GmbH have signed a Contingent Indemnity Agreement in July 2006, pursuant to which Allianz may, in certain circumstances, be obliged to make payments to HT1 Funding GmbH. HT1 Funding GmbH issued nominal € 1,000 mn Tier 1 Capital Securities with an annual coupon of 6.352 % (as of 30 June 2017, the coupon will be 12-month EURIbOR plus a margin of 2.0 % p.a.). The con- tingent payment obligation of the Allianz Group was reduced in 2012 following a reduction of the nominal amount of the Tier 1 Capital Securities from € 1,000 mn to € 416 mn. The securities have no sched- uled maturity and the security holders have no right to call for their redemption. The securities may be redeemed at the option of the issuer on 30 June 2017, and thereafter. The expected impact in the foreseeable future has been recognized in other provisions, however, it is not possible for the Allianz Group to predict the ultimate potential payment obligations at this point in time. commitments Loan commitments The Allianz Group engages in various lending commitments to meet the financing needs of its customers. The following table represents the amounts at risk should customers draw fully on all facilities and then default, excluding the effect of any collateral. Since the majority of these commitments may expire without being drawn upon, the amounts shown are not representative of actual liquidity require- ments for such commitments. loan commitments € mn as of 31 December Advances Guarantee credits Mortgage loans/Public-sector loans Total 2013 429 104 335 868 2012 496 95 445 1,036 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. Annual Report 2013 Allianz Group 219 As of 31 December 2013, the future minimum lease payments under non-cancelable operating leases were as follows: future minimum lease payments € mn 2014 2015 2016 2017 2018 Thereafter Subtotal Subleases Total 2013 353 349 324 299 277 1,401 3,003 (60) 2,943 For the year ended 31 December 2013, rental expenses totaled € 350 mn (2012: € 325 mn), net of sublease rental income received of € 11 mn. Purchase obligations The Allianz Group has commitments for mortgage loans and to buy multi-tranche loans of € 2,810 mn (2012: € 2,906 mn) as well as to invest in private equity funds and similar financial instruments totaling € 2,978 mn (2012: € 2,507 mn) as of 31 December 2013. As of 31 December 2013, commitments outstanding to invest in real estate used by third parties or used by the Allianz Group for its own activities and for infra- structure investments amount to € 860 mn (2012: € 962 mn). In addition, as of 31 December 2013, the Allianz Group has other commitments of € 477 mn (2012: € 241 mn) mainly referring to main- tenance, real estate development, sponsoring and other purchase obligations. Other commitments Other principal commitments of the Allianz Group include the fol- lowing: Pursuant to §§ 124 ff. of the German Insurance Supervision Act (“Versicherungsaufsichtsgesetz” – VAG), a mandatory insurance guarantee scheme (“Sicherungsfonds”) for life insurers is imple- mented in Germany. Each member of the scheme is obliged to make annual contributions to the scheme as well as special payments under certain circumstances. The exact amount of obligations for each member is calculated according to the provisions of a Federal Regulation (“Sicherungsfonds-Finanzierungs-Verordnung (Leben)” – SichLVFinV). As of 31 December 2013, the future liabilities of Allianz Lebens versicherungs-Aktiengesellschaft and its subsidiaries to the insurance guarantee scheme amount to annual contributions of € 9.7 mn (2012: € 6.7 mn) and an obligation for special payments of € 138 mn (2012: € 124 mn). 220 Annual Report 2013 Allianz Group In accordance with §§ 124 ff. of the German Insurance Super vision Act (“Versicherungsaufsichtsgesetz” - VAG), Allianz Private Kranken- versicherungs-AG is a member of the mandatory insurance guaran- tee scheme (Sicherungsfonds) for German health insurers. In case the guarantee scheme has to resume responsibility for insurance contracts, it will collect special payments from its members to fulfill its tasks. Until today, no contributions have been requested by the scheme. As of 31 December 2013, the potential liabilities of Allianz Private Krankenversicherungs-AG to the insurance guarantee scheme amount to an obligation for special payments of € 48 mn (2012: € 45 mn). In December 2002, Protektor Lebensversicherungs-Aktiengesell- schaft (“Protektor”), a life insurance company whose role is to protect policyholders of all German life insurers, was founded. Allianz Lebens versicherungs-Aktiengesellschaft and some of its subsidiaries are obligated to provide additional funds either to the mandatory insurance guarantee scheme or to Protektor, in the event that the funds provided to the mandatory insurance guarantee scheme are not sufficient to handle an insolvency case. Such obligation amounts to a maximum of 1 % of the sum of the net underwriting reserve with deduction of payments already provided to the insurance guarantee scheme. As of 31 December 2013, and under inclusion of the contribu- tions to the mandatory insurance scheme mentioned above, the aggregate out standing commitment of Allianz Lebensversicherungs- Aktiengesellschaft and its subsidiaries to the insurance guarantee scheme and to Protektor is € 1,252 mn (2012: € 1,123 mn). According to the German Deposit Guarantee and Investor Com- pensation Act (EAEG – “Einlagensicherungs- und Anlegerentschädi- gungsgesetz”) all credit institutions, investment companies and financial services institutions licensed to do business in Germany must adhere to a statutory compensation scheme. Allianz Global Investors Europe GmbH, PImCO Deutschland GmbH and risklab GmbH are currently members of EdW (“Entschädigungseinrichtung der Wertpapierhandelsunternehmen”, Berlin). The annual contribu- tion is determined in consideration of each member’s scope of busi- ness. In addition, EdW may levy special contributions from its mem- bers, if the funds available to EdW are insufficient to satisfy all eligible claims. Special contributions are determined by reference to the preceding yearly contribution. For 2013, the yearly contributions for above-mentioned entities have been determined by notification from the EdW in the amount of € – mn (2012: € 1 mn). With respect to the insolvency of Phoenix Kapitaldienst GmbH, the German Federal Financial Supervisory Authority (“Bundesanstalt für Finanzdienst- leistungsaufsicht” – BaFin) has determined that certain investor claims will be covered under the compensation scheme and special contributions have been levied. In this regard, special contributions were notified by EdW to above-mentioned entities in 2013 in the amount of € 2 mn (2012: € 7 mn). The above mentioned entities have appealed the special contributions. For received, but not yet paid D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows notifications, and for the estimated special contribution for 2014, adequate provisions have been accrued. guarantees A summary of guarantees issued by the Allianz Group by maturity and related collateral-held is given below: guarantees € mn 2013 Up to 1 year 1 - 3 years 3 - 5 years Over 5 years Total Collateral 2012 Up to 1 year 1 - 3 years 3 - 5 years Over 5 years Total Collateral Financial guarantees Market value guarantees Indemni- fication contracts Performance guarantees 411 18 14 12 455 72 387 16 14 164 581 130 78 450 – 680 1,208 – 271 614 60 652 1,597 – – – – 91 91 – 1 – 1 107 109 – 21 19 2 127 169 36 24 19 2 173 218 36 Nearly all customers of the letters of credit have no external credit rating, whereas nearly all customers of the indemnification contracts have an external credit rating of A. Financial guarantees The majority of the Allianz Group’s financial guarantees are issued to customers through the normal course of banking business in return for fee and commission income, which is generally deter- mined based on rates subject to the nominal amount of the guaran- tees and inherent credit risks. Once a guarantee has been drawn upon, any amount paid by the Allianz Group to third parties is treated as a loan to the customer, and is, therefore, basically subject to the credit risk of the customer or the collateral pledged, respectively. Market value guarantees Market value guarantees represent assurances given to investors in certain mutual funds and related to specific asset management agreements, under which initial investment values and/or minimum performance of such investments are guaranteed at levels as defined under the relevant agreements. The obligation to perform under a market value guarantee is triggered when the market value of the affected investments does not meet the guaranteed targets at pre- defined dates. The Allianz Group’s Asset Management segment, in the ordinary course of business, issues market value guarantees in connection with investment trust accounts and mutual funds it manages. The levels of market value guarantees and maturity dates differ based on the separate governing agreements of the respective investment trust accounts and mutual funds. As of 31 December 2013, the maxi- mum potential amount of future payments of the market value guar- antees is € 680 mn (2012: € 652 mn), which represents the total value guaranteed under the respective agreements including the obliga- tion that would have been due had the investments matured on that date. The fair value of the investment trust accounts and mutual funds related to these guarantees as of 31 December 2013, is € 802 mn (2012: € 734 mn). The Allianz Group’s Banking operations in France, in the ordi- nary course of business, issue market value and performance-at- maturity guarantees in connection with mutual funds offered by the Allianz Group’s Asset Management operations in France. The levels of these guarantees, as well as the maturity dates, differ based on the underlying agreements. In most cases, both a market value guarantee and a performance-at-maturity guarantee is offered for the same mutual fund. As of 31 December 2013, the maximum potential amount of future payments of the market value and performance-at- maturity guarantees is € 528 mn (2012: € 945 mn), which represents the total value guaranteed under the respective agreements. The fair value of the affected mutual funds where market value guarantees have been issued as of 31 December 2013, is approximately € 589 mn (2012: € 853 mn). These funds have a remaining term of maturity of up to five years. Indemnification contracts Indemnification contracts are executed by the Allianz Group with various counterparties under existing service, lease or acquisition transactions. Such contracts may also be used to indemnify counter- parties under various contingencies, such as changes in laws and regulations or litigation claims. In connection with the sale of various of the Allianz Group’s for- mer private equity investments, subsidiaries of the Allianz Group provided indemnities to the respective buyers in the event that certain contractual warranties arise. The terms of the indemnity contracts cover ordinary contractual warranties, environmental costs and any potential tax liabilities the entity incurred while owned by the Allianz Group. Annual Report 2013 Allianz Group 221 Performance guarantees Performance guarantees are given by the Allianz Group to ensure third-party entitlements if certain performance obligations of the guarantee recipient are not fulfilled. creDit Derivatives Credit derivatives consist of credit default swaps, which require pay- ment in the event of default of debt obligations, as well as of total return swaps, under which the performance of underlying assets is guaranteed. The notional principal amounts and fair values of the Allianz Group’s credit derivative positions as of 31 December 2012 are provided in note 43. assets pleDgeD anD collateral The carrying amounts of the assets pledged as collateral are dis- played in the following table: assets pleDgeD as collateral € mn as of 31 December Collaterals without right to resell or repledge Financial assets carried at fair value through income Investments Loans and advances to banks and customers Subtotal Collaterals with right to resell or repledge Investments Subtotal Total 2013 2012 3 4,034 2,941 6,978 2,112 2,112 9,090 – 1,452 2,811 4,263 2,460 2,460 6,723 As of 31 December 2013, the Allianz Group has received collateral, consisting of fixed income and equity securities, with a fair value of € 2,170 mn (2012: € 931 mn), which the Allianz Group has the right to sell or repledge. For the years ended 31 December 2013 and 2012, no pre- viously received collateral was sold or repledged by the Allianz Group. As of 31 December 2013, the Allianz Group received cash collat- eral with a carrying amount of € 191 mn (2012: € 65 mn). 222 Annual Report 2013 Allianz Group 47 – Pensions and similar obligations overview Retirement benefits in the Allianz Group, which are granted to employees and in Germany also to agents, are either in the form of defined benefit or defined contribution plans. For defined benefit plans, the beneficiary is granted a defined benefit by the employer or via an external entity. In contrast to defined contribution arrange- ments, the future cost to the employer of a defined benefit plan is not known with certainty in advance. The Allianz Group provides competitive and cost effective retire- ment and disability benefits using risk appropriate vehicles. The plans may vary from country to country due to the different legal, fiscal and economic environment. Typically associated with defined benefit plans are biometric risks like longevity, disability and death as well as economic risks like interest rates, inflation and compensation increases. The Allianz Group continued to mitigate the risk impact by reviewing the benefit rules. New plans are primarily based on contributions and may include in some cases guarantees like preservation of contributions or minimum interest rate. The Allianz Group established a Pension Task Force to foster global governance. The heads of Group HR, Group Accounting and Reporting, Group Treasury and Corporate Finance, Group Planning and Controlling, Group Risk and AIm are members of the Pension Task Force which meets quarterly. This body pre-aligns all pension-related topics prior to relevant Group Committee meetings. Pension plans in Germany, the U.K. and Switzerland are described in more detail regarding key risks and regulatory environ- ment, as each of them contributes more than 5 % to the Allianz Group’s defined benefit obligation. Germany Germany accounts for 73.8 % of the Allianz Group’s defined benefit obligation and 62.3 % of the Allianz Group’s plan assets. Most active German employees participate in a contribution- based system using different vehicles to cover the base salary both below and above the German social security ceiling. The Allianz Ver- sorgungskasse VVaG (AVK) financed through employee contributions and the Allianz Pensionsverein e.V. (APV) financed by the employer, provide pension benefits for the base salary up to the German social security ceiling. Both plans are wholly funded. AVK is subject to Ger- man insurance regulation. Additionally, for salary above the German social security ceiling, the Allianz Group contributes to the Beitragsorientierter Pensions- vertrag (bPV). On retirement the accumulated capital is converted to a lifetime annuity. The Allianz Group decides each year whether and to which extent a bPV budget is provided. Independently from this decision an additional risk premium is paid to cover death and dis- ability. The bPV was implemented as of 1 January 2005. Formerly exist- ing plans were transferred to the bPV, taking the retained rights into D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows account as appropriate. In the bPV generally the accruals after 2005 are wholly funded, whereas the grandfathered plan is funded to a minor extent. The assets, which are allocated to a trust (Methusalem Trust e.V.), are managed by a board of trustees. There is also a partly funded defined benefit pension plan for agents (VertreterVersorgungsWerk, VVW), which has been closed for new entrants since 31 December 2011. A part of the pension plan serves as a replacement for the compensatory claim of agents accord- ing to German Commercial Code (§ 89b). The pension amount guar- anteed is based on the individual agents’ insurance portfolio, which is regularly reassessed although there is no legal obligation. VVW is close to a final salary benefit and pension increases are broadly linked to inflation. 