Allianz SE
Annual Report 2014

Plain-text annual report

Protecting the Future Allianz Group Annual Report 2014 Content A To Our Investors   7  16  23  24  27  28 B  35  40  42  45 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  62 Content Your AlliAnz  63  70  73 Business Operations and Markets Strategy and Steering Progress in Sustainable Development MAnAGeMent Discussion AnD AnAlYsis Business Environment  79 Executive Summary of 2014 Results  81 Property-Casualty Insurance Operations  86 Life/Health Insurance Operations  92 Asset Management  99 Corporate and Other 102 Outlook 2015 104 Balance Sheet Review 109 Liquidity and Funding Resources 116 Reconciliations 121 risk AnD opportunitY report AnD FinAnciAl control 123 144 Risk and Opportunity Report Controls over Financial Reporting and Risk Capital D Consolidated Financial Statements 150 151 152 153 154 155 157 E 269 270 271 272 273 277 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 Total revenues1 Operating profit2 Net income from continuing operations3 Net income (loss) from discontinued operations, net of income taxes3 Net income (loss) thereof: Attributable to shareholders Balance sheet as of 31 December Total assets4 Investments4 Total liabilities4 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 share Diluted earnings per share Dividend per share Total dividend Share price as of 31 December Market capitalization as of 31 December Other data Return on equity after income tax7,8 Conglomerate solvency9 Standard & Poor’s rating12 Total assets under management as of 31 December13 thereof: Third-party assets under Change from previous year 2014 2013 2012 2011 2010 2009 2008 More details on page € Mn € Mn € Mn € Mn € Mn € Mn € Mn € Mn € Mn 122,253 10.4 % 110,773 106,383 103,560 106,451 97,385 92,568 10,402 6,603 – 6,603 6,221 3.3 % 4.1 % – 4.1 % 3.8 % 10,066 6,343 – 6,343 5,996 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) 805,787 486,445 742,085 13.3 % 18.3 % 12.7 % 711,079 411,148 658,230 694,411 401,711 641,448 641,322 350,645 595,575 624,945 334,618 578,383 583,717 294,252 541,488 954,999 258,812 917,715 € Mn 463,334 14.7 % 404,072 390,984 361,956 349,793 323,801 298,057 € Mn € Mn € Mn € € € € Mn € € Mn % % 68,989 60,747 2,955 13.71 13.64 6.855 3,1305,6 137.35 62,769 3.6 % 21.3 % 6.9 % 3.6 % 4.5 % 29.2 % 30.2 % 5.4 % 5.5 % 11.2 (0.7) %-p 18110 (1) %-p AA – 66,566 50,083 2,765 13.23 13.05 5.30 2,405 130.35 59,505 11.9 182 AA 72,540 50,388 2,576 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 11.1 197 AA 5.9 179 AA 11.9 173 AA 12.5 164 AA 9.9 15711 AA € Mn 1,801,178 1.8 % 1,769,551 1,852,332 1,656,993 1,517,538 1,202,122 950,548 82 82 – – 84 84 110 190 110 209 204 109 217 253 253 29 83 29 29 – 109 125 99 100 76 management as of 31 December13 € Mn 1,312,910 (3.5) % 1,360,759 1,438,425 1,281,256 1,163,982 Employees 147,425 (0.1) % 147,627 144,094 141,938 151,338 925,699 153,203 703,478 182,865 1 2 3 4 5 6 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 dis- continued operations, net of income taxes”. As of 1 January 2013, figures have been restated to reflect the implementation of IFRS 10. Figures prior to 2012 have not been adjusted retrospectively. For further information, please refer to note 4 to the con- solidated financial statements. Proposal. Total dividend based on total amount of shares. Actual dividend payment will be reduced by the dividend amount attributable to treasury shares.  7  8  9 10 11 12 13 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 2014 and 2013 would be 172 % and 173 %, respectively. Conglomerate solvency ratio as of 31 December 2014 was adjusted for the potential calls of hybrid capi- tal (subordinated bonds) of € 0.4 BN in 2015. Excluding this adjustment, the solvency ratio would be 182 % (including off-balance sheet reserves) as of 31 December 2014. Pro-forma after sale of Dresdner Bank completed. For further information about insurer financial strength ratings of Allianz SE, please refer to page 125. Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. Disclaimer regarding roundings The consolidated financial statements are presented in millions of Euros (€ MN), unless otherwise stated. Due to rounding, numbers presented may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. Figures prior to 2013 have not been adjusted accordingly. Allianz Group Annual Report 2014 Multichannel reporting Print Download als PDF www.allianz.com/ annualreport Orientation guide Allianz Investor Relations App Apple App Store and Google Play Store This sign indicates where additional information in this Annual Report or on the internet can be found. On pages 273 to 276, you will find a glossary of selected accounting, insurance and financial market terms used in this report. Allianz Human Resources Fact Book HR Fact Book 2014 HR Fact Book is the official and most comprehensive report on key human resources facts and figures, highlighting major HR achievements over the past year and revealing the outlook for 2015. www.allianz.com/hrfactbook Allianz Sustainability Report 2014 Our sustainability journey Allianz Group Sustainability Report 2014 The Allianz Group Sustainability Report covers our contribution to the environment, society and economy. It provides full details of our sustainability strategy, approach and progress as well as an outlook for 2015. www.allianz.com/sustainability Group profile Whatever tricks nature plays, whichever trends the financial markets follow, whenever risks turn into an emergency or a loss, Allianz stands by its clients, protecting them and helping them to realize their goals in life – as it has done since its founding 125 YEARS AGO. Its CAPITAL STRENGTH and INNOVATIVE POWER as well as the DEDICATION of its 147,425 employees vouch for this. € bn 60.7 Shareholders’ equity AA Standard & Poor's rating since 2007 page 109 € bn122.3 Total revenues page 82 € 6.85 Dividend per share (proposal) page 29 € Mn10,402 Operating profit page 82 € Mn 6,221 181 % Net income attributable to shareholders page 84 Conglomerate solvency page 109 Another of Allianz’s strengths is its five GLOBAL INSURANCE LINES. Not everyone is familiar with the highly specialized products and services of these units. But they have far-reaching implications for prosperous societies and thus for everyone. In this report, we present these business lines. With their profile. And their histories. They include our international industrial insurance providers ALLIANZ GLOBAL CORPORATE & SPECIALTY and EULER HERMES GROUP, the world’s leading credit insurer. They also include ALLIANZ GLOBAL ASSISTANCE, ALLIANZ GLOBAL AUTOMOTIVE and ALLIANZ WORLDWIDE CARE, which started to collaborate closely as ALLIANZ WORLDWIDE PARTNERS in 2014, further boosting their reach and effectiveness. WE PROTECT THE FUTURE locally, from multiple locations and on a global scale. In this way, everyone who belongs to our financial commu nity benefits. 2 Annual Report 2014 Allianz Group Allianz Global Corporate & Specialty Allianz Global Corporate & Specialty is the Allianz center of expertise for global business insurance and large corporate and specialty risks. With a worldwide network in more than 160 countries, we are one of the very few global insurers with an exclusive focus on the needs of global corporate and specialty clients. We offer our clients global business insurance through a comprehensive service range including alternative risk transfer, financial lines, aviation, international insurance programs, captive and fronting services, liability, claims services, marine, energy, property, engineering and risk consulting. agcs.allianz.com 71 nationalities More than 3,600 employees of over 70 nationalities. One global team of dedicated specialists with extensive multi-national experience. 28 countries AGCS has teams in 28 key countries globally. Our network of Allianz-owned offices in more than 70 countries, plus network partners in other locations, means we can service clients in more than 160 countries worldwide. 2,000 IIS More than 2,000 International Insurance Solutions (IIS) programs for our global clients‘ multi-national risks. AlliAnz GlobAl CorporAte & SpeCiAlty Allianz center of excel lence for large or complex business risks Allianz Cyber Protect to tackle emerging risks. Allianz Cyber Protect An increase in the frequency and severity of data breaches and IT glitches threatening businesses has prompted the launch of Allianz Cyber Protect to enable companies to protect themselves against potential financial and reputational losses. In 2013, more than 64,000 cyber crimes were registered in Germany. The Ponemon Institute estimates that the annualized cyber crime cost is in average USD 7.6 MN per company each year. The increased frequency and severity of cyber crime in Asia’s tiger economies has also dominated headlines. Singapore suffered the highest cyber losses per capita world- wide in 2013, while financial losses from cyber crimes in Hong Kong have tripled in the last three years, driving demand for such coverage. According to Allianz experts, the most heightened risk awareness in 2014 was around cyber and loss of reputation issues. Cyber was the biggest mover in the 2014 Allianz Risk Barometer, climbing from 15 to 8 in our global rankings. If cyber criminals steal data, introduce malware into networks or cause servers to shut down because of denial of service attacks, businesses risk damage running into millions of Euros, as well as reputational damage. Allianz Cyber Protect insurance solution enables businesses to protect themselves comprehensively against online risks. It covers a variety of first and third-party damages sustained by businesses if they become victims of cyber crime or if their customers hold them liable. agcs.allianz.com/services/financial-lines/allianz-cyber-protect/ 4 ART Weather Solutions to protect companies against adverse weather impacts. ART Weather Solutions “Unfortunately, rain and frost resulted in a bad crop yield” and “power production from our wind park has been below our expectations due to a lack of wind” are typical statements blaming the weather for dashed hopes. Fortunately, Allianz has solutions at hand for these and many other weather-related issues. For several years, Allianz Risk Transfer (ART) has offered insurance against adverse temperatures, precipitation, wind speed and sun hours to protect companies in different industries against financial losses due to lower sales or production. These cre- ative and tailor-made weather insurance solutions are transparent and offer favorable financing terms. In case of losses, claims are handled quickly. The ART Weather Team proactively tackles the challenges of climate change. We are not able to influence the weather, but we can protect our clients against its negative conse- quences. agcs.allianz.com/services/allianz-risk-transfer/ Allianz SpaceCo – a leading insurer in the aerospace sector. Allianz SpaceCo In 2014, AGCS insured 21 space launches through its space underwriting team based in Paris, France. The launches covered eight different types of launch vehicles from around the world – the European Ariane V and Vega, the American Atlas V and Falcon 9, the Russian Proton, Soyuz and Zenith 3, and the Indian PSLV. AGCS’ expertise covers pre-launch operations, the launches themselves and their life in orbit. During the course of the year, our satellite insurance primarily covered telecommuni- cation satellites, but also earth observation and scientific satellites and satellite constellations. agcs.allianz.com/services/space/ 55 A _ TO OuR InveSTORS Pages 6 – 30  7 16 23 24 27 28 Letter to the Investors Supervisory Board Report Supervisory Board Board of Management International Executive Committee Allianz Share 6 Annual Report 2014 Allianz Group A To Our Investors  7 Letter to the Investors 16 Supervisory Board Report Supervisory Board 23 24 Board of Management 27 International Executive Committee 28 Allianz Share I wrote my first letter to you in our 2003 Annual Report. After a difficult financial year in 2002, I promised you that nothing was more important for the management team, the employees and for me personally than returning your Allianz to the league of the most reputable international financial service providers. Allianz has long since secured its permanent place in this league. Since 2009, Allianz has been the largest international insurance company in terms of revenues and the best in terms of operating profit. In the past year, we were able to further strengthen our leading position. Overview of the 2014 financial year 2014 was characterized by extremely low interest rates, geopolitical tensions in the Middle East and Ukraine, a sharp decline in the oil price and a weak Euro against the U.S. Dollar. The number and scale of severe weather events were, by contrast, lower than in previous years. Revenues increased by more than 10 % and thereby exceeded the € 122 bn mark for the first time. Operating profit improved again and is now at € 10.4 bn. This means we achieved a result in the upper end of our target range. We generated net income of € 6.6 bn, of which € 6.2 bn is attributable to shareholders. Despite the prevailing low interest rates, our Life/Health business increased revenues by 18.6 % and operating profit by 22.8 %. Growth was particularly strong in the United States, Italy and Germany. This is confirmation from our customers that our product offerings meet their needs. The two subsidiaries in our Asset Management business developed differently. While Allianz Global Investors recorded net inflows in all quarters, PIMCO reported, in the wake of the resignation of its founder, net outflows that were at the upper end of our expectations. In our Property-Casualty business, we increased revenues by 3.7 % and improved our operating profit to € 5.4 bn (+ 2.2 %). Our combined ratio remained stable at a very good 94.3 %. In comparison to the previous year, the impact from natural catastrophe events decreased. We also made progress with the expense ratio. However, special circumstances at Fireman’s Fund, and in Russia and Brazil, weighed on our results and neutralized some of the progress we made. Two selected acquisitions in our property-casualty insurance business enabled us to strengthen our position in countries where we are able to manage a seamless integration into already well-established organizations. In Italy, we 8 A To Our Investors  7 Letter to the Investors 16 Supervisory Board Report Supervisory Board 23 24 Board of Management 27 International Executive Committee 28 Allianz Share took over part of the property insurance operations and distribution capacities of UnipolSai, and in Australia we purchased the general insurance business of the Territory Insurance Office. In addition, your company made five important decisions in the past year. These concerned: – motor insurance in Russia, – Fireman’s Fund, – the organizational structure of PIMCO, – our dividend policy, and – the composition of the Board of Management of Allianz SE. During the course of the financial year, we significantly scaled down the motor insurance business in Russia. We are therefore now mainly active in the commercial and health insurance business. In light of the continuing deteriora - tion of the economic climate in the country, this was an appropriate decision taken at the right time. In the United States, we have decided to reorganize our property-casualty insurance business. Since the results of our subsidiary Fireman’s Fund – which had regularly been discussed at our Annual General Meetings (AGM) – had shown no signs of sustainable improvement, we responded and agreed to sell the retail business, in which we did not have the necessary scale. The larger part of Fireman’s Fund is the commercial business, which we are integrating into Allianz Global Corporate & Specialty so that we achieve critical mass in this segment of the American market. We are now managing the old in-force business that has traditionally been problematic – for example asbestos liabilities – in a specialized liquidation unit within our reinsurance business. 9 In the case of PIMCO, we had already introduced the new leadership structure at the last AGM and were able to carry on working immediately after the depar- ture of the founder in September. Despite the highly recognized management team, we nonetheless experienced significant net outflows in the last few months of the financial year. However, I am convinced that we now have the right set-up to ensure the future sustainable development of PIMCO. We have redefined our dividend strategy in the past year after greater clarity emerged about capital requirements under the new Solvency II framework that enters into force from 2016. Going forward, we will distribute 50 % of the Group’s net profit as dividends (previously 40 %). Dividends per share should always be at least at the level of the previous year. Every three years, we will also consider whether to distribute any unused funds set aside for acquisi- tions. In this way, we will ensure an adequate participation of shareholders in corporate profits as well as a sound capitalization to fund future growth. Since the beginning of 2015 there have been changes to the Board of Manage- ment of Allianz SE. Dr. Theis has taken over responsibility for Global Lines and for our companies in Great Britain and Ireland from Mr. Booth, who has stepped down from the Board having reached retirement age. Mr. Balbinot has recently joined Allianz and is responsible for our companies in southern and western Europe. Due to the decision to reorganize our business in North America, Mr. Bhojwani has stepped down from the Board of Management. I would like to express my sincere thanks to Clement Booth and Gary Bhojwani for their successful work in recent years. At this year’s AGM, I will myself resign as Chairman of the Board of Manage- ment of Allianz after exactly twelve years at the helm. The Supervisory Board has chosen Oliver Bäte as my successor. Mr. Bäte has worked in various Board of Management positions for Allianz over the last seven years. I am convinced that the Supervisory Board has made an excellent choice in selecting Mr. Bäte, and I wholeheartedly wish him the very best of luck. 10 A To Our Investors  7 Letter to the Investors 16 Supervisory Board Report Supervisory Board 23 24 Board of Management 27 International Executive Committee 28 Allianz Share Outlook 2015 began with high volatility on the capital markets, a further weakening of the Euro, even lower interest rates and the announcement of a bond purchase program by the European Central Bank. There is still no sustainable end in sight to the geopolitical conflicts. 2015 will, therefore, be a difficult year for the global economy, even if the low oil price promises to provide some growth stimulus. The European Central Bank will continue its low interest rate policy for the foreseeable future. At the start of this year, the yield on 10-year German govern- ment bonds dropped below 0.3 % for the first time and the yield on 5-year bonds fell into negative territory. These developments represent a burden for all savers, and therefore also for life insurers and – to a lesser extent – for property- casualty insurers too. We do not expect a significant increase in interest rates in the immediate future. Our outlook for the 2015 financial year must be cautious in light of these prevailing conditions, without losing sight of the strength of Allianz. First and foremost, these are the employees of Allianz. Their skill and expertise are the basis for our success. I am truly grateful for the unique commitment of our people. Furthermore, the strong results for 2014 give me confidence that we have set the right course for further profitable growth in Allianz. I would like to explain to you what my confidence is based on: – The capitalization of Allianz is solid. That is proven by our solvency ratio of 181 %. Our AA S & P rating with a stable outlook confirms this. Our excellent capital base inspires confidence among our clients, who rely on our long- term promises, above all in the life insurance business. This is where Allianz 11 draws particular benefit from its strong balance sheet and brand. Double- digit growth in developed markets such as Italy, Germany and the United States during 2014 is a clear sign of this. – We have laid the foundation for the future with successful product innova- tions. I would like to highlight the new life insurance products that are offered in Germany under the name “Perspektive”. Customers who choose reduced guarantees may receive a higher share of investment income. More than 70,000 new contracts in 2014 demonstrate that we are on the right track with such low capital-intensive products. Further examples are our modular property insurance policies that, after Italy, we are now offering in other markets. The customer receives highly personalized, but also comprehensive insurance cover. At the same time, these modules can be configured online by customers themselves. They are therefore suitable for a purely internet-based distribution, as well as for clients who do their own research online before finalizing their contract in a personal meeting with their agent. – This brings me to the topic of digitalization, the greatest opportunity and at the same time greatest challenge for the insurance industry in the coming years. We have recently been able to bring some developments to the market. I refer to our Telematic Solutions and our Fast Quote technology that allow customers to receive a quotation on the internet in only a few short steps. Digitalization is fundamentally changing the way in which we interact with customers, who today expect to always be able to choose the most convenient means of communication with their insurance company, be it by smart- phone, by letter or in person in an agency. Switching between the different 12 A To Our Investors  7 Letter to the Investors 16 Supervisory Board Report Supervisory Board 23 24 Board of Management 27 International Executive Committee 28 Allianz Share channels, therefore, needs to be as seamless as possible. We also have the opportunity to enter into much closer contact with our customers. If he or she wishes, we not only pay in case of a claim, but also offer supplementary assistance and services at all times. – The global increase in life expectancy and developments in medicine make individual old-age provision more essential than ever. It would be disastrous if the mistaken idea should take hold that saving is pointless given low interest rates. In fact the opposite is true: precisely in times such as these, people need professional insurance and investment advice in order to avoid taking any undue risks. This is an area where Allianz is well placed both on the product and sales side. – Finally, I would like to mention the dangers inherent in new technologies (keyword cyber protection), which make insurance more relevant than ever. Here, too, we are active in the market with innovative products for both retail and commercial business. These points prove to me that Allianz has an excellent foundation for further growth. However, we do not target growth at any price, but focus our efforts on those areas in which profitable insurance business is possible. In the case of PIMCO, we will be aiming to stabilize third-party assets under management in the current financial year in order to return to the growth path in the medium term. Overall, we are expecting an operating profit in 2015 of € 10.4 bn, plus or minus € 0.4 bn, and in doing so are targeting profit at the same level as the previous year. 13 1890 – 2015: 125 years of Allianz In the current financial year, we will be marking the 125th anniversary of the founding of Allianz. We are placing this anniversary year under the heading “Protecting the Future”. Our aim is to enter into dialogue with employees, politi- cians, the wider public and of course with you, our investors, about two sig- nificant challenges of the future: demography and climate change. These two themes are not only of critical importance for our life and property insurance, but will also affect all of us directly. We want to make a contribu tion to social dialogue through a series of internal and external events. We see this as our essential corporate social responsibility in this anniversary year. Dear investors, our 2015 anniversary year is a special one in the history of Allianz. I am confident that it will also be a good