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 bPV it is 2.75 %. Pension increases are guaranteed at least with 1 % p.a. Depending on legal requirements some pension increases are linked to inflation. The employee has a choice between lump sum payments and annuities only in the AVK, whereas the other vehicles provide annuities. VVW entitled agents have the option to capitalize up to one third of the pension amount as a lump sum payment. The period in which a retirement pension can be drawn is usu- ally between age 60 and age 67. Disability benefits are granted prior to retirement in the event of an occurrence of a qualifying disability. In the case of death, a pension may be paid to dependents. Surviv- ing dependents normally receive 60 % (widow/widower) and 20 % (per child) of the original employee’s pension, in total not to exceed 100 %. Additionally, the Allianz Group offers a deferred compensation program, Pensionszusage durch Entgeltumwandlung (PZE), for active employees. Within some boundaries they convert at their dis- cretion parts of their gross income and receive in exchange a pension commitment of equal value. PZEs qualify almost as defined contribu- tion plans with minor risk exposure. United Kingdom The U.K. accounts for 8.3 % of the Allianz Group’s defined benefit obli- gation and 11.9 % of the Allianz Group’s plan assets. The U.K. operates a funded pension scheme, the Allianz Retire- ment and Death Benefits Fund. The trustee board is required by law to act in the best interests of members and is responsible for setting certain policies (e.g. investment and contribution policies) of the principal U.K. scheme. Contributions are made by both the employer and employees. The fund has a defined benefit pension section and a defined contribution section. The defined contribution section was estab- lished on 1 April 2001, from which date the defined benefit section was closed to new entrants. The defined benefit section provides final salary benefits. Pension increases are broadly linked to Retail Prices Index (RPI) inflation. From 1 July 2012, benefit changes were made to the defined ben- efit section. Following these benefit changes, increases to pension- able pay are capped at RPI and, in 2015, the defined benefit section will close to future accrual and all members will switch to the defined contribution section. Switzerland Switzerland accounts for 5.1 % of the Allianz Group’s defined benefit obligation and 9.1 % of the Allianz Group’s plan assets. There are obligatory corporate pension plans in Switzerland, eli- gible for all employees. The plans are wholly funded through legally separate trustee administered pension funds with the trustee board being responsible for the investment of the assets and the risk man- agement. The plans are contribution-based and cover the risks of longevity, disability and death. Employees contribute only a small amount whereas the employer contributes for the complete risk cov- erage and a big part to the savings account. The interest rate is decid- ed annually by the board of the pension funds. For the mandatory part the minimum interest rate is regulated by law and reviewed annually (1.50 % in 2013). At retirement beneficiaries can choose between a lump sum payment, an annuity or a combination of both where the part which is not granted as a lump sum is converted to a fixed annuity according to the rules of the pension fund, taking legal requirements into account. If employees contract out of the Allianz Suisse pension plan, they have to take their vested pension capital (“Freizügigkeitsleis- tung”) to the next employer, which implies a small liquidity risk. DefineD benefit plans IAS 19 revised in 2011 has to be applied retrospectively.1 Therefore all balance sheet and income statement items had to be restated as of 1 January 2013 and 1 January 2012. After the retrospective application the adapted amounts recognized in the Allianz Group’s consolidated balance sheets for defined benefit plans are as follows: reconciliation of DefineD benefit plans on the balance sheet € mn Net amount recognized as of 1 January Changes in the consolidated subsidiaries of the Allianz Group Foreign currency translation adjustments Recognized expenses Payments oci recognition (before deferred taxes) Net amount recognized as of 31 December thereof assets thereof liabilities 2013 8,010 6 (13) 661 (642) (522) 7,500 (94) 7,594 2012 5,493 26 13 497 (649) 2,630 8,010 (59) 8,069 1 Please refer to note 4 Recently adopted and issued accounting pronouncements and changes in the presentation of the consolidated financial statements for further details. Annual Report 2013 Allianz Group 223 The following table sets forth the changes in the defined benefit obli- gation, in the fair value of plan assets and in the effect of asset ceiling for the various Allianz Group defined benefit plans: reconciliation of DefineD benefit obligation,plan assets anD effect of asset ceiling € mn change in DefineD benefit obligation Defined benefit obligation as of 1 January 19,161 15,563 2013 2012 Current service costs Interest expenses Plan participants’ contributions Actuarial (gains)/losses due to Changes in demographic assumptions Changes in financial assumptions Experience adjustments Past service costs Foreign currency translation adjustments Benefits paid Changes in the consolidated subsidiaries of the Allianz Group Divestitures Settlement gain/(loss) Settlement payments 414 619 106 40 (554) 35 (7) (82) (629) 9 (1) - (1) Defined benefit obligation as of 31 December 1 19,110 321 697 97 44 3,084 (27) (41) 48 (635) 30 - 1 (21) 19,161 As of 31 December 2013, post-retirement health benefits included in the defined benefit obligation and in the net amount recognized amounted to € 13 mn (2012: € 15 mn) and € 13 mn (2012: € 15 mn), respectively. During the year ended 31 December 2013, the defined benefit costs related to post-retirement health benefits were not significant (2012: € 3 mn). Assumptions The assumptions for the actuarial computation of the defined benefit obligation and the recognized expense depend on the circumstances in the particular country where the plan has been established. The calculations are based on current actuarially calculated mortality tables, projected turnover depending on age and length of service, as well as internal Allianz Group retirement projections. Although this represents the best estimate as of today, a further increase in life expectancy could be reasonable. The weighted aver- age life expectancy of a currently 65-year-old plan participant is about 88.9 years for women and 86.4 years for men. An increase in life expectancy by 1 year would lead to an increase of the defined benefit obligation by € 455 mn. The weighted average value 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: change in fair value of plan assets Fair value of plan assets as of 1 January 11,206 10,136 assumptions for DefineD benefit plans Interest income on plan assets Return on plan assets greater/ (less) than interest income on plan assets Employer contributions Plan participants’ contributions Foreign currency translation adjustments Benefits paid 2 Changes in the consolidated subsidiaries of the Allianz Group Divestitures Assets distributed on settlement 366 46 364 106 (70) (351) 3 (1) (1) Fair value of plan assets as of 31 December 11,668 change in effect of asset ceiling Effect of asset ceiling as of 1 January Interest expenses on effect of asset ceiling Change in effect of asset ceiling in excess of interest Foreign currency translation adjustments Effect of asset ceiling as of 31 December 55 1 3 (1) 58 483 458 372 97 35 (356) 4 – (23) 11,206 66 2 (13) – 55 1 2 As of 31 December 2013, € 6,673 mn (2012: € 6,841 mn) of the defined benefit obligation is wholly unfunded, while € 12,437mn (2012: € 12,320 mn) is wholly or partly funded. In addition, the Allianz Group paid € 283 mn (2012: € 280 mn) directly to plan participants. % as of 31 December Discount rate Rate of compensation increase Rate of pension increase Rate of medical cost trend 2013 3.5 2.2 2.0 3.7 2012 3.3 2.0 1.7 3.8 The recognized expense is recorded based on the assumptions of the corresponding previous year. The discount rate assumption is the most significant risk for the defined benefit obligation. It reflects the market yields at the balance sheet date of high-quality fixed income investments corresponding to the currency and duration of the liabilities. In the Euro-zone, the decision for the discount rate is based on AA-rated financial and cor- porate bonds, provided by Allianz Investment Data Services (IDS), and a standardized cash flow profile for a mixed population. The Internal Controls Over Financial Reporting (ICOFR) certified Allianz Global Risk Parameters (GRIPS) methodology is an internal development of the Nelson-Siegel model, recommended by German auditors, and consistently used by Group Risk, Group Audit, AIm and PImCO. The range for the sensitivity calculations was derived by analyzing the average volatility over the past 5 years. 224 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows An increase (a decrease) in the discount rate by 50 bPS would lead to a decrease of € 1.4 bn (an increase of € 1.6 bn) in the defined benefit obligation. An increase of pre-retirement benefit assumptions (e.g. salary increase) of 25 bPS would have an effect on the defined benefit obliga- tion by € 64 mn. However, the increase of post-retirement assump- tions (e.g. inflation linked increases of pension payments) of 25 bPS would affect the defined benefit obligation by € 426 mn. A change in the medical cost trend rate by one percentage point would have an effect of € 1 mn on the defined benefit obligation and no material effect on the defined benefit costs. Plan Assets /Asset Liability Management (alm) Based on the estimated future cash flows of € 714 mn for 2014, € 685 mn for 2015, € 703 mn for 2016, € 729 mn for 2017, € 745 mn for 2018 and € 4,104 mn for 2019 – 2023, the weighted duration of the defined benefit obligation is 17.6 years. The Allianz Group uses, based on the liability profiles of the defined benefit obligation, stochastic asset liability models to optimize the asset allocation from a risk-return perspective. Due to a well diversified portfolio of more than 140,000 plan par- ticipants, there is no reasonable uncertainty of future cash flows expected which could have an impact on the liquidity of the Allianz Group. The target allocation for the plan assets compares to the current asset allocation as follows: asset allocation of plan assets Contributions For the year ending 31 December 2014, the Allianz Group expects to contribute € 278 mn to its defined benefit plans and to pay € 321 mn directly to participants of its defined benefit plans. DefineD contribution plans Defined contribution plans are funded through independent pension funds or similar organizations. Contributions fixed in advance (e.g. based on salary) are paid to these institutions and the beneficiary’s right to benefits exists against the pension fund. The employer has no obligation beyond payment of the contributions. During the year ended 31 December 2013, the Allianz Group re- cognized expenses for defined contribution plans of € 213 mn (2012: € 190 mn). Additionally, the Allianz Group paid contributions for state pension schemes of € 335 mn (2012: € 328 mn). 48 – Share-based compensation plans group eQuity incentive plans The Group Equity Incentive Plans (GEI) of the Allianz Group help focus senior management, in particular the Board of Management, on the long-term increase the value of the Allianz Group. Until 2010, the GEI included grants of stock appreciation rights (SAR) and restricted stock units (RSU). From the 2011 grant onwards, the Allianz Equity Incentive Plan (AEI) replaces the GEI plans. With the AEI Plan, only restricted stock units (RSU) are granted to the plan participants. as of 31 December Equity securities Quoted Non-quoted Debt securities Quoted Non-quoted Real estate Annuity contracts Other Total Target allocation in % Real allocation in % 13.8 13.7 Real allocation 2013 in € mn Real allocation 2012 in € mn 58.5 52.6 5.7 19.9 2.1 4.8 17.7 11.2 1,594 – 4,212 1,927 561 2,071 1,303 1,363 – 4,349 1,915 453 1,893 1,233 100.0 100.0 11,668 11,206 Stock appreciation rights The SAR granted to a plan participant obligate the Allianz Group to pay in cash the excess of the market price of an Allianz SE share over the reference price on the exercise date for each right granted. The excess is capped at 150 % of the reference price. The reference price represents the average of the closing prices of an Allianz SE share for the ten trading days following the Financial Press Conference of Allianz SE in the year of issue. SAR which were granted until 2008 vest after two years and expire after seven years. From the 2009 grant onwards, the SAR vest after four years and also expire after seven years. Upon vesting, the SAR may be exercised by the plan participant if the following market conditions are attained: The bulk of the plan assets are held by the Allianz Versorgungskasse VVaG, Munich, which is not part of the Allianz Group. Plan assets do not include any real estate used by the Allianz Group and include only € 4.8 mn of own transferable financial instruments. In addition to the plan assets of € 11.7 bn, the Allianz Group has dedicated assets at Group level amounting to € 2 bn as of 31 December 2013 which are likewise managed according to Allianz ALm standards. − during their contractual term, the market price of the Allianz SE share has outperformed the Dow Jones EURO STOXX Price Index at least once for a period of five consecutive trading days; and − the Allianz SE market price is in excess of the reference price by at least 20 % on the exercise date. Annual Report 2013 Allianz Group 225 In addition, upon the death of a plan participant, a change of control or notice for operational reason, the SAR vest immediately and will be exercised by the company provided the above market conditions have been attained. Upon the expiration date, any unexercised SAR will be exercised automatically if the above market conditions have been attained. The SAR are forfeited if the plan participant ceases to be employed by the Allianz Group or if the exercise conditions are not attained by the expiration date. The fair value of the SAR at grant date is measured using a Cox- Ross-Rubinstein binomial tree option pricing model. Volatility was derived from observed historical market prices. In the absence of historical information regarding employee stock appreciation exer- cise patterns (especially all plans issued in 2007 and 2008 are signifi- cantly “out of the money”), the expected life has been estimated to equal the term to maturity of the SAR. allianz eQuity incentive plan Since the 2011 grant year, the Allianz Equity Incentive Plan (AEI) has replaced the GEI plans. The AEI is granted in the form of restricted stock units (RSU) and is part of a new variable compensation compo- nent for the plan beneficiaries. The RSU granted to a plan participant obligate the Allianz Group to pay in cash the average closing price of an 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 payout is capped at a 200 % share price growth above the grant price. The RSU are subject to a vesting period of four years and will be released on the last day of the vesting period. The Allianz Group can choose the settlement method for each unit. In addition, upon the death of a plan participant, a change of control or notice for operational reason, the RSU vest immediately and will be exercised by the company. The SAR are accounted for as cash settled plans by the Allianz Group. Therefore, the Allianz Group accrues the fair value of the SAR as a compensation expense over the vesting period. Upon vesting, any changes in the fair value of the unexercised SAR are recognized as a compensation expense. During the year ended 31 December 2013, the Allianz Group recognized compensation expenses related to the unexercised SAR of € 62 mn (2012: € 59 mn). The RSU are virtual stocks without dividend payments and a capped payout. The fair value is calculated by subtracting the net present value of expected future dividend payments until maturity and the fair value of the cap from the prevailing share price as of the valuation date. The cap is valued as a European short call option, using prevailing market data as of the valuation date. The following table provides the assumptions used in calculating As of 31 December 2013, the Allianz Group recorded a provision the fair value of the RSU at grant date: of € 86 mn (2012: € 83 mn) in other liabilities for the unexercised SAR. assumptions of aei plans Share price Average dividend yield Average interest rate Expected volatility 20141 2013 124.55 110.40 4.4 0.5 20.6 4.6 0.5 20.9 € % % % 2012 88.29 5.3 1.2 22.0 1 The rSU 2014 are deemed to have been granted to participants as part of their 2013 remuneration. Consequently, the assumptions for rSU grants delivered in March 2014 are based on best estimation. The RSU are accounted for as cash settled plans as the Allianz Group intends to settle in cash. Therefore, the Allianz Group accrues the fair value of the RSU as a compensation expense over the service period of one year and afterwards over the vesting period. During the year ended 31 December 2013, the Allianz Group recognized a compensa- tion expense related to the AEI plans of € 132 mn (2012: € 79 mn). As of 31 December 2013, the Allianz Group recorded a provision of € 248 mn (2012: € 117 mn) for these RSU in other liabilities. Restricted stock units The RSU granted to a plan participant obligate the Allianz Group to pay in cash the average market price of an Allianz SE share in the ten trading days preceding the vesting date or to issue one Allianz SE share, or other equivalent equity instrument, for each unit granted. The RSU vest after five years. The Allianz Group will exercise the RSU on the first stock exchange day after their vesting date. On the exer- cise date, the Allianz Group can choose the settlement method for each unit. In addition, upon death of a plan participant, a change of control or notice for operational reasons, the RSU vest immediately and will be exercised by the company. The RSU are virtual stocks without dividend payments. The fair value is calculated by subtracting the net present value of expected future dividend payments until maturity of the RSU from the prevailing share price as of the valuation date. The RSU are accounted for as cash settled plans as the Allianz Group intends to settle in cash. Therefore, the Allianz Group accrues the fair value of the RSU as a compensation expense over the vesting period. During the year ended 31 December 2013, the Allianz Group recognized a compensation expense related to the non-vested RSU of € 58 mn (2012: € 80 mn). As of 31 December 2013, the Allianz Group recorded a provision of € 141 mn (2012: € 141 mn) in other liabilities for the non-vested RSU. 226 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows share-baseD compensation plans of subsiDiaries of the allianz group pimco llc Class B Unit Purchase Plan When acquiring Allianz Global Investors of America L.P. ( AllianzGI L.P.) during the year ended 31 December 2000, Allianz SE caused Pacific Investment Management Company LLC (PImCO LLC), a subsidiary of AllianzGI L.P., to enter into a Class B Purchase Plan (the “Class B Plan”) for the benefit of members of the management of PImCO LLC. The plan participants of the Class B Plan have rights to a 15 % priority claim on the adjusted operating profits of PImCO LLC. The Class B equity units issued under the Class B Plan vest over 3 to 5 years and are subject to repurchase by AllianzGI L.P. upon the death, disability or termination of the participant prior to vesting. Starting 1 January 2005, AllianzGI L.P. has the right to repurchase, and the participants have the right to cause AllianzGI L.P. to repurchase, a portion of the vested Class B equity units each year. The call or put right is exercisable for the first time 6 months after the initial vesting of each grant. On the repurchase date, the repurchase price will be based upon the determined value of the Class B equity units being repurchased. As the Class B equity units are puttable by the plan par- ticipants, the Class B Plan is accounted for as a cash settled plan. Therefore, the Allianz Group accrues the fair value of the Class B equity units as a compensation expense over the vesting period. Upon vesting, any changes in the fair value of the Class B equity units are recognized as a compensation expense. During the year ended 31 December 2013, the Allianz Group recognized a compensation expense related to the Class B equity units of € 16 mn (2012: € 62 mn). In addition, the Allianz Group recognized an expense related to the priority claim on the adjusted operating profits of PImCO LLC of € 16 mn (2012: € 32 mn). The Allianz Group called in total 224 Class B equity units during the year ended 31 December 2013. The total amount paid related to the call of the Class B equity units was € 10 mn. The total recognized compensation expense for Class B equity units that are outstanding is recorded as a liability in other liabilities. As of 31 December 2013, the Allianz Group recorded a liability for the Class B equity units of € 196 mn (2012: € 206 mn). pimco llc Class M-unit Plan In 2008, Allianz Global Investors of America L.P. ( 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 a new class of equity instruments (M-units), which vest in one-third increments on approx-imately the third, fourth and fifth anniversary of the option grant date. Upon vesting, options will be automatically exercised in a cashless trans- action, but only if they are in the money. Participants may elect to defer the receipt of M-units through the M-unit Deferral Plan until termination of their service at a maximum. With the M-unit Plan, participants can directly participate in PImCO’S performance. Class M-units are non-voting common equity with limited information rights. They bear quarterly distributions equal to a pro-rata share of PImCO’S net distributable income. Deferred M-units have a right to receive a quarterly cash compensation equal to and in lieu of quar- terly dividend payments. A maximum of 250,000 M-units are authorized for issuance under the M-unit Plan. The fair value of the underlying M-options was measured using the Black-Scholes option pricing model. Volatility was derived in part by considering the average historical and implied volatility of a selected group of peers. The expected life of one granted option was calculated based upon treating the three vesting tranches (one third in years 3, 4, and 5) as three separate awards. The following table provides the assumptions used in calculating the fair value of the M-options at grant date: assumptions of class m-unit plan Weighted average fair value of options granted Assumptions: Expected term (years) Expected volatility Expected dividend yield Risk free rate of return 2013 2012 1,047.87 1,600.50 3.84 31.6 13.2 0.7 3.84 43.6 13.0 0.7 € % % % The number and weighted average exercise price of the M-options outstanding and exercisable are as follows: reconciliation of outstanDing m-options 2013 2012 Number of options Weighted average exercise price € Number of options Weighted average exercise price € Outstanding as of 1 January 204,091 12,597.93 156,285 11,266.93 Granted Exercised Forfeited Outstanding as of 31 December Exercisable as of 31 December 50,600 16,959.07 71,916 14,299.31 (30,412) 8,213.51 (19,819) 6,861.28 (10,170) 13,069.76 (4,291) 12,828.34 214,109 13,709.98 204,091 12,597.93 – – – – The aggregate intrinsic value of share options outstanding was € 232 mn and € 175 mn for the years ended 31 December 2013 and 2012, respectively. Annual Report 2013 Allianz Group 227 As of 31 December 2013, the M-options outstanding have an exer- cise price of between € 6,168.58 and € 17,158.10 and a weighted average remaining contractual life of 2.93 years. The shares settled by delivery of PImCO LLC shares are accounted for as equity-settled plans by PImCO LLC. Therefore, PImCO LLC meas- ures the total compensation expense to be recognized for the equity- settled shares based upon their fair value as of the grant date. The total compensation expense is recognized over the vesting period. During the year ended 31 December 2013, the Allianz Group recorded a compensation expense of € 74 mn (2012: € 78 mn) related to these share options. Allianz France share option plan Allianz France, formerly AGF, awarded options on its former Holding (AGF S.A.) quoted shares to eligible AGF Group executives, managers of subsidiaries, as well as to some of the employees, whose perfor- mance justified grants. During the year ended 31 December 2007, Allianz acquired all of the remaining AGF shares from non-controlling interests in the con- text of the Tender Offer and Squeeze-out. Under the terms of an agree- ment (the “Liquidity Agreement”) between Allianz SE, AGF and the beneficiaries of the AGF share option plans 2003 – 2006 (AGF employees), Allianz has the right to purchase all AGF shares issued through the exercise of these AGF share option plans after the put period (where the beneficiaries have the right to sell to Allianz). The price payable by Allianz per AGF share is a cash consideration equal to the Allianz 20-day average share price prior to the date the right to buy or to sell is exercised, multiplied by a ratio representing the consideration pro- posed in the Tender Offer for each AGF share (€ 126.43) divided by the Allianz share price on 16 January 2007 (€ 155.72). This ratio is subject to adjustments in case of transactions impacting Allianz or AGF share capital or net equity. The cash settlement is based upon the initial offer proposed for each AGF share during the Tender Offer. As of 31 December 2007, all shares issued under these plans were fully vested and exercisable. Due to the change in settlement arising from the Liquidity Agreement, the Allianz Group accounts for the AGF share option plans as cash settled plans, as all AGF employees will receive cash for their AGF shares. Therefore, the Allianz Group recognizes any change in the fair value of the unexercised plans as a compensation expense. During the year ended 31 December 2013, the Allianz Group rec- ognized total compensation expenses related to the modified share option plans of € 2 mn (2012: € 7 mn). As of 31 December 2013, the Allianz Group recorded a provision for these plans of € 8 mn (2012: € 9 mn). employee stock purchase plans The Allianz Group offers Allianz SE shares in 19 countries to qualified employees at favorable conditions. The shares have a minimum holding period of 1 to 5 years. During the year ended 31 December 2013, the number of shares sold to employees under these plans was 565,643 (2012: 627,118). During the year ended 31 December 2013, the Allianz Group 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, of € 7 mn (2012: € 6 mn) as compensation expenses. other share option anD shareholDing plans The Allianz Group has other local share-based compensation plans, including share option and employee share purchase plans, none of which, individually or in the aggregate, are material to the consoli- dated financial statements. During the year ended 31 December 2013, the total expense recorded for these plans was € 4 mn (2012: € 2 mn). 49 – Restructuring plans As of 31 December 2013, the Allianz Group has provisions for restruc- turing resulting from a number of restructuring programs in various segments. These provisions for restructuring primarily include per- sonnel costs, which result from severance payments for employee terminations, and contract termination costs, including those relating to the termination of lease contracts that will arise in connection with the implementation of the respective initiatives. The following table shows the changes in the provisions for restructuring plans. provisions for restructuring plans € mn As of 1 January New provisions Additions to existing provisions Release of provisions recognized in prior years Utilization of provisions via payments Utilization of provisions via transfers Foreign currency translation adjustments As of 31 December 2013 304 166 19 (53) (104) (116) (2) 214 2012 280 242 29 (55) (100) (90) (2) 304 The development of the restructuring provisions reflects the imple- mentation status of the restructuring initiatives. Based on the specific IFRS guidance, restructuring provisions are recognized prior to when they qualify to be recognized under the guidance for other types of provisions. In order to reflect the timely implementation of the various restructuring initiatives, restructuring provisions, as far as they are already “locked in”, are transferred to the provision type, which would have been used if a restructuring initiative were not in place. This applies for each single contract. For personnel costs, at the time 228 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows an employee has contractually agreed to leave the Allianz Group by signing either an early retirement, a partial retirement (Altersteilzeit, which is a specific type of an early retirement program in Germany), or a termination arrangement, the respective part of the restructuring provision is transferred to employee related provisions. In addition, provisions for vacant office spaces that result from restructuring initiatives are transferred to “other” provisions after the offices have been completely vacated. allianz bank’s restructuring plan The Allianz Bank did not grow as profitably as expected in a highly competitive retail banking environment. As a result of this, Allianz Bank was closed on 30 June 2013. The closure of operations was executed swiftly. Mutual agreements were found with almost all employees affected by the restructuring. About 400 employees left the Group. Restructuring charges of € 87 mn were recorded in 2013 for the closure of Allianz Bank. As of 31 December 2013, restructuring provi- sions of € 31 mn were recorded. allianz life korea’s restructuring plan In December 2013, Allianz Life Korea initiated a restructuring pro- gram to improve cost competitiveness and financial soundness. An organizational restructuring and an early retirement plan will be executed. In addition, various other cost reduction measures will be implemented to achieve savings of general expenses. The program will result in a reduction of headcount by about 250 employees. During the year ended 31 December 2013, restructuring charges of € 32 mn were recorded. As of 31 December 2013, restructuring provi- sions of € 31 mn were recorded. allianz italy’s restructuring plan In December 2013, Allianz Italy announced a restructuring plan, which will be completed within 2014. Allianz Italy aims to adapt its business model and significantly streamline its processes. A unified platform for all agencies including a digital agency will be imple- mented. The program will result in a reduction of complexity and higher automation of processes, in particular for underwriting activ- ities. By implementing voluntary early retirement plans, headcount will be reduced by about 100 employees. During the year ended 31 December 2013, restructuring charges of € 30 mn were recorded. As of 31 December 2013, Allianz Italy recorded restructuring provisions of € 29 mn related to this plan. allianz benelux’ restructuring plan Following the integration of Allianz Belgium and Allianz Nederland into a regional structure (Benelux), Allianz Benelux initiated a restructuring program in December 2013 to improve profitability and cost competitiveness. An organizational restructuring plan will be executed in order to eliminate redundancies between countries and improve efficiency. The program will result in a net reduction of headcount by about 100 full time equivalents (FTE). In addition, the program resulted in the write-off of certain assets. During the year ended 31 December 2013, restructuring charges of € 29 mn were recorded. As of 31 December 2013, restructuring provi- sions of € 20 mn were recorded for this program. allianz germany group’s restructuring plan The Allianz Germany Group launched the restructuring program “Zukunftsprogramm Sachversicherung” in order to generate further growth impulses. The program is expected to be completed with the objective of cost savings, improved claims management and higher growth of revenue, thereby increasing the competitiveness and prof- itability of Allianz Germany’s future property and casualty business. In 2012, the project “Optimierung Stäbe” was implemented as part of the restructuring program “Zukunftsprogramm Sachver- sicherung” in order to reduce personnel and operating expenses by increasing efficiency in the Allianz Germany Group’s head office. From the original objective of reducing approximately 380 FTE by 2014, approximately 120 FTE remain as of 31 December 2013. In addition, clearly defined activities in the area of operational functions have been transferred to newly founded service companies with their own employees. From originally approximately 200 FTE affected by the program, a reduction of 80 FTE remains as of 31 Decem- ber 2013. During the year ended 31 December 2013, restructuring charges of € 1 mn were recorded. As of 31 December 2013, the Allianz Germany Group recorded restructuring provisions of € 29 mn related to this program. allianz manageD operations & services’s restructuring plan (amos) In the fourth quarter of 2012, Allianz Managed Operations & Services (AmOS) launched a restructuring program, mainly in Germany, regarding the global Allianz data center consolidation. In July 2013, AmOS announced that a higher number of the affected employees in Germany than originally expected will be assumed by a service pro- vider, which led to a reduction of the original restructuring provisions of € 34 mn. effect of the reversal of Discounting For the year ended 31 December 2013, the effect of the reversal of dis- counting arising from the passage of time was € 4 mn (2012: € 9 mn). Annual Report 2013 Allianz Group 229 50 – Earnings per share Basic earnings per share Basic earnings per share are calculated by dividing net income attrib­ utable to shareholders by the weighted average number of common shares outstanding for the period and increased by 14.4 % in 2013 compared to 2012. Basic earnings per share € mn Net income attributable to shareholders used to calculate basic earnings per share 2013 2012 America Total 5,996 5,231 51 – Other information numBer of employees numBer of employees as of 31 December Germany Rest of Europe Asia Pacific & Africa 2013 40,537 71,927 20,157 15,006 2012 40,882 70,540 17,936 14,736 147,627 144,094 Weighted average number of common shares outstanding 453,297,832 452,666,296 Basic earnings per share (€) 13.23 11.56 The average total number of employees for the year ended 31 Decem­ ber 2013 was 146,257. personnel expenses personnel expenses € mn Salaries and wages Social security contributions and employee assistance Expenses for pensions and other post-retirement benefits Total 2013 9,105 1,304 1,107 11,516 2012 8,875 1,214 1,052 11,141 issuance of the Declaration of compliance with the german corporate governance coDe accorDing to § 161 aktg On 12 December 2013, the Board of Management and the Supervisory Board of Allianz SE issued the Declaration of Compliance according to § 161 AktG, which was made permanently available to the share­ holders on the company’s website. The Declaration of Compliance of the publicly traded group company Oldenburgische Landesbank AG was issued in December 2013 and was made available to the shareholders on a permanent basis. DiluteD earnings per share Diluted earnings per share are calculated by dividing net income attributable to shareholders by the weighted average number of com­ mon shares outstanding for the period, both adjusted for the effects of potentially dilutive common shares. These effects arise from vari­ ous share­based compensation plans of the Allianz Group. DiluteD earnings per share € mn Net income attributable to shareholders Effect of potentially dilutive common shares Net income used to calculate diluted earnings per share Weighted average number of common shares outstanding Potentially dilutive common shares resulting from assumed conversion of: 2013 5,996 (76) 5,920 2012 5,231 (33) 5,198 453,297,832 452,666,296 Share-based compensation plans 189,395 104,344 Weighted average number of common shares outstanding after assumed conversion 453,487,227 452,770,640 Diluted earnings per share (€) 13.05 11.48 For the twelve months ended 31 December 2013, the weighted average number of common shares excludes 2,753,127 (2012: 2,742,038) trea­ sury shares. 230 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows principal accountant fees anD services KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG AG) serves as the external auditing firm for the Allianz Group. Fees billed by KPMG AG and affiliated entities, and KPMG AG and the worldwide member firms of KPMG International (KPMG) are dis­ closed in four categories: kpmg fees € mn Audit fees Audit-related fees Tax fees All other fees Total kpmg worldwide thereof: kpmg ag and affiliated entities 1 2013 36.3 8.3 4.8 8.1 57.5 2012 36.8 7.9 2.3 2.2 49.2 2013 16.0 6.7 4.4 7.3 34.4 2012 16.7 6.6 1.7 1.2 26.2 1 As of 31 December 2013, KPMG AG and affiliated entities comprised KPMG operations in Belgium, Germany, Luxembourg, the Netherlands, Russia, Spain, Switzerland, Turkey, Ukraine and the United Kingdom. Audit fees KPMG billed the Allianz Group an aggregate of € 36.3 Mn (2012: € 36.8 Mn) in connection with professional services rendered for the audit of the Allianz Group’s consolidated financial statements, statu­ tory audits of the financial statements of Allianz SE and its subsidiar­ ies and services normally provided by KPMG in connection with statu­ tory and regulatory filings or engagements. These services consisted mainly of periodic review engagements and the annual audit. Audit-related fees KPMG charged the Allianz Group an aggregate of € 8.3 Mn (2012: € 7.9 Mn) for assurance and related services that are reasonably re lated to the performance of the audit or review of the financial statements and are not reported within audit fees. These services consisted primarily of advisory and consulting services related to accounting and financial reporting standards and financial due dili­ gence services. Tax fees KPMG fees for professional services, rendered for tax advice and tax compliance, amounted to € 4.8 Mn (2012: € 2.3 Mn) and resulted pri­ marily from tax advice. All other fees KPMG invoiced the Allianz Group an aggregate of € 8.1 Mn (2012: € 2.2 Mn) for other products and services, which consisted primarily of services under the guidance of Allianz Group management and general consulting services. All services provided by KPMG to Allianz Group companies must be approved by the Audit Committee of the Allianz SE Supervisory Board. Services other than audit services must be pre­approved by the Audit Committee. The Audit Committee pre­approval process is based on the use of a “Positive List” of activities decided by the Audit Committee and, in addition, a “Guiding Principles and User Test” is applied. Group Compliance and KPMG report to the Audit Committee periodi­ cally with respect to services performed. KPMG is the main auditing firm for the Allianz Group and assigned in more than 75 % of all audit­related tasks. Auditing firms other than KPMG billed the Allianz Group an aggregate of € 15.0 Mn (2012: € 14.6 Mn). remuneration for the BoarD of management As of 31 December 2013, the Board of Management is comprised of 11 members. The following values reflect the full Board of Manage­ ment active in the respective year. The sum of the total remuneration of the Allianz SE Board of Management for 2013, excluding the notional accruals of the MTB 2013 – 15, amounts to € 31 Mn (2012 including the payment of the MTB 2010 – 12: € 53 Mn1). The Equity­related remuneration is comprised in 2013 of 107,2162 (2012: 119,7433) Restricted Stock Units (RSU). RSU with a total fair value of € 11.0 Mn (2012: € 10.5 Mn) were grant­ ed to the Board of Management for the year ended 31 December 2013. In 2013, remuneration and other benefits totaling € 9 Mn (2012: € 7 Mn) were paid to retired members of the Board of Management and dependents. Reserves for current pensions and accrued pension rights totaled € 100 Mn (2012: € 105 Mn). The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2.0 Mn (2012: € 2.1 Mn). Board of Management and Supervisory Board compensation by individual is included in the Remuneration Report. The information provided there is considered part of these consolidated financial statements. 