year for your Allianz in financial terms. I would like to thank you for the trust you have placed in Allianz and, over the last 12 years, in me personally. I would be pleased if you remain part of your Allianz in the future. Michael Diekmann Chairman of the Board of Management 14 A To Our Investors  7 Letter to the Investors 16 Supervisory Board Report Supervisory Board 23 24 Board of Management 27 International Executive Committee 28 Allianz Share 15 Supervisory Board Report Ladies and Gentlemen, During the 2014 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 the Allianz Group and Allianz SE, including deviations in actual business developments from the planning. Further key areas the Board of Management reported on were business strategy, capital adequacy, the challenges facing the life insurance business due to persistently low interest rates and any potential regulatory effects of Allianz SE’s classification as a Global Systemically Important Insurer by the Financial Stability Board (FSB) and the International Association of Insurance Super­ visors (IAIS). In addition, we were extensively involved in the Board of Management’s planning for both the 2015 fiscal year and the three­year period from 2015 to 2017. We devoted particular atten­ tion in 2014 to personnel matters related to the Board of Management and ongoing developments 16 Annual Report 2014 Allianz Group A To Our Investors  7 Letter to the Investors 16 Supervisory Board Report Supervisory Board 23 24 Board of Management 27 International Executive Committee 28 Allianz Share and personnel changes at PIMCO. Our further key areas of focus were the continuing reorganization of the property/casualty business in the United States and Russia. The Board of Management’s reports were supplemented by documents which each member of the Supervisory Board received in preparation for each meeting. Likewise, the annual financial statements of Allianz SE, the consolidated financial statements and the auditor’s reports were also made available to us in time for the relevant meeting. The half­yearly and quarterly financial reports and the results of the auditor’s review were provided in advance to members of the Audit Committee. In the 2014 fiscal year, the Supervisory Board held seven meetings. The regular meetings took place in February, March, May, August, October and December. In addition, there was one extraordinary meeting in November. The Board of Management also informed us in writing of important events that occurred between meetings. The chairmen of the Supervisory and Management Boards also had regular discussions about major developments and decisions. Details on each member’s participation at meetings of the Supervisory Board and its committees can be found in the Corporate Governance Report, starting on page 35. issues discussed in the supervisOry BOard plenary sessiOns In all of the Supervisory Board’s 2014 meetings, the Board of Management reported on Group reve nues and results, developments in individual business segments and on the capital, financial and risk situation. We were regularly informed by the Board of Management about the impact of natural catastrophes, the status of major legal disputes and other essential developments. In the meeting of 26 February 2014, the Supervisory Board dealt comprehensively with the provi­ sional financial figures for the 2013 fiscal year and the Board of Management’s recommended dividend. The appointed audit firm, KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG), Munich, reported in detail on the provisional results of their audit. In addition, the Board of Management submitted its annual report on risk developments in 2013. During the further course of the meeting, 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 2013 fiscal year. The Supervisory Board subsequently dealt with succession planning and the next steps to be taken regarding the Board of Management contracts expiring in 2014. In light of the regulatory requirements under Solvency II, we also amended the guidelines for the selection and appoint­ ment of the Board of Management. In the meeting of 13 March 2014, the Supervisory Board discussed the audited annual Allianz SE and consolidated financial statements as well as the recommendation for the appropriation of earnings by the Board of Management for the 2013 fiscal year. KPMG confirmed there were no discrepancies to their February report and issued an unqualified auditor’s report for the individual Annual Report 2014 Allianz Group 17 and consolidated financial statements. The Supervisory Board also dealt with the agenda for the 2014 AGM of Allianz SE and approved the Supervisory Board’s proposals for resolution, which included the proposal to elect Mr. Jim Hagemann Snabe as the successor to Mr. Igor Landau on the Supervisory Board. In this context, we also adopted an amendment to the Declaration of Conformity with the German Corporate Governance Code (Code) of 12 December 2013: As Mr. Snabe was still a member of the Executive Board of SAP AG when elected to the Allianz SE Supervisory Board in May, he exceeded the figure of three Supervisory Board mandates as recommended by the Code for active Management Board members for a two­week period. The Supervisory Board also resolved to appoint KPMG as auditor for the individual and consolidated financial statements for the 2014 fiscal year and for the auditor’s review of the 2014 half­yearly interim report. In addition, the Chief Compliance Officer provided the annual report on the compliance organization and key com pliance­related matters. The Supervisory Board was also informed about the performance of the global industrial insurer Allianz Global Corporate & Specialty SE. At this meeting, the Super­ visory Board also dealt with the issue of succession for certain Board of Management positions. On 7 May 2014, just before the AGM, the Board of Management briefed us on the first quarter 2014 performance and on the Group’s current situation, particularly the capital adequacy. Directly after the AGM, we elected Mr. Jim Hagemann Snabe to the Audit Committee of the Supervisory Board by means of a written resolution. In our meeting on 7 August 2014, the Board of Management reported in depth on the half­yearly results. We examined the performance of PIMCO and Allianz Russia, the planned restructuring of the United States property/casualty business and the Life Insurance Reform Act in Germany. We also dealt with the issuance of Allianz shares to employees of the Allianz Group. By way of a presentation, we were informed about the requirements stemming from the Global Systemically Important Insurers regulation, in particular the required recovery and resolution plans. In addi­ tion, the Board of Management presented Allianz’s IT security program to us and the Supervisory Board dealt with the upcoming personnel decisions for the Board of Management. The meeting was followed by a separate information session for members of the Supervisory Board at which Allianz managers gave presentations on current topics. On 2 October 2014, we appointed Mr. Oliver Bäte as successor to Mr. Diekmann as Chairman of the Board of Management with effect from 7 May 2015 and Dr. Axel Theis and Sergio Balbinot as new members of the Board of Management. Mr. Manuel Bauer’s Board of Management mandate was extended by one year until 31 December 2015 and Dr. Helga Jung was reappointed for another five years until 31 December 2019. In addition, the mandates of Dr. Dieter Wemmer and Dr. Werner Zedelius were both extended by three years until 31 December 2017. For all new appointments and reappointments, we passed resolutions on the corresponding service contracts. Furthermore, the Supervisory Board agreed to the early termination of Mr. Gary Bhojwani’s appointment and service contract with effect from the end of 2014. In connection with the report on the business performance to date, we devoted considerable attention to Mr. William Hunt Gross’s departure from PIMCO and the consequences thereof. The Board of Management also reported on the development of women in managerial positions at Allianz. Finally, we dealt extensively with the strategy of the 18 Annual Report 2014 Allianz Group A To Our Investors  7 Letter to the Investors 16 Supervisory Board Report Supervisory Board 23 24 Board of Management 27 International Executive Committee 28 Allianz Share Allianz Group, in particular the operating priorities in individual business segments, the management of regulatory and capital market risks, capital efficiency and the general aspects of the dividend strategy. At the extraordinary meeting on 6 November 2014, the Supervisory Board discussed the results for the third quarter. We then focused on the Board of Management’s proposal on the dividend policy and agreed to it. At the 11 December 2014 meeting, the Board of Management provided us with detailed information about the third­quarter results, further business developments, the situation of the Allianz Group and several other issues. We then discussed the planning for the 2015 fiscal year and the 2015 – 2017 three­year period, as well as the remuneration structures within the Allianz Group and the Declaration of Conformity with the German Corporate Governance Code. The Supervisory Board reviewed and approved the appropriateness of the remuneration of the Board of Manage­ ment by means of a vertical and horizontal comparison. The vertical comparison was based on the 2013 resolved definitions of the “upper management” and “relevant workforce” groups. On the recommendation of the Personnel Committee, the Supervisory Board adopted a resolution to adjust the contribution­based pension plan. In addition, the regular age limit for Board of Manage­ ment members born on or after 1 January 1958 was raised to 62. The annual premiums for pension schemes for members of the Board of Management were set – taking into account the members’ targeted pension levels – for the year 2015, as were their targets. Finally, we took a detailed look at the results of the Supervisory Board’s efficiency review and discussed potential improvements in the way the Supervisory Board operates. declaratiOn Of cOnfOrmity with the German cOrpOrate GOvernance cOde On 11 December 2014, the Board of Management and the Supervisory Board issued the Declaration of Conformity in accordance with § 161 of the German Stock Corporation Act (“Aktiengesetz”). The Declaration was posted on the company website, where it is available to shareholders at all times. Allianz SE fully complies and will continue to fully comply with the recommendations of the German Corporate Governance Code Commission made in the Code’s version of 24 June 2014, with one exception. Deviating from Item 5.3.2 of the Code, the Supervisory Board’s Risk Committee – rather than the Audit Committee – will be responsible for monitoring the risk management system. Further explanations of corporate governance in the Allianz Group can be found in the Corporate Governance Report starting on tO § 289a HGB starting on on the Allianz website at page 40. More information on corporate governance can also be found www.allianz.com/corporate-governance. page 35 and the Statement on Corporate Management pursuant cOmmittee activities The Supervisory Board has formed various committees in order to perform its duties efficiently: the Standing Committee, the Personnel Committee, the Audit Committee, the Risk Committee and the Nomination Committee. The committees prepare the discussion and adoption of resolutions in the plenary sessions. Furthermore, in appropriate cases, the authority to adopt resolutions has Annual Report 2014 Allianz Group 19 been delegated to the committees. There is no Conciliation Committee because the German Co­Determination Act (“Mitbestimmungsgesetz”), which provides for such a committee, 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 21. The Standing Committee held four meetings in 2014. These related primarily to corporate gover­ nance issues, the preparation for the AGM, the Employee Stock Purchase Plan and an internal review of the Supervisory Board’s efficiency. During the fiscal year the committee passed resolutions requiring approval on the use of Authorized Capital 2014/II for the issue of shares to employees and to approve loans to senior executives. The Personnel Committee met four times in the 2014 fiscal year. One area of focus was the prepara­ tion of the plenary session’s decisions on expiring Board of Management mandates, including the appointment of a new Chairman. The committee dealt with other personnel matters for active and former members of the Board of Management. In addition to reviewing target achievement among Board of Management members for the 2013 fiscal year, the committee prepared the review of the remuneration system, including the setting of targets for variable remuneration in 2014. The committee also dealt with the mandates held by Board of Management members in the inter­ ests of the Allianz Group. The Audit Committee held five meetings in 2014. 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 half­yearly 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 dealt with the auditor’s engagement, established priorities for the annual audit and discussed assignments to the auditors for services not connected to the audit itself. In addition, the committee dealt extensively with the compliance system, the internal auditing system as well as 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 the audit department’s work and on legal and compliance issues. The committee approved the audit plan produced by Group Audit for 2015. The Risk Committee held three meetings in 2014, during which it discussed the current risk situation of the Allianz Group with the Board of Management. The risk report and other risk­related state­ ments in the annual Allianz SE and consolidated financial statements and management and group management reports were reviewed with the auditor and the Audit Committee was informed of the result. The appropriateness of the early risk recognition system at Allianz was also discussed. In addition, the committee looked in detail at the effectiveness of the risk management system, including an examination of its compliance with minimum supervisory requirements. Other mat­ ters considered were Solvency II, the risk strategy and insurance and credit risk. The Risk Committee also focused on developments at PIMCO. 20 Annual Report 2014 Allianz Group A To Our Investors  7 Letter to the Investors 16 Supervisory Board Report Supervisory Board 23 24 Board of Management 27 International Executive Committee 28 Allianz Share In February 2014, the Nomination Committee adopted a resolution by written procedure regarding the proposal to elect Mr. Jim Hagemann Snabe as successor to Mr. Igor Landau on the Supervisory Board. The Supervisory Board was regularly and comprehensively informed of the committees’ work. Chair and committees of the Supervisory Board – as of 31 December 2014 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 Burkhardt­Berg, Rolf Zimmermann Personnel Committee: Dr. Helmut Perlet (Chairman), Christine Bosse, Rolf Zimmermann Audit Committee: Dr. Wulf H. Bernotat (Chairman), Dr. Helmut Perlet, Jim Hagemann Snabe, Jean­Jacques Cette, Ira Gloe­Semler 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 half­yearly 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 half­yearly 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 prepared on the basis of the international financial reporting standards (IFRS), as adopted in the European Union. KPMG performed a review of the half­yearly and quarterly financial reports. All Supervisory Board members received the documentation relating to the annual financial statements and the auditor’s reports from KPMG for the 2014 fiscal year on schedule. The provisional financial statements and KPMG’s audit results were discussed in the Audit Committee on 24 Feb­ ruary 2015 and in the plenary session of the Supervisory Board on 25 February 2015. The final finan­ cial statements and KPMG’s audit reports were reviewed on 12 March 2015 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 Annual Report 2014 Allianz Group 21 company’s financial statements are therefore adopted. We agree with the Board of Management’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 Mr. Igor Landau left the Supervisory Board at the end of the Annual General Meeting on 7 May 2014 and Mr. Jim Hagemann Snabe was elected by the AGM as his successor. The current term of the Supervisory Board will expire following the 2017 AGM. Mr. Michael Diekmann will step down from the Board of Management following the AGM on 6 May 2015. Mr. Oliver Bäte will take over as Chairman of the Board of Management with effect from 7 May 2015. Mr. Clement Booth and Mr. Gary Bhojwani left the Board of Management with effect from 31 December 2014. Dr. Axel Theis was appointed as Mr. Booth’s successor with effect from 1 January 2015. He is responsible for the insurance business in the Anglo Markets, with the exception of Australia, and for the global industrial insurance and reinsurance businesses. Another new appointment as of 1 January 2015 was Mr. Sergio Balbinot, who has taken over responsibility from Mr. Bäte for Insurance Western & Southern Europe. Munich, 12 March 2015 For the Supervisory Board: Dr. Helmut Perlet Chairman 22 Annual Report 2014 Allianz Group A To Our Investors  7 Letter to the Investors 16 Supervisory Board Report Supervisory Board 23 24 Board of Management 27 International Executive Committee 28 Allianz Share Supervisory Board Dr. Helmut Perlet Chairman Former Member of the Board of Management of Allianz SE ira Gloe-semler Regional Representative Financial Services of ver.di Hamburg 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. until 7 May 2014 Jim HaGemann snaBe Chairman of Centre for Global Industries, World Economic Forum since 7 May 2014 Peter Denis sutHerlanD Chairman of Goldman Sachs International Dr. Wulf H. Bernotat Vice Chairman Former Chairman of the Board of Management of E.ON AG rolf Zimmermann Vice Chairman Chairman of the (European) SE Works Council of Allianz SE 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 Jean-JaCques Cette Chairman of the Group Works Council of Allianz France S.A. Annual Report 2014 Allianz Group 23 Board of Management miCHael Diekmann oliver Bäte Dr. HelGa JunG Dr. CHristof masCHer Dr. Werner ZeDelius 24 Annual Report 2014 Allianz Group A To Our Investors  7 Letter to the Investors 16 Supervisory Board Report Supervisory Board 23 24 Board of Management 27 International Executive Committee 28 Allianz Share Jay ralPH serGio BalBinot Dr. axel tHeis Dr. Dieter Wemmer manuel Bauer Dr. maximilian Zimmerer Annual Report 2014 Allianz Group 25 Board of Management miCHael Diekmann Chairman of the Board of Management until 6 May 2015 Dr. HelGa JunG Insurance Iberia & Latin America, Legal & Compliance, Merger & Acquisitions oliver Bäte Insurance Western & Southern Europe until 31 December 2014 Global Property-Casualty until 6 May 2015 Chairman of the Board of Management from 7 May 2015 serGio BalBinot Insurance Western & Southern Europe since 1 January 2015 manuel Bauer Insurance Growth Markets Gary BHoJWani Insurance USA until 31 December 2014 Clement BootH Global Insurance Lines & Anglo Markets until 31 December 2014 Dr. CHristof masCHer Operations Jay ralPH Asset Management U.S. Life Insurance since 1 January 2015 Dr. axel tHeis Global Insurance Lines & Anglo Markets since 1 January 2015 Global Property-Casualty from 7 May 2015 Dr. Dieter Wemmer Finance, Controlling, Risk Dr. Werner ZeDelius Insurance German Speaking Countries, Banking, Human Resources Dr. maximilian Zimmerer Investments, Global Life/Health 26 Annual Report 2014 Allianz Group A To Our Investors  7 Letter to the Investors 16 Supervisory Board Report Supervisory Board 23 24 Board of Management 27 International Executive Committee 28 Allianz Share International Executive Committee miCHael Diekmann Chairman, Allianz SE Germany amer aHmeD Allianz Re Germany solmaZ altin Allianz Sigorta A.S. Turkey oliver Bäte Allianz SE Germany serGio BalBinot Allianz SE Germany manuel Bauer Allianz SE Germany Gary BHoJWani until 31 December 2014 Allianz SE Germany Clement BootH until 31 December 2014 Allianz SE Germany eliZaBetH Corley Allianz Global Investors Germany Jon Dye Allianz Insurance PLC United Kingdom moHameD el-erian Allianz SE USA roBert franssen Allianz Benelux Belgium rÉmi Grenier Allianz Global Assistance France DouG HoDGe PIMCO USA HelGa JunG Allianz SE Germany manfreD knof Allianz SE – CEE 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 viCente tarDío Barutel Allianz Companía de Seguros y Reaseguros Spain axel tHeis Allianz SE 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 Annual Report 2014 Allianz Group 27  Allianz Share − Solid gains made by Allianz shares. − Dividend increases to € 6.85. Another double-digit total return Despite the European Central Bank’s expansive monetary policy cre- ating favorable conditions for stock markets in Europe, market appre- ciation in the region was modest, something that can be traced back to geopolitical crises and the Eurozone’s disappointing economic development. With these conditions in mind, the performance of Allianz’s share price was pleasing, rising by 5.4 % to € 137.35. Provided the dividend was reinvested in Allianz shares, investments in the company would have seen a double-digit value increase for the third time in a row, namely +10.0 % in this reporting year. This was stimu- lated by the strong performance of our business and the positive response to our new dividend policy. However, it was dampened by concerns over the potential ramifications of continually low interest rates and in particular the future performance of our asset manager PIMCO. As a result, the gains made by our shares fell short of those made by the STOXX Europe 600 Insurance (+9.8 %). They nonetheless significantly outclassed the value increase of cross-sector indices such as the EURO STOXX 50 (+1.2 %). Following the publication of the 2014 results on 26 February 2015, 49 % of analysts issued a “buy” rec- ommendation for Allianz shares – with an average price target of € 152. You can find the current analyst recommendations and profit forecasts at www.allianz.com/analystrecommendations. The price gains made in 2014 also underpinned the appeal of a long-term investment in Allianz shares. Investors who have kept our shares in their portfolios for five years and opted to reinvest their dividends in Allianz shares achieved an average annual performance of 14.7 % over this period of time. Over the last ten years the corre- sponding gain amounted to 7.5 %. 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 2014 5 years 2010 – 2014 10 years 2005 – 2014 5.4 10.0 9.8 1.2 2.7 9.5 14.7 10.5 1.2 10.5 3.5 7.5 2.9 0.6 8.7 28 Annual Report 2014 Allianz Group DevelopmenT of The AlliAnz shAre price versUs sToXX eUrope 600 insUrAnce AnD eUro sToXX 50 indexed on the Allianz share price in € € 130.35 (12/31/2013) 150 140 130 120 € 137.35 (12/31/2014) 1Q 2Q 3Q 4Q Allianz STOXX Europe 600 Insurance EURO STOXX 50 Source: Thomson Reuters Datastream shAre price DevelopmenT AgAinsT sToXX eUrope 600 insUrAnce € 175 150 125 100 75 50 25 139.70 130.80 117.20 101.75 95.43 76.67 108.05 105.85 70.02 57.47 2010 2011 2012 2013 2014 Allianz share price STOXX Europe 600 Insurance (indexed on the Allianz share price) Allianz highs and lows Source: Thomson Reuters Datastream A To Our Investors  7 Letter to the Investors 16 Supervisory Board Report Supervisory Board 23 24 Board of Management 27 International Executive Committee 28 Allianz Share Higher dividend Shareholder structure Given our new dividend policy, we will be proposing to the Annual General Meeting a dividend increase of € 1.55 to € 6.85. This represents a dividend yield of 5.0 % on the year-end share price. The payout ratio will rise from 40 % to 50 %. You can find more detailed information on the dividend policy in the Outlook 2015 chapter starting on page 104 and at www.allianz.com/dividend. Weighting in major indices The Allianz share is strongly represented in major German and Euro- pean indices, as well as being included in important global indices. WeighTing of AlliAnz shAres in mAjor inDices as of 31 December 2014 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 7.7 3.2 14.0 1.1 0.2 5 9 1 16 83 30 50 39 350 1,636 With more than 445,000 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 our shares continue to be held in free float. At the end of the year, 85 % were held by insti- tutional investors and 15 % by private investors. The breakdown by region shows that 74 % of Allianz shares were owned by Europeans and 26 % by non-Europeans. For up-to-date information on our shareholder structure, please refer to www.allianz.com/shareholders. 