1 2 3 For joining or leaving members of the Allianz SE Board only the pro-rated MTB relating to their service as Board members is disclosed. The relevant share price used to determine the final number of RSUs granted is only available after sign-off by the external auditors, thus numbers are based on a best estimate. The disclosure in the Annual Report 2012 was based on a best estimate of the RSU grants. The figure shown here for 2012 now includes the actual fair value as of the grant date (7 March 2013). The value therefore differs from this disclosed last year. Annual Report 2013 Allianz Group 231 52 – Subsequent events allianz issueD a chf 500 mn unDateD suBorDi nateD BonD In January 2014, Allianz SE issued a subordinated bond in the amount of CHF 500 Mn with no scheduled maturity, but with ordinary call rights of Allianz beginning in July 2019. The coupon of 3.25 % p.a. is fixed until July 2019. Munich, 24 February 2014 Allianz SE The Board of Management 232 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows List of participations of the Allianz Group as of 31 December 2013 according to § 313 (2) HGB % owned 1 % owned 1 % owned 1 Germany Consolidated affiliates ACP GmbH & Co. Beteiligungen KG, Munich ACP GmbH & Co. Beteiligungen KG II, Munich ACP Vermögensverwaltung GmbH & Co. KG Nr. 4, Munich ACP Vermögensverwaltung GmbH & Co. KG Nr. 4a, Munich ACP Vermögensverwaltung GmbH & Co. KG Nr. 4c, Munich ACP Vermögensverwaltung GmbH & Co. KG Nr. 4d, Munich ACP Vermögensverwaltung GmbH Nr. 4 d. 1, Munich ADEUS Aktienregister-Service-GmbH, Frankfurt am Main Alida Grundstücksgesellschaft mbH & Co. KG, Hamburg Allianz AADB Fonds, Frankfurt am Main Allianz ABS Fonds, Frankfurt am Main Allianz AKR Fonds, Frankfurt am Main Allianz ALD Fonds, Frankfurt am Main Allianz ALIK Fonds, Frankfurt am Main Allianz APAV Fonds, Frankfurt am Main Allianz APKR Fonds, Frankfurt am Main Allianz Asset Management AG, Munich Allianz Automotive Services GmbH, Unterföhring Allianz AVM-B Fonds, Frankfurt am Main Allianz AZL Vermögensverwaltung GmbH & Co. KG, Munich Allianz Beratungs- und Vertriebs-AG, Munich Allianz Capital Partners GmbH, Munich Allianz Capital Partners Verwaltungs GmbH, Munich Allianz Climate Solutions GmbH, Munich Allianz Deep Value Europe, Frankfurt am Main Allianz Deutschland AG, Munich Allianz Digital Accelerator GmbH, Munich Allianz DLVR Fonds, Frankfurt am Main Allianz EEE Fonds, Frankfurt am Main Allianz FAD Fonds, Frankfurt am Main Allianz Finanzbeteiligungs GmbH, Munich Allianz Global Assistance Service Deutschland GmbH, Munich Allianz Global Corporate & Specialty SE, Munich Allianz Global Investors Europe GmbH, Frankfurt am Main Allianz Global Investors GmbH, Munich Allianz GLR Fonds, Frankfurt am Main Allianz GLRS Fonds, Frankfurt am Main Allianz GLU Fonds, Frankfurt am Main Allianz GRGB Fonds, Frankfurt am Main Allianz Handwerker Services GmbH, Aschheim Allianz Investment Management SE, Munich Allianz LAD Fonds, Frankfurt am Main Allianz Leben Private Equity Fonds 1998 GmbH, Munich Allianz Leben Private Equity Fonds 2001 GmbH, Munich Allianz Leben Private Equity Fonds 2008 GmbH, Munich Allianz Leben Private Equity Fonds Plus GmbH, Munich Allianz LEBENCO Fonds, Frankfurt am Main Allianz Lebensversicherungs-Aktiengesellschaft, Stuttgart Allianz LFE Fonds, Frankfurt am Main Allianz Managed Operations & Services SE, Munich Allianz of Asia-Pacific and Africa GmbH, Munich Allianz Pension Partners GmbH, Munich Allianz Pensionsfonds Aktiengesellschaft, Stuttgart Allianz Pensionskasse Aktiengesellschaft, Stuttgart Annual Report 2013 Allianz Group 0.0 2 0.0 2 100.0 100.0 100.0 100.0 99.3 79.6 94.8 100.0 4 100.0 4 100.0 4 100.0 4 100.0 4 100.0 4 100.0 4 100.0 100.0 100.0 4 100.0 100.0 100.0 5 100.0 100.0 55.8 3 100.0 100.0 100.0 4 100.0 4 100.0 4 100.0 100.0 100.0 100.0 100.0 100.0 4 100.0 4 100.0 4 100.0 4 95.0 100.0 5 100.0 4 100.0 100.0 100.0 100.0 100.0 4 100.0 100.0 4 100.0 100.0 100.0 100.0 100.0 Allianz Private Equity GmbH, Munich Allianz Private Equity Partners Verwaltungs GmbH, Munich Allianz Private Krankenversicherungs-Aktiengesell- schaft, Munich Allianz ProzessFinanz GmbH, Munich Allianz PV 1 Fonds, Frankfurt am Main Allianz PV WS Fonds, Frankfurt am Main Allianz PV-RD Fonds, Frankfurt am Main Allianz Re Asia, Frankfurt am Main Allianz Real Estate Germany GmbH, Stuttgart Allianz Real Estate GmbH, Munich Allianz Rechtsschutz-Service GmbH, Munich Allianz Renewable Energy Management GmbH, Sehestedt Allianz Renewable Energy Subholding GmbH & Co. KG, Sehestedt Allianz RFG Fonds, Frankfurt am Main Allianz Risk Consulting GmbH, Munich Allianz SDR Fonds, Frankfurt am Main Allianz Service Center GmbH, Munich Allianz SOA Fonds, Frankfurt am Main Allianz Strategiefonds Balance, Frankfurt am Main Allianz Strategiefonds Stabilität, Frankfurt am Main Allianz Strategiefonds Wachstum, Frankfurt am Main Allianz Strategiefonds Wachstum Plus, Frankfurt am Main Allianz Taunusanlage GbR, Stuttgart Allianz Treuhand GmbH, Stuttgart Allianz UGD 1 Fonds, Frankfurt am Main Allianz VAD Fonds, Frankfurt am Main Allianz VAE Fonds, Frankfurt am Main Allianz Venture Partners Beteiligungs GmbH, Munich Allianz Versicherungs-Aktiengesellschaft, Munich Allianz VGI 1 Fonds, Frankfurt am Main Allianz VGL Fonds, Frankfurt am Main Allianz VKA Fonds, Frankfurt am Main Allianz VKRD Fonds, Frankfurt am Main Allianz VSR Fonds, Frankfurt am Main Allianz VW AV Fonds, Frankfurt am Main AllianzGI-Fonds APF Renten, Frankfurt am Main AllianzGI-Fonds Ferrostaal Renten 1, Frankfurt am Main AllianzGI-Fonds Ferrostaal Renten 2, Frankfurt am Main AllianzGI-Fonds Tosca, Frankfurt am Main AllianzGI-Fonds Total Germany Bond Portfolio, Frankfurt am Main AllSecur Deutschland AG, Munich APKV Private Equity Fonds GmbH, Munich Atropos Vermögensverwaltungsgesellschaft mbH, Munich AUG. PRIEN Immobilien PE Verwaltung BrahmsQuar- tier GmbH, Stuttgart Auros GmbH, Munich AZ-Arges Vermögensverwaltungsgesellschaft mbH, Munich AZ-Argos 14 Vermögensverwaltungsgesellschaft mbH, Munich AZ-Argos 41 Vermögensverwaltungsgesellschaft mbH, Munich AZ-Argos 44 Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich AZ-Argos 50 Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich AZ-Argos 51 Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich AZ-Argos 57 Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich AZ-Argos 58 Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich 100.0 100.0 100.0 100.0 100.0 4 100.0 4 100.0 4 100.0 4 100.0 100.0 100.0 100.0 100.0 100.0 4 100.0 100.0 4 100.0 100.0 4 91.5 3 98.6 3 97.9 3 60.3 3 99.5 100.0 100.0 4 100.0 4 100.0 4 100.0 100.0 100.0 4 100.0 4 100.0 4 100.0 4 100.0 4 100.0 4 100.0 3 62.4 3 61.9 3 54.6 3 100.0 3 100.0 100.0 100.0 94.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 AZ-Argos 61 Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich AZ-Argos 64 Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich AZ-Argos 67 Vermögensverwaltungsgesellschaft mbH, Munich AZ-Argos 68 Vermögensverwaltungsgesellschaft mbH, Munich AZ-Argos 69 Vermögensverwaltungsgesellschaft mbH, Munich AZ-GARI Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich AZL AI Nr. 1 GmbH, Munich AZL PE Nr. 1 GmbH, Munich AZRE AZD P&C Master Fund, Munich AZS-Arges Vermögensverwaltungsgesellschaft mbH, Munich AZ-SGD Private Equity Fonds 2 GmbH, Munich AZ-SGD Private Equity Fonds GmbH, Munich AZT Automotive GmbH, Ismaning BCA Betriebs-Catering GmbH Verpflegungsdienste, Bad Soden am Taunus Brahms Beteiligungs GmbH & Co. KG, Stuttgart BrahmsQ Objekt GmbH & Co. KG, Stuttgart Bürgel Wirtschaftsinformationen GmbH & Co. KG, Hamburg Bürgel Wirtschaftsinformationen Verwaltungs- GmbH, Hamburg dbi-Fonds Ammerland, Frankfurt am Main dbi-Fonds DAV, Frankfurt am Main dbi-Fonds WE, Frankfurt am Main Deutsche Lebensversicherungs-Aktiengesellschaft, Berlin Donator Beratungs GmbH, Munich Donator Beteiligungsverwaltung GmbH, Munich ESA Cargo & Logistics GmbH, Bad Friedrichshall esa EuroShip GmbH, Bad Friedrichshall Euler Hermes Aktiengesellschaft, Hamburg Euler Hermes Collections GmbH, Potsdam Euler Hermes Deutschland Aktiengesellschaft, Hamburg Euler Hermes Rating Deutschland GmbH, Hamburg GA Global Automotive Versicherungsservice GmbH, Halle (Saale) KVM ServicePlus - Kunden- und Vertriebsmanage- ment GmbH, Halle (Saale) Mondial Kundenservice GmbH, Nuremberg Münchener und Magdeburger Agrarversicherung Aktiengesellschaft, Munich Münsterländische Bank Thie & Co. KG, Münster My Finance Coach Stiftung GmbH, Munich Objekt Burchardplatz GmbH & Co. KG, Stuttgart Oldenburgische Landesbank Aktiengesellschaft, Oldenburg PIMCO Deutschland GmbH, Munich REC Frankfurt Objekt GmbH & Co. KG, Hamburg REC Frankfurt zweite Objektverwaltungsgesellschaft mbH, Hamburg RehaCare GmbH, Munich risklab GmbH, Munich Roland Holding GmbH, Munich Selecta Deutschland GmbH, Bad Soden am Taunus Selecta Holding GmbH, Bad Soden am Taunus Signa 12 Verwaltungs GmbH, Düsseldorf Spherion Beteiligungs GmbH & Co. KG, Stuttgart Spherion Objekt GmbH & Co. KG, Stuttgart UfS Beteiligungs-GmbH, Munich Vereinte Spezial Krankenversicherung Aktiengesell- schaft, Munich VLS Versicherungslogistik GmbH, Berlin Volkswagen Autoversicherung AG, Braunschweig 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 4 100.0 100.0 100.0 100.0 100.0 94.9 95.0 50.1 50.4 100.0 4 100.0 4 100.0 4 100.0 100.0 100.0 100.0 51.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 86.5 100.0 100.0 100.0 90.2 100.0 80.0 60.0 100.0 100.0 74.2 100.0 100.0 94.9 94.9 100.0 100.0 100.0 100.0 100.0 233 Volkswagen Autoversicherung Holding GmbH, Braunschweig W. Fortmann & Söhne KG, Oldenburg Windpark Aller-Leine-Tal GmbH & Co. KG, Sehestedt Windpark Berge-Kleeste GmbH & Co. KG, Sehestedt Windpark Büttel GmbH & Co. KG, Sehestedt Windpark Dahme GmbH & Co. KG, Hamburg Windpark Eckolstädt GmbH & Co. KG, Sehestedt Windpark Emmendorf GmbH & Co. KG, Sehestedt Windpark Freyenstein-Halenbeck GmbH & Co. KG, Sehestedt Windpark Kesfeld-Heckhuscheid GmbH & Co. KG, Sehestedt Windpark Kirf GmbH & Co. KG, Sehestedt Windpark Kittlitz GmbH & Co. KG, Sehestedt Windpark Pröttlin GmbH & Co. KG, Sehestedt Windpark Quitzow GmbH & Co. KG, Sehestedt Windpark Redekin-Genthin GmbH & Co. KG, Sehestedt Windpark Schönwalde GmbH & Co. KG, Sehestedt Windpark Waltersdorf GmbH & Co. KG Renditefonds, Sehestedt Windpark Werder Zinndorf GmbH & Co. KG, Sehestedt Non-consolidated affiliates AERS Consortio Aktiengesellschaft, Stuttgart Alida Grundstücksverwaltung GmbH, Hamburg All Net GmbH, Stuttgart Allianz Immobilienfonds GmbH, Stuttgart Allianz Objektbeteiligungs-GmbH, Stuttgart Allianz Pension Consult GmbH, Stuttgart AZ Beteiligungs-Management GmbH, Munich AZ-Argos 56 Vermögensverwaltungsgesellschaft mbH, Munich Bürgel Beteiligungs GmbH, Hamburg Bürgel Erfurt Beteiligungsgesellschaft mbH, Erfurt Bürgel Erfurt GmbH & Co. KG, Erfurt Bürgel Wirtschaftsinformationen Vertriebsgesell- schaft mbH, Hamburg Elbe Forderungsmanagement GmbH, Hamburg EURO-PRO Gesellschaft für Data Processing mbH, Grävenwiesbach Grundstücksgesellschaft der Vereinten Versicherun- gen mbH, Munich IDS GmbH - Analysis and Reporting Services, Munich Infrastruktur Putlitz Ost GmbH & Co. KG, Husum Lola Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich manroland AG, Offenbach am Main manroland Versicherungsvermittlung GmbH, Offenbach am Main manroland Vertrieb und Service GmbH, Mühlheim am Main META Finanz-Informationssysteme GmbH, Munich OLB-Immobiliendienst-GmbH, Oldenburg OLB-Service GmbH, Oldenburg Supercheck GmbH, Cologne Joint ventures BEG Weser-Ems Baugrund- und Erschließungsgesell- schaft mbH & Co. OHG, Oldenburg Dealis Fund Operations GmbH, Frankfurt am Main Associates AV Packaging GmbH, Munich Capiton IV ConFlex Co-Investment GmbH & Co. KG, Berlin esa EuroShip GmbH & Co. KG Underwriting for Shipping, Bad Friedrichshall Fondsdepot Bank GmbH, Hof Global Real Estate Fund, Frankfurt am Main Mühl Product & Service und Thüringer Baustoff- handel Beteiligungs- und Verwaltungs GmbH, Kranichfeld Reisegarant GmbH, Hamburg % owned 1 49.0 2 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 55.3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 75.2 100.0 100.0 70.8 100.0 100.0 6,9 100.0 100.0 9 100.0 100.0 100.0 100.0 50.0 50.1 7 51.0 8 50.0 8 40.0 49.0 32.8 3 25.0 24.0 234 Annual Report 2013 Allianz Group Umspannwerk Putlitz GmbH & Co. KG, Frankfurt am Main Wohnen Deutschland II, Frankfurt am Main Other participations between 5 and 20 % of voting rights EXTREMUS Versicherungs-Aktiengesellschaft, Cologne MLP AG, Wiesloch Sana Kliniken AG, Ismaning ForeiGn entities Consolidated affiliates 490 Fulton GP LLC, New York, NY 490 Fulton JV LP, New York, NY 490 Fulton REIT LP, New York, NY 490 Lower Unit GP LLC, New York, NY 490 Lower Unit LP, New York, NY A.V.I.P. Assurance Vie de Prévoyance SA, Courbevoie AB Servicios Selecta Espana S.L., Madrid ACMAR SA, Casablanca ACN 092 738 997 Pty Ltd., Milson's Point Acropole Convertibles Monde, Paris Administradora de Inversión Colseguros S.A., Bogotá D.C. Advanz Fundo de Investimento Renda Fixa Crédito Privado, São Paulo Aero-Fonte S.r.l., Catania AGA Alarmcentrale NL B.V., Amsterdam AGA Assistance (India) Private Limited, Gurgaon AGA Assistance Australia Pty Ltd., Toowong AGA Assistance Beijing Services Co. Ltd., Beijing AGA Inc., Richmond, VA AGA Insurance Broker (Thailand) Co. Ltd., Bangkok AGA Service Company Corp., Richmond, VA AGA Service Italia S.c.a.r.l., Milan AGA Services (India) Private Limited, Gurgaon AGA Services (Thailand) Co. Ltd., Bangkok AGCS Marine Insurance Company, Chicago, IL AGCS Resseguros Brasil S.A., Rio de Janeiro AGF Balanced, Paris AGF Benelux S.A., Luxembourg AGF FCR, Paris AGF Holdings (UK) Limited, Guildford AGF Insurance Limited, Guildford AGF Inversiones S.A., Buenos Aires AGF Ras Holding B.V., Amsterdam AGR Services Pte Ltd., Singapore AIM Equity EMU 1, Paris AIM Equity US, Paris AIM Singapore Pte Ltd., Singapore AIM Underwriting Limited, Toronto, ON Allegiance Marketing Group LLC, North Palm Beach, FL Allianz (UK) Limited, Guildford Allianz Actio France, Paris Allianz Actions Aéquitas, Paris Allianz Actions Emergentes, Paris Allianz Actions Euro, Paris Allianz Actions Euro Convictions, Paris Allianz Actions Euro MidCap, Paris Allianz Actions France, Paris Allianz Actions Indice US (couvert), Paris Allianz Actions Internationales, Paris Allianz Actions Japon, Paris Allianz Actions US, Paris Allianz Actions VD, Paris Allianz Africa S.A., Paris Allianz Air France IFC, Paris Allianz Alapkezelõ Zrt., Budapest Allianz Alp Sp. z o.o., Warsaw Allianz Alternative Asset Management, Milan Allianz America Holding B.V., Amsterdam % owned 1 25.4 37.3 3 16.0 8.9 13.9 100.0 96.5 100.0 100.0 100.0 100.0 100.0 55.0 100.0 82.2 3 100.0 100.0 4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 97.6 100.0 100.0 100.0 3 100.0 99.9 3 100.0 100.0 100.0 100.0 100.0 100.0 4 100.0 4 100.0 100.0 100.0 100.0 79.1 3 71.3 3 66.4 3 85.5 3 85.9 3 58.1 3 56.1 3 93.8 3 98.6 3 60.2 3 80.6 3 99.6 3 100.0 99.9 3 100.0 100.0 100.0 4 100.0 Allianz Annuity Company of Missouri, Clayton, MO Allianz Argentina Compañía de Seguros Generales S.A., Buenos Aires Allianz Argentina RE S.A., Buenos Aires Allianz Asac Actions, Paris Allianz Asian Multi Income Plus, Luxembourg Allianz Asset Management of America Holdings Inc., Dover, DE Allianz Asset Management of America L.P., Dover, DE Allianz Asset Management of America LLC, Dover, DE Allianz Asset Management U.S. Holding II LLC, Dover, DE Allianz Australia Advantage Ltd., Sydney Allianz Australia Employee Share Plan Pty Ltd., Sydney Allianz Australia Insurance Limited, Sydney Allianz Australia Life Insurance Limited, Sydney Allianz Australia Limited, Sydney Allianz Australia Partnership Services Limited, Sydney Allianz Australia Services Pty Limited, Sydney Allianz Australia Workers Compensation (NSW) Limited, Sydney Allianz Australia Workers Compensation (Victoria) Limited, Melbourne Allianz Australian Claims Services Limited, Sydney Allianz Aviation Managers LLC, Burbank, CA Allianz Ayudhya Assurance Public Company Limited, Bangkok Allianz Bank Bulgaria JSC, Sofia Allianz Bank Financial Advisors S.p.A., Milan Allianz Banque S.A., Courbevoie Allianz Belgium S.A., Brussels Allianz Bénin dommages SA, Cotonou Allianz Best Styles Euroland, Luxembourg Allianz Bonds Diversified Euro, Paris Allianz Bonds Euro High Yield, Paris Allianz Bulgaria Holding Company Ltd., Sofia Allianz Bulgaria Insurance and Reinsurance Company Ltd., Sofia Allianz Bulgaria Life Insurance Company Ltd., Sofia Allianz Bulgaria Pension Company AD, Sofia Allianz Burkina dommages SA, Ouagadougou Allianz Burkina vie SA, Ouagadougou Allianz Business Services Limited, Lancaster Allianz business services s.r.o., Bratislava Allianz Cameroun dommages SA, Douala Allianz Cameroun Vie SA, Douala Allianz Cap ISR 2016, Paris Allianz Capital Partners of America Inc., New York, NY Allianz Carbon Investments B.V., Amsterdam Allianz Cash SAS, Paris Allianz Centrafrique Assurances S.A., Bangui Allianz China General Insurance Company Ltd., Guangzhou Allianz China Life Insurance Co. Ltd., Shanghai Allianz Citizen Care SRI, Paris Allianz Clearing S.N.C., Paris Allianz Colombia S.A., Bogotá D.C. Allianz Compagnia Italiana Finanziamenti S.p.A., Milan Allianz CompanÍa de Seguros y Reaseguros S.A., Barcelona Allianz Congo Assurances SA, Brazzaville Allianz Cornhill Information Services Private Ltd., Trivandrum Allianz Côte d'Ivoire Assurances S.A., Abidjan Allianz Côte d'Ivoire vie SA, Abidjan Allianz Creactions 1, Paris Allianz Creactions 2, Paris Allianz Destination 2014, Paris Allianz do Brasil Ltda., São Paulo Allianz Dynamic Global Bond, Grand Cayman Allianz EDUKACJA S.A., Bialobrzegi Allianz Efficio, Paris Allianz Efficio Plus, Paris % owned 1 100.0 100.0 100.0 100.0 4 79.3 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 62.6 99.9 100.0 100.0 100.0 83.5 63.1 3 100.0 4 100.0 4 66.2 87.4 99.0 65.9 60.3 71.8 100.0 100.0 75.4 75.8 98.7 3 100.0 100.0 100.0 88.3 100.0 51.0 81.8 3 100.0 100.0 100.0 99.9 100.0 100.0 74.1 71.0 100.0 4 100.0 4 100.0 3 100.0 98.8 3 100.0 99.7 3 99.8 3 D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows % owned 1 % owned 1 % owned 1 Allianz Elementar Lebensversicherungs-Aktiengesell- schaft, Vienna Allianz Elementar Versicherungs-Aktiengesellschaft, Vienna Allianz Engineering Services Limited, Guildford Allianz Equity Emerging Markets 1, Paris Allianz Equity Investments Ltd., Guildford Allianz Equity Large Cap EMU, Paris Allianz EURECO Equity, Paris Allianz Euro Bond Plus, Paris Allianz Euro Credit SRI, Paris Allianz Euro Inflation, Paris Allianz Euro Investment Grade, Paris Allianz Euro Oblig 1-3 Plus, Paris Allianz Euro Obligations Crédit ISR, Paris Allianz Euro Tactique, Paris Allianz Europe B.V., Amsterdam Allianz Europe Convertible, Paris Allianz Europe Ltd., Amsterdam Allianz Finance Corporation, Westport, CT Allianz Finance II B.V., Amsterdam Allianz Finance II Luxembourg S.à r.l., Luxembourg Allianz Finance III B.V., Amsterdam Allianz Finance IV Luxembourg S.à r.l., Luxembourg Allianz Finance Obligations Monde, Paris Allianz Finance Pty Ltd., Sydney Allianz Finance V Luxembourg S.à r.l., Luxembourg Allianz Finance VII Luxembourg S.A., Luxembourg Allianz Finance VIII Luxembourg S.A., Luxembourg Allianz FinanzPlan 2015, Senningerberg Allianz FinanzPlan 2020, Senningerberg Allianz FinanzPlan 2025, Senningerberg Allianz FinanzPlan 2030, Senningerberg Allianz FinanzPlan 2035, Senningerberg Allianz FinanzPlan 2040, Senningerberg Allianz FinanzPlan 2045, Senningerberg Allianz FinanzPlan 2050, Senningerberg Allianz FinanzPlan 2055, Senningerberg Allianz Fire and Marine Insurance Japan Ltd., Tokyo Allianz Foncier, Paris Allianz Formuléo ISR, Paris Allianz France Favart I, Paris Allianz France Investissement OPCI, Paris Allianz France Real Estate Invest SPPICAV, Paris Allianz France Richelieu 1 S.A.S., Paris Allianz France S.A., Paris Allianz Fund Investments Inc., Wilmington, DE Allianz General Insurance Company (Malaysia) Berhad p.l.c., Kuala Lumpur Allianz General Laos Ltd., Vientiane Allianz generalni sluzby s.r.o., Prague Allianz Global Assistance International SA, Paris Allianz Global Assistance S.A.S., Paris Allianz Global Corporate & Specialty do Brasil Partici- pações Ltda., Rio de Janeiro Allianz Global Corporate & Specialty South Africa Ltd., Johannesburg Allianz Global Corporate and Specialty of Africa (Proprietary) Ltd., Johannesburg Allianz Global Investors Capital Limited, Cardiff Allianz Global Investors Distributors LLC, Dover, DE Allianz Global Investors France S.A., Paris Allianz Global Investors Fund Management LLC, Dover, DE Allianz Global Investors Hong Kong Ltd., Hong Kong Allianz Global Investors Ireland Ltd., Dublin Allianz Global Investors Japan Co. Ltd., Tokyo Allianz Global Investors Korea Limited, Seoul Allianz Global Investors Luxembourg S.A., Senningerberg Allianz Global Investors Nominee Services Ltd., Grand Cayman Allianz Global Investors Singapore Ltd., Singapore Allianz Global Investors Taiwan Ltd., Taipei Annual Report 2013 Allianz Group 100.0 100.0 100.0 100.0 4 100.0 100.0 4 96.5 3 87.0 3 51.0 3 76.6 3 50.1 3 71.0 3 87.9 3 50.2 3 100.0 52.1 3 100.0 100.0 100.0 100.0 100.0 100.0 99.9 3 100.0 100.0 100.0 100.0 79.2 3 96.1 3 92.5 3 95.8 3 97.3 3 98.2 3 99.3 3 99.9 3 100.0 3 100.0 62.2 3 99.4 3 100.0 4 100.0 100.0 100.0 100.0 100.0 100.0 51.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Allianz Global Investors U.S. Holdings LLC, Dover, DE Allianz Global Investors U.S. LLC, Dover, DE Allianz Global Life Ltd., Dublin Allianz Global Risks US Insurance Company Corp., Burbank, CA Allianz Graduello, Paris Allianz Greater China Dynamic, Senningerberg Allianz Grenelle SAS, Paris Allianz Hayat ve Emeklilik A.S., Istanbul Allianz Hellas Insurance Company S.A., Athens Allianz Héxéo, Paris Allianz Hold Co Real Estate S.à r.l., Luxembourg Allianz Holding eins GmbH, Vienna Allianz Holding France SAS, Paris Allianz Holdings plc, Guildford Allianz Hospitaliers Euro, Paris Allianz Hospitaliers Monde, Paris Allianz Hospitaliers Valeurs Durables, Paris Allianz Hungária Biztosító Zrt., Budapest Allianz IARD S.A., Paris Allianz IARD Vintage, Paris Allianz Immo, Paris Allianz Index Tracking Shares Fund, Budapest Allianz Indiceo 2015, Paris Allianz Individual Insurance Group LLC, Minneapolis, MN Allianz Informatique G.I.E., Paris Allianz Informatyka Sp. z o.o., Warsaw Allianz Infrastructure Czech HoldCo I S.à r.l., Luxembourg Allianz Infrastructure Czech HoldCo II S.à r.l., Luxembourg Allianz Infrastructure Luxembourg I S.à r.l., Luxembourg Allianz Infrastructure Luxembourg I SICAV-FIS, Luxembourg Allianz Infrastructure Luxembourg II SICAF-FIS, Luxembourg Allianz Insurance (Hong Kong) Ltd., Hong Kong Allianz Insurance Cie of Ghana Limited, Accra Allianz Insurance Company Lanka Limited, Saram Allianz Insurance Company-Egypt S.A.E., Cairo Allianz Insurance plc, Guildford Allianz Inversiones S.A., Bogotá D.C. Allianz Invest 10 Division S/U, Vienna Allianz Invest 11 Division Leben/Kranken, Vienna Allianz Invest 12 Division Leben/Kranken, Vienna Allianz Invest 50, Vienna Allianz Invest Alternativ, Vienna Allianz Invest d.o.o., Zagreb Allianz Invest Kapitalanlage GmbH, Vienna Allianz Invest Ostrent, Vienna Allianz Invest Spezial 3, Vienna Allianz Investment Management LLC, Minneapolis, MN Allianz Investmentbank Aktiengesellschaft, Vienna Allianz Investments I Luxembourg S.à r.l., Luxembourg Allianz Investments II Luxembourg S.à r.l., Luxembourg Allianz Investments III Luxembourg S.à r.l., Luxembourg Allianz Investments IV Luxembourg S.à r.l., Luxembourg Allianz Irish Life Holdings p.l.c., Dublin Allianz kontakt s.r.o., Prague Allianz Leasing Bulgaria AD, Sofia Allianz Life & Annuity Company, Minneapolis, MN Allianz Life (Bermuda) Ltd., Hamilton Allianz Life Assurance Company-Egypt S.A.E., Cairo Allianz Life Financial Services LLC, Minneapolis, MN Allianz Life Insurance Co. Ltd., Seoul Allianz Life Insurance Company Ltd., Moscow Allianz Life Insurance Company of Missouri, Clayton, MO 100.0 100.0 100.0 100.0 100.0 3 83.3 3 100.0 89.0 100.0 98.5 3 100.0 100.0 100.0 100.0 100.0 4 100.0 4 100.0 4 100.0 100.0 100.0 4 53.5 3 89.8 3 99.1 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 85.0 100.0 100.0 100.0 4 100.0 4 100.0 4 100.0 3 100.0 3 100.0 4 100.0 95.5 3 100.0 4 100.0 100.0 100.0 100.0 100.0 100.0 66.5 100.0 51.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Allianz Life Insurance Company of New York, New York, NY Allianz Life Insurance Company of North America, Minneapolis, MN Allianz Life Insurance Japan Ltd., Tokyo Allianz Life Insurance Lanka Ltd., Colombo Allianz Life Insurance Malaysia Berhad p.l.c., Kuala Lumpur Allianz Life Luxembourg S.A., Luxembourg Allianz Madagascar Assurances S.A., Antananarivo Allianz Malaysia Berhad p.l.c., Kuala Lumpur Allianz Mali dommages SA, Bamako Allianz Managed Operations and Services Nether- lands B.V., Rotterdam Allianz Management Services Limited, Guildford Allianz Marine & Transit Underwriting Agency Pty Ltd., Sydney Allianz Marine (UK) Ltd., Ipswich Allianz Mena Holding Bermuda Ltd., Beirut Allianz México S.A. Compañía de Seguros, Mexico City Allianz Multi Actions Europe, Paris Allianz Multi Actions Monde, Paris Allianz Multi Croissance, Paris Allianz Multi Dynamic, Paris Allianz Multi Dynamisme, Paris Allianz Multi Equilibre, Paris Allianz Multi Horizon 2016-2017, Paris Allianz Multi Horizon 2018-2020, Paris Allianz Multi Horizon 2021-2023, Paris Allianz Multi Horizon 2024-2026, Paris Allianz Multi Horizon 2027-2029, Paris Allianz Multi Horizon 2030-2032, Paris Allianz Multi Horizon 2033-2035, Paris Allianz Multi Horizon 2036-2038, Paris Allianz Multi Horizon 2039-2041, Paris Allianz Multi Horizon Court Terme, Paris Allianz Multi Horizon Long Terme, Paris Allianz Multi Opportunités, Paris Allianz Multi Rendement Premium (R), Paris Allianz Multi Rendement Réel, Paris Allianz Multi Sérénité, Paris Allianz Mutual Funds Management Hellas S.A., Athens Allianz Nederland Administratie B.V., Utrecht Allianz Nederland Asset Management B.V., Nieuwegein Allianz Nederland Groep N.V., Rotterdam Allianz Nederland Levensverzekering N.V., Rotterdam Allianz Nederland Schadeverzekering N.V., Rotterdam Allianz New Europe Holding GmbH, Vienna Allianz New Zealand Limited, Auckland Allianz Obligations Court Terme, Paris Allianz Obligations Internationales, Paris Allianz Obligations Monde, Paris Allianz of America Inc., Westport, CT Allianz One Beacon GP LLC, Wilmington, DE Allianz One Beacon LP, Wilmington, DE Allianz Opéra, Paris Allianz Optéo, Paris Allianz Osmea 4, Paris Allianz p.l.c., Dublin Allianz Pan Asian REITs Fund Segregated Portfolio, George Town Allianz Participations B.V., Amsterdam Allianz Pension Fund Trustees Ltd., Guildford Allianz Pensionskasse Aktiengesellschaft, Vienna Allianz penzijní spolecnost a.s., Prague Allianz Pimco Corporate, Vienna Allianz Pimco Mortgage, Vienna Allianz pojistovna a.s., Prague Allianz Polska Services Sp. z o.o., Warsaw Allianz Popular Asset Management SGIIC S.A., Madrid Allianz Popular Pensiones EGFP S.A., Madrid Allianz Popular S.L., Madrid 100.0 100.0 100.0 100.0 100.0 100.0 100.0 71.8 77.0 100.0 100.0 65.0 100.0 99.9 100.0 98.8 3 94.3 3 99.8 3 99.7 3 94.6 3 97.9 3 62.3 3 81.5 3 71.5 3 99.6 3 99.7 3 99.7 3 99.7 3 99.7 3 99.7 3 68.2 3 59.8 3 99.4 3 97.3 3 89.1 3 99.6 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 92.0 3 79.2 3 99.9 3 100.0 100.0 100.0 100.0 4 98.4 3 99.9 3 100.0 100.0 4 100.0 100.0 100.0 100.0 75.3 3 96.3 3 100.0 100.0 100.0 100.0 60.0 235 % owned 1 % owned 1 % owned 1 Allianz Popular Vida Compañía de Seguros y Reaseguros S.A., Madrid Allianz Potential, Paris Allianz Primio 2015, Paris Allianz Private Equity Partners Europa I, Milan Allianz Private Equity Partners Europa II, Milan Allianz Private Equity Partners Europa III, Milan Allianz Private Equity UK Holdings Limited, London Allianz Properties Limited, Guildford Allianz Prudence, Paris Allianz Re Dublin Limited, Dublin Allianz Real Estate France SAS, Paris Allianz Real Estate of America LLC, New York, NY Allianz Renewable Energy Fund Management 1 Ltd., London Allianz Renewable Energy Partners I LP, London Allianz Renewable Energy Partners II Limited, London Allianz Renewable Energy Partners III LP, London Allianz Renewable Energy Partners IV Limited, London Allianz Renewable Energy Partners V plc., London Allianz Risk Audit Ltd., Moscow Allianz Risk Consultants Inc., Los Angeles, CA Allianz Risk Transfer (Bermuda) Ltd., Hamilton Allianz Risk Transfer (UK) Limited, London Allianz Risk Transfer AG, Zurich Allianz Risk Transfer Inc., New York, NY Allianz Risk Transfer N.V., Amsterdam Allianz S.A. de C.V., Mexico City Allianz S.p.A., Trieste Allianz Saint Marc CL, Paris Allianz SAS S.A.S., Bogotá D.C. Allianz Saude S.A., São Paulo Allianz Scalinvest, Puteaux Allianz Secteur Euro Immobilier, Paris Allianz Secteur Europe Immobilier, Paris Allianz Sécurité, Paris Allianz Seguros de Vida S.A., Bogotá D.C. Allianz Seguros S.A., São Paulo Allianz Seguros S.A., Bogotá D.C. Allianz Sénégal Assurances Vie S.A., Dakar Allianz Sénégal dommages SA, Dakar Allianz Services (UK) Limited, London Allianz Sigorta A.S., Istanbul Allianz SNA s.a.l., Beirut Allianz Sociedad Anónima A.S. Agencia de Seguros, Barcelona Allianz Sociedade Gestora de Fundos de Pensões S.A., Lisbon Allianz Société Financière S.à r.l., Luxembourg Allianz South America Holding B.V., Amsterdam Allianz Specialised Investments Limited, London Allianz Specjalistyczny Fundusz Inwestycyjny Otwarty Subfunduszu Allianz 1, Warsaw Allianz Specjalistyczny Fundusz Inwestycyjny Otwarty Subfunduszu Allianz 2, Warsaw Allianz Strategy 15, Senningerberg Allianz Strategy 50, Senningerberg Allianz Strategy 75, Senningerberg Allianz Subalpina Holding S.p.A., Turin Allianz Suisse Immobilien AG, Volketswil Allianz Suisse Lebensversicherungs-Gesellschaft AG, Zurich Allianz Suisse Rückversicherungs AG, Zurich Allianz Suisse Versicherungs-Gesellschaft AG, Zurich Allianz Taiwan Life Insurance Co. Ltd., Taipei Allianz Telematics S.p.A., Rome Allianz Tiriac Asigurari SA, Bucharest Allianz Tiriac Pensii Private Societate de administrare a fondurilor de pensii private S.A., Bucharest Allianz Togo dommages SA, Lome Allianz UK Credit Fund, Paris Allianz Ukraine LLC, Kiev Allianz Underwriters Insurance Company Corp., Burbank, CA 100.0 100.0 3 99.5 3 86.8 4 92.0 4 99.6 4 100.0 100.0 99.7 3 100.0 100.0 100.0 100.0 100.0 100.0 98.3 98.3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 3 100.0 100.0 98.1 3 94.0 3 88.7 3 84.9 3 100.0 100.0 100.0 95.5 83.2 100.0 84.2 100.0 100.0 84.4 100.0 100.0 100.0 100.0 4 100.0 4 95.0 3 95.5 3 92.1 3 98.1 100.0 100.0 100.0 100.0 99.7 100.0 52.2 100.0 97.9 100.0 4 100.0 100.0 236 Annual Report 2013 Allianz Group Allianz US Investment GP LLC, Wilmington, DE Allianz US Investment LP, Wilmington, DE Allianz US Private REIT GP LLC, Wilmington, DE Allianz US Private REIT LP, Wilmington, DE Allianz Valeurs Durables, Paris Allianz Vermögenskonzept Ausgewogen, Luxembourg Allianz Vermögenskonzept Defensiv, Luxembourg Allianz Vermögenskonzept Dynamisch, Luxembourg Allianz Vie S.A., Paris Allianz Worldwide Care Ltd., Dublin Allianz Worldwide Care Services Ltd., Dublin Allianz Yasam ve Emeklilik A.S., Istanbul Allianz Zagreb d.d., Zagreb Allianz ZB d.o.o. Company for the Management of Obligatory Pension Funds, Zagreb Allianz ZB d.o.o. Company for the Management of Voluntary Pension Funds, Zagreb AllianzGo S.r.l., Trieste Allianz-Slovenská DSS a.s., Bratislava Allianz-Slovenská poist'ovna a.s., Bratislava AllSecur B.V., Den Bosch Amaya Compania de Seguros y Reaseguros S.A., Madrid American Automobile Insurance Company Corp., Earth City, MO American Financial Marketing Inc., Minneapolis, MN AMOS Austria GmbH, Vienna AMOS IT Suisse AG, Zurich AMOS of America LLC, Novato, CA Ann Arbor Annuity Exchange Inc., Ann Arbor, MI Antoniana Veneta Popolare Assicurazioni S.p.A., Trieste Antoniana Veneta Popolare Vita S.p.A., Trieste APEH Europe III FCPR, Paris APEH Europe V FCPR, Paris APKV US Private REIT GP LLC, New York, NY APKV US Private REIT LP, New York, NY Approfrais SA, Evreux Arab Gulf Health Services LLC, Beirut Arcalis Assur 5, Paris Arcalis SA, Courbevoie Arcalis UN, Paris Arges Investments I N.V., Amsterdam Arges Investments II N.V., Amsterdam AS Selecta s.r.o., Bratislava Asit Services S.R.L., Bucharest Assistance Courtage d'Assurance et de Réassurance S.A., Paris Associated Indemnity Corporation, Novato, CA Automaty Servis Selecta s.r.o., Prague Avip Actions 100, Paris Avip Actions 60, Paris Avip Top Croissance, Paris Avip Top Defensif, Paris Avip Top Harmonie, Paris AZ Euro Investments II S.à r.l., Luxembourg AZ Euro Investments S.à r.l., Luxembourg AZ Jupiter 4 B.V., Amsterdam AZ Jupiter 8 B.V., Amsterdam AZ Jupiter 9 B.V., Amsterdam AZ Servisni centar d.o.o., Zagreb AZ Vers US Private REIT GP LLC, New York, NY AZ Vers US Private REIT LP, New York, NY AZGA Insurance Agency Canada Ltd., Waterloo, ON AZGA Service Canada Inc., Waterloo, ON AZL PF Investments Inc., Minneapolis, MN AZOA Services Corporation, Novato, CA BAWAG Allianz Vorsorgekasse AG, Vienna Beleggingsmaatschappij Willemsbruggen B.V., Rotterdam Bilan Services S.N.C., Nanterre Borgo San Felice S.r.l., Castelnuovo Berardenga (Siena) 100.0 100.0 100.0 100.0 59.1 3 100.0 3 97.3 3 98.4 3 100.0 100.0 100.0 80.0 83.2 51.0 51.0 100.0 100.0 99.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 50.0 2 56.0 3 69.4 3 100.0 100.0 100.0 100.0 99.3 3 100.0 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.7 3 99.8 3 98.9 3 98.7 3 95.0 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 50.0 2 100.0 66.0 100.0 Botanic Building SPRL, Brussels BPS Brindisi 211 S.r.l., Lecce BPS Brindisi 213 S.r.l., Lecce BPS Brindisi 222 S.r.l., Lecce BPS Mesagne 214 S.r.l., Lecce BPS Mesagne 215 S.r.l., Lecce BPS Mesagne 216 S.r.l., Lecce BPS Mesagne 223 S.r.l., Lecce BPS Mesagne 224 S.r.l., Lecce Brasil de Imoveis e Participacoes Ltda., São Paulo Bright Mission Berhad Ltd., Kuala Lumpur British Reserve Insurance Co. Ltd., Guildford BSMC (Thailand) Limited, Bangkok Bulgaria Net Co. Ltd., Sofia Bureau d'Expertises Despretz S.A., Brussels Bx3 S.r.l., Trieste C.E.P.E. de Haut Chemin S.à r.l., Versailles Calobra Investments Sp. z o.o., Warsaw Calypso S.A., Paris CAP Rechtsschutz-Versicherungsgesellschaft AG, Zurich CAPEX, Paris Centrale Photovoltaique de Saint Marcel sur aude SAS, Paris Centrale Photovoltaique de Valensole SAS, Paris CEPE de Langres Sud S.à r.l., Versailles CEPE de Mont Gimont S.à r.l., Versailles Château Larose Trintaudon S.A., Saint Laurent Médoc Chicago Insurance Company Corp., Chicago, IL CIC Allianz Insurance Ltd., Sydney Club Marine Limited, Sydney Colisee S.à r.l., Luxembourg Compagnie de Gestion et de Prévoyance SA, Strasbourg Companhia de Seguros Allianz Portugal S.A., Lisbon Compañía Colombiana de Servicio Automotriz S.A., Bogotá D.C. Comprehensive Travel Insurance 2004 Ltd., Auckland Cornhill Trustee (Guernsey) Ltd., St. Peter Port Corsetec Ltda., São Paulo CPRN Thailand Ltd., Bangkok CPRN-Holdings Limited, Bangkok Creactif Allocation, Paris CreditRas Assicurazioni S.p.A., Milan CreditRas Vita S.p.A., Milan Darta Saving Life Assurance Ltd., Dublin Deeside Investments Inc., Wilmington, DE Delta Technical Services Ltd., London Diamond Point a.s., Prague Dresdner Kleinwort Pfandbriefe Investments II Inc., Minneapolis, MN EF Solutions LLC, Wilmington, DE EHPAD Assur S.A.S., Paris Emerald Global Investments, Paris Energie Eolienne Lusanger S.à r.l., Versailles Eolica Erchie S.r.l., Lecce Euler Gestion, Courbevoie Euler Hermes ACI Services LLP, Baltimore, MD Euler Hermes ACMAR Services SARL, Casablanca Euler Hermes Asset Management France S.A., Paris Euler Hermes Canada Services Inc., Montreal, QC Euler Hermes Cescob Service s.r.o., Prague Euler Hermes Collections Sp. z o.o., Warsaw Euler Hermes Collections UK Limited, London Euler Hermes Consulting (Shanghai) Co. Ltd., Shanghai Euler Hermes Crédit France S.A.S., Paris Euler Hermes Credit Management Services Ireland Ltd., Dublin Euler Hermes Credit Services (JP) Ltd., Tokyo Euler Hermes Europe S.A./N.V., Brussels Euler Hermes France S.A., Paris Euler Hermes Hellas Credit Insurance SA, Athens Euler Hermes Hellas Services Ltd., Athens 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 98.4 100.0 100.0 100.0 100.0 100.0 100.0 84.6 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.9 64.8 100.0 100.0 100.0 99.5 100.0 100.0 100.0 3 50.0 2 50.0 2 100.0 50.1 100.0 100.0 100.0 100.0 100.0 100.0 3 100.0 100.0 100.0 4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 80.3 100.0 D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows % owned 1 % owned 1 % owned 1 Euler Hermes Hong Kong Service Limited, Hong Kong Euler Hermes Luxembourg Holding S.à r.l., Luxem- bourg Euler Hermes Magyar Követeleskezelö Kft., Budapest Euler Hermes North America Holding Inc., Owings Mills, MD Euler Hermes North America Insurance Company Inc., Baltimore, MD Euler Hermes Patrimonia SA, Brussels Euler Hermes Ré SA, Senningerberg Euler Hermes Real Estate SPPICAV, Paris Euler Hermes Recouvrement France S.A.S., Paris Euler Hermes Reinsurance AG, Zurich Euler Hermes Risk Services UK Limited, London Euler Hermes Risk Yönetimi A.S., Istanbul Euler Hermes S.A., Paris Euler Hermes Seguros de Crédito à Exportação S.A., São Paulo Euler Hermes Seguros de Crédito S.A., São Paulo Euler Hermes Service AB, Stockholm Euler Hermes Services AG, Zurich Euler Hermes Services B.V., Hertogenbosch Euler Hermes Services Belgium S.A., Brussels Euler Hermes Services India Privat Limited, Mumbai Euler Hermes Services S.A.S., Paris Euler Hermes Services South Africa Ltd., Johannesburg Euler Hermes Services Sp. z o.o., Warsaw Euler Hermes Services UK Limited, London Euler Hermes Servicii Financiare S.R.L., Bucharest Euler Hermes Serviços Ltda., São Paulo Euler Hermes Servis s.r.o., Bratislava Euler Hermes Sigorta A.S., Istanbul Euler Hermes Singapore Services Pte. Ltd., Singapore Euler Hermes South Express S.A., Brussels Euler Hermes Tech SAS, Nanterre Euler Hermes Trade Credit Limited, Auckland Euler Hermes Trade Credit Underwriting Agents Pty Ltd., Sydney Euler Hermes UMA, Louisville, KY Euler Hermes World Agency SASU, Paris Euler Hermes, Mierzejewska-Kancelaria Prawna Sp.k, Warsaw Eurl 20/22 Le Peletier, Paris Euro Garantie AG, Pfäffikon Eurosol Invest S.r.l., Udine Expositio Sp. z o.o., Warsaw FAI Allianz Ltd., Sydney FCP LBPAM IDR, Paris FCPR Fregate, Paris FCT CIMU 92, Pantin FCT Rocade L2 Marseille, Marseille Fenix Directo Compania de Seguros y Reaseguros S.A., Madrid Ferme Eolienne de Villemur-sur-Tarn S.