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 Monday to Friday, 8 am to 8 pm CET Phone: +49.89.3800-7555 E-mail: investor.relations@allianz.com www.allianz.com/investor-relations Allianz Investor Relations app for iOS and Android Financial calendar: see back cover. AlliAnz shAre key inDicATors AT A glAnce Total number of issued shares as of 31 December 457,000,000 456,500,000 455,950,000 455,300,000 454,500,000 2014 2013 2012 2011 2010 Share price as of 31 December High of the year Low of the year Share price performance in the year Beta coefficient1 Market capitalization as of 31 December Basic earnings per share Price-earnings ratio Dividend per share Total dividend Dividend yield as of 31 December Payout ratio4 € € € % € bn € € € mn % % 137.35 139.70 117.20 5.4 0.8 62.8 13.71 10.0 6.852 3,1302,3 5.02 502,3 130.35 130.80 101.75 24.4 1.3 59.5 13.23 9.9 5.30 2,405 4.1 40 104.80 105.85 70.02 41.8 1.1 47.8 11.56 9.2 4.50 2,039 4.3 39 73.91 108.50 57.47 (16.9) 1.5 33.7 5.74 13.1 4.50 2,037 6.1 79 88.93 95.43 76.67 2.0 0.9 40.4 11.20 7.9 4.50 2,032 5.1 40 1 2 In comparison with EURO STOXX 50, source: Bloomberg. Proposal. 3 4 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 after non-controlling interests. Annual Report 2014 Allianz Group 29 30 Annual Report 2014 Allianz Group Allianz Global Assistance How can we help? An international leader in assistance, travel insurance and health, life & home care services, today Allianz Global Assistance’s global family counts more than 13,700 employees who live to help. They speak 58 different languages and work throughout the world with a network of 400,000 service providers and 180 correspondents. 250 mil- lion people, or 4 % of the world’s total population, benefit from its services, which are provided on five continents. allianz-global-assistance.com Allianz Global Assistance Allianz Global Automotive Allianz Worldwide Care 13,734 Employees who live to help. 250 MN 250 million people, or 4 % of the world’s total population benefit from our services. AlliAnz GlobAl AssistAnce International leader in assistance, travel insurance and health, life and home care services With our international experience and expertise in creating services we design innovative and customized solutions. Travel Insurance Australia Australian residents Stephen and Joanne Connelly took their four-year-old daughter, Freya, on a dream vacation to Disneyland. They hadn’t had a holiday in three years so this was a very special trip for them. A few days into the vaca- tion, Freya suddenly became ill and was taken to hospital where she was diagnosed with mycoplasma pneumonia and a collapsed lung. To get the right paediatric care, Freya needed to be evacuated by helicopter to another hospital that could offer specialist care. After one call to the family’s travel insurance provider, Allianz Global Assistance, the medical team arranged for Freya’s medical evacuation to another hospital and covered additional expenses including accommodation and medical coverage. Because of her condition, Freya had to remain in the United States for a further two months until her condition improved and she was deemed fit to return to Australia. “We got the best medical care possible and we couldn’t have done that with- out Allianz Global Assistance”, says Joanne Connelly. allianz-assistance.com.au/corporate 32 We are here to help people anytime, anywhere, around the corner or in their home. Property Assistance Italy An Italian customer was on vacation in Sicily when she received a call no one wants to receive when far from home – a pipe had burst in her flat in Milan. The burst pipe had severely damaged the walls, furniture, floors, electrical system and had even damaged the neighbor’s ceiling below. After calling her assistance provider, Allianz Global Assistance, an Assistance Coordinator (AC) quickly worked to provide emergency intervention. The AC had quickly dispatched a team of experts – plumbers, electricians, up- holsterers, plaster craftsman, decorators, and floor layers to begin repairs immediately. Once back in Milan, Allianz Global Assistance arranged for the customer to stay in a hotel for a few days whilst the repairs were completed. The customer was delighted, “I could have spent a great deal of time trying to find the right experts and organising the repairs, but thanks to Allianz Global Assistance, the entire flat was perfectly restored in a matter of days, as was the neighbour’s ceiling! It looked as good as new.” allianz-global-assistance.it/corporate Innovation is in our genes – example Telematics. Telematics Service China Telematics, the use of computer technology to make cars more navigable and drivers safer, is revolutionizing how we provide roadside assistance. For example, at 10 pm on March 15, 2014 the emergency alarm went off at Allianz Global Assistance’s call center. An Assistance Coordinator (AC) immediately answered the call, but all he could hear was faint breathing. Realizing the driver was injured, he used GPS to locate the position of the car in Henan Province. The AC then started calling the emergency services, notifying them of the serious accident and asking them to send an ambu- lance as soon as possible. The AC also kept phoning the driver, who finally answered back and told him of his injury and the need for an ambulance. About 20 minutes later, the emergency services arrived. Thanks to cutting-edge telematics and our AC’s fast and accurate reaction, the driver was rescued and given timely treatment. allianz-assistance.com.cn/cn 33 B _ CoRPoRATE GovERnAnCE Pages 34 – 58 35 40 42 45 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) 34 Annual Report 2014 Allianz Group B Corporate Governance 35 40 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 42 Takeover-related Statements and Explanations 45 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 thus attach great importance to complying with the recom- mendations of the German Corporate Governance Code (referred to hereinafter as the “Code”). The Declaration of Conformity with the recommendations of the Code issued by the Board of Management and the Supervisory Board on 11 December 2014 and the company’s position regarding the Code’s suggestions can be found in the State- ment on Corporate Management pursuant to § 289a HGB starting on page 40. Corporate Constitution of the European Company (SE) As a European Company, Allianz SE is subject to special European SE regulations and the German SE Implementation Act (“SE-Ausführungs- gesetz”) in addition to German stock corporation law. However, the main features of a German stock corporation – in particular the two- tier board system (Board of Management and Supervisory Board) and the principle of equal employee representation on the Super visory Board – have been maintained by Allianz SE. Function of the Board of Management The Board of Management manages Allianz SE and the Allianz Group. During the reporting period it comprised 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. It is responsible for monitoring adherence to statutory provi- sions and official regulations. The Board of Management also pre- pares the quarterly and half-yearly financial reports, as well as the Group’s consolidated financial statements and the annual financial statements of Allianz SE. The members of the Board of Management are jointly responsible for management. Notwithstanding this overall responsibility, the individual members of the Board head the departments they have been assigned independently. There are divisional responsibilities for business segments as well as functional responsibilities. The latter include the Chairman’s division, the Finance-, Risk Management- and Controlling-Function, Investments, Operations – including IT –, Human Resources, Legal and Compliance, and Mergers & Acquisitions. Business division – responsibilities focus on geographical regions or operating segments, such as Asset Management. Rules of procedure specify in more detail the work of the Board of Management and the responsibilities of the Board departments. Details of the Board of Management’s reporting to the Supervisory Board are laid down in the reporting rules issued by the Supervisory Board. 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 subject. The Board takes decisions by a simple majority of participating members. In the event of a tie, the Chairman casts the deciding vote. The Chairman can also veto deci- sions, but cannot impose any decisions against the majority vote. Board of ManaGeMent and Group CoMMittees In the financial year 2014, there were the following Board of Manage- ment committees: Board CoMMittees Board CoMMittees responsiBiLities Group CapitaL CoMMittee Michael Diekmann (Chairman), Dr. Dieter Wemmer, Dr. Maximilian Zimmerer Group finanCe and risk CoMMittee Dr. Dieter Wemmer (Chairman), Dr. Helga Jung, Oliver Bäte (from 1 January 2015: Sergio Balbinot), Clement Booth (from 1 January 2015: Dr. Axel Theis), Jay Ralph, Dr. Maximilian Zimmerer Group it CoMMittee Dr. Christof Mascher (Chairman), Jay Ralph, Dr. Dieter Wemmer, Dr. Werner Zedelius Group MerGers and aCquisitions CoMMittee Dr. Helga Jung (Chairman), Dr. Dieter Wemmer, Dr. Maximilian Zimmerer as of 31 December 2014 Proposals to the Board of Management concerning risk capital management, including Group-wide capital and liquidity planning, as well as investment strategy. Implementing and overseeing the principles of Group-wide capital and liquidity planning, as well as investment strategy and preparing risk strategy. This includes, in particular, significant individual investments and guidelines for currency management, Group financing and internal Group capital management, as well as establishing and overseeing a Group-wide risk management and monitoring system including dynamic stress tests. Developing, proposing, implementing and monitoring a Group-wide it strategy, approval of relevant it investments. Managing and overseeing Group M & a transactions, including approval of individual transactions within certain thresholds. Besides Board committees, there are also Group committees whose job it is to prepare decisions for the Board of Management of Allianz SE, submit proposals for resolutions and ensure the smooth flow of infor - mation within the Group. Annual Report 2014 Allianz Group 35 In the financial year 2014, there were the following Group committees: Group CoMMittees Group CoMMittees responsiBiLities Group CoMpensation CoMMittee Board members of Allianz se and executives below Allianz se Board level Group underwritinG CoMMittee Members of the Board of Management, executives below Allianz se Board level and Chief Underwriting Officers of Group companies Group investMent CoMMittee Members of the Board of Management and executives below Allianz se Board level internationaL exeCutive CoMMittee Chairman of the Allianz se Board of Management (Chairman), all other members of the Allianz se Board of Management and Managing Directors of major Group companies Designing, monitoring and improving Group-wide compensation systems in line with regulatory requirements and sub - mitting an annual report on the results of its monitoring, along with proposals for improvement. Monitoring of the underwriting business and related risk management, developing an underwriting policy and strategy. Implementing Group investment strategy, including monitoring Group-wide investment activities as well as approving investment-related frameworks and guidelines and individual investments within certain thresholds. Discussion of overall strategic issues for the Allianz Group (for composition, see page 27). The 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. 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, see the Remuneration Report starting on page 45). When filling management positions, the Board of Management takes diver- sity into consideration, particularly to ensure that the percentage of women in management positions continues to increase. The Board of Management reports regularly and comprehen- sively to the Supervisory Board on business development, the finan- cial position and earnings, planning 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 requirements 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 transactions, such as intercompany agreements and the launch of new business 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 36 Annual Report 2014 Allianz Group which exceed certain threshold levels. The Agreement concerning the Participation of Employees in Allianz SE requires the approval of the Supervisory Board for the appointment of the member of the Board of Management responsible for employment and social welfare. Principles and function of the Supervisory Board The German Co-Determination Act (“Mitbestimmungsgesetz”) does not apply to Allianz SE because it has the legal form of a European Company (SE). 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 3 July 2014 (hereinafter “SE Agreement”). The Supervisory Board comprises twelve members, whose six share holder representatives are appointed by the AGM. The six employ- ee representatives are appointed by the SE works council. The specific procedure for their appointment is laid down in the SE Agreement. This stipulates that the six employee representatives must be allo- cated in proportion to the number of Allianz employees in the differ- ent countries. The Supervisory Board currently in office comprises four employee representatives from Germany and one each from France and Italy. The last regular election of the Supervisory Board took place in May 2012 for a term lasting until the end of the ordinary AGM in 2017. The Supervisory Board oversees and advises the Board of 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 2014 financial year are described in the Supervisory Board Report starting on page 16. The Supervisory Board held six regular meetings and one extra- ordinary meeting in the 2014 financial year and is scheduled to meet three times each half calendar year in the future. Extraordinary meet- ings may be convened as needed. The committees also hold regular meetings. The Supervisory Board takes all decisions based on a simple majority. The special requirements for appointing members to the Board of Management contained 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 Supervisory Board discusses recommendations for improvements and adopts appropriate measures on the basis of rec- ommendations from the Standing Committee. B Corporate Governance 35 40 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 42 Takeover-related Statements and Explanations 45 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) − Two employee represen tatives (Gabriele Burkhardt-Berg, Rolf Zimmermann) audit CoMMittee 5 members − Chairman: appointed by the Supervisory Board (Dr. Wulf H. Bernotat) − Three shareholder represen - tatives (in addition to Dr. Wulf H. Bernotat: Dr. Helmut Perlet, Jim Hagemann Snabe) − 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 (in addition to Dr. Helmet Perlet: Christine Bosse, 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 responsiBiLities − Approval of certain transactions which require the approval of the Supervisory Board, e.g. capital measures, acquisitions and disposals of participations − Preparation of the Declaration of Conformity pursuant to § 161 “Aktiengesetz” (German Stock Corporation Act) and checks on corporate governance − Preparation of the efficiency review of the Supervisory Board − Initial review of the annual Allianz se and consol- idated 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 addi - tionally rendered, awarding of the audit contract and determining the focal points of the audit − Monitoring of the general 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 of the results of such reviews − Preparation of the appointment of Board of 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 − 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 representatives (Prof. Dr. Renate Köcher, Peter Denis Sutherland) − Selection of suitable candidates for election to the Supervisory Board as shareholder representatives 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 Jim Hagemann Snabe 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 Dr. Wulf H. Bernotat (Chairman) Jean-Jacques Cette Ira Gloe-Semler Igor Landau Jim Hagemann Snabe Dr. Helmut Perlet risk CoMMittee Dr. Helmut Perlet (Chairman) Dante Barban Christine Bosse Franz Heiß Peter Denis Sutherland presenCe in perCent 7/7 7/7 7/7 5/7 7/7 6/7 6/7 7/7 6/7 7/7 2/3 1 4/4 2 6/7 4/4 4/4 4/4 4/4 4/4 4/4 4/4 4/4 5/5 4/5 4/5 2/2 3 3/3 4 5/5 3/3 3/3 3/3 3/3 3/3 100 100 100 71.43 100 85.71 85.71 100 85.71 100 66.67 100 85.71 100 100 100 100 100 100 100 100 100 80 80 100 100 100 100 100 100 100 100 1 2 3 4 As Mr. Landau left the Supervisory Board during the year as at the end of the Annual General Meeting on 7 May 2014, only the February, March and May meetings were relevant. As Mr. Snabe was elected to the Supervisory Board during the year by the Annual General Meeting on 7 May 2014, only the August, October and December meetings as well as the extraordinary meeting in November were relevant. As Mr. Landau left the Supervisory Board during the year, only two meetings of the Audit Committee were relevant. As Mr. Snabe joined the Supervisory Board during the year, only three meetings of the Audit Committee were relevant. Annual Report 2014 Allianz Group 37 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 of the Supervisory Board II. Requirements relating to the composition 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) of the German Stock Corporation Act (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 Executive Bodies, a controlling shareholder or an enterprise associated with the latter, which may cause a substantial and not merely temporary conflict of interests. In case shareholder representatives and employee representatives are viewed separately, at least four members should be independent within the meaning of No. 5.4.2 of the Corporate Governance Code. Regarding employee representatives, however, the mere fact of employee representation and the existence of a working relationship with the company shall not itself affect independence. In addition, at least one member must be independent within the meaning of § 100 (5) of the German Stock Corporation Act (AktG). 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 (“Versicherungsaufsichts- gesetz – VAG”) dated 3 December 2012. 38 Annual Report 2014 Allianz Group B Corporate Governance 35 40 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 42 Takeover-related Statements and Explanations 45 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 four female Supervisory Board members, the goal of having 25 % female members and the intended statutory quota of 30 % in the current draft legislation for equal par- ticipation of women and men in leadership positions are both being met. The objectives will be adjusted according to the final version of the legislation. The current composition of the Supervisory Board and its committees is described on page 21. capital transactions and the approval of intercompany agreements, as well as the remuneration of the Supervisory Board and changes to the company’s Statutes. In accordance with European regulations and the Statutes, changes to the Statutes require a two-thirds major- ity of votes cast in case less than half of the share capital is repre- sented in the AGM. Each year, an ordinary AGM takes place at which the Board of Management and Supervisory Board give an account of the preceding financial year. For special decisions, the German Stock Corporation Act provides for the convening of an extraordinary AGM. 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 2014. 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/ www.allianz.com/management-board and supervisory-board. Annual General Meeting Shareholders exercise their rights at the Annual General Meeting. When adopting resolutions, each share carries one vote. In order to facilitate the exercise of shareholders’ rights, Allianz SE allows share- holders to follow the AGM’s proceedings on the internet and be rep- resented by proxies appointed by Allianz SE. These proxies exercise voting rights exclusively on the basis of instructions given by the shareholder. Shareholders 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 e-mail and internet services. The AGM elects the shareholder representatives of the Super- visory Board and approves the actions taken by the Board of Manage- ment and the Supervisory Board. It decides on the use of profits, Accounting and auditing 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 con- solidated 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 manner. The annual financial statements of Allianz SE, the Allianz Group’s consolidated financial statements and the respective management reports are published within 90 days of the end of each financial year. Additional information is provided in the Allianz Group’s quarterly and half- yearly financial reports, which are reviewed by the auditor in advance. Information is also made available at the AGM, at press and analysts’ conferences, as well as on the Allianz Group’s website. Our website also provides a financial calendar listing the dates of major publica- tions and events, such as annual reports, quarterly and half-yearly financial reports and AGMs. You can find the 2015 financial calendar on our website at www.allianz.com/financialcalendar. Outlook The regulatory environment remains in a state of flux. We expect that further regulatory requirements will be imposed in addition to Sol- vency II as a result of the Allianz Group’s classification as a system- ically important insurer. The Allianz Group will integrate these requirements into its existing governance system. Annual Report 2014 Allianz Group 39 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 Code Com- mission in its 24 June 2014 version and also followed all suggestions in the previous version of 13 May 2013. 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 11 December 2014, the Board of Management and the Supervisory Board issued the following Declaration of Conformity of Allianz SE with the German Corporate Governance Code: www.allianz.com/corporate-governance. The listed Group company Oldenburgische Landesbank AG issued its own Declaration of Conformity in December 2014, which states that Oldenburgische Landesbank AG complies with all of the recommendations of the German Corporate Governance Code in the version of 24 June 2014 (as well as in the previous year’s version of 13 May 2013). DECLARATION OF CONFORMITY WITH THE GERMAN CORPORATE GOVERNANCE CODE Corporate governance practices “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. The recommendations of the German Corporate Governance Code Commission (Code Commission) in the version of June 24, 2014 published in the official section of the Federal Gazette (“Bundesanzeiger”) on September 30, 2014 have been complied with since their publication and will be complied with except for the following: According to Item 5.3.2 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 responsible for the monitoring of the risk management system. 2. Since the last Declaration of Conformity as of December 12, 2013 and its amendment in March 2014, all recommendations of the Code Commission in the version of May 13, 2013 were complied with except for the above mentioned deviation as well as the deviation declared in March 2014. In deviation from Item 5.4.5 para. 1 sentence 2, Mr. Jim Hagemann Snabe was member of the Management Board of SAP AG and held four Supervisory Board mandates in external listed companies at the same time. However, such deviation has expired with Mr. Snabe retiring from his office as Management Board member of SAP AG with effect as of May 21, 2014. Munich, 11 December 2014 Allianz SE For the Board of Management: Signed Michael Diekmann Signed Dr. Helga Jung For the Supervisory Board: Signed Dr. Helmut Perlet” INTERNAL CONTROL SYSTEMS The Allianz Group has an effective internal control system for verify- ing and monitoring its operating activities and business processes, in particular the control of financial reporting. The requirements placed on the internal control systems are essential not only for the survival of the company, but also to maintain the confidence of the capital market, our customers and the public. A comprehensive risk management system regularly assesses the appropriateness of the internal control system, taking not only qualitative and quantitative guidelines into account, but also specific control instruments for individual business activities. For further information on the risk page 139. (For fur- organization and risk principles, please refer to ther information on the internal Controls over Financial Reporting and Risk Capital, please refer to page 144.) In addition, the quality of the internal control system is assessed by the Allianz Group’s internal audit staff. Internal Audit conducts independent audit procedures, analyzing the structure and efficacy of the internal control systems as a whole. In addition, it also exam- ines the potential for additional value and improvement of our orga- nization’s operations. Fully compliant with all international auditing principles and standards, Internal Audit contributes to the evalua- tion and improvement of the effectiveness of the risk management, control and governance processes. Therefore, internal audit activities are geared towards helping the company to mitigate risks and further assist in strengthening its governance processes and structures. 40 Annual Report 2014 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 page 21 and 23 of the Annual Report. A description of the composition of the Board of Management can be found on page 24 and 25, while the composition of the Committees of the Board of Management is described in the Corporate Governance page 35. This information is also available on our Report starting on 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 35, and on our website: www.allianz.com/corporate-governance. B Corporate Governance 35 40 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 42 Takeover-related Statements and Explanations 45 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 central compliance department, Allianz supports and follows internationally and nationally recognized guidelines and standards for rules-compliant and value-based corporate governance. These include the principles of the United Nations (UN Global Compact), the Guidelines of the Organization for Economic Co-operation and Development (OECD guidelines) for Multinational Enterprises and European and international standards on data and consumer protec- tion, economic and financial sanctions and combating corruption, bribery, money laundering and terrorism financing. Through its sup- port for and acceptance of these standards, Allianz aims to avoid the risks that might arise from non-compliance. The central compliance department is responsible – in close cooperation with local compli- ance departments – for ensuring the effective implementation and monitoring of the compliance program within the Allianz Group, as well as for investigating potential compliance infringements. The 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 controls (more information on the Anti-Corruption Program can be found under Progress in Sustainable Development starting on page 73). 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. No employee voicing concerns about irregularities in good faith needs to fear retribution, even if the concerns turn out to be unfounded at a later date. Annual Report 2014 Allianz Group 41 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 2014, the share capital of Allianz SE was € 1,169,920,000. It was divided into 457,000,000 registered and fully paid-up shares with no-par value and a corresponding share capital amount of € 2.56 per share. All shares carry the same rights and obligations. Each 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 casting vote (§ 8 (3) of the Statutes). If a required member of the Board of Manage- ment is missing, in urgent cases the courts must appoint such mem- ber upon the application of an interested party (§ 85 of the German Stock Corporation Act). The Supervisory Board may dismiss mem- bers 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. 42 Annual Report 2014 Allianz Group B Corporate Governance 35 40 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the hgb 42 Takeover-related Statements and Explanations 45 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 6 May 2019, 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 2014/I). In case of a capital increase against cash contribution, the Board of Management may exclude the shareholders’ subscription rights for these shares with the consent of the Supervisory Board, (i) for fractional amounts, (ii) in order to safeguard the rights pertain- ing to holders of convertible bonds or bonds with warrants, including mandatory convertible bonds, and (iii) in the event of a capital increase of up to 10 % if the issue price of the new shares is not significantly less than the stock market price. The Board of Management may furthermore exclude the shareholders’ sub- scription rights with the consent of the Supervisory Board, in the event of a capital increase against contributions in kind. − Up to a total of € 13,720,000 (Authorized Capital 2014/II). The shareholders’ subscription rights can be excluded in order to issue the new shares to employees of Allianz SE and its Group companies as well as for fractional amounts. The company’s share capital is conditionally increased by up to € 250,000,000 (Conditional Capital 2010/2014). 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 or on the basis of the authorization of the General Meeting of 7 May 2014 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 6 May 2019 on the basis of the authorization of the General Meeting of 7 May 2014 (§ 71 (1) No. 8 of the German Stock Corporation Act). Together with other treasury shares that are held by Allianz SE or which are attributable to it under §§ 71a et seq. of the German Stock Corporation Act, such shares may not exceed 10 % of the share capital at any time. The shares acquired pursuant to this authorization may be used, under exclusion of the shareholders’ subscription rights, for any legally admissible purposes, and in 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 6 May 2019. 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 clause under which both parties to the contract have an extraordinary termi- nation 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, Philippines) includes a clause under which both parties have an extraordi- nary 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 clause under which both parties have an extraordinary termi- nation right in case there is a change of control of the other party’s ultimate holding company. Annual Report 2014 Allianz Group 43  − 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 clause 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 twelve months after the acquisition of more than 50 % of the compa- ny’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 45. 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 Incentive (GEI) scheme, Stock Appreciation Rights (SAR) – i.e. virtual options on Allianz shares – were also granted until 2010. Some of these are still outstanding. The conditions for these RSU and SAR contain change of control clauses which apply if a majority of the voting share capital in Allianz SE is acquired, directly or indirectly, by one or more third parties which do not belong to the Allianz Group and which provide for an exception from the usual exercise periods. The RSU will be exer- cised, 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 con- ditions, by the company for the relevant plan participants on the day of the change of control without observing any vesting period. By providing for the non-application of the blocking period in the event of a change of control, the terms take into account the fact that the conditions under which the share price moves are very different when there is a change in control. 44 Annual Report 2014 Allianz Group B Corporate Governance 35 40 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 42 Takeover-related Statements and Explanations 45 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: One third of the variable 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 based on proposals prepared by the Per­ sonnel Committee. If required, outside advice is sought from inde­ pendent external consultants. The Personnel Committee and the Supervisory Board consult with the Chairman of the Board of Man­ agement as appropriate in assessing the performance and remu­ neration 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 Per­ sonnel Committee and the Supervisory Board, please refer to the Supervisory 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: The performance­based, variable component forms a significant portion of the overall remuneration. − Variable remuneration focused on sustainability: Two thirds of the variable remuneration reflect longer­term performance. One third is a deferred payout after three years based on a sus­ tainability assessment covering the three­year period. The other third rewards sustained performance through share price devel­ opment with a deferred payout after five years. The structure, weighting and level of remuneration is decided by the Supervisory Board. Remuneration survey data is provided by external consultants. The peer group consists primarily of other DAX 30 com­ panies. Compensation levels are usually around the third quartile of this group. The structure of the Allianz Group’s total remuneration is more strongly weighted to variable, longer­term components than in other DAX 30 companies. Remuneration and benefit arrangements are also periodically compared with best practices. The Supervisory Board takes remuneration levels within the Group into account when assessing the appropriateness of the remuneration of the Board of Management. REMUNERATION STRUCTURE, COMPONENTS AND TARGET SETTING PROCESS There are four main remuneration components. Each has the same weighting within annual target remuneration: base salary, annual bonus, annualized mid­term bonus (MTB) and equity­related remu­ neration. The target compensation of each variable component does not exceed the base salary, with the total target variable compensa­ tion not exceeding three times the base salary. In addition, Allianz offers pensions and similar benefits and perquisites. Base salary Base salary is the fixed remuneration component, expressed as an annual cash sum and paid in twelve monthly installments. It has been harmonized for 2014 for all regular members of the Board of Management. Those base salaries at € 700 THOU for 2013 were adjusted to € 750 THOU. 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). The grant of vari­ able remuneration components is related to performance and can vary between 0 % and 150 % of the respective target values with the cap having been reduced from 165 % to 150 % from 2014 onwards. If perfor­ mance was rated with 0 % no variable component is granted. Conse­ quently, the minimum total direct compensation for a regular Annual Report 2014 Allianz Group 45 member of the Board of Management equals the base salary of € 750 THOU (excluding perquisites). The maximum total direct com­ pensation (excluding perquisites) is € 4,125 THOU: base salary € 750 THOU + € 3,375 THOU (150 % of the sum of all three variable com­ pensation components at target). Details on the variable compensation components: − Annual bonus (short­term): A cash payment which rewards the achievement of quantitative and qualitative targets for the respective financial year and is paid the year following the per­ formance year. Quantitative targets represent 75 % and consist of 50 % Group targets (equally divided between annual operating profit and annual net income) and 25 % divisional targets. For members of the Board of Management with business division responsibilities, divisional targets are set with the application of the following split: 10 % annual operating profit, 10 % annual net income before minorities and 5 % dividend. For members of the Board of Management with a functional focus the divisional quantitative targets are determined based on their key respon­ sibilities. Qualitative targets represent 25 % and reflect the spe­ cific individual priorities for 2014 per member of the Board of Management. Based on the 2014 target achievement for the Group, the business division/corporate functions and the qualitative per­ formance, the total annual bonus awards ranged between 96 % and 138 % of the target with an average bonus award of 121 % of the target. The performance of the Chairman of the Allianz SE Board of Management 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 per­ formance. − MTB (mid­term): A deferred award which reflects the achieve­ ment of the annual targets by accruing an amount identical to the annual bonus. The payout of the award at the end of a three­ year cycle is subject to a sustainability assessment for these three years. The 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, − 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: 3,300 150 % Accrual 650 Accrual 620 Accrual 930 Total 2,200 Accrual 650 Accrual 620 Accrual 930 Initial accrued amounts ± Sustainability assessment = Final payout Target: 2,200 Min: 0 0 % 20163 Dec 2012 20132 20142 20152 Sustainability criteria setting Performance period Sustainability assessment & payout Year 1 Year 2 Year 3 1 2 Example based on target values of a regular member of the Board of Management with an annual target of € 700 THOU for 2013 and € 750 THOU for the MTB in 2014 and 2015. Accrual is only a notional indication. 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. 3 Final payout is subject to the sustainability assessment of the Supervisory Board and may vary between 0 % and 150 % of the cumulative target values independent of the notional accruals. 46 Annual Report 2014 Allianz Group B Corporate Governance 35 40 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 42 Takeover-related Statements and Explanations 45 Remuneration Report − Equity­related remuneration (long­term): A virtual share award, known as “Restricted Stock Units” (RSUs). The grant value of the RSUs allocated equals the annual bonus of the performance year. The number of RSUs allocated is derived from dividing the grant value by the fair market value of an RSU at the time of grant. The fair market value is calculated based on the ten­day average Xetra closing price of the Allianz stock following the financial press conference on the annual results. As RSUs are virtual stocks without dividend payments, the average Xetra closing price is reduced1 by the net present value of the expected future dividend payments during the vesting period. The expected dividend stream is discounted with the respective swap rates as of the valuation day. Following the end of the four year vesting period, the com­ pany makes a cash payment based on the number of RSUs granted and the ten­day average Xetra closing price of the Allianz stock following the annual financial press conference in the year of expiry of the respective RSU plan. The RSU payout is capped at 200 % above grant price to avoid extreme payouts2. Outstanding RSU holdings are forfeited should a Board member leave at his/ her own request or be terminated for cause. Variable remuneration components may not be paid, or payment may be restricted in the case of a breach of the Allianz Code of Conduct, risk limits or compliance requirements. Additionally, a reduction or cancellation of variable remuneration may occur if the supervisory authority (BaFin) requires this in accordance with its statutory powers. Pensions and similar benefits To provide competitive and cost­effective retirement and disability benefits Board of Management members have participated in a con­ tribution­based system since 1 January 2005. Before this date, Board members participated in a defined benefit plan that provided fixed benefits not linked to base salary increases. Benefits generated under this plan were frozen at the end of 2004. Additionally, most Board members participate in the Allianz Versorgungskasse VVaG (AVK), a contribution­based pension plan, and the Allianz Pensionsverein e.V. (APV), which provide pension benefits for salaries up to the German social security ceiling. Company contributions to the current pension plan depend on the years of service on the Board of Management. They are invested in a fund with a guaranteed minimum interest rate per year. On retirement, the accumulated capital is converted into a lifetime annuity. Each year the Supervisory Board decides whether, and to what extent, a budget is provided, also taking into account the tar­ geted pension level. This budget includes a risk premium paid to cover death and disability. The earliest age a pension can be drawn is 60, except for cases of occupational or general disability for medical reasons. In these cases, it may become payable earlier and an increase by projection may apply. In the case of death, a pension may be paid to dependents. Surviving dependents normally receive 60 % (surviving partner) and 20 % (per child) of the original Board member’s pension, with the aggregate not to exceed 100 %. Should Board membership cease before retirement age for other reasons, the accrued pension rights are maintained if vesting requirements are met. Perquisites Perquisites mainly consist of contributions to accident and liability insurances and the provision of a company car. Perquisites are not linked to performance. Each member of the Board of Management is responsible for the income tax on these perquisites. The Supervisory Board reviews regularly the level of perquisites. 1 2 The fair market value of the RSUs is further subject to a small reduction of a few Euro cents due to the 200 % cap on the RSU payout. This reduction is calculated based on a standard option price formula. The relevant share price used to determine the final number of RSUs granted and the 200 % cap is only available after sign-off by the external auditors. Annual Report 2014 Allianz Group 47 To make the remuneration related to the performance year 2014 more transparent the column “actual grant” was added and includes fixed compensation accrual bonus paid for 2014, the MTB 2013 – 2015 tranche accrued for performance year 2014 and the fair value of the RSU grant in 2015 for the performance year 2014. REMUNERATION fOR 2014 The following remuneration disclosure is based on and compliant with the German Corporate Governance Code and illustrates indi­ vidual remuneration for 2013 and 2014, including fixed and variable remuneration and pension service cost. The “grant” column below shows the remuneration at target, minimum and maximum levels. The “payout” column discloses the 2013 and 2014 payments. The base salary, annual bonus and perquisites are linked to the reported per­ formance years 2013 and 2014, whereas the Group Equity Incentive (GEI) payouts result from grants related to the performance years 2008 – 2010. INDIVIDUAL REMUNERATION: 2014 AND 2013 € THOU Michael Diekmann (Appointed: 10/1998; CEO since 04/2003) Oliver Bäte (Appointed: 01/2008) Manuel Bauer (Appointed: 01/2011) Base Salary Perquisites Total fixed compensation Annual Variable Compensation – Annual Bonus Deferred Compensation MTB (2013 – 2015) AEI 2015/RSU2 AEI 2014/RSU2 GEI 2010/SAR3 GEI 2009/SAR3 GEI 2009/RSU2,3 GEI 2008/RSU2,3 Total Pensions Service Cost4 Total Grant 2014 Target 1,280 24 1,304 1,280 1,280 1,280 – – – – – 5,144 998 6,142 Min 1,280 24 1,304 – – – – – – – – 1,304 998 2,302 Max 1,280 24 1,304 1,920 1,920 1,920 – – – – – 7,064 998 8,062 2013 Target 1,280 2915 1,571 1,180 1,180 – 1,180 – – – – 5,111 914 6,025 Actual Grant 2014 1,280 24 1,304 1,546 1,546 1,546 – – – – – 5,943 998 6,941 Payout1 2013 2014 1,280 2915 1,571 1,581 – – – – 408 – 911 4,471 914 5,385 1,280 24 1,304 1,546 – – – 963 – 376 – 4,189 998 5,187 1 2 3 In accordance with the German Corporate Governance Code, the annual bonus is disclosed for performance year 2014. It was paid in 2015 and for performance year 2013 in 2014. The payments for equity-related deferred compensation (GEI), however, are disclosed for the year in which the actual payment was made. Payout is capped at 200 % above grant price. The relevant share price used to determine the final number of RSUs granted and the 200 % cap is only available after sign-off by the external auditors. 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” (SARs). Only RSUs have been awarded since 2010. The remuneration system valid until December 2009 is disclosed in the Annual Report 2009 (starting on page 17). Whereas the GEI/RSU grants are automatically exercised at the vesting date, the GEI/SAR grants are exercised by the Board member within the exercise period following the vesting date. Hence, the total payout from SARs depends on the individual decision by the Board member. SARs are released to plan participants upon expiry of the vesting period, assuming all other exercise hurdles are met. For SARs granted until and including 2008, the vesting period was two years and the exercise period five years. For SARs granted in 2009 and 2010, the vesting period is four years and the exercise period three 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. During the term of the plan, at least once on five consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points above the appreciation of the Dow Jones EURO STOXX Price Index (600). Grant Actual Grant Payout1 Grant Actual Grant Payout1 2013 2014 2014 2013 2014 2013 2014 2014 2013 2014 Target Target Target Target 750 53 803 700 700 700 – – – – – 750 7 757 750 750 750 – – – – – Min 750 7 757 – – – – – – – – Max 750 7 757 – – – – – 750 7 757 750 53 803 750 7 757 1,125 1,009 1,003 1,009 1,125 1,125 1,009 1,009 – – – – – – – – – – 242 531 2,579 350 2,929 – – – – – 438 228 2,432 368 2,800 4 Pension Service Cost in accordance with IAS 19: represents the company cost, not the actual entitlement or a payment. However, according to the German Corporate Governance Code, the Pension Service Cost is to be included in all columns. 5 Michael Diekmann received a payment of € 267 THOU in 2013 for 25 years of service at Allianz. 