à r.l., Versailles Ferme Eolienne des Jaladeaux S.à r.l., Versailles Fiduciaria Colseguros S.A., Bogotá D.C. Financière Aldebaran SAS, Paris Financière Callisto SAS, Paris Fireman's Fund County Mutual Insurance Company Corp., Dallas, TX Fireman's Fund Financial Services LLC, Dallas, TX Fireman's Fund Indemnity Corporation, Liberty Corner, NJ Fireman's Fund Insurance Company Corp., Novato, CA Fireman's Fund Insurance Company of Bermuda, Hamilton Fireman's Fund Insurance Company of Hawaii Inc., Honolulu, HI Fireman's Fund Insurance Company of Ohio Corp., Cincinnati, OH Floralis, Paris Fondo Chiuso Allianz Infrastructure Partners I, Milan Fragonard Assurance S.A., Paris Friederike MLP S.à r.l., Luxembourg Fusion Brokerage Inc., Richmond, VA Annual Report 2013 Allianz Group 100.0 100.0 100.0 100.0 100.0 100.0 100.0 60.0 100.0 100.0 100.0 100.0 69.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 3 58.3 3 100.0 4 100.0 4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.6 3 100.0 4 100.0 100.0 100.0 Fusion Company Inc., Richmond, VA Gaipare Action, Paris GamePlan Financial Marketing LLC, Woodstock, GA GAP Reactif Canton A, Paris Generation Vie S.A., Courbevoie Genialloyd S.p.A., Milan Gestion de Téléassistance et de Services S.A., Chatillon Gestion Produits Structures, Puteaux Gestion Produits Structures Dynamique, Puteaux GIE Euler Hermes SFAC Services, Paris Global Transport & Automotive Insurance Solutions Pty Limited, Sydney Hauteville Insurance Company Limited, Guernsey Havelaar et Van Stolk B.V., Rotterdam Helviass Verzekeringen B.V., Rotterdam Home & Legacy (Holdings) Limited, London Home & Legacy Insurance Services Limited, London Hunter Premium Funding Ltd., Sydney IDR Actions Euros, Paris Immovalor Gestion S.A., Paris Insurance and Reinsurance AG Energy, Sofia Insurance CJSC Medexpress, Saint Petersburg Intermediass S.r.l., Milan International Film Guarantors Limited, London International Film Guarantors LLC, Santa Monica, CA Interstate Fire & Casualty Company, Chicago, IL Investitori SGR S.p.A., Milan ITEB B.V., Rotterdam IZAN Investment S.à r.l., Luxembourg JCR Intertrade Ltd., Bangkok Jefferson Insurance Company Corp., New York, NY Ken Tame & Associates Pty Ltd., Sydney Kiinteistö OY Eteläesplanadi 2, Helsinki Königinstrasse I S.à r.l., Luxembourg La Rurale SA, Paris LCF IDR, Paris Les Vignobles de Larose S.A.S., Saint Laurent Médoc Life Sales LLC, Novato, CA LLC "Allianz Eurasia Healthcare", Saint Petersburg LLC "Progress-Med", Moscow Lloyd Adriatico Holding S.p.A., Trieste London Verzekeringen N.V., Rotterdam Magdeburger Sigorta A.S., Istanbul Managed Insurance Operations B.V., Rotterdam Martin Maurel Vie SA, Courbevoie Medi24 AG, Bern MetallRente Fonds Portfolio, Senningerberg MM Allocation Monde, Marseille MM Composition Amerique, Marseille Mondial Assistance Asia Pte Ltd., Singapore Mondial Assistance Australia Holding Pty Ltd., Toowong Mondial Assistance France SAS, Paris Mondial Assistance France Services à la personne SAS, Paris Mondial Assistance GmbH, Vienna Mondial Assistance Indian Ocean LLC, Ebene Mondial Assistance Ireland Ltd., Dublin Mondial Assistance Mexico S.A. de C.V., Mexico City Mondial Assistance OOO, Moscow Mondial Assistance Portugal Serviços de Assistência Lda., Paco de Aros Mondial Assistance Réunion S.A., Saint Denis Mondial Assistance S.r.l., Bucharest Mondial Assistance s.r.o., Prague Mondial Assistance Service Chile Limitada, Las Condes Mondial Assistance Service España S.A., Madrid Mondial Assistance Services Hellas A.E., Athens Mondial Assistance Servis Hizmetleri A.S., Istanbul Mondial Assistance Sigorta Aracilik Hizmetleri LS, Istanbul Mondial Assistance Sp. z o.o., Warsaw Mondial Assistance United Kingdom Ltd., Croydon Surrey 80.0 99.7 3 100.0 66.3 3 52.5 100.0 100.0 73.6 3 65.1 3 100.0 73.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 3 100.0 50.9 99.8 100.0 100.0 100.0 100.0 100.0 100.0 100.0 40.0 2 100.0 69.0 100.0 100.0 99.9 100.0 3 100.0 100.0 100.0 100.0 99.9 100.0 100.0 100.0 100.0 100.0 57.7 3 61.7 3 52.7 3 100.0 100.0 95.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 51.0 97.0 100.0 100.0 100.0 Mondial Contact Center Italia S.r.l., Taurisano Mondial Protection Corretora de Seguros Ltda., São Bernardo do Campo Mondial Service - Belgium S.A., Brussels Mondial Service Argentina S.A., Buenos Aires Mondial Service Colombia SAS, Bogotá D.C. Mondial Servicios S.A. de C.V., Mexico City Mondial Serviços Ltda., São Bernardo do Campo Monéger SA, Dakar Morgan Stanley Italian Office Fund, Milan National Surety Corporation, Chicago, IL Neoasistencia Manoteras S.L., Madrid Nexam Multi Alternatives, Paris Nextcare Bahrain Ancillary Services Company B.S.C., Manama NEXtCARE Egypt LLC, Cairo NEXtCARE Holding WLL, Manama NEXtCARE Lebanon SAL, Beirut NFJ Investment Group LLC, Dover, DE Oddo Convictions, PARIS Oddo Gestion Prudente, Paris Oddo Indice Japon, Paris Oddo Investissement, Paris Oddo Patrimoine, Paris Oddo Proactif Europe, Paris Oddo Valeurs Rendement A, Paris OJSC "Allianz Investments", Moscow OJSC "My Clinic", Moscow OJSC Insurance Company Allianz, Moscow OJSC Insurance Company ROSNO-MS, Moscow Omega Thai Investment Holding B.V., Amsterdam Ontario Limited, Toronto, ON OOO "IC Euler Hermes Ru", Moscow OOO Euler Hermes Credit Management, Moscow Oppenheimer Group Inc., Dover, DE Orione PV S.r.l., Milan Orsa Maggiore PV S.r.l., Milan Orsa Minore PV S.r.l., Milan OY Selecta AB, Helsinki Pacific Investment Management Company LLC, Dover, DE Paramount Group Real Estate Special Situations Fund-A L.P., New York, NY Parc Eolien de Bonneuil S.à r.l., Versailles Parc Eolien de Bruyère Grande SAS, Versailles Parc Eolien de Croquettes SAS, Versailles Parc Eolien de Fontfroide SAS, Versailles Parc Eolien de Forge SAS, Paris Parc Eolien de la Sole du Bois SAS, Paris Parc Eolien de Longchamps SAS, Versailles Parc Eolien des Barbes d'Or SAS, Versailles Parc Eolien des Joyeuses SAS, Versailles Parc Eolien des Mistandines SAS, Paris Parc Eolien des Quatre Buissons SAS, Paris Parc Eolien du Bois Guillaume SAS, Paris Parc Eolien Les Treize SAS, Paris Personalized Brokerage Service LLC, Topeka, KS Pet Plan Ltd., Guildford PFP Holdings Inc., Dover, DE PGA Global Services LLC, Wilmington, DE PGREF V 1301 Sixth Investors I LLC, Wilmington, DE PGREF V 1301 Sixth Investors I LP, Wilmington, DE PGRESS-A Equity GP LLC, Wilmington, DE PGRESS-A Equity REIT LP, Wilmington, DE Phenix Absolute Return, Paris PIMCO (Schweiz) GmbH, Zurich PIMCO Asia Ltd., Hong Kong PIMCO Asia Pte Ltd., Singapore PIMCO Australia Pty Ltd., Sydney PIMCO Canada Corp., Toronto, ON PIMCO Euro Low Duration Investment Grade Corpo- rate Fund, Dublin PIMCO Europe Ltd., London 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 94.6 4 100.0 100.0 85.6 3 100.0 100.0 75.0 100.0 100.0 69.7 3 66.7 3 55.3 3 64.9 3 67.2 3 65.7 3 53.2 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 96.7 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 4 100.0 100.0 100.0 100.0 100.0 100.0 4 100.0 237 % owned 1 % owned 1 PIMCO Global Advisors (Ireland) Ltd., Dublin PIMCO Global Advisors (Luxembourg) S.A., Luxembourg PIMCO Global Advisors (Resources) LLC, Dover, DE PIMCO Global Advisors LLC, Dover, DE PIMCO Global Holdings LLC, Dover, DE PIMCO GP I LLC, Dover, DE PIMCO GP III LLC, Dover, DE PIMCO GP IX LLC, Dover, DE PIMCO GP V LLC, Dover, DE PIMCO GP VII LLC, Dover, DE PIMCO GP X LLC, Dover, DE PIMCO GP XI LLC, Dover, DE PIMCO GP XII LLC, Dover, DE PIMCO GP XIII LLC, Dover, DE PIMCO Investments LLC, Dover, DE PIMCO Japan Ltd., Road Town, Tortola PIMCO Latin America Administradora de Carteiras Ltda., São Paulo Primacy Holdings Pty Ltd., Melbourne Primacy Underwriting Management Ltd., Wellington Primacy Underwriting Management Pty Ltd., Melbourne Prism Re (Bermuda) Ltd., Hamilton Prosperaz Fundo de Investimento Renda Fixa Crédito Privado, São Paulo Protexia France S.A., Paris PT Asuransi Allianz Life Indonesia p.l.c., Jakarta PT Asuransi Allianz Utama Indonesia Ltd., Jakarta PTE Allianz Polska S.A., Warsaw Q 207 GP S.à r.l., Luxembourg Q207 S.C.S., Luxembourg Quality 1 AG, Bubikon Questar Agency Inc., Minneapolis, MN Questar Asset Management Inc., Ann Arbor, MI Questar Capital Corporation, Minneapolis, MN Quintet Properties Ltd., Dublin RAS Antares, Milan RB Fiduciaria S.p.A., Milan RCM Asia Pacific Ltd., Hong Kong RCM Capital Management Pty Ltd., Sydney Real Faubourg Haussmann SAS, Paris Real FR Haussmann SAS, Paris Redoma S.à r.l., Luxembourg Retail Vending Ltd., Birmingham Rhea SA, Luxembourg Risikomanagement und Softwareentwicklung GmbH, Vienna Roland Print B.V., Amsterdam Roster Financial LLC, Mount Laurel, NJ S.I.B.I. S.A., Paris SA Carène Assurance, Paris Saint-Barth Assurances S.à r.l., St. Barts San Francisco Reinsurance Company Corp., Novato, CA SAS 20 pompidou, Paris SAS Allianz Colisée, Paris SAS Allianz Forum Seine, Paris SAS Allianz Platine, Paris SAS Allianz Rivoli, Paris SAS Allianz Serbie, Paris SAS Madeleine Opéra, Paris SAS Passage Des Princes, Paris SAS Société d'Exploitation du Parc Eolien de Nélausa, Paris Saudi NEXtCARE LLC, Al Khobar SC Tour Michelet, Paris SCI 46 Desmoulins, Paris SCI Allianz ARC de Seine, Paris SCI Allianz Chateaudun, Paris SCI Allianz Messine, Paris SCI AVIP La Templerie, Courbevoie SCI AVIP SCPI Selection, Courbevoie SCI ESQ, Paris 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.0 100.0 4 100.0 99.8 97.8 100.0 100.0 94.0 100.0 100.0 100.0 100.0 100.0 100.0 4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 52.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 75.0 238 Annual Report 2013 Allianz Group SCI Prelloyd, Paris SCI Stratus, Courbevoie SCI Via Pierre 1, Paris SCI Volnay, Paris Selecta A/S, Rodovre Selecta AB, Stockholm Selecta AG, Muntelier Selecta AS, Oslo Selecta B.V., Waardenburg Selecta Betriebsverpflegungs GmbH, Vienna Selecta Eesti Osauhing OÜ, Tallinn Selecta Group B.V., Amsterdam Selecta Holding AB, Stockholm Selecta Holding B.V., Amsterdam Selecta Holding Ltd., London Selecta Holding SAS, Paris Selecta Hungary Automataüzemeltetö Kft., Budapest Selecta Luxembourg SA, Leudelange Selecta Management AG, Zug Selecta Nordic Holding AB, Stockholm Selecta Purchasing AG, Zug Selecta Refreshments Ltd., Dublin Selecta SA, Zaventem Selecta SA, Paris Selecta TMP AG, Zug Selecta UK Ltd., Birmingham Selection Multi-Gerants Emergents, Paris Selection Multi-Gerants Value, Paris SI 173-175 Boulevard Haussmann SAS, Paris SIA Baltic Payment Systems, Riga SIA Selecta, Riga Siac Services S.r.l., Rome Silex Gas Management AS, Oslo Silex Gas Norway AS, Oslo Sirius S.A., Luxembourg Sistemi Informativi Allianz S.p.c.A., Milan SLC "Allianz Life Ukraine", Kiev SMG Asie Emergente, Paris SMG Croissance, Paris Società Agricola San Felice S.p.A., Milan Société de Production D'électricité D'harcourt Moulaine SAS, Versailles Société d'Energie Eolien Cambon SAS, Versailles Societe d'Exploitation du Parc Eolien d'Aussac Vadalle SAS, Paris Société Européenne de Protection et de Services d'Assistance à Domicile S.A., Paris Société Nationale Foncière S.A.L., Beirut SOFE One Ltd., Bangkok SOFE Two Ltd., Bangkok Sofiholding S.A., Brussels South City Office Broodthaers SA, Brussels SpaceCo S.A., Paris Standard General Agency Inc., Dallas, TX StocksPLUS Management Inc., Dover, DE Téléservices et Sécurité "TEL2S" SARL, Chatillon TFI Allianz Polska S.A., Warsaw The American Insurance Company Corp., Cincinnati, OH The Annuity Store Financial & Insurance Services LLC, Sacramento, CA The MI Group Limited, Guildford Three Pillars Business Solutions Limited, Guildford Tihama Investments B.V., Amsterdam Top Assistance Service GmbH, Vienna Top Immo A GmbH & Co. KG, Vienna Top Immo Besitzgesellschaft B GmbH & Co. KG, Vienna Top Versicherungsservice GmbH, Vienna Top Vorsorge-Management GmbH, Vienna Towarzystwo Ubezpieczen Euler Hermes S.A., Warsaw Trafalgar Insurance Public Limited Company, Guildford Travel Care Inc., Richmond, VA TU Allianz Polska S.A., Warsaw 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 98.7 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.9 100.0 100.0 79.4 3 55.5 3 100.0 100.0 100.0 100.0 100.0 100.0 94.8 100.0 100.0 54.0 3 58.6 3 100.0 100.0 100.0 100.0 56.0 66.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.9 100.0 100.0 100.0 99.4 100.0 100.0 100.0 100.0 100.0 100.0 75.0 100.0 100.0 100.0 100.0 TU Allianz Zycie Polska S.A., Warsaw UAB Selecta, Vilnius UP 36 SA, Brussels UTE Gesecopri Servecarve S.r.l., Madrid Vendcare (Holdings) Limited, Birmingham Vendcare Services Ltd., Birmingham VertBois S.à r.l., Luxembourg Viveole SAS, Versailles Volta, Paris WFC Investments Sp. z o.o., Warsaw Windpark Les Cent Jalois SAS, Versailles Wm. H McGee & Co. (Bermuda) Ltd., Hamilton Wm. H McGee & Co. Inc., New York, NY Wm. H McGee & Co. of Puerto Rico Inc., San Juan World Access Europe Ltd., Croydon Surrey YAO Investment S.à r.l., Luxembourg Yapı Kredi Sigorta A.S., Istanbul Yorktown Financial Companies Inc., Minneapolis, MN Non-consolidated affiliates A. Diffusion S.A., Nanterre AGF Pension Trustees Ltd., Guildford Allianz America Latina S.C. Ltda., Rio de Janeiro Allianz Financial Services S.A., Athens Allianz Global Corporate & Specialty AG Escritorio de Representacao no Brasil Ltda., São Paulo Allianz Insurance Services Ltd., Athens Allianz International Ltd., Guildford Allianz Northern Ireland Limited, Belfast Allianz Risk Consultants B.V., Rotterdam Assurance France Aviation S.A., Paris business lounge GmbH, Vienna CCA SAS, Paris COGAR S.à r.l., Paris First Rate Direct Limited, Belfast Gesellschaft für Vorsorgeberatung AG, Bern ICC Evaluation SARL, Paris Knightsbridge Allianz LP, Bartlesville, OK Office Sénégalais de Conseils en Assurance (OSECA) S.A.R.L., Dakar RE-AA S.A., Abidjan SA Immobilière de L'Avenue du Roule, Courbevoie SCI champ laurent, Courbevoie SCI J.T., Courbevoie SCI Paris X, Courbevoie SCI Vilaje, Courbevoie SIFCOM Assur S.A., Abidjan Societe Fonciere Europeenne B.V, Amsterdam Top Versicherungs-Vermittler Service GmbH, Vienna Joint ventures A&A Centri Commerciali S.r.l., Milan Allee-Center Kft., Budapest Allianz C.P. General Insurance Co. Ltd., Bangkok Ancilyze Technologies LLC, Oakbrook Terrace, IL Atenction Integral a la Dependencia S.L., Cordoba Bajaj Allianz Financial Distributors Limited, Pune Companhia de Seguro de Créditos S.A., Lisbon Dorcasia Ltd., Sydney Euromarkt Center d.o.o., Ljubljana Europe Logistics Venture 1 FCP-FIS, Luxembourg Guotai Jun'an Allianz Fund Management Co. Ltd., Shanghai International Shopping Centre Investment S.A., Luxembourg Israel Credit Insurance Company Ltd., Tel Aviv Market Street Trust, Sydney Millea Mondial Co. Ltd., Tokyo NET4GAS Holdings s.r.o., Prague One Beacon Joint Venture LP, Wilmington, DE Previndustria - Fiduciaria Previdenza Imprenditori S.p.A., Milan SC Holding SAS, Paris % owned 1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.9 3 87.5 100.0 100.0 100.0 100.0 100.0 100.0 99.8 100.0 99.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.9 100.0 100.0 100.0 100.0 100.0 100.0 99.5 99.6 97.5 100.0 100.0 100.0 100.0 100.0 60.0 100.0 100.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 83.3 7 49.0 7 50.0 50.0 50.0 3 50.0 50.0 50.0 50.0 50.0 D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows % owned 1 % owned 1 Invesco Multi Patrimoine, Paris IPE Tank and Rail Investment 1 S.C.A., Luxembourg JPMorgan IIF UK1 LP, Dublin Le Cottage, Paris Medgulf Allianz Takaful B.S.C., Seef MMGI Euromix Action, Marseille New Path S.A., Buenos Aires OAO “Avariinyi Comissar”, Moscow Oddo Avenir (D), Paris Oddo Convertibles, Paris Oddo Convertibles Taux, Paris Oddo Court Terme, Paris Oddo Europe, Paris Oddo Generation C, Paris Oddo Gestion Defen, Paris Oddo Haut Rendement Monde 2018, Paris Oddo Immobilier C, Paris Oddo Rendement 2017, Paris Oddo US Mid Cap, Paris Oddo USA Index Actif, Paris OeKB EH Beteiligungs- und Management AG, Vienna OVS Opel VersicherungsService GmbH, Vienna P H R V Paris Hotels Roissy Vaugirard SA, Paris PAR Holdings Limited, Hamilton PERFECTIS I Ltd., Paris PGREF V 1301 Sixth Holding LP, Wilmington, DE PGRESS Debt Holdings LP, Wilmington, DE PGRESS Equity Holdings LP, Wilmington, DE Pinatton France, Paris RMCP PIV DPC L.P., Los Angeles, CA SAS Alta Gramont, Paris Schroder ISF Global Property Securities, Senninger- berg SCI Bercy Village, Paris SK Versicherung AG, Vienna SNC Alta CRP Gennevilliers, Paris SNC Alta CRP La Valette, Paris SNC Société d’aménagement de la Gare de l’Est, Paris Société de Distribution Automatique SA, Tunis Solveig Gas Holdco AS, Oslo Sunderland Insurance Services Inc., Fargo, ND Wattinvest C, Paris Wheelabrator Invest FCPR, Paris Wildlife Works Carbon LLC, San Francisco, CA Other participations between 5 and 20 % of voting rights Al Nisr Al Arabi, Amman Banco BPI S.A., Porto Zagrebacka banka d.d., Zagreb 33.5 3 48.8 26.0 43.7 3 25.0 26.2 3 40.0 23.3 23.2 3 32.8 3 32.5 3 42.4 3 41.3 3 33.9 3 33.8 3 40.3 3 23.5 3 35.2 3 37.3 3 40.2 3 49.0 40.0 30.6 21.2 24.9 3 24.5 20.0 20.0 31.2 3 25.0 3 49.0 30.1 3 49.0 25.8 49.0 49.0 49.0 49.0 30.0 40.0 39.1 3 26.9 3 10.0 8 18.0 8.8 11.7 1 2 3 4 5 6 7 8 9 Percentage includes equity participations held by dependent entities in full, even if the Allianz Group’s share in the depend- ent entity is below 100 %. Controlled by Allianz Group. Mutual, private equity or special fund. Investment fund. Releasing impact according to § 264 (3) HGB through the Allianz Group’s consolidated financial statements. Group share through indirect holder Roland Holding GmbH, Munich: 74.2 %. Classified as joint venture according to IAS 31. Classified as associate according to IAS 28. Insolvent. SES Shopping Center AT1 GmbH, Salzburg Solunion Compania Internacional de Seguros y Reaseguros SA, Madrid TopTorony Ingatlanhasznosító Zrt., Budapest Associates 21 Gestion Active, Paris ABS Credit Plus, Paris Allianz Actions Indice Japon (couvert), Paris Allianz EFU Health Insurance Ltd., Karachi Allianz Euro Emprunts d'Etat, Paris Allianz Euro Oblig Court Terme ISR, Paris Allianz Fóndika S.A. de C.V., Mexico City Allianz Global Emerging Markets Equity, Dublin Allianz Global Sustainability, Senningerberg Allianz Invest Cash, Vienna Allianz Invest Eurorent Liquid, Vienna Allianz Invest Osteuropa, Vienna Allianz Invest Vorsorgefonds, Vienna Allianz Merger Arbitrage Strategy Fund, Luxembourg Allianz PIMCO Euro Bond Total Return, Senningerberg Allianz PIMCO Inflationsschutz, Senningerberg Allianz Saudi Fransi Cooperative Insurance Company, Riyadh Allianz Securicash SRI, Paris Altaprofits SA, Paris APEH Europe IV FCPR, Paris APEH France Investissement 1 FCPR, Paris APEH France Investissement 2 FCPR, Paris Archstone Multifamily Partners AC JV LP, Engelwood, CO Archstone Multifamily Partners AC LP, Wilmington, DE Areim Fastigheter 2 AB, Stockholm Ariel, Paris Assurances médicales de France SAS, Paris Assurcard N.V., Haasrode Autoelektro tehnicki pregledi d.o.o., Vojni´c Bajaj Allianz General Insurance Company Ltd., Pune Bajaj Allianz Life Insurance Company Ltd., Pune Berkshire Hathaway Services India Private Limited, New Delhi Berkshire India Private Limited, New Delhi BMM Audace, Marseille BMM France Croissance, Marseille BMM Long Terme, Marseille BMM