700 16 716 700 700 700 – – – – – 750 15 765 750 750 750 – – – – – Min 750 15 765 – – – – – – – – Max 750 15 765 1,125 1,125 1,125 – – – – – 750 15 765 778 778 778 – – – – – 700 16 716 927 – – – – – – – 750 15 765 778 – – – – – – – 2,903 350 3,253 3,007 368 3,375 757 368 1,125 4,132 368 4,500 3,783 368 4,151 2,816 298 3,114 3,015 317 3,332 765 317 1,082 4,140 317 4,457 3,100 317 3,417 1,643 298 1,941 1,543 317 1,860 48 Annual Report 2014 Allianz Group B Corporate Governance 35 40 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 42 Takeover-related Statements and Explanations 45 Remuneration Report INDIVIDUAL REMUNERATION: 2014 AND 2013 Annual Variable Compensation – Annual Bonus Base Salary Perquisites Total fixed compensation Deferred Compensation MTB (2013 – 2015) AEI 2015/RSU2 AEI 2014/RSU2 GEI 2010/SAR3 GEI 2009/SAR3 GEI 2009/RSU2,3 GEI 2008/RSU2,3 Total Total Pensions Service Cost4 € THOU Michael Diekmann (Appointed: 10/1998; CEO since 04/2003) Oliver Bäte (Appointed: 01/2008) Manuel Bauer (Appointed: 01/2011) Grant 2014 Min 1,280 24 1,304 Target 1,280 24 1,304 1,280 1,280 1,280 – – – – – Max 1,280 24 1,304 1,920 1,920 1,920 – – – – – – – – – – – – – Actual Grant 2014 1,280 24 1,304 1,546 1,546 1,546 – – – – – 5,144 998 6,142 1,304 998 2,302 7,064 998 8,062 5,943 998 6,941 2013 Target 1,280 2915 1,571 1,180 1,180 1,180 – – – – – 5,111 914 6,025 Payout1 2013 2014 1,280 2915 1,571 1,581 – – – – – 408 911 4,471 914 5,385 1,280 24 1,304 1,546 – – – – – 963 376 4,189 998 5,187 Grant Actual Grant Payout1 Grant Actual Grant Payout1 2013 2014 2014 2013 2014 2013 2014 2014 2013 2014 Target Target 750 53 803 700 700 – 700 – – – – 2,903 350 3,253 750 7 757 750 750 750 – – – – – 3,007 368 3,375 Min 750 7 757 Max 750 7 757 750 7 757 750 53 803 750 7 757 – 1,125 1,009 1,003 1,009 – – – – – – – 757 368 1,125 1,125 1,125 – – – – – 4,132 368 4,500 1,009 1,009 – – – – – 3,783 368 4,151 – – – – 242 – 531 2,579 350 2,929 – – – 438 – 228 – 2,432 368 2,800 Target Target 700 16 716 700 700 – 700 – – – – 2,816 298 3,114 750 15 765 750 750 750 – – – – – 3,015 317 3,332 Min 750 15 765 Max 750 15 765 – 1,125 – – – – – – – 765 317 1,082 1,125 1,125 – – – – – 4,140 317 4,457 750 15 765 778 778 778 – – – – – 3,100 317 3,417 700 16 716 927 – – – – – – – 1,643 298 1,941 750 15 765 778 – – – – – – – 1,543 317 1,860 1 In accordance with the German Corporate Governance Code, the annual bonus is disclosed for performance the GEI/SAR grants are exercised by the Board member within the exercise period following the vesting year 2014. It was paid in 2015 and for performance year 2013 in 2014. The payments for equity-related date. Hence, the total payout from SARs depends on the individual decision by the Board member. SARs deferred compensation (GEI), however, are disclosed for the year in which the actual payment was made. are released to plan participants upon expiry of the vesting period, assuming all other exercise hurdles 2 Payout is capped at 200 % above grant price. The relevant share price used to determine the final number are met. For SARs granted until and including 2008, the vesting period was two years and the exercise of RSUs granted and the 200 % cap is only available after sign-off by the external auditors. period five years. For SARs granted in 2009 and 2010, the vesting period is four years and the exercise period 3 The equity-related remuneration that applied before 2010 consisted of two vehicles: virtual stock awards three years. SARs can be exercised on condition that the price of the Allianz SE stock is at least 20 % above known as RSUs and virtual stock options known as “Stock Appreciation Rights” (SARs). Only RSUs have been the strike price at the time of grant. During the term of the plan, at least once on five consecutive trading awarded since 2010. The remuneration system valid until December 2009 is disclosed in the Annual Report days the Allianz SE stock must relatively appreciate at least 0.01 percentage points above the appreciation 2009 (starting on page 17). Whereas the GEI/RSU grants are automatically exercised at the vesting date, of the Dow Jones EURO STOXX Price Index (600). 4 5 Pension Service Cost in accordance with IAS 19: represents the company cost, not the actual entitlement or a payment. However, according to the German Corporate Governance Code, the Pension Service Cost is to be included in all columns. Michael Diekmann received a payment of € 267 THOU in 2013 for 25 years of service at Allianz. Annual Report 2014 Allianz Group 49 INDIVIDUAL REMUNERATION: 2014 AND 2013 € THOU Base Salary Perquisites Total fixed compensation Annual Variable Compensation – Annual Bonus Deferred Compensation MTB (2013 – 2015) AEI 2015/RSU2 AEI 2014/RSU2 GEI 2010/SAR3 GEI 2009/SAR3 GEI 2009/RSU2,3 GEI 2008/RSU2,3 Total Pensions Service Cost4 Total Gary Bhojwani5 (Appointed: 01/2012) Clement Booth6 (Appointed: 01/2006) Dr. Helga Jung (Appointed: 01/2012) Grant 2013 2014 Target Target 700 70 770 700 700 – 700 – – – – 2,870 196 3,066 750 40 790 750 750 750 – – – – – 3,040 210 3,250 Min 750 40 790 Max 750 40 790 – 1,125 – – – – – – – 790 210 1,000 1,125 1,125 – – – – – 4,165 210 4,375 Actual Grant 2014 750 40 790 718 718 718 – – – – – 2,945 210 3,155 Payout1 2013 2014 700 70 770 942 – – – – – – – 1,712 196 1,908 750 40 790 718 – – – – – – – 1,508 210 1,718 € THOU Dr. Christof Mascher (Appointed: 09/2009) Jay Ralph (Appointed: 01/2010) Dr. Dieter Wemmer (Appointed: 01/2012) Base Salary Perquisites Total fixed compensation Annual Variable Compensation – Annual Bonus Deferred Compensation MTB (2013 – 2015) AEI 2015/RSU2 AEI 2014/RSU2 GEI 2010/SAR3 GEI 2009/SAR3 GEI 2009/RSU2,3 GEI 2008/RSU2,3 Total Pensions Service Cost4 Total Grant 2013 2014 Target Target 700 27 727 700 700 – 700 – – – – 2,827 304 3,131 750 1627 912 750 750 750 – – – – – 3,162 339 3,501 Min 750 1627 912 Max 750 1627 912 – 1,125 – – – – – – – 912 339 1,251 1,125 1,125 – – – – – 4,287 339 4,626 Actual Grant 2014 750 1627 912 907 907 907 – – – – – 3,633 339 3,972 Payout1 2013 2014 700 27 727 899 – – – – 1658 – – 1,791 304 2,095 750 1627 912 907 – – – – – 1318 – 1,950 339 2,289 Grant Actual Grant Payout1 Grant Actual Grant Payout1 2013 2014 2014 2013 2014 2013 2014 2014 2013 2014 Target Target Target Target 2,935 410 3,345 3,054 444 3,498 804 444 1,248 4,179 444 4,623 3,915 444 4,359 2,814 279 3,093 3,014 302 3,316 764 302 1,066 4,139 302 4,441 3,052 302 3,354 1,618 279 1,897 1,527 302 1,829 Min 750 54 804 Max 750 54 804 1,125 1,037 1,125 1,125 1,037 1,037 – – – – – 750 85 835 700 700 700 – – – – – 700 28 728 700 700 700 – – – – – 750 54 804 750 750 750 – – – – – 750 30 780 750 750 750 – – – – – – – – – – – – – – – – – – – – – Min 750 30 780 Max 750 30 780 1,125 1,125 1,125 – – – – – 750 54 804 – – – – – 750 30 780 912 912 912 – – – – – 750 85 835 945 – – – – – 299 531 2,610 410 3,020 700 28 728 948 – – – – – – – 750 54 804 1,037 – – – – – – 307 2,148 444 2,592 750 30 780 912 – – – – – – – 700 14 714 700 700 700 – – – – – 700 14 714 700 700 700 – – – – – 750 14 764 750 750 750 – – – – – 750 17 767 750 750 750 – – – – – Min 750 14 764 – – – – – – – – – – – – – – – – Min 750 17 767 Max 750 14 764 1,125 1,125 1,125 – – – – – Max 750 17 767 1,125 1,125 1,125 – – – – – 750 14 764 763 763 763 – – – – – 750 17 767 996 996 996 – – – – – 700 14 714 904 – – – – – – – 700 14 714 978 – – – – – – – 750 14 764 763 – – – – – – – 750 17 767 996 – – – – – – – Grant Actual Grant Payout1 Grant Actual Grant Payout1 2013 2014 2014 2013 2014 2013 2014 2014 2013 2014 Target Target Target Target 2,828 236 3,064 3,030 254 3,284 780 254 1,034 4,155 254 4,409 3,515 254 3,769 1,676 236 1,912 1,692 254 1,946 2,814 230 3,044 3,017 249 3,266 767 249 1,016 4,142 249 4,391 3,756 249 4,005 1,692 230 1,922 1,763 249 2,012 1 2 3 In accordance with the German Corporate Governance Code, the annual bonus is disclosed for performance year 2014. It was paid in 2015 and for performance year 2013 in 2014. The payments for equity-related deferred compensation (GEI), however, are disclosed for the year in which the actual payment was made. Payout is capped at 200 % above grant price. The relevant share price used to determine the final number of RSUs granted and the 200 % cap is only available after sign-off by the external auditors. 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” (SARs). Only RSUs have been awarded since 2010. The remuneration system valid until December 2009 is disclosed in the Annual Report 2009 (starting on page 17). Whereas the GEI/RSU grants are automatically exercised at the vesting date, the GEI/SAR grants are exercised by the Board member within the exercise period following the vesting date. Hence, the total payout from SARs depends on the individual decision by the Board member. SARs are released to plan participants upon expiry of the vesting period, assuming all other exercise hurdles are met. For SARs granted until and including 2008, the vesting period was two years and the exercise period five years. For SARs granted in 2009 and 2010, the vesting period is four years and the exercise period three 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. During the term of the plan, at least once on five consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points above the appreciation of the Dow Jones EURO STOXX Price Index (600). 4 Pension Service Cost in accordance with IAS 19: represents the company cost, not the actual entitlement 6 Clement Booth retired on 31 December 2014. According to his service contract, he will receive his fixed or a payment. However, according to the German Corporate Governance Code, the Pension Service Cost salary of € 62.5 THOU per month for a period of 6 months from July 2015 as a transition payment which will is to be included in all columns. be set off against the regular pension payment. As part of the transition payment, he will receive 25 % of 5 Gary Bhojwani’s base salary and variable compensation is denominated in USD. The contractually agreed the annual variable target compensation (€ 562.5 THOU) in spring 2016. USD/€ exchange rate of 1.347910 (2011 fourth quarter average) was applied. According to his cancellation Dr. Christof Mascher received a payment of € 156 THOU in 2014 for 25 years of service at Allianz. agreement, Gary Bhojwani received a payment of € 3,750 THOU in January 2015 for his remaining term of Dr. Christof Mascher joined the Board of Management in September 2009. His payout from the GEI 2009 7 8 contract (until 31 December 2016). His variable remuneration components for 2014 and the pro rata MTB plans are shown pro rata temporis. (2013 – 2015) will be paid out according to plan conditions. He does not receive pension contributions into the Allianz SE pension plans, but only under his Allianz of America employment agreement. 50 Annual Report 2014 Allianz Group INDIVIDUAL REMUNERATION: 2014 AND 2013 € THOU Annual Variable Compensation – Annual Bonus Base Salary Perquisites Total fixed compensation Deferred Compensation MTB (2013 – 2015) AEI 2015/RSU2 AEI 2014/RSU2 GEI 2010/SAR3 GEI 2009/SAR3 GEI 2009/RSU2,3 GEI 2008/RSU2,3 Total Total Pensions Service Cost4 Base Salary Perquisites Total fixed compensation Deferred Compensation MTB (2013 – 2015) AEI 2015/RSU2 AEI 2014/RSU2 GEI 2010/SAR3 GEI 2009/SAR3 GEI 2009/RSU2,3 GEI 2008/RSU2,3 Total Total Pensions Service Cost4 Annual Variable Compensation – Annual Bonus Grant 2013 2014 Target Target Actual Grant 2014 Payout1 2013 2014 Min 750 40 790 – – – – – – – – – – – – – – – – Min 750 1627 912 Max 750 40 790 1,125 1,125 1,125 – – – – – Max 750 1627 912 1,125 1,125 1,125 – – – – – 750 40 790 718 718 718 – – – – – 750 1627 912 907 907 907 – – – – – 750 40 790 750 750 750 – – – – – 750 1627 912 750 750 750 – – – – – 700 70 770 700 700 700 – – – – – 700 27 727 700 700 700 – – – – – 2,870 196 3,066 3,040 210 3,250 790 210 1,000 4,165 210 4,375 2,945 210 3,155 1,712 196 1,908 1,508 210 1,718 Grant 2013 2014 Target Target Actual Grant 2014 Payout1 2013 2014 700 70 770 942 – – – – – – – 700 27 727 899 – – – – – – 1658 750 40 790 718 – – – – – – – 750 1627 912 907 – – – – – – 1318 1,950 339 2,289 2,827 304 3,131 3,162 339 3,501 912 339 1,251 4,287 339 4,626 3,633 339 3,972 1,791 304 2,095 B Corporate Governance 35 40 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 42 Takeover-related Statements and Explanations 45 Remuneration Report Gary Bhojwani5 (Appointed: 01/2012) Clement Booth6 (Appointed: 01/2006) Dr. Helga Jung (Appointed: 01/2012) Grant Actual Grant Payout1 Grant Actual Grant Payout1 2013 2014 2014 2013 2014 2013 2014 2014 2013 2014 Target Target 750 85 835 700 700 – 700 – – – – 2,935 410 3,345 750 54 804 750 750 750 – – – – – 3,054 444 3,498 Min 750 54 804 Max 750 54 804 750 54 804 – 1,125 1,037 – – – – – – – 804 444 1,248 1,125 1,125 – – – – – 4,179 444 4,623 1,037 1,037 – – – – – 3,915 444 4,359 750 85 835 945 – – – – 299 – 531 2,610 410 3,020 750 54 804 1,037 – – – – – 307 – 2,148 444 2,592 Target Target 700 14 714 700 700 – 700 – – – – 2,814 279 3,093 750 14 764 750 750 750 – – – – – 3,014 302 3,316 Min 750 14 764 Max 750 14 764 – 1,125 – – – – – – – 764 302 1,066 1,125 1,125 – – – – – 4,139 302 4,441 750 14 764 763 763 763 – – – – – 3,052 302 3,354 700 14 714 904 – – – – – – – 1,618 279 1,897 750 14 764 763 – – – – – – – 1,527 302 1,829 € THOU Dr. Christof Mascher (Appointed: 09/2009) Jay Ralph (Appointed: 01/2010) Dr. Dieter Wemmer (Appointed: 01/2012) Grant Actual Grant Payout1 Grant Actual Grant Payout1 2013 2014 2014 2013 2014 2013 2014 2014 2013 2014 Target Target 700 28 728 700 700 – 700 – – – – 2,828 236 3,064 750 30 780 750 750 750 – – – – – 3,030 254 3,284 Min 750 30 780 Max 750 30 780 – 1,125 – – – – – – – 780 254 1,034 1,125 1,125 – – – – – 4,155 254 4,409 750 30 780 912 912 912 – – – – – 3,515 254 3,769 700 28 728 948 – – – – – – – 1,676 236 1,912 750 30 780 912 – – – – – – – 1,692 254 1,946 Target Target 700 14 714 700 700 – 700 – – – – 2,814 230 3,044 750 17 767 750 750 750 – – – – – 3,017 249 3,266 Min 750 17 767 Max 750 17 767 – 1,125 – – – – – – – 767 249 1,016 1,125 1,125 – – – – – 4,142 249 4,391 750 17 767 996 996 996 – – – – – 3,756 249 4,005 700 14 714 978 – – – – – – – 1,692 230 1,922 750 17 767 996 – – – – – – – 1,763 249 2,012 1 In accordance with the German Corporate Governance Code, the annual bonus is disclosed for performance the GEI/SAR grants are exercised by the Board member within the exercise period following the vesting year 2014. It was paid in 2015 and for performance year 2013 in 2014. The payments for equity-related date. Hence, the total payout from SARs depends on the individual decision by the Board member. SARs deferred compensation (GEI), however, are disclosed for the year in which the actual payment was made. are released to plan participants upon expiry of the vesting period, assuming all other exercise hurdles 2 Payout is capped at 200 % above grant price. The relevant share price used to determine the final number are met. For SARs granted until and including 2008, the vesting period was two years and the exercise of RSUs granted and the 200 % cap is only available after sign-off by the external auditors. period five years. For SARs granted in 2009 and 2010, the vesting period is four years and the exercise period 3 The equity-related remuneration that applied before 2010 consisted of two vehicles: virtual stock awards three years. SARs can be exercised on condition that the price of the Allianz SE stock is at least 20 % above known as RSUs and virtual stock options known as “Stock Appreciation Rights” (SARs). Only RSUs have been the strike price at the time of grant. During the term of the plan, at least once on five consecutive trading awarded since 2010. The remuneration system valid until December 2009 is disclosed in the Annual Report days the Allianz SE stock must relatively appreciate at least 0.01 percentage points above the appreciation 2009 (starting on page 17). Whereas the GEI/RSU grants are automatically exercised at the vesting date, of the Dow Jones EURO STOXX Price Index (600). 4 5 Pension Service Cost in accordance with IAS 19: represents the company cost, not the actual entitlement or a payment. However, according to the German Corporate Governance Code, the Pension Service Cost is to be included in all columns. 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. According to his cancellation agreement, Gary Bhojwani received a payment of € 3,750 THOU in January 2015 for his remaining term of contract (until 31 December 2016). His variable remuneration components for 2014 and the pro rata MTB (2013 – 2015) will be paid out according to plan conditions. He does not receive pension contributions into the Allianz SE pension plans, but only under his Allianz of America employment agreement. 6 7 8 Clement Booth retired on 31 December 2014. According to his service contract, he will receive his fixed salary of € 62.5 THOU per month for a period of 6 months from July 2015 as a transition payment which will be set off against the regular pension payment. As part of the transition payment, he will receive 25 % of the annual variable target compensation (€ 562.5 THOU) in spring 2016. Dr. Christof Mascher received a payment of € 156 THOU in 2014 for 25 years of service at Allianz. Dr. Christof Mascher joined the Board of Management in September 2009. His payout from the GEI 2009 plans are shown pro rata temporis. Annual Report 2014 Allianz Group 51 INDIVIDUAL REMUNERATION: 2014 AND 2013 € THOU Dr. Werner Zedelius (Appointed: 01/2002) Grant 2013 2014 Base Salary Perquisites Total fixed compensation Annual Variable Compensation – Annual Bonus Deferred Compensation MTB (2013 – 2015) AEI 2015/RSU2 AEI 2014/RSU2 GEI 2010/SAR3 GEI 2009/SAR3 GEI 2009/RSU2,3 GEI 2008/RSU2,3 Total Pensions Service Cost4 Total Target Target 750 16 766 700 700 – 700 – – – – 2,866 527 3,393 750 17 767 750 750 750 – – – – – 3,017 576 3,593 Actual Grant 2014 750 17 767 Min 750 17 767 Max 750 17 767 – 1,125 1,032 – – – – – – – 767 576 1,343 1,125 1,125 – – – – – 4,142 576 4,718 1,032 1,032 – – – – – 3,864 576 4,440 € THOU Dr. Maximilian Zimmerer (Appointed: 06/2012) Base Salary Perquisites Total fixed compensation Annual Variable Compensation – Annual Bonus Deferred Compensation MTB (2013 – 2015) AEI 2015/RSU2 AEI 2014/RSU2 GEI 2010/SAR3 GEI 2009/SAR3 GEI 2009/RSU2,3 GEI 2008/RSU2,3 Total Pensions Service Cost4 Total Grant 2013 2014 Target Target 700 1505 850 700 700 – 700 – – – – 2,950 369 3,319 750 10 760 750 750 750 – – – – – 3,010 409 3,419 Min 750 10 760 Max 750 10 760 – 1,125 – – – – – – – 760 409 1,169 1,125 1,125 – – – – – 4,135 409 4,544 Actual Grant 2014 750 10 760 909 909 909 – – – – – 3,487 409 3,896 Payout1 2013 2014 750 16 766 910 – – – – 1,272 – 664 3,612 527 4,139 750 17 767 1,032 – – – 187 – 1,048 – 3,034 576 3,610 Payout1 2013 2014 700 1505 850 924 – – – – – – – 1,774 369 2,143 750 10 760 909 – – – – – – – 1,669 409 2,078 1 2 3 In accordance with the German Corporate Governance Code, the annual bonus is disclosed for performance year 2014. It was paid in 2015 and for performance year 2013 in 2014. The payments for equity-related deferred compensation (GEI), however, are disclosed for the year in which the actual payment was made. Payout is capped at 200 % above grant price. The relevant share price used to determine the final number of RSUs granted and the 200 % cap is only available after sign-off by the external auditors. 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” (SARs). Only RSUs have been awarded since 2010. The remuneration system valid until December 2009 is disclosed in the Annual Report 2009 (starting on page 17). Whereas the GEI/RSU grants are automatically exercised at the vesting date, the GEI/SAR grants are exercised by the Board member within the exercise period following the vesting date. Hence, the total payout from SARs depends on the individual decision by the Board member. SARs are released to plan participants upon expiry of the vesting period, assuming all other exercise hurdles are met. For SARs granted until and including 2008, the vesting period was two years and the exercise period five years. For SARs granted 2009 and 2010, the vesting period is four years and the exercise period three years. SARs can be exercised on the condition that the price of the Allianz SE stock is at least 20 % above the strike price at the time of grant. During the term of the plan, at least once on five consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points ahead of the appreciation of the Dow Jones EURO STOXX Price Index (600). Pension Service Cost in accordance with IAS 19: represents the company cost, not the actual entitlement nor a payment, however, according to the German Corporate Governance Code, the Pension Service Cost is to be included in all columns. Dr. Maximilian Zimmerer received a payment of € 146 THOU in 2013 for 25 years of service at Allianz. 4 5 52 Annual Report 2014 Allianz Group B Corporate Governance 35 40 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 42 Takeover-related Statements and Explanations 45 Remuneration Report GERMAN ACCOUNTING STANDARD 17 DISCLOSURE The total remuneration to be disclosed in accordance with German Accounting Standard 17 for 2014 and 2013 (in parentheses) is defined differently than in the German Corporate Governance Code and is composed of the base salary, perquisites, annual bonus and the fair value of the RSU grant, but excludes the notional annual accruals of the MTB 2013 – 2015 and the pension service cost: Michael Diekmann € 4,397 (4,734) THOU, Oliver Bäte € 2,774 (2,808) THOU, Manuel Bauer € 2,322 (2,570) THOU, Gary Bhojwani1 € 2,227 (2,655) THOU, Clement Booth € 2,878 (2,725) THOU, Dr. Helga Jung € 2,290 (2,522) THOU, Dr. Christof Mascher € 2,726 (2,524) THOU, Jay Ralph € 2,603 (2,623) THOU, Dr. Dieter Wemmer € 2,760 (2,671) THOU, Dr. Werner Zedelius € 2,831 (2,587) THOU, Dr. Maximilian Zimmerer € 2,578 (2,698) THOU. The sum of the total remuneration of the Board of Management for 2014, excluding the notional accruals of the MTB 2013 – 2015 and excluding the pension service cost, amounts to € 30 MN (2013: € 31 MN). The corresponding amount, including pension service cost, equals € 35 MN (2013: € 35 MN). EqUITY-RELATED REMUNERATION In accordance with the approach described earlier, a number of RSUs were granted to each member of the Board of Management in March 2015 which will vest and be settled in 2019. GRANTS, OUTSTANDING HOLDINGS AND EqUITY COMPENSATION ExPENSE UNDER THE ALLIANz EqUITY PROGRAM Board members Michael Diekmann (Chairman) Oliver Bäte Manuel Bauer Gary Bhojwani3 Clement Booth Dr. Helga Jung Dr. Christof Mascher Jay Ralph Dr. Dieter Wemmer Dr. Werner Zedelius Dr. Maximilian Zimmerer Total RSU Number of RSU granted on 3/12/20151 12,889 8,405 6,487 6,459 8,643 6,357 7,560 7,598 8,303 8,603 7,576 SAR Number of RSU held at 12/31/20141 Number of SAR held at 12/31/2014 Strike Price Range € Equity Compensation 2 Expense 2014 € THOU 76,439 47,728 32,250 49,135 46,482 26,089 41,280 43,388 20,652 45,164 30,344 17,930 10,459 9,375 5,039 26,031 5,707 13,869 16,493 – 23,074 11,705 139,682 117.38 117.38 87.36 –117.38 117.38 87.36 – 117.38 87.36 – 117.38 87.36 – 117.38 87.36 – 117.38 – 87.36 – 117.38 87.36 – 117.38 2,828 1,633 1,185 1,701 1,790 966 1,531 1,625 746 2,471 1,152 – 17,628 88,880 458,951 1 The relevant share price used to determine the final number of RSUs granted is only available after sign-off of the Annual Report by the external auditors, thus numbers are based on a best estimate. As disclosed in the Annual Report 2013, the equity-related grant in 2014 was made to participants as part of their 2013 remuneration. The disclosure in the Annual Report 2013 was based on a best estimate of the RSU grants. The actual grants deviated from the estimated values and have to be disclosed accordingly. The actual RSU grants as of 13 March 2014 under the Allianz equity program are as follows: Michael Diekmann: 15,384, Oliver Bäte: 9,756, Manuel Bauer: 9,020, Gary Bhojwani: 9,079, Clement Booth: 9,194, Dr. Helga Jung: 8,794, Dr. Christof Mascher: 8,744, Jay Ralph: 9,220, Dr. Dieter Wemmer: 9,517, Dr. Werner Zedelius: 8,858, Dr. Maximilian Zimmerer: 8,993. 2 3 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 € 718 THOU. The number of RSUs will be calculated in line with the process for other USD participants by application of the 2014 fourth quarter average USD/€ exchange rate of 1.24938. 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. Annual Report 2014 Allianz Group 53 The Allianz Group paid € 4 MN (2013: € 4 MN) to increase reserves for pensions and similar benefits for active members of the Board of Management. As of 31 December 2014, reserves for pensions and similar benefits for active members of the Board of Management amounted to € 56 MN (2013: € 41 MN). This increase is predominantly a result of the significant decrease in interest rates. PENSIONS Company contributions in the current plan remained unchanged from 2013 and are 27.98 % of base salary, increasing to 34.98 % after five years and to 41.98 % after ten years of service on the Board of Manage­ ment. These are invested in a fund and have a minimum guaranteed interest rate of 2.75 % each year. If the net annual return of the AVK exceeds 2.75 %, the full increase in value is credited in the same year. For members with pension rights in the frozen defined benefit plan, the above contribution rates are reduced by an amount equivalent to 19 % of the expected annual pension from that plan. INDIVIDUAL PENSIONS: 2014 AND 2013 Total might not sum up due to rounding € THOU Board members Michael Diekmann (Chairman) Oliver Bäte Manuel Bauer Gary Bhojwani7 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/APV2 Transition payment3 Total Annual pension payment4 337 337 – – 57 57 164 8 243 – – 62 62 – – – – – – 225 225 161 161 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 SC5 DBO6 SC5 DBO6 SC5 DBO6 SC5 DBO6 SC5 DBO6 306 285 – – 58 54 – – – – 43 40 – – – – – – 170 157 118 108 9,963 7,527 – – 1,678 1,261 1189 109 – – 1,175 806 – – – – – – 5,700 4,128 3,869 2,759 577 585 322 318 249 234 21010 196 321 325 251 231 273 253 251 233 247 228 350 346 232 212 6,373 4,867 2,722 1,839 1,818 1,306 – – 3,452 2,655 1,629 1,099 2,802 2,035 1,618 1,086 905 509 3,823 2,866 2,524 1,877 10 9 3 3 9 9 – – 3 3 9 9 3 3 3 3 2 2 10 9 9 9 253 192 26 16 162 120 – – 54 19 221 152 29 19 17 10 9 3 268 194 264 188 105 35 44 29 – – – – 120 82 – – 63 49 – – – – 47 15 49 39 1,278 1,114 284 194 – 1 – – 851 693 – – 453 337 1 1 1 1 618 522 627 522 998 914 368 350 317 298 210 196 444 410 302 279 339 304 254 236 249 230 576 527 409 369 17,867 13,699 3,032 2,049 3,658 2,688 118 109 4,357 3,367 3,025 2,057 3,284 2,392 1,635 1,096 915 513 10,409 7,709 7,285 5,346 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, denominated 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 Retire- ment 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 (2013: USD 120 THOU) and likely to change when he retires. Following his termination effective 31 December 2014, he receives in the SRP a payment of total USD 101 THOU in three annual installments of USD 33.7 THOU in January 2015, 2016 and 2017. The DBO for the ARP is USD 58 THOU (2013: USD 54 THOU) and for the SRP USD 101 THOU (2013: USD 93 THOU). The contribution for the DCP is USD 265 THOU (2013: USD 246 THOU) and to the 401(k) plan USD 18 THOU (2013: USD 18 THOU). There is no DBO as both plans are DC plans. 54 Annual Report 2014 Allianz Group B Corporate Governance 35 40 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 42 Takeover-related Statements and Explanations 45 Remuneration Report In 2014, remuneration and other benefits totaling € 6 MN (2013: € 9 MN) were paid to former members of the Board of Management and dependents, while reserves for current pension obligations and accrued pension rights totaled € 102 MN (2013: € 100 MN). LOANS TO MEMBERS Of THE BOARD Of MANAGEMENT As of 31 December 2014, 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: 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 € 750 THOU would receive a maximum of € 937.5 THOU. An Allianz pension, where immediately payable, is taken into account in adjusting transition payment amounts. 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. 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. Whereby the annual compensation: 1. is calculated on the basis of the previous year’s annual base salary plus 50 % of the target variable remuneration (for a Board member with a fixed base salary of € 750 THOU, the annual com­ pensation would amount to € 1,875 THOU; hence, he/she would receive a maximum severance payment of € 3,750 THOU); and 2. shall not exceed the latest year’s actual total compensation. 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. 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 three years’ compensation (annual compensation as defined above) and shall not exceed 150 % of the severance payment cap (a Board mem­ ber with a base salary of € 750 THOU would receive a maximum of € 5,625 THOU). Consequently, the payout is less than two years’ total remuneration at target (which would be € 6,000 THOU). 2. Severance payments made to Board members in case of an early termination comply with the German Corporate Governance Code. 3. Special terms, also compliant with the German Corporate Gover­ nance Code, apply if service is ended as a result of a “change of control”. This requires that a shareholder of Allianz SE, acting alone or together with other shareholders, holds more than 50 % of voting rights in Allianz SE. Termination as a result of a change of control occurs if within twelve months after a change of control a. the Management Board appointment is unilaterally revoked by the Supervisory Board, or b. the Board member resigns due to a substantial decrease in man­ agerial responsibilities and without giving cause for termination, or c. a Management Board appointment is terminated by mutual agreement, or if the mandate expires and is not renewed within two years of the change of control. Contracts do not contain provisions for any other cases of early ter­ mination from the Board of Management. Board members who were appointed before 1 January 2011 are eli­ gible to use a company car for a period of one year after their retirement. Annual Report 2014 Allianz Group 55 MISCELLANEOUS Remuneration of the Supervisory Board Internal and external Board appointments When a member of the Board of Management holds an appointment in another company within the Allianz Group, the full remuneration amount is transferred to Allianz SE. In recognition of the benefits to the organization, Board of Management members are allowed to accept a limited number of non­executive supervisory roles in appro­ priate external organizations. In these cases, 50 % of the remunera­ tion received is paid to Allianz SE. A Board member retains the full remuneration only when the Supervisory Board qualifies the appoint­ ment as a personal one. Remuneration paid by external organizations is shown in the annual reports of the companies concerned. The remuneration relating to the external appointment is set by the gov­ erning body of the relevant organization. OUTLOOK fOR 2015 The Supervisory Board approved the following changes to the remu­ neration of the Board of Management in December 2014: − The remuneration of the new regular members of the Board of Management, Mr. Sergio Balbinot and Dr. Axel Theis, has been set at the same level as for the other regular members of the Board of Management. − The base salary for Oliver Bäte continues to be € 750 THOU until and including 6 May 2015 and is set at € 1,125 from 7 May 2015, when he will become the new Chief Executive Officer of Allianz SE. The target amounts for each of the variable components are aligned with the base salary. − A new pension system called “My Allianz Pension” has been introduced for new entrants beginning as of 1 January 2015 with a guarantee for the contributions paid, but no interest guaran­ tee. In addition, the new system allows for more flexibility, for example a lump­sum payment. For members of the Board of Management with existing grandfathered pension plans who were born after 31 December 1957, elements of the new pension plan are adopted as far as possible, mainly with respect to future service. In addition, for such Board of Management members, the relevant age for pension and retirement was raised to 62. The new pension plan is not applicable to those who were born before 1 January 1958. However, they are now also eligible for a lump­sum payment. − The pension contributions as a percentage of base salary paid by the company to the contribution­based pension plan remain unchanged. The remuneration of the Supervisory Board is governed by the Statutes 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 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. − Set a remuneration structure to allow for proper oversight of business as well as for adequate decisions on executive personnel and remuneration. 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. Fixed annual remuneration The remuneration of a Supervisory Board member consists of a fixed cash amount paid after the end of each business year for services rendered over that period. As in 2013, a regular Supervisory Board member receives a fixed remuneration of € 100 THOU per year. Each deputy Chairperson receives € 150 THOU and the Chairperson € 200 THOU. 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 – 56 Annual Report 2014 Allianz Group B Corporate Governance 35 40 Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB 42 Takeover-related Statements and Explanations 45 Remuneration Report 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. Should several meetings be held on the same or consecutive days, the atten­ dance 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 performance of his duties, the Chairman of the Supervisory Board is furthermore entitled to an office with secretarial support and use of the Allianz carpool service. In the financial year 2014, Allianz SE reimbursed expenses totaling € 54,294. REMUNERATION fOR 2014 The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2,035 THOU in 2014 (€ 2,018 THOU in 2013). The following table shows the individual remuneration for 2014 and 2013: INDIVIDUAL REMUNERATION: 2014 AND 2013 Total might not sum up due to rounding € THOU Members of the Supervisory Board Dr. Helmut Perlet (Chairman) Dr. Wulf H. Bernotat (Deputy Chairman) Rolf Zimmermann (Deputy Chairman) Dante Barban Christine Bosse Gabriele Burkhardt-Berg Jean-Jacques Cette Ira Gloe-Semler Franz Heiß Prof. Dr. Renate Köcher Igor Landau2 Jim Hagemann Snabe3 Peter Denis Sutherland Total4 Committees1 P C C M M M M S C C M M M M M M M M R C C M M M M M M M M A M M C C M M M M M M M N C C M M M M Fixed remu ne ration Commit tee remu ne ration Atten dance fees Total remu neration 200.0 200.0 150.0 150.0 150.0 150.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 41.7 100.0 66.7 – 100.0 100.0 160.0 160.0 100.0 100.0 40.0 40.0 20.0 20.0 40.0 40.0 20.0 20.0 40.0 40.0 40.0 40.0 20.0 20.0 20.0 20.0 16.7 40.0 26.7 – 20.0 20.0 8.2 6.0 6.0 6.0 6.0 4.5 3.7 4.5 6.0 4.5 4.5 4.5 5.2 6.0 5.2 4.5 4.5 4.5 4.5 3.0 2.2 6.0 3.8 – 3.7 3.7 368.2 366.0 256.0 256.0 196.0 194.5 123.7 124.5 146.0 144.5 124.5 124.5 145.2 146.0 145.2 144.5 124.5 124.5 124.5 123.0 60.6 146.0 97.2 – 123.7 123.7 1,408.4 1,400.0 563.4 560.0 63.5 57.8 2,035.3 2,017.8 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Legend: C = Chairperson of the respective committee, M = Member of the respective committee. 1 2 Abbreviations: A – Audit, N – Nomination, P – Personnel, R – Risk, S – Standing. Until 7 May 2014. 3 4 Since 7 May 2014. The total remuneration reflects the remuneration of the full Supervisory Board in the respective year. Annual Report 2014 Allianz Group 57 Remuneration for mandates in other Allianz companies and for other functions All current employee representatives of the Supervisory Board except for Mrs. Ira Gloe Semler are employed by Allianz Group companies and receive a market­aligned remuneration for their services. Loans to members of the Supervisory Board On 31 December 2014 there was one outstanding loan granted by Allianz Group companies to members of the Supervisory Board of Allianz SE. One member received a mortgage loan of € 80 THOU from Allianz Bank in 2010. The loan has a duration of ten years and was granted at a normal market interest rate. 58 Annual Report 2014 Allianz Group Allianz Global Automotive 40 car brands Currently working with over 40 car brands in more than 30 countries. Allianz Global Automotive is the leading strategic partner of automotive manufacturers in the provision of insurance and mobility services, currently working with over 40 car brands in more than 30 countries. Automotive manufacturers, finan­ cial services and car dealerships can choose from a portfolio of customized products and service solutions in the fields of motor insurance, warranty, assistance and ancillary products. Allianz Global Automotive provides expertise and support along the entire automotive value chain: from research & development to sales and aftersales, thus enabling the devel­ op ment of globally applicable solutions for partners and customers. The rapidly growing global business unit is present in all major automotive markets. The ambition of Allianz Global Automotive is to be recognized as the Tier­1 Partner to the automotive industry for insurance and mobility solutions, with a holistic business model as well as a deep understanding of the automotive industry. Allianz Global Assistance Allianz Global Automotive Allianz Worldwide Care AlliAnz GlobAl Automotive Expertise and support along the entire auto motive value chain. Competence Center to boost automotive expertise and innovations in the fields of telematics, engineering and insights. Automotive Intelligence Center In 2014, Allianz Global Automotive set up the Automotive Intelligence Center as an integral part of its value creation within the automotive industry. The aim is to boost inno­ vations and expertise along the entire automotive value chain, from vehicle development to connectivity services, dealership business, aftersales and mobility solutions. The Automotive Intelligence Center, which is based in Munich, consists of three key areas: Telematics, Engineering and Insights/Innovations. The experts are working globally with both in­house Allianz and external partners from the auto­ motive industry in interdisciplinary project teams. 60 Strategic partnerships with global leaders – example BMW. The global cooperation with BMW, which has been in place since 2009, was extended by another five years in September 2014. Since the partnership was launched, the joint business volume of insurance policies sold at the point of sale has more than tripled. Today, BMW and Allianz are collaborating in 27 markets worldwide with more than 50 joint BMW­branded products. As far as the upcoming international cooperation cycle is con­ cerned, the focus is on expanding the business with innovative insurance solutions in the e­mobility, used car and driver assistance system segments. Global Partnership with BMW Focused expansion in growing markets – example Asia. Footprint in Asia With a “one size does not fit all” approach, Allianz Global Automotive has been able to effectively localize its global strategy in the Asian markets. The year 2014 saw the busi­ ness unit increase its footprint in South East Asia by com­ pleting market entries in Indonesia, Thailand and Singapore with the launch of several programs in partnership with automotive manufacturers and financial service units. With these successful developments and an ever evolving product and service basket, automotive partners are now able to rely on Allianz Global Automotive to provide them with inte­ grated solutions in most major markets in South East Asia. Furthermore, in China the business volume was expanded and the business model could be further developed by the set­up of a China­wide dealer distribution network through collaboration with Chinese insurance market leaders. 61 C _ GRouP MAnAGeMenT RePoRT Pages 62 – 146 Your AlliAnz  63 business operations and markets Allianz Group structure Insurance operations Asset Management Corporate and Other  63  63  64  64  65 Worldwide presence and business segments  66 Our markets  70 Strategy and Steering  72 Our steering  73 Progress in Sustainable Development  73  73  76  76  77  78 Sustainability management and governance Trusted company Committed corporate citizen Attractive employer Sustainable insurer Responsible investor MAnAgeMent Discussion AnD AnAlYsis  79 business environment  79  79 Economic environment 2014 Business environment 2014: insurance and asset management industry  81 executive Summary of 2014 Results  81  82  82  83  83  83  83  84  84  85 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 Other information Other parts of the Group Management Report  86 Property-Casualty insurance operations  86  88  89  90 Gross premiums written Operating profit  Net income Property-Casualty insurance operations by reportable segments  92 life/Health insurance operations  92  93  93  94  96  98 Statutory premiums Premiums earned (net) Present value of new business premiums (PVNBP) Operating profit Net income Life/Health insurance operations by reportable segments 62 Annual Report 2014 Allianz Group  99 Asset management  99 101 101 101 Assets under management Operating revenues Operating profit Net income 102 Corporate and other 103 103 Earnings summary Operating earnings summaries by reportable segments 104 outlook 2015 104 105 105 106 106 106 107 108 108 108 Overview: 2014 results versus previous year outlook Economic outlook 2015 Insurance industry outlook Asset management industry outlook Outlook for the Allianz Group Overview: outlook and assumptions 2015 Management’s assessment of expected revenues and earnings for 2015 Financing and liquidity development and capitalization Expected dividend development Management’s overall assessment of the current economic situation of the Allianz Group 109 balance Sheet Review 109 109 110 115 Shareholders’ equity Regulatory capital adequacy Total assets and total liabilities Off-balance sheet arrangements 116 liquidity and Funding Resources 116 116 116 120 Organization Liquidity management of our operating entities Liquidity management and funding of Allianz SE Allianz Group consolidated cash flows 121 Reconciliations 121 121 122 Composition of total revenues Composition of total revenue growth Life/Health Insurance Operations risk AnD opportunitY report AnD FinAnciAl control 123 Risk and opportunity Report 123 124 127 130 139 141 142 Allianz risk profile and management assessment Capitalization Internal risk capital framework Internal risk assessment Risk governance Risk management priorities for 2015 Further future challenges and opportunities 144 Controls over Financial Reporting and Risk Capital 144 145 Internal controls over financial reporting Risk capital controls C Group Management Report Your Allianz Business Operations and Markets 63 70 Strategy and Steering 73 Progress in Sustainable Development Business Operations and Markets Allianz offers a comprehensive range of insurance and asset management products and services and has now 85 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. The 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 reportable seg- ments in order to differentiate between the respective products, risks and capital allocation. In 2014, the Allianz Group had 17 reportable segments.1 AlliAnz Group structure – business seGments And reportAble seGments property-cAsuAlty life/HeAltH Asset mAnAGement corporAte And otHer – German Speaking Countries – Western & Southern Europe – Iberia & Latin America – USA1 – Global Insurance Lines & Anglo Markets – Growth Markets – Allianz Worldwide Partners – German Speaking Countries – Western & Southern Europe – Iberia & Latin America – USA – Global Insurance Lines & Anglo Markets – Growth Markets – 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 retail and corporate customers. We are the leading property-casualty insurer globally and rank among the top five in the life/health insurance business. Our key markets based on premiums are Germany, France, Italy and the United States. Most of our insurance markets are served by local Allianz 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 retail and corporate clients is approximately equal for our Property- Casualty business segment. In Life/Health, the proportion of our business with retail clients is significantly higher than that with cor- porate clients. 1 At the end of the financial year 2014, Allianz announced its decision to realign its property-casualty insur- ance business in the United States. For further information, please refer to the Our markets section starting on page 66. Respective changes in the group structure will become effective in 2015. For further informa- tion, please refer to Executive Summary of 2014 Results starting on page 81. property-cAsuAlty Retail 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 Retail 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 2014 Allianz Group 63 Asset Management Corporate and Other Our two major investment management businesses, PIMCO and AllianzGI, operate under Allianz Asset Management (AAM). With € 1,801 BN total assets under management (AuM) (including those of the Allianz Group), we are one of the largest asset managers in the world actively managing assets. 64 % of third-party assets are from institutional investors, while 36 % are from retail clients. Our core markets are the United States, Germany, France, Italy, the United King- dom 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, treasury, financial reporting, controlling, communication, legal, human resources, technology and other functions. bAnkinG operAtions Our banking operations support our insurance business and comple- ment the products we offer in Germany, Italy, France, the Netherlands and Bulgaria. As a division of Allianz Deutschland AG, Oldenburgische Landesbank AG (OLB) is Allianz’s main own banking product and ser- vice 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. 64 Annual Report 2014 Allianz Group C Group Management Report Your Allianz Business Operations and Markets 63 70 Strategy and Steering 73 Progress in Sustainable Development Worldwide presence and business segments mArket positions of our business operAtions1 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 ◼ II. ◼ II. ◼ – ◼ II. ◼ II. ◼ I. United Kingdom Australia Ireland Allianz Global Corporate & Specialty Credit Insurance Middle East and North Africa ◼ III. ◼ II. Egypt ◼ III. ◼ II. ◼ ◼ III. Lebanon Saudi Arabia Europe ◼ II. ◼ II. ◼ ◼ III. ◼ III. ◼ II. ◼ I. ◼ II. ◼ III. ◼ Italy Greece Turkey France ◼ III. ◼ III. 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. ◼ II. ◼ II. ◼ III. Spain Portugal Latin America ◼ III. ◼ III. ◼ – ◼ II. ◼ III. ◼ 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. ◼ – ◼ II. ◼ – ◼ IV. ◼ III. ◼ III. ◼ III. ◼ IV. ◼ III. Brunei2 China3 Hong Kong2 India3 Indonesia Japan2 Laos Malaysia Pakistan Singapore2 South Korea Sri Lanka Taiwan Thailand Central and Eastern Europe ◼ ◼ II. ◼ I. Bulgaria ◼ II. ◼ I. ◼ II. ◼ III. ◼ I. ◼ II. ◼ II. ◼ IV. ◼ II. ◼ II. ◼ III. ◼ III. ◼ I. ◼ II. ◼ IV. Croatia Czech Republic Hungary Poland Romania Russia Slovakia Ukraine North and Latin America ◼ ◼ United States ◼ ◼ ◼ ◼ Europe ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ Asia-Pacific ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ ◼ Canada Brazil Germany France Italy Spain Switzerland Belgium The Netherlands United Kingdom Nordics Japan Hong Kong Taiwan Singapore South Korea China Australia ◼ Property-Casualty ◼ Life/Health ◼ Banking ◼ Retail Asset Management ◼ Institutional Asset Management Insurance market position by gross premiums written: 4 III. Position 6 to 10 II. Position 2 to 5 I. Position 1 IV. Not in the top 10 1 2 This overview is based on our organizational structure in place as of 31 December 2014. For further informa- tion about changes effective 2015, please refer to the Executive Summary of 2014 Results starting on page 81. Property-Casualty business belongs to Allianz Global Corporate & Specialty. 3 4 Based on total market ranking (including domestic competitors), China Property-Casualty ranked in cate- gory IV. and India Property-Casualty and Life/Health both in category III., respectively. Source: Own local estimations as of 2013. Annual Report 2014 Allianz Group 65 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 activities in core insur- ance markets and comment on material developments in selected insurance markets and our asset management market, since these account for the major developments in our operating results. insurAnce core mArkets1 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 31,791 12,489 15,528 13,798 € mn 2,591 883 1,105 504 mn 20.3 5.8 6.7 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 retail and commercial customers. Germany is a rather mature market for property-casualty business, with intense competition. In 2014, our premiums grew mostly in motor business and commercial non-motor business. In September 2014, the new retail motor product ‘digital+’ was launched in order to reach so-called hybrid customers who are not addressed by our existing products ‘Mein Auto’ and ‘AllSecur’. These customers switch between the online and offline world, doing their research online but making the final purchase offline or doing both their research and purchase online, merely requiring personal help in the case of claims. Although the property-casualty market continued to be competitive, our ongoing strategic focus on strengthening sales, improving our claims management and reducing the expense ratio has led to premium growth and improved profitability. Furthermore, we will continue to extend our cooperation with the automotive industry and increase our position in the direct market under the ‘AllSecur’ brand. For our life insurance business, we are active in retail and com- mercial markets and provide a comprehensive range of products. The main classes of coverage offered include annuity, endowment, term, disability and long-term care insurance. Many customers have been rethinking risk and return factors in their retirement arrange- ment. For years we have been successfully enlarging our product range and in the summer of 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. In 2014, new business for “Perspektive” through our tied agents channel accounted for 24.3 % of our retirement arrangement-related retail business. In our commercial lines, we serve our customers with group life insurance and provide companies with services and solu- tions in connection with defined benefit pension arrangements and defined contribution plans. As in the previous year, our single premium business grew strongly again in 2014. We expect, however, that this exceptional growth will not reoccur in 2015. Through Allianz Private Kranken, we provide a wide range of health insurance products, including full private health care cover- age, supplementary health and long-term care insurance as well as foreign travel medical insurance. After satisfactory demand in 2014, we expect slightly higher demand for both full private health care coverage and supplementary insurance in the future. This should be supported by our financial strength and by the very good external ratings we received recently for both our full private health care cov- erage and our supplementary insurance. Italy Our Italian insurance entity Allianz S.p.A. is strongly dedicated to the agent channel. We also offer our products through Genialloyd – the leading company in Italian direct business – the broker channel, Allianz Bank Financial Advisors S.p.A. and through bancassurance, with UniCredit as our main distribution partner. In our property-casualty business, Allianz Italy significantly out- performed its market in terms of premium growth and profitability. In a market that experienced an estimated contraction of approxi- mately 3 %, Allianz premium volume grew by 4.1 % in 2014 (including gross premiums written from acquired parts of the insurance busi- ness of UnipolSai Assicurazioni S.p.A., Bologna)2, which allowed us to increase our market share for a third consecutive year. In terms of 1 The following sections do not cover our global insurance lines, e. g. Allianz Global Corporate & Specialty, our credit insurer Euler Hermes or Allianz Worldwide Partners, even if those entities also operate in the respective market. 