Obligations, Marseille BMM Obliplus, Marseille Broker on-line de productores de seguros S.A., Buenos Aires Brunei National Insurance Company Berhad Ltd., Bandar Seri Begawan Capimmovalor SCPI, Paris Chicago Parking Meters LLC, Wilmington, DE Citylife S.r.l., Milan CJSC "MedCentreStrakh", Moscow CJSC "Roskurort", Moscow Data Quest SAL, Beirut Dinvest Core Liquid FCP, Paris Douglas Emmett Partnership X LP, Santa Monica, CA Dr. Ignaz Fiala GmbH, Vienna DSB BlackRock India Investment Fund, Ebene Euro Media Group S.A., Bry-sur-Marne Foncière des 6e et 7e arrondissements de Paris (SIIC) SA, Paris Four Oaks Place LP, Wilmington, DE GAP 1 AN Canton, Paris GAP Euros Canton, Paris Graydon Holding N.V., Amsterdam Helios Silesia Holding B.V., Amsterdam Henderson UK Outlet Mall Partnership LP, Edinburgh ICG Convertibles-Rendement, Paris Interpolis Kredietverzekeringen N.V., Hertogenbosch Inventus Capital Partners Fund II Ltd., Ebene 50.0 50.0 50.0 25.2 3 24.1 3 43.9 3 49.0 45.9 3 44.1 3 26.8 39.7 3 25.8 3 38.7 3 30.2 3 45.0 3 35.4 3 32.8 3 21.8 3 21.6 3 32.5 21.7 3 20.0 50.7 3,8 36.2 3 44.9 3 40.0 28.6 23.3 31.1 3 30.0 25.0 49.0 26.0 26.0 20.0 20.0 35.0 3 29.8 3 48.3 3 21.6 3 34.2 3 30.0 25.0 33.6 49.9 33.0 36.4 50.0 8 36.0 37.6 3 28.6 33.3 27.8 3 21.5 26.5 49.0 33.7 3 38.9 3 27.5 45.0 19.5 8 38.0 3 45.0 28.1 Annual Report 2013 Allianz Group 239 Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements, in accor- dance with generally accepted accounting principles, give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportuni- ties and risks associated with the expected development of the Group. Munich, 24 February 2014 Allianz SE The Board of Management 240 Annual Report 2013 Allianz Group D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of 134 Notes to the Consolidated Financial Changes in Equity Statements 131 Consolidated Statements of Cash Flows In our opinion, based on the findings of our audit, the consoli- dated financial statements comply with IFRSs, as adopted by the EU, the additional requirements of German commercial law pursuant to § 315a para. 1 HGB and supplementary provisions of the articles of incorporation and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development. Munich, 3 March 2014 KPMG AG Wirtschaftsprüfungsgesellschaft Klaus Becker Wirtschaftsprüfer (Independent Auditor) Dr. Frank Pfaffenzeller Wirtschaftsprüfer (Independent Auditor) auditoR’s RepoRt We have audited the consolidated financial statements prepared by Allianz SE, Munich, comprising the consolidated balance sheet, the consolidated income statement, the consolidated statement of com- prehensive income, the consolidated statement of changes in equity, the consolidated statements of cash flows and the notes, together with the group management report for the business year from 1 Jan- uary to 31 December 2013. The preparation of the consolidated finan- cial statements and the group management report in accordance with IFRSs, as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315a para. 1 HGB and supple- mentary provisions of the articles of incorporation are the responsi- bility of the parent company’s management. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit. We conducted our audit of the consolidated financial state- ments in accordance with § 317 HGB [Handelsgesetzbuch “German Commercial Code”] and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consoli- dated financial statements in accordance with the applicable finan- cial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence sup- porting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolida- tion, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. Annual Report 2013 Allianz Group 241 242 Annual Report 2013 Allianz Group Juraj Pápay with his grandson, Allianz Customer, Slovakia * a one-day trip should be full of rich experiences, not of concerns. We strive to preserve capital and build our business on a strong capital base so that we are prepared for unfore- seen situations. Giving our customers the best possible protection through optimum coverage enables them to enjoy a worry-free life after retirement. e _ further information pages 244 – 253 Joint Advisory Council of the Allianz Companies International Advisory Board 245 246 247 Mandates of the Members of the Supervisory Board 248 Mandates of the Members of the Board of Management 249 253 Glossary Index 244 annual report 2013 allianz Group E Further Information 245 Joint Advisory Council of the 247 Mandates of the Members of Allianz Companies the Supervisory Board 249 Glossary 253 Index 246 International Advisory Board 248 Mandates of the Members of the Board of Management Joint Advisory Council of the Allianz Companies Dr. Helmut Perlet Chairman Chairman of the Supervisory Board Allianz SE Dr. Kurt bocK Chairman of the Board of Executive Directors BASF SE Dr. Jürgen Heraeus Chairman of the Supervisory Board Heraeus Holding GmbH Prof. Dr. Dieter HunDt, senator e. H. Chairman of the Supervisory Board Allgaier Werke GmbH Dr. manfreD scHneiDer Chairman of the Supervisory Board Linde AG RWE AG Prof. Dr. Dennis J. snower President of the Kiel Institute for the World Economy Dr. tHomas enDers Chief Executive Officer EADS N.V. franz feHrenbacH Managing Partner Robert Bosch Industrietreuhand KG Chairman of the Supervisory Board Robert Bosch GmbH Prof. Dr.-ing. Dr.-ing. e.H. Hans-Peter Keitel Vice-President of BDI-Federation of German Industries Peter terium since 1 March 2013 Chief Executive Officer RWE AG Dr. nicola leibinger-Kammüller Chief Executive Officer TRUMPF GmbH & Co. KG Dr.-ing. e. H. HeinricH weiss Chairman of the Supervisory Board SMS Holding GmbH manfreD wennemer Chairman of the Administrative Board Sulzer AG Dr. rüDiger grube Chairman of the Board and Chief Executive Officer Deutsche Bahn AG Dr. tHomas rabe since 1 March 2013 CEO & Chairman of the Executive Board Bertelsmann SE & Co. KGaA Jim Hagemann snabe Co-Chief Executive Officer SAP AG Herbert Hainer Chairman of the Board of Management adidas AG Dr.-ing. Dr.-ing. e.H. norbert reitHofer Chairman of the Board of Management BMW AG Harry roels KasPer rorsteD Chairman of the Board of Management Henkel AG & Co. KGaA Annual Report 2013 Allianz Group 245 International Advisory Board Dr. Paul acHleitner Chairman of the Supervisory Board Deutsche Bank AG Paulo De azeveDo Chief Executive Officer of Sonae SGPS, S.A. alfonso cortina De alcocer Vice Chairman Rothschild Europe BV, Senior Advisor at Texas Pacific Group ambassaDor robert m. Kimmitt Senior International Counsel, Wilmer Cutler Pickering Hale and Dorr Peter costello Guardian of the Australian Future Fund Dr. Jürgen HambrecHt Former Chairman of the Board of Executive Directors, BASF SE freD Hu Founder and Chairman of Primavera Capital Group franz Humer Chairman of the Board of Directors of Roche Holding Ltd iain lorD vallance of tummel Chairman of the Board of Directors, Amsphere Ltd minoru maKiHara Senior Corporate Advisor of Mitsubishi Corporation cHristoPHe De margerie Chairman and Chief Executive Officer of Total S.A. Jacques nasser Chairman BHP Billiton, Senior Advisor of One Equity Partners Dr. gianfelice rocca Chairman of Techint Group of Companies angel ron Chairman and Chief Executive Officer of Banco Popular antHoni salim President and Chief Executive Officer of Salim Group louis scHweitzer Président d’Honneur de Renault Dr. marco troncHetti Provera Chairman and Chief Executive Officer of Pirelli & C. S.p.A. 246 Annual Report 2013 Allianz Group E Further Information 245 Joint Advisory Council of the 247 Mandates of the Members of Allianz Companies the Supervisory Board 249 Glossary 253 Index 246 International Advisory Board 248 Mandates of the Members of the Board of Management Mandates of the Members of the Supervisory Board JEan-JaCQUES CETTE Chairman of the Group Works Council of Allianz France S.A. Membership in comparable 1 supervisory bodies Membership in Group bodies Allianz France S. A. iRa GLoE-SEMLER Chairwoman of the federal insurance group of ver.di Germany fRanZ HEiSS Employee of Allianz Beratungs- und Vertriebs-AG PRof. DR. REnaTE KöCHER Head of Institut für Demoskopie Allensbach (Allensbach Institute) Membership in other statutory supervisory boards and SE administrative boards in Germany BMW AG Infineon Technologies AG Nestlé Deutschland AG Robert Bosch GmbH iGoR LanDaU Member of the Board of Directors of Sanofi S.A. Membership in other statutory supervisory boards and SE administrative boards in Germany adidas AG (Chairman) Membership in comparable 1 supervisory bodies Sanofi S.A. PETER DEniS SUTHERLanD Chairman of Goldman Sachs International Membership in comparable 1 supervisory bodies BW Group Ltd. Goldman Sachs International (Chairman) Koç Holding A.Ş. DR. HELMUT PERLET Chairman Former Member of the Board of Management of Allianz SE Membership in other statutory supervisory boards and SE administrative boards in Germany Commerzbank AG GEA Group AG DR. WULf H. BERnoTaT Vice Chairman Former Chairman of the Board of Management of E.ON AG Membership in other statutory supervisory boards and SE administrative boards in Germany Bertelsmann Management SE Bertelsmann SE & Co. KGaA Deutsche Annington Immobilien SE (Chairman) since 18 June 2013 Deutsche Telekom AG METRO AG RoLf ZiMMERMann Vice Chairman Employee of Allianz Deutschland AG DanTE BaRBan Employee of Allianz S.p.A. CHRiSTinE BoSSE Former Group CEO of the Executive Management of Tryg Membership in comparable 1 supervisory bodies Aker ASA Flügger A/S (Chairwoman) Nordea Bank A/S until 14 March 2013 TDC A/S GaBRiELE BURKHaRDT-BERG Chairwoman of the Group Works Council of Allianz SE Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Deutschland AG (Vice Chairwoman) until 10 April 2013 1 We regard memberships in other supervisory bodies as “comparable” if the company is listed on a stock exchange or has more than 500 employees. Annual Report 2013 Allianz Group 247 Mandates of the Members of the Board of Management MiCHaEL DiEKMann Chairman of the Board of Management Membership in other statutory supervisory boards and SE administrative boards in Germany BASF SE (Vice Chairman) Linde AG (Vice Chairman) Siemens AG Membership in Group bodies Allianz Asset Management AG (Chairman) Allianz Deutschland AG Membership in comparable 1 supervisory bodies Membership in Group bodies Allianz France S.A. (Vice Chairman) Allianz S.p.A. oLivER BäTE Insurance Western & Southern Europe Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Global Corporate & Specialty SE (Vice Chairman) until 8 May 2013 Membership in comparable 1 supervisory bodies Membership in Group bodies Allianz France S.A. Allianz Sigorta A.S. (Vice Chairman) Allianz S.p.A. (Vice Chairman) Allianz Yasam ve Emeklilik A.S. since 12 July 2013 Yapı Kredi Sigorta A.S. (Vice Chairman) since 12 July 2013 ManUEL BaUER Insurance Growth Markets Membership in comparable 1 supervisory bodies Bajaj Allianz General Insurance Co. Ltd. Bajaj Allianz Life Insurance Co. Ltd. Membership in Group bodies Allianz Hungária Biztosító Zrt. (Chairman) Allianz-Slovenská poist‘ovna a.s. (Chairman) Allianz Tiriac Asigurari S.A. (Chairman) OJSC IC Allianz (Chairman) until 1 March 2014 TUiR Allianz Polska S.A. (Chairman) TU Allianz Życie Polska S.A. (Chairman) GaRy BHoJWani Insurance USA Membership in comparable 1 supervisory bodies Allina Health until 12 June 2013 Membership in Group bodies Allianz Life Insurance Company of North America (Chairman) Allianz of America, Inc. (Chairman) AZOA Services Corp. (Chairman) Fireman’s Fund Insurance Company (Chairman) CLEMEnT BooTH Global Insurance Lines & Anglo Markets Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Global Corporate & Specialty SE (Chairman) Membership in comparable 1 supervisory bodies Membership in Group bodies Allianz Australia Ltd. Allianz Insurance plc (Chairman) Allianz Irish Life Holdings plc Euler Hermes S.A. (Chairman) DR. HELGa JUnG Insurance Iberia & Latin America, Legal & Compliance, Mergers & Acquisitions Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Global Corporate & Specialty SE (Vice Chairwoman) since 8 May 2013 Membership in comparable 1 supervisory bodies Unicredit S.p.A. Membership in Group bodies Allianz Compañía de Seguros y Reaseguros S.A. Companhia de Seguros Allianz Portugal S.A. DR. CHRiSTof MaSCHER Operations Membership in other statutory supervisory boards and SE administrative boards in Germany Volkswagen Autoversicherung AG Membership in Group bodies Allianz Managed Operations and Services SE (Chairman) Membership in comparable 1 supervisory bodies Membership in Group bodies Allianz Worldwide Partners SAS (formerly Allianz Global Assistance SAS) (Chairman) Jay RaLPH Asset Management Worldwide DR. DiETER WEMMER Finance, Controlling, Risk Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Asset Management AG Allianz Investment Management SE since 18 February 2013 DR. WERnER ZEDELiUS Insurance German Speaking Countries, Human Resources Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Deutschland AG (Chairman) Membership in comparable 1 supervisory bodies Membership in Group bodies Allianz Elementar Lebensversicherungs-AG (Chairman) Allianz Elementar Versicherungs-AG (Chairman) Allianz Investmentbank AG (Vice Chairman) Allianz Suisse Lebensversicherungs-Gesellschaft AG (Vice Chairman) Allianz Suisse Versicherungs-Gesellschaft AG (Vice Chairman) DR. MaXiMiLian ZiMMERER Investments Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Asset Management AG Allianz Investment Management SE (Chairman) Allianz Lebensversicherungs-AG (Vice Chairman) since 15 April 2013 1 We regard memberships in other supervisory bodies as “comparable” if the company is listed on a stock exchange or has more than 500 employees. 248 Annual Report 2013 Allianz Group E Further Information 245 Joint Advisory Council of the 247 Mandates of the Members of Allianz Companies the Supervisory Board 249 Glossary 253 Index 246 International Advisory Board 248 Mandates of the Members of the Board of Management Glossary The accounting terms explained here are intended to help the reader under stand this Annual Report. Most of these terms concern the balance sheet or the income statement. A Acquisition cost The amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition. ActuAriAl gAins And losses Actuarial gains and losses are changes in the present value of the defined benefit obligation resulting from experience adjustments (i.e. the effects of differences between the previous actuarial assumptions and what has actually occurred) and the effects of changes in actuarial assumptions (e.g. changes in demographic and in financial assumptions). AffiliAtes The parent company of the Group and all subsidiaries. Subsidiaries are entities where the parent company can exercise a significant influence over their corporate strategy in accordance with the control concept. This is possible, for example, where the parent company holds, directly or indirectly, a majority of the voting rights, has the power to appoint or remove a majority of the mem­ bers of the Board of Management or equivalent govern­ ing body, or where there are contractual rights of control. AggregAte policy reserves Policies in force – especially in life, health, and personal accident insurance – give rise to potential liabilities for which funds have to be set aside. The amount required is calculated actuarially. AllowAnce for loAn losses The overall volume of provisions includes allowances for credit losses – deducted from the asset side of the bal­ ance sheet – and provisions for risks associated with con­ tingencies, such as guarantees, loan commitments or other obligations, which are stated as liabilities. Where it is determined that a loan cannot be repaid, the uncol­ lectable amount is written off against any existing specific loan loss allowance, or directly recognized as expense in the income statement. Recoveries on loans previously written off are recognized in the income statement un­ der net loan loss provisions. Assets under mAnAgement Assets under management are assets or securities port­ folios, valued at current market value, for which Allianz Asset Management companies provide discretionary investment management decisions and have the port­ folio management responsibility. They are managed on behalf of third parties as well as on behalf of the Allianz Group. AssociAtes All entities, over which the Allianz Group has significant influence, i.e. the power to participate in the financial and operating policy decisions of these entities, but no control or joint control of those policies. Amortized cost The amortized cost of a financial asset or financial liability is the amount at which the financial instrument is mea­ sured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount. AvAilAble­for­sAle investments Available­for­sale investments are securities which are neither held to maturity nor have been acquired for sale in the near term; available­for­sale investments are carried at fair value in the balance sheet. B business combinAtion A business combination is a transaction or event in which an acquirer obtains control of one or more businesses. Business combinations are accounted for using the acqui­ sition method. C cAsh flow stAtement Statement showing movements of cash and cash equi­ valents during a reporting period, classified by three types of activity; operating activities, investing activities and financing activities. certificAted liAbilities Certificated liabilities comprise debentures and other liabilities for which transferable certificates have been issued. collAterAlized debt obligAtion (cdo) A way of packaging credit risk. Several classes of securities (known as tranches) are created from a portfolio of bonds and there are rules for determining how the cost of defaults are allocated to classes. combined rAtio Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). contingent liAbilities Financial obligations not shown as liabilities on the bal­ ance sheet because the probability of a liability actually being incurred is low. Example: guarantee obligations. counter­cyclicAl premium (ccp) Under the draft Solvency ii guidelines, a full spread risk calculation is required for all fixed­income assets except government bonds in the European Economic Area. It was recognized by regulatory authorities that this could create an artificial volatility for the risk­bearing funds as well as for the risk capital which does not truly reflect an insurer’s business model, where assets are usually held to maturity to a large extent and spread risk would only become relevant in case of forced sales of assets. There­ fore, the counter­cyclical premium (ccp) was introduced (within the draft of the Level 2 implementing measures of Solvency ii) as a means to counter the exposure to this spread volatility and thus to reduce the impact of dis­ torted markets on the determination of the available financial resources due to illiquidity. Effectively, the ccp is considered as one component of the discount curve in the liability valuation. In the latest guidelines based on the trialogue agreement in November 2013 the ccp concept was abolished. cost­income rAtio Represents operating expenses divided by operating