2 Excluding these premiums, we recorded a contraction of 1.2 % in gross premiums written. However, this represents a gain in our market share even organically. 66 Annual Report 2014 Allianz Group C Group Management Report Your Allianz Business Operations and Markets 63 70 Strategy and Steering 73 Progress in Sustainable Development profitability, the combined ratio remained at low levels, reflecting our strong technical capabilities achieved through continuous investment and innovation. The latest statistics show Allianz with a significant combined ratio advantage versus the market. This achievement was strongly supported by the performance of our agent network. In 2014, the network expanded by almost half through the acquisition of parts of the insurance business of Unipol- Sai Assicurazioni S.p.A. including 725 agencies which were success- fully integrated subsequently. The introduction of the common digi- tal platform Digital Agency has been instrumental in this integration, with the new agencies running it exclusively, benefiting from simple, mobile and paperless processes. Another driver of innovation in the agent network has been the introduction of ‘Allianz1’, which provides modular family coverage against most risks. Its success has greatly exceeded expectations, with more than 100,000 contracts written in 2014, paid on an affordable monthly basis. Monthly premium sched- ules have also been successfully introduced for motor. In direct, Genialloyd grew premiums by 10.5 % in a contracting market and contributed to our strong performance in property-casu- alty. Property-casualty bancassurance premiums also grew strongly, aided by the launch of a retail motor product distributed through Italian branches of UniCredit. In our life business, we increased our premium volume by 34.4 % and AuM by 15 %. This growth was particularly supported by our banc- assurance cooperation with UniCredit, which helped premiums rise by 58.3 %, and benefited further from additional branches distributing our products. Our unit-linked product market share increased again, with sales of low-capital-consuming unit-linked products accounting for 63 % of GWP, compared to an estimated market average of below 30 %. Our highly successful decumulation product, Progetto Reddito, has been extended to the bancassurance channel and generated over € 1.6 BN of new business in 2014. We also completed the reduction of minimum guarantees to 0 % for virtually all new products, lowering capital absorption in the low interest rate environment. In the next years, we aim to accelerate our digital transforma- tion and to reap economies of scale from our increased business volumes. In our life business, we strive to further rebalance our port- folio by improving our business mix and to optimize returns on capital. 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, disability cover and investment and savings products. We distribute these offer- ings mostly via agents, life and health consultants, brokers and inde- pendent financial advisors, as well as selected external partners. In addition, our customers can research and buy products online – either through ‘eAllianz’ or via our direct sales channel ‘AllSecur’. A new strategic plan for 2015-2020, ‘Innovation & Trust’, has just been launched which capitalizes on several innovative successes Allianz France achieved in 2014. Examples include offering fast-quote and the new life product ‘Vie Génération’ as the first insurer in the French market as well as securing innovative partnerships with drivy (car sharing), TomTom (telematics) and Nest Protect (fire protection). The French retail property-casualty market has seen limited growth of below 3 % in recent years and remains highly competitive. Competition is likely to remain tough, with expected higher customer churn due to local regulatory changes regarding cancellation rules. In this context, we have decided to become an innovation and tech- oriented company leaning on five major pillars: digital development, implementation of a multi-access strategy, personalized offers, com- petitive rates and brand promotion. In addition, we concentrate on increasing the efficiency of our company structures, enhancing our technical excellence, simplifying our product range and processes and rebuilding our IT platform, with a view to delivering state-of-the-art digital solutions and high-quality claims services. This constant focus allows us to grow our customer base, for example in motor insurance. Thanks to the full integration of Gan Eurocourtage, which specializes in distributing its products via brokers, we are now one of the leaders in the midcorp market (ranked as third in midcorp and second in commercial property- casualty insurance). Concerning the life market in France, we anticipate a continued period of low interest rates, reinforcing the need to focus on technical margins and cost optimization to maintain the attractiveness of our offer. We have responded to the needs of our clients with a range of traditional and unit-linked products in both group and individual business, combining financial strength with the opportunity for more attractive yields. Evidence of the success of this strategy is the increase in the unit-linked proportion of our business mix from 34 % in 2013 to 39 % in 2014. We also hold a strong position in the health market, often com- bining elements of life, health and disability insurance as compre- hensive solutions for individual and commercial customers. Recent regulatory changes have created new opportunities for the develop- ment of our group business. In response, we have created a new employee benefits institution (B2V) which aims to take advantage of these new opportunities. Our retail insurance activities are complemented by Allianz ‘Pat- rimoine’, which allows us to offer one-stop solutions, in particular for our high-net-worth individual life customers. In all major segments we will capitalize on our ability to com- bine growth and strong profitability. Annual Report 2014 Allianz Group 67 United States Our property-casualty insurance business in the United States was conducted through Fireman’s Fund Insurance Company (FFIC). Our life and annuity business is managed through Allianz Life Insurance Company of North America (Allianz Life). Through FFIC, we underwrote personal and commercial lines and sold these products through independent agents and brokers. We also participated in a crop insurance program through a reinsur- ance arrangement. Our personal business unit focused on affluent and high-net-worth individuals while our commercial business unit offered specialized property-casualty coverage for small and medium- sized businesses. FFIC was one of the few carriers in the United States that had a nationwide personal and commercial lines presence. In 2014, we saw a continued stabilization of the U.S. property- casualty insurance market, leading to an estimated market revenue growth of 4.2 %. At FFIC, while personal lines showed a stable premium develop- ment, we were impacted by low commodity prices in crop insurance and slowing rate increases in commercial lines which unfavorably impacted our premiums. A deterioration in accident year results and further reserve strengthening led to disappointing business results. At the end of the financial year 2014, Allianz announced its deci- sion to realign its property-casualty insurance business in the United States. The reorganization comprises the integration of Fireman’s Fund Insurance Company’s (FFIC) commercial business into Allianz Global Corporate & Specialty North America (AGCS NA), the sale of the personal insurance business to the global insurance company ACE, as well as the internal transfer of the discontinued run-off business through a reinsurance agreement within the Allianz Group. The realignment and sale are expected to be executed in 2015 and to have a negative impact of approximately USD 0.2 BN on the Allianz Group’s financial statements. Expenses in the context of the restructuring will comprise expenses for human resources-related items, office buildings and IT infrastructure. The sale, which will take place by means of a renewal rights arrangement, is still subject to regulatory approval of the California Department of Insurance. These steps enable us to operate under the Allianz brand only as well as allow a strengthening of our property-casualty business in the United States – a market we remain committed to. 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. Despite a competitive market environment in 2014 we expanded our position as market leader in the fixed index annuity market as a result of an innovative index strategy and higher penetration into the Securities and Exchange Commission (SEC) licensed broker-dealer channel. Although the persisting low interest rate environment remains challenging, we actively manage our product pricing strategy to maintain profitability. 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 prod- uct innovation and high-quality services. selected insurAnce mArkets Australia Allianz Australia Insurance Ltd. serves the Australian and New Zea- land property-casualty and life insurance markets. Based on market share Allianz Australia is the fourth largest property-casualty insurer in Australia, providing insurance coverage for both retail and corpo- rate segments. Allianz Australia also operates in certain niche markets, which include premium financing, agriculture, heavy motor and pleasure craft insurance. The company is one of Australia’s leading Workers’ Compensation insurers, serving approximately one in five Australian employees. With its disciplined underwriting approach and investments in risk prevention and accumulation controls, Allianz Australia success- fully responded to a number of natural disasters in both Australia and New Zealand between 2010 and 2014. Effective 1 January 2015, Allianz Australia acquired the insur- ance operations of the Territory Insurance Office (TIO) from the regional government of the Northern Territory. Besides adding approximately AUD 130 MN in written premiums, the acquisition brings the company increased geographic diversification and forms the basis for future growth in Northern Australia. The acquisition also brings Allianz Australia a significant new source of revenue for managing the Government’s Motor Injury scheme. By leveraging its multi-distribution approach as well as exploit- ing new business opportunities, Allianz Australia grew the number of insured risks by 5.8 % in 2014. A continuation of this distribution- focused strategy will enable Allianz Australia to remain well placed for further profitable growth despite considerable rate pressure in com- mercial lines and increasing competition from new market entrants. United Kingdom We serve the U.K. market mainly via our subsidiary Allianz Insurance plc, which is the fifth largest general property-casualty insurer in the United Kingdom and offers a wide range of commercial and personal insurance products. Our commercial products cover a broad spectrum of customers, from sole traders to large commercial organizations. We also provide engineering inspection services distributed princi- pally through brokers. In personal lines we distribute our broad selec- tion of products via a multi-channel approach through brokers, affin- ity partners, veterinary practices and direct channels. 68 Annual Report 2014 Allianz Group Asset mAnAGement mArket 2014 was another favorable year for the asset management industry as a whole. Markets showed net inflows into actively-managed AuM. There was also a significant shift to passive products visible in the markets, especially in the United States. For equity and fixed income strategies the main net inflow drivers were global equities and taxable bonds in more mid to shorter-term as well as floating rate strategies. High yield and emerging market bond strategies recorded net outflows. For further information on the asset management industry busi- ness environment, please refer to page 80. AllianzGI recorded strong net inflows in fixed income and multi- asset. PIMCO suffered net outflows throughout 2014 with a receding trend until nearly the end of September 2014. With the departure of PIMCO’s Chief Investment Officer (CIO) on 26 September 2014, the net outflows spiked in the last quarter of 2014, but came down to the end of the fourth quarter of 2014. Immediately after the resignation of the CIO, the new PIMCO investment management leadership was appoint- ed following the orderly succession protocol. In 2014, AllianzGI followed up the implementation of its ‘One Firm’ strategy, while at the same time further expanding its product offerings in equities, fixed income and alternative assets. Besides, AllianzGI is developing new approaches for client interaction, lever- aging the opportunities of the digital space. PIMCO continues to focus on delivering returns and managing risks on behalf of clients across a growing range of investment solu- tions. It is also following its longer-term development plan to broaden its product offerings into areas such as the alternatives platform, income solutions, equities and ETFs. C Group Management Report Your Allianz Business Operations and Markets 63 70 Strategy and Steering 73 Progress in Sustainable Development Despite the persistence of a very competitive insurance market we have doubled our brand awareness amongst our target audience in the last two years, driven by an increase in multimedia advertising and sponsorship programs. These successful brand building activi- ties, our differentiated portfolio and our market-leading underwriting capability in commercial lines allowed us to outgrow the market while delivering superior underwriting results. Looking ahead, we aim to gain further market share despite con- tinuing challenging market conditions and to preserve our combined ratio advantage via further investments in digital transformation, process efficiency and in our Indian offshore service center. Latin America (with focus on Brazil) Allianz operates in the Latin American region with a presence in Brazil, Colombia, Argentina and Mexico. It is a strong player in the property- casualty segment, with motor as the predominant line of business (except in the Mexican market) followed by industrial lines. Life prod- ucts are also distributed in the Mexican, Colombian and Brazilian markets. The company follows a regional strategy based on excellence of services and processes, efficiency and product simplicity, that allows the entities to leverage the brokers and the agents network and to focus on continuously increasing the customer base. With 110 years of history in Brazil and a strong reputation as a top insurer, Allianz represents a very strong brand in the insurance market, reinforced in 2014 with the sponsorship of Allianz Parque Arena. At the beginning of 2014, the IT platform (which already oper- ates successfully in our Spanish, Portuguese and Colombian subsid- iaries) was launched in Allianz Brazil as a key part of our overall strat- egy in the region. Unfortunately, operational issues arose during the implementation and start-up phase, leading to temporarily dimin- ished levels of customer service. As a result, Allianz’s market share shrank by about one percentage point in the property-casualty insur- ance business in 2014. In response, we have implemented various initiatives targeting a recovery. The Brazilian insurance market has been continuously growing over the last decade, from 1.8 % of GDP in 2003 to 3.0 % in 2013 (with Brazilian GDP also rising considerably during the same period). How- ever, the more recent deceleration of the local economy represents further headwind for our growth in this region. Despite this, we believe that insurance penetration will continue to increase in the Brazilian market. In the long term, Allianz Brazil aims to take advantage of the local market growth, leveraging the new IT platform to integrate all processes under one single system, and improve service levels to agents, insureds and providers. Annual Report 2014 Allianz Group 69 Strategy and Steering Our longer-term vision is unchanged: to be the world’s strongest financial community. 2014 was another milestone on this journey, with the Allianz Group achieving further revenue growth and another strong operating result. In an uncertain and volatile business environment, we will protect the pillars of our business strategy – our integrity, financial strength, operational excellence and talent base – and continue to leverage our size to offer outstanding products and services to our customers and business partners. Living up to our ambition Property-Casualty We aim to be the leading property-casualty insurer in terms of reve- nue and profitability. In 2014, Allianz finished among the top-3 in our global peer group in premium growth and Combined Ratio (as a mea- sure of profitability), defending our position as the world’s largest and one of the most profitable international property-casualty insurers. The Group has taken further action to strengthen its property- casualty portfolio: we completed bolt-on acquisitions in two of our strongest markets, Italy and Australia. At the same time we reduced our exposure to the Russian retail market and are restructuring our U.S. commercial activities into one carrier, AGCS in the United States, to ensure scale and build a competitive and profitable platform for our business in the world’s largest property-casualty market. Further, it was also agreed to sell the personal insurance business in the United States, where we expect the transaction to close in the first half of 2015. Accelerating organic growth will remain a priority. We continue to invest in the digitalization of our business to capture new oppor- tunities, such as the growing number of hybrid buyers and the shift in customer behavior towards convenience, mobility and an individu- alized offering. At the same time we are going to strengthen further our capabilities to serve customers through any channel they choose to approach us. Life/Health We aim to be one of the three most profitable life and health insurers among our global peer group. Our 2014 business segment operating result increased and puts the Group in the top-4 among our global peers in terms of operating profit. Still, we recognize that capital returns in the business segment will continue to be under pressure as interest rates remain close to zero in our major markets. To protect and increase the segment’s profitability in this environ- ment, we are working to improve returns both in the new and in-force business. We will continue to grow the share of our health and pro- tection business and of non-traditional, capital-efficient savings products, supported by innovations such as the “Perspektive” product in the German market. In addition, we have launched in-force man- agement programs across our major Life companies, aiming to realize the profit potential in our existing books of business and explore ways to optimize the capital tied up there. Asset Management We aim to be the number one active asset manager by revenues and profitability. In 2014, Allianz defended its place among the world’s top-4 largest asset managers, irrespective of significant net outflows in the aftermath of the leadership transition at PIMCO. We have since confirmed a broader investment leadership team at PIMCO. Meanwhile Allianz Global Investors has had its best year since the implementation of our two-pillar asset management strat- egy at the beginning of 2012, consolidating its position in the top of the European rankings by assets under management, driven by third- party net inflows and market returns. 70 Annual Report 2014 Allianz Group C Group Management Report Your Allianz Business Operations and Markets 63 70 Strategy and Steering 73 Progress in Sustainable Development In order to maintain growth in the segment we are constantly extending our product offering across asset classes (for example solution business, global strategies such as emerging market debt & equity and alternative investments like infrastructure). Besides, we are working on strengthening our global footprint and testing novel distribution models that will make it easier for our insti- tutional and retail customers to access our products. our operating environment and focus going forward In 2014, our operating environment was characterized by relative macro stability, thanks to the ongoing support of sovereign debt mar- kets and financial markets overall by the central banks. Major stock markets reported gains, while spreads in selected fixed income mar- kets tightened even further. In consequence, the related risks have been growing (please refer to the Risk and Opportunity Report starting on page 123). In particular, we monitor the risk to Allianz from: − Consequences of the current ultra-low interest rate environ- ment, in particular the risk-return profile of financial assets; − Worsening financial strength of sovereign borrowers and the market volatility and central bank interference related to it; − Ongoing regulatory uncertainty both at the level of local super- vision and macro-regulation (e.g. Solvency II, additional require- ments for global systemically important insurers and European consumer regulation). In this environment we aim to preserve the strength of our balance sheet and ensure efficient use of our capital (for details regarding our new dividend policy please refer to the Expected dividend develop- ment section on page 108). At the same time we see unique oppor- tunities for Allianz due to the strength of our franchise in the world’s leading insurance and asset management markets, of our people, brand and capital. As a consequence, the focus of our segment strat- egies will be on organic growth and portfolio management in Prop- erty-Casualty, protecting the profitability in Life/Health and position- ing Asset Management for continued performance and leadership. As we prepare to celebrate 125 years of Allianz with our customers and employees this year, we look ahead with confidence – confident that we will progress ever closer towards our vision: to be the world’s strongest financial community. Annual Report 2014 Allianz Group 71 Our steering board of management and organiZationaL structure1 Allianz SE has a divisional Board structure that is split into functional and business responsibilities. The business-related divisions reflect our business segments Property-Casualty, Life/Health, Asset Manage- ment and Corporate and Other. These were overseen by seven board members, with six members concentrating on the insurance business segments and one on Asset Management as a stand-alone segment. The remaining four divisions (i.e. Chairman of the Board of Manage- ment, Finance, Investments and Operations) focus on Group func- tions, along with business-related responsibilities. members of the board of management and their responsibiLities in 2014 (incLuding changes in 2015) board members responsibiLities Michael Diekmann (until 6 May 2015) Chairman of the Board of Management (until 6 May 2015) Oliver Bäte Insurance Western & Southern Europe (until 31 December 2014), Global Property-Casualty (until 6 May 2015) Chairman of the Board of Management (from 7 May 2015) Sergio Balbinot (since 1 January 2015) Insurance Western & Southern Europe (since 1 January 2015) Manuel Bauer Insurance Growth Markets; Insurance Australia (since 1 January 2015) Gary Bhojwani (until 31 December 2014) Insurance USA (until 31 December 2014) Clement Booth (until 31 December 2014) Global Insurance Lines & Anglo Markets (until 31 December 2014) Dr. Helga Jung Dr. Christof Mascher Jay Ralph Insurance Iberia & Latin America, Legal & Compliance, Mergers & Acquisitions Operations, Allianz Worldwide Partners Asset Management; U.S. Life Insurance (since 1 January 2015) Dr. Axel Theis (since 1 January 2015) Global Insurance Lines & Anglo Markets (since 1 January 2015), Global Property-Casualty (from 7 May 2015) Dr. Dieter Wemmer Dr. Werner Zedelius Finance, Controlling, Risk Insurance German Speaking Countries, Banking, Human Resources Dr. Maximilian Zimmerer Investments, Global Life/Health 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. This plan also forms the basis for our capital management. The Supervisory Board then approves the plan and sets corresponding targets for the Board of Management. The performance-based remuneration of the Board of Management is linked to short-, mid- and long-term targets to ensure effectiveness and emphasize sustainability. For further details about the remuneration structure, including target setting and perfor- mance assessment, please refer to the Remuneration Report starting on page 45. 