revenues. Annual Report 2013 Allianz Group 249 E eArnings per shAre (bAsic/diluted) Ratio calculated by dividing the net income for the year attributable to shareholders by the weighted average number of shares outstanding. In order to calculate di­ luted earnings per share, the number of common shares outstanding and the net income for the year attributable to shareholders are adjusted by the effects of potentially dilutive common shares which could still be exercised. Potentially dilutive common shares arise in connection with share­based compensation plans. equity method The equity method is a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post­acquisition change in the investor’s share of the investee’s net assets. expense rAtio Represents acquisition and administrative expenses (net) divided by premiums earned (net). F fAir vAlue The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. finAnciAl Assets cArried At fAir vAlue through income Financial assets carried at fair value through income in­ clude financial assets held for trading and financial assets designated at fair value through income. finAnciAl liAbilities cArried At fAir vAlue through income Financial liabilities carried at fair value through income include financial liabilities held for trading and financial liabilities designated at fair value through income. finAnciAl vAr Financial Value at Risk (VaR) is the aggregation of market risk and credit risk taking diversification benefits into account. forwArds The parties to this type of transaction agree to buy or sell at a specified future date. The price of the underlying assets is fixed when the deal is struck. functionAl currency The functional currency is the prevailing currency in the primary economic environment where the subsidiary conducts its ordinary activities. funds held by others under reinsurAnce contrActs Assumed/deposits retAined for reinsurAnce business ceded Funds held by others are funds to which the reinsurer is entitled but which the ceding insurer retains as collateral for future obligations of the reinsurer. The ceding insurer shows these amounts as “deposits retained for reinsur­ ance business ceded”. futures Standardized contracts for delivery on a future date, traded on an exchange. Normally, rather than actually delivering the underlying asset on that date, the differ­ ence between the closing market value and the exercise price is paid. G going concern reserve The going concern reserve consists of funds that are used to cover cost for new business under going concern assumptions. goodwill Difference between the cost of acquisition and the fair value of the net assets acquired. gross/net In insurance terminology the terms gross and net mean before and after deduction of reinsurance, respectively. In investment terminology the term “net” is used where the relevant expenses have already been deducted from the respective income. H hedging The use of special financial contracts, especially derivative financial instruments, to reduce losses which may arise as a result of unfavorable movements in rates or prices. held for sAle A non­current asset is classified as held for sale if its carrying amount will be recovered principally through sale rather than through continuing use. On the date a non­current asset meets the criteria as held for sale, it is measured at the lower of its carrying amount and fair value less costs to sell. credit risk The risk of a loss incurring due to a counterparty’s dete­ rioration of credit quality or its default. current employer service cost Net expense incurred in connection with a defined benefit plan less any contributions made by the beneficiary to a pension fund. D deferred Acquisition costs Expenses of an insurance company which are incurred in connection with the acquisition of new insurance policies or the renewal of existing policies. They include commis­ sions paid, underwriting expenses and policy issuance costs. deferred tAx Assets/liAbilities The calculation of deferred taxes is based on tax loss carry forwards, tax credit carry forwards and temporary differences between the carrying amounts of assets or liabilities in the published balance sheet and their tax base, and on differences arising from applying uniform valuation policies for consolidation purposes. The tax rates used for the calculation are the local rates appli­ cable in the countries of the entities included in the con­ solidation; changes to tax rates already adopted on the balance sheet date are taken into account. defined benefit plAns For defined benefit plans, the participant is granted a defined benefit by the employer or via an external entity. In contrast to defined contribution arrangements, the future cost of a defined benefit to the employer plan is not known with certainty in advance. To determine the expense over the period, accounting regulations require that actuarial calculations are carried out according to a fixed set of rules. defined contribution plAns Defined contribution plans are funded through indepen­ dent pension funds or similar organizations. Contributions fixed in advance (e.g. based on salary) are paid to these institutions and the beneficiary’s right to benefits exists against the pension fund. The employer has no obligation beyond payment of the contributions and does not par­ ticipate in the investment success of the contributions. derivAtive finAnciAl instruments Financial contracts, the values of which move in relation­ ship to the price of an underlying asset. Derivative finan­ cial instruments can be classified in relation to their un­ derlying assets (e.g. interest rates, share prices, foreign currency exchange rates or prices of goods). Important examples of derivative financial instruments are options, futures, forwards and swaps. 250 Annual Report 2013 Allianz Group E Further Information 245 Joint Advisory Council of the 247 Mandates of the Members of Allianz Companies the Supervisory Board 249 Glossary 253 Index 246 International Advisory Board 248 Mandates of the Members of the Board of Management held­to­mAturity investments Held­to­maturity investments comprise debt securities held with the intent and ability that they will be held­to­ maturity. They are valued at amortized cost. I iAs International Accounting Standards. ifrs International Financial Reporting Standards. Since 2002, the designation ifrs applies to the overall framework of all standards approved by the International Accounting Standards Board. Already approved standards will con­ tinue to be cited as International Accounting Standards (iAs). ifrs frAmework The framework for International Financial Reporting Standards (ifrs) which sets out the concepts that underlie the preparation and presentation of financial statements for external users. income from finAnciAl Assets And liAbilities cArried At fAir vAlue through income (net) Income from financial assets and liabilities carried at fair value through income (net) includes all realized and unrealized gains and losses including interest and divi­ dend income from financial assets and financial liabilities carried at fair value through income, the income (net) from financial liabilities for puttable equity instruments and the foreign currency gains and losses (net). issued cApitAl And cApitAl reserves This heading comprises the capital stock, the premium received on the issue of shares, and amounts allocated when option rights are exercised. J Joint venture A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. L loss rAtio Represents claims and insurance benefits incurred (net) divided by premiums earned (net). N non­controlling interests Those parts of the equity of affiliates which are not owned by companies of the Allianz Group. net income AttributAble to non­controlling interests That part of net income for the year which is not attribut­ able to the shareholders of the Allianz Group but to other third parties who hold shares in affiliates. O options Derivative financial instruments where the holder is entitled – but not obliged – to buy (call option) or sell (put option) the underlying asset at a predetermined price sometime in the future. The grantor (writer) of the option, on the other hand, is obliged to transfer or buy the asset and receives a premium for granting the option to the purchaser. otc derivAtives Derivative financial instruments which are not stan­ dardized and not traded on an exchange but are traded directly between two counterparties via over­the­counter (otc) transactions. P pension And similAr obligAtions Reserves for current and future post­employment ben­ efits formed for the defined benefit plans of active and former employees. These also include reserves for health care benefits. premiums written/eArned Premiums written represent all premium revenues in the respective year. Premiums earned represent that part of the premiums written used to provide insurance coverage in that year. In the case of life insurance prod­ ucts where the policyholder carries the investment risk (e.g. variable annuities), only that part of the premiums used to cover the risk insured and costs involved is treated as premium income. R reinsurAnce An insurance company transfers part of its insurance risk assumed to another insurance company. replicAting portfolio Representation of the liabilities of our Life/Health insur­ ance business via standard financial instruments. This form of representation mimics the behavior of these liabilities under different market conditions and allows for efficient risk calculations on the basis of Monte Carlo simulations. repurchAse And reverse repurchAse Agreements A repurchase (repo) transaction involves the sale of securities by the Group to a counterparty, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed price. The securities concerned are retained in the Group’s balance sheet for the entire lifetime of the transaction, and are valued in accordance with the accounting principles for financial assets carried at fair value through income or investment securities, respectively. The proceeds of the sale are reported in liabilities to banks or to customers, as appro­ priate. A reverse repo transaction involves the purchase of securities with the simultaneous obligation to sell these securities at a future date, at an agreed price. Such transactions are reported in loans and advances to banks, or loans and advances to customers, respectively. Interest income from reverse repos and interest expenses from repos are accrued evenly over the lifetime of the trans­ actions and reported under interest and similar income or interest expenses. 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 premium refunds That part of the surplus which will be distributed to policy­ holders in the future. This refund of premiums is made on the basis of statutory, contractual, or company by­law obligations, or voluntary undertaking. retAined eArnings In addition to the reserve required by law in the financial statements of the Group parent company, this item con­ sists mainly of the undistributed profits of Group entities and amounts transferred from consolidated net income. risk Appetite The level of risk that an organization is prepared to ac­ cept, before action is deemed necessary to reduce it. Risk appetite is therefore clearly and comprehensively defined by using target and minimum risk indicators, (quantita­ tive) limit systems, or adequate policies, standards and guidelines to determine the “boundaries” of the Group’s business operations. Annual Report 2013 Allianz Group 251 S Y yield curve extrApolAtion The Allianz Group applies the same methodology to de­ termine the risk­ free yield curve for discounting liabili­ ties as provided by the European Insurance and Occupa­ tional Pensions Authority (eiopA). The method takes traded market data into account until the maturity where market quotes are expected to be deep and liquid. After this last liquid period the Allianz Group applies a macroeconomic extrapolation technique to construct the curve by making use of forward rate assumptions. This technique interpolates between the last observable liquid forward rate per currency and the currency­specif­ ic unconditional forward rate (ufr) for a later maturity. The ufr for each currency is based on estimates of the expected inflation as well as the long­term average of the short­term real rate. After reaching this ufr the for­ ward yield remains constant over time. These derived for­ ward rates are applied to calculate the final yield curve. Notably in Euro, the Allianz Group starts extrapolating at 20 years, applying a ufr of 4.2 % which is kept constant after 60 years. segment reporting Financial information based on the consolidated financial statements, reported by business segments (Property­ Casualty, Life/Health, Asset Management and Corporate and Other) as well as by reportable segments. subordinAted liAbilities Liabilities which, in the event of liquidation or bankruptcy, are not settled until after all other liabilities. surplus funds According to Solvency ii guidance surplus funds are deemed to be accumulated profits, which have not been made available for distribution to policy holders and beneficiaries. swAps Agreements between two counterparties to exchange payment streams over a specified period of time. Impor­ tant examples include currency swaps (in which payment streams and capital in different currencies are exchanged) and interest rate swaps (in which the parties agree to exchange normally fixed interest payments for variable interest payments in the same currency). U uneArned premiums Premiums written attributable to income of future years. The amount is calculated separately for each policy and for every day that the premium still has to cover. us gAAp Generally Accepted Accounting Principles in the United States of America. V vAriAble Annuities The benefits payable under this type of life insurance depend primarily on the performance of the investments in a mutual fund. The policyholder shares equally in the profits or losses of the underlying investments. 252 Annual Report 2013 Allianz Group E Further Information 245 Joint Advisory Council of the 247 Mandates of the Members of Allianz Companies the Supervisory Board 249 Glossary 253 Index 246 International Advisory Board 248 Mandates of the Members of the Board of Management Index A Accounting policies 31, 70 AGCS 72f. Allianz Worldwide Partners 54, 57, 70, 122 Alternative Investments 50, 85f. Analysts 21 Asia-Pacific 72, 79 Asset Management 50f., 55, 65, 67f., 82ff., 89, 91, 98 Audit Committee 14, 29 Australia 72 B Banking 85f. Basic earnings per share 23, 69 Belgium/Luxembourg 79 Board of Management 18f., 27f. Board of Management Remuneration 37ff. Board of Management committees 27, 33 Brand 56ff., 59 Business environment 64f. Business operations 49ff. C Cash flows 103, 108ff. Central and Eastern Europe 72, 79 Changes 28, 31, 44, 53f., 70 Climate change 60ff., 121 Combined ratio 71ff. Conglomerate solvency 66f., 92f. Corporate and Other 50, 67f., 85f., 91, 98 Corporate governance and declara- tion 13, 32f. Corporate governance report 27ff. Statement on Corporate Management pursuant to § 289 a of the German Commercial Code 32f. Corporate Social Responsibility 59ff. Cost-income ratio 82, 84 Credit insurance 72f., 112ff. Crop business 53, 67, 71ff., 87, 103 Customers 52ff., 59f. D Demographic change 121 Digitalization 122 Directors’ dealings 31 Distribution 35f., 49ff. Diversity 30, 61f. Dividend 21ff., 69, 87, 91 E Economic environment 64 Employees 61f. Employee stock purchase plan 13, 34 Executive remuneration principles 37 Executive summary 66ff. F Financial calendar Cover France 53, 72f., 79 Funding 99ff. G General Meeting 31, 69 Germany 52, 72f., 79 Growth Markets 56, 59 H M T Management’s assessment of 2013 Takeover-related statements and results 67 Management’s overall assessment of the current economic situation 91 explanations 34ff. Talent management 62 Third-party assets under management 83 Three-year bonus 37ff. Total assets under management 82f. U United Kingdom 72 United States 21, 53f., 64f., 66, 71ff., 79f., 83, 88 Market position 51ff., 56, 121 Markets 51ff. Media expenses 59 Microinsurance 56, 61, 121 Multi-year review Cover N Net Promoter Score (NPS) 58, 60 Nomination Committee 14f., 29 O Off-balance sheet arrangements 98 Outlook 87ff. P Performance fees 84 Personnel Committee 13ff., 29 Products and services 49ff. Property-Casualty 49, 67f., 71ff., 87, 90, 96, 115 Publication date Cover Holding & Treasury 50, 85f., 91 R I Insurance markets 49ff. Intangible assets 68, 86 Internal controls over financial reporting (ICOFR) 123f. International Executive Committee 20 Investment result 67ff., 74, 78ff., 86, 87ff., 95f. Investments 60, 94f. Investor Relations 23 Investors 21f., 50 Italy 52f., 72f., 79 K Key financial indicator/Key performance indicator Cover, 58 L Latin America 72, 79 Letter to the investors 5ff. Life/Health 49, 67f., 78ff., 90, 97 Liquidity 91, 99ff., 108 Loss adjustment expenses 96 Low interest rate environment 53f., 63ff., 66ff., 79, 87, 90, 105, 121 Rating 57, 87, 95, 105ff. Regulatory changes 53, 57, 67, 72f., 78f., 87, 105ff. Reinsurance PC 73 Remuneration of the Supervisory Board 44ff. Reportable segments 49, 76f., 81 Reserves 96f. Results 2013 actual versus prior year outlook for 2013 87 Risk Committee 14f., 27, 29, 121 S Share 21ff. Share price 22 Shareholders’ equity 92 Shareholder structure 22 Solvency II 31, 57, 64, 105f., 108f., 121f., 124 Sovereign debt crisis 64, 66, 88ff., 105 Spain 72, 79 Special purpose entities (SPEs) 34, 98 Standing Committee 13, 15, 28f. Strategy 56ff. Subsequent events 70 Supervisory Board 17, 28ff. Sustainable development 59ff. Switzerland 72, 79 Annual Report 2013 Allianz Group 253 Financial calendar Important dates for shareholders and analysts 1 Annual General Meeting _______________________________ 7 May 2014 Interim Report /Financial Results 1Q ______________________ 14 May 2014 Interim Report /Financial Results 2Q ______________________ 8 August 2014 Interim Report /Financial Results 3Q ______________________ 7 November 2014 Financial Results 2014 __________________________________ 26 February 2015 Annual Report 2014 ___________________________________ 13 March 2015 Annual General Meeting _______________________________ 6 May 2015 1 The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact. Therefore we cannot exclude that we have to announce key figures related to quarterly and fiscal year results ahead of the dates mentioned above. As we can never rule out changes of dates, we recommend checking them on the internet at www.allianz.com/financialcalendar. Allianz SE – Königinstrasse 28 – 80802 Munich – Germany – Telephone +49. 89. 3800-0 – info@allianz.com – www.allianz.com Annual Report on the internet: www.allianz.com/annualreport – Design / Concept: hw.design GmbH Photography: Andreas Pohlmann (Board of Management, Chairman of the Supervisory Board) – Date of publication: 14 March 2014 This is a translation of the German Annual Report of Allianz Group. In case of any divergences, the German original is legally binding. 

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