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 Asset Management. Furthermore, we use Return on Risk Capital (RoRC) for new business steering purposes in the Property-Casualty and Life/ Health business segments. For a comprehensive view of our segment performance, please refer to the Management Discussion and Analy- sis starting on page 79. 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 123. 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 sustainable development (as measured by widely-recognized indices and rankings). 1 For further information about changes to the structure of the Board of Management effective 2015, please refer to the Executive Summary of 2014 Results on page 84. 72 Annual Report 2014 Allianz Group C Group Management Report Your Allianz Business Operations and Markets 63 70 Strategy and Steering 73 Progress in Sustainable Development Progress in Sustainable Development Allianz continues to build on its 125-year-old foundations that sup- port us in doing business in a sustainable way. To us, sustainable development means combining long-term economic value creation with a forward-thinking approach to corporate governance, environ- mental stewardship and social responsibility. Our sustainability activities focus on material issues relevant to our business and stakeholders. We have many different stakeholder groups, and engaging with them has enabled us to gather specific opinions, expectations and ideas, and consider these in relation to our business operations. It also helps provide a better understanding of the impacts of current or future global challenges on stakeholders, and how we can manage these by finding and developing effective solutions. As a multi-faceted organization we play a number of different roles, whether that be as a company, a corporate citizen, an employ- er, an insurer or an investor. We take our responsibility for environ- mental and social issues seriously, regardless of the role that we play. Our commitment is also reflected in national and international ini- tiatives we support: In early 2014, we became a signatory to the United Nations (UN) Principles for Sustainable Insurance, which comple- ments our existing commitment to the UN Principles for Responsible Investment. The following pages highlight some of our key sustainability approaches and major developments in 2014. The Allianz Group Sus- tainability Report, with full details of our sustainability strategy, approach and progress, is available on our sustainability website1. Sustainability management and governance Sustainability is a constantly evolving, strategic business issue, which continues to increase in importance for all stakeholder groups. We therefore continually review and adapt our strategy, governance and organizational structures and the way we manage risks and opportunities. The Group ESG Board is a committee with Board Mem- ber leadership, with responsibility for promoting environmental, social and governance (ESG) aspects in our insurance and investment activities. Our Group-level sustainability functions deal largely with new and emerging issues in close cooperation with specific func- tional departments and local entities. They are comprised of two centers of competence – Allianz4Good and the ESG Office. ESG procESS for inSurancE and invEStmEntS Strengthening the governance and integration of environmental and social aspects in our core business processes continued to be a prior- ity in 2014. This commitment covers both our insurance business and how we invest our own and third-party assets. Dialogues with non-governmental organizations (NGOs) and an ongoing internal stakeholder engagement process have enabled us, for example, to identify 13 sensitive business areas for both under- writing and investments where we could have significant business risks across regions and lines of business. In 2014, we further devel- oped our approach to screening sensitive countries and human rights risks, to complement our existing sensitive business guide- lines. We do not exclude certain businesses by default, instead, we analyze each risk on a case-by-case basis and see if and how the risk can be mitigated. When an ESG risk is detected in one of the sensitive business areas during due diligence, a mandatory referral process is triggered, which can result in an escalation up to Board level. Over the course of 2014, Allianz assessed a wide range of sensitive business for ESG considerations. Overall, 150 transactions were reviewed across our insurance and investment business. 81 % of transactions were approved, 10 % were given conditional approval subject to further information or mitigating actions being taken and 9 % declined. Integrating ESG considerations into existing core processes allows for quicker implementation and adoption by our underwriters and investment and asset managers. During 2014, we integrated our sensitive business areas and sensitive countries list into the core underwriting and investment standards for alternative investments of own assets and our overarching risk management framework2. Trusted company In our role as a company, we aim for transparency in business activi- ties and treat customers, employees and partners with integrity and honesty. We are committed to minimizing our environmental impact and are constantly working to achieve low-carbon operations. 1 www.allianz.com/sustainability 2 For more information on risk management, please refer to page 123. Annual Report 2014 Allianz Group 73 cuStomEr rELationSHip manaGEmEnt Digital technology has completely changed the way consumers make purchasing decisions and buy insurance or investment products. We seek to provide our customers with convenient access to Allianz, making it easy for them to shift seamlessly between physical and digital interaction and with the required flexibility in adapting our products and services to their changing needs. We therefore aim for real-time customer interaction and invest in the technology needed to easily and efficiently provide persona- lized offers and services, combining face-to-face advice from Allianz agents and partners with customer service centers and online tools. In an increasing number of markets, Allianz customers can get an insurance offer simply and quickly over the internet by providing only a few pieces of data and can then decide to buy directly online or finalize their purchase at an agency. This innovative “FastQuote” approach reflects our customers’ preference for easy online access to insurance products. With “ Allianz1”, for example, a modular offering launched in Italy in 2014, customers can tailor their insurance cover to their individual requirements and personal budget by choosing from 13 modules ranging from home and accident insurance to life and health cover as well as assistance services. Meeting our customers’ needs through relevant products and services and earning their loyalty is vital for our sustainable growth. The Net Promoter Score (NPS) is our measurement of customers’ will- ingness to recommend Allianz. It has been established as our key global metric for customer loyalty in about 40 Allianz companies worldwide, representing around 90 % of gross premiums written. Top- down NPS is measured annually according to global cross-industry standards and allows benchmarking against competitors in respec- tive markets. In 2014, 47 % of Allianz businesses significantly outperformed their local peer average and 32 % achieved loyalty leadership in their market. While we did improve our performance in many markets, so too did our local peers. In 2015, by leveraging successful customer experience initiatives among our local entities, we expect that more Allianz companies will outperform their local peer average with their NPS performance. To steadily improve our customer service, we apply bottom-up NPS: asking our customers for direct feedback after key interactions with Allianz – such as sales and claims handling. This helps us to identify areas for improvement and continuously monitor the impact of measures taken. cuStomEr BaSE Overall, the number of customers insured by Allianz worldwide grew from more than 83 million in 2013 to 85 million in 2014. Organic growth contributed with 1 million customers. cuStomErS By rEGion/country1 as of 31 December 2014 [31 December 2013] in % Anglo Markets 8.0 [7.9] USA 1.4 [1.4] Growth Markets 30.6 [32.3] Rest of Europe & Latin America 18.8 [18.5] Germany 23.9 [24.0] Rest of German Speaking Countries 2.6 [2.6] France 6.8 [6.0] Italy 7.9 [7.3] 1 Customer figures exclude clients in microinsurance, pension funds and all Global Lines. For more information on our customer base, read page 65. aLLianZ Brand1 Our brand plays a key role in driving the growth of our business in the long term. It fosters close bonds with our customers – even more so in the digital context – and consequently helps us to build sustain- able relationships. In many countries around the globe our brand is well-established: Allianz stands for a trusted partner in peoples’ lives, helping them to make the right decisions and gain confidence to achieve their goals. In 2014, our Allianz-branded revenues stood at 83 % (2013: 82 %) of total revenues. Our “One-Brand” strategy leaves room for our renowned specialty brands such as PIMCO and Euler Hermes that use Allianz as their reference. As part of our global brand management process, we use a stan- dardized market research design to monitor and benchmark the performance of the Allianz brand regularly against local competitors. This research covers over 38,000 consumers in 26 countries. Our brand performance was again acknowledged in 2014: In the annual 100 Best Global Brands Ranking from Interbrand, Allianz remains one of the strongest growing financial services brands, with our brand value increasing by 15 % to approximately USD 7.7 BN (2013: USD 6.7 BN). In 2014, we continued to invest in our brand. Building on our successful global brand communication framework “ONE”, which has been rolled out in over 30 countries to date, we also launched a dedicated brand campaign in Asia to strengthen Allianz as the trusted 1 Our Allianz trademark is registered and protected worldwide, as are our domain names. Furthermore, we have registered our corporate design and brand claim “Allianz. With you from A-Z.” in relevant coun- tries worldwide. In order to maintain the distinctiveness and strength of our Allianz brand, we continuously monitor possible infringements of our trademark applications and registrations by third parties. 74 Annual Report 2014 Allianz Group C Group Management Report Your Allianz Business Operations and Markets 63 70 Strategy and Steering 73 Progress in Sustainable Development insurance and investment partner in the region. The global cam- paign was extended with local brand activities in Indonesia, Malaysia, Thailand and Taiwan. Through our strong presence in digital plat- forms, including social media, we achieved high consumer engage- ment overall with our brand and business. With our established sponsorship portfolio, we anchor corpo- rate responsibility as a vital component in our strategy: for example through our commitment to the Paralympic Movement, which was highlighted by the Paralympic Winter Games 2014 in Sochi, or our partnerships in Formula 1TM and our Road Safety program with 36 local entities participating in 2014. As a long-term investment in the Allianz brand, we strengthened our successful partnership with FC Bayern München, acquiring an 8.33 % share. With the opening of Allianz Parque in Sao Paulo in 2014 and the Allianz Stadion in Vienna, which will be built by 2016 as the new home ground for the Austrian football team SK Rapid Wien, we now have six members in our family of stadiums. Our global stadium sponsorship and naming rights strategy was acknowledged at TheStadiumBusiness Awards 2014 by receiving the Sponsorship, Sales & Marketing Award as well as the Sustainability Award for Allianz Park in London. Furthermore, our partnership with world-renowned pianist Lang Lang and his Lang Lang International Music Foundation received the International Sponsoring Award for its innovative approach in combining youth education with a brand ambassador. EnvironmEntaL manaGEmEnt As a business, we are committed to reducing our environmental impact and have formalized this in our Carbon Reduction Strategy. The target is to reduce our carbon emissions per employee by 35 % by 2015 against a 2006 baseline. Since 98.3 % of the Group’s emissions come from energy, travel and paper, we focus 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. As our current target period will end in 2015, we are in the process of developing post-2015 environmental targets. BrEakdown of co2 EmiSSionS1 as of 31 December 2014 in % Energy Travel Paper Water Waste 2014 53.9 40.3 4.1 0.2 1.5 1 KPMG Wirtschaftsprüfungsgesellschaft AG has provided limited assurance on the 2014 environmental performance information. For further information, please refer to www.allianz.com/sustainability. We continued to reduce the carbon footprint of our business in 2014. Our overall CO2 reduction since 2006 now stands at 41.3 % per employee and energy reduction since 2010 is now 27.2 % per employee. As part of our overarching Climate Change Strategy, and in addition to our carbon reduction target, we have been a carbon-neutral business since 2012 by offsetting our remaining emissions through direct investments in carbon projects. EnvironmEntaL footprint1 as of 31 December Total emissions Per employee emissions Total energy consumption thereof: Renewables Total travel – plane, train, car Total paper consumption in metric tons co2e in metric tons co2e in GJ in % in tkm in metric tons 2014 2013 2012 322,529 348,6612 344,776 2.20 2,596,317 40.0 963,958 2.392 2.40 3,084,6012 3,079,897 39.2 931,356 38.92 967,210 19,774 18,2552 20,193 1 2 KPMG Wirtschaftsprüfungsgesellschaft AG has provided limited assurance on the 2014 environmental performance information. For further information, please refer to www.allianz.com/sustainability. 2013 figures were adjusted for error corrections. compLiancE manaGEmEnt Allianz’s Compliance Management System aims to ensure compli- ance with internationally recognized laws, rules and regulations, and to promote a culture of integrity in order to safeguard the company’s reputation. In 2014, we continued with measures to further strengthen the effectiveness of compliance management by enhancing quality assurance, global reporting on compliance risks and independent reviews of key elements of our compliance program1. A high level of data privacy has been established throughout the Group. During 2014, the Allianz Group Data Protection function sup- ported subsidiaries in implementing the Allianz Standard for Data Protection and Privacy and establishing appropriate data privacy management systems by providing, for example, awareness materials or risk assessment templates. The most important step is the assess- ment of all the processes that collect and manage personal data, in order to check their legal feasibility as well as the necessity for spe- cific privacy controls. 1 For further information on our compliance program, please refer to the Statement on Corporate Manage- ment pursuant to § 289a of the HGB on page 41. Annual Report 2014 Allianz Group 75 Committed corporate citizen Attractive employer1 Allianz aspires to be a committed corporate citizen by contributing to the communities in which we operate. We strive to advance local social well-being and support informed decision-making at a govern- mental level as part of our vision to build the strongest financial com- munity. As a global company, we take our role in society very serious- ly and see this as more than “just” making donations. We therefore offer our employees the possibility of donating their skills and experi- ence to advance social well-being in our local communities. Globally, we employ 147,425 (2013: 147,627)2 people in over 70 coun- tries. Our business strategy requires us to have the best people in place in order to deliver success today and over the long term. Our aim is to create a consistent approach to HR management across the Group and we do this by providing Allianz companies with strategic HR frameworks, principles and tools covering key areas such as talent management, rewards and performance, employee engagement and diversity. poLiticaL EnGaGEmEnt As a company headquartered in Germany, Allianz contributes to democratic political parties that support the social market economy. In 2014, as in the previous year, we contributed equal amounts to political parties in Germany representing a variety of views within the political spectrum: the Green Party (Bündnis 90/Die Grünen), Christian Democrats (CDU), Christian Social Union (CSU), Liberals (FDP) and Social Democrats (SPD). To support their activities during the European Parliament elections in May 2014 these political parties received a one-time donation of € 20,000. We also donated € 10,000 to each of the junior organizations of the Green Party (Green Youth), CDU (Junge Union), CSU (Young Union in Bavaria), the FDP (JuLis) and SPD (Young Socialists). community EnGaGEmEnt In 2014, we donated € 21 MN (2013: € 19 MN) to assist local communi- ties and offered further support through our international network of 14 Allianz-affiliated corporate foundations. We also offer a number of employee volunteering opportunities in local communities. For example, My Finance Coach fosters financial literacy among young people, and reached more than 219,000 students in Germany alone in 2014. The leadership development program Social OPEX saw 48 employees from 12 Allianz subsidiaries share their expertise with 21 socially-committed organizations. 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 employees can achieve current and future business and personal development goals. In order to meet future staff needs, we promote the necessity of lifelong learning. Also, our Strategic Workforce Planning proac- tively supports strategic HR decision-making by supplying forecasts on economic, demographic and socio-cultural trends. traininG kEy fiGurES1 Total expenses in training Training expenses per employee € mn € Average training days per employee, staff 2014 2013 2012 91 668 3.0 86 629 3.0 93 707 2.6 1 Figures based on the number of employees in Allianz’s core business. Excluded are fully consolidated companies which are considered as pure financial investments, non-profit organizations e.g. founda- tions and companies classified as held for sale. 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 to be successful as a global company and have implemented a number of initiatives to support this. Consistent with our Code of Conduct, Allianz has a zero-tolerance policy against discrimination and harassment in the workplace. 1 2 For more information on HR management, read the chapters in our Sustainability Report 2014 (www. allianz.com/sustainability) as well as the HR fact book 2014 (www.allianz.com/hrfactbook). Total number of employees with an employment contract of all affiliated companies (core and non-core business). 76 Annual Report 2014 Allianz Group C Group Management Report Your Allianz Business Operations and Markets 63 70 Strategy and Steering 73 Progress in Sustainable Development As part of our efforts to advance women at Allianz, in 2008 we set ourselves the global target of increasing the share of women in the talent pool for executive positions to 30 % by 2015. A top management sponsorship program for women and flexible work-life programs, such as part-time employment or job sharing, are part of our sup- porting actions taken in several countries. womEn acroSS tHE aLLianZ Group1 in % Women in executive positions2 Female managers3 Share of women in overall workforce 2014 23.1 36.2 52.9 2013 21.2 35.5 52.8 2012 19.4 33.9 52.5 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, non-profit organizations e.g. founda- tions 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. We continue to help the integration of employees with disabilities into the workplace. Group-wide guidelines ensure that buildings, workstations and websites are accessible to wheelchair users, the blind and visually impaired. A number of our subsidiaries actively recruit graduates with disabilities for underwriter positions, for example, and others hire visually impaired call-center operators. SuStainaBLE vaLuE approacH to rEmunEration Our remuneration and incentive structures are designed to encour- age sustainable value creation and are guided by clear frameworks that promote strong governance. We use an appropriate mix of mon- etary and non-monetary rewards for our workforce, taking into account the particular role of an employee, business activities and local remuneration and regulatory environments. The Allianz Group paid a total of € 9.0 BN (2013: € 9.1 BN) to its employees worldwide in 2014. Of this, approximately 29 % was for performance-related (variable) remuneration elements. € 2.5 BN (2013: € 2.4 BN) was spent on social security contributions, pensions and other social benefits. EmpLoyEE EnGaGEmEnt The Group-wide Allianz Engagement Survey (AES) gathers employee feedback on a range of relevant issues, including factors identified as promoting a high-performance culture within Allianz. In 2014, over 120,000 employees from 67 Allianz companies were invited to partici- pate, with 84 % responding. The Employee Engagement Index is a key measure of employee satisfaction, loyalty, advocacy and pride. The results of the AES are directly linked to the performance objectives of the Group’s Board of Management. EmpLoyEE EnGaGEmEnt indEx Employee Engagement Index 2014 72 2013 73 2012 70 Sustainable insurer We are one of the world’s leading industrial insurers and our product portfolio includes a wide range of Property-Casualty and Life/Health insurance products for both retail and corporate customers. As a sus- tainable insurer, we understand that integrating environmental, social and governance (ESG) issues in our risk analysis presents a major opportunity to reduce risks in underwriting – for us and our customers. Furthermore, we offer a selection of products and services that enable economic development, support a low-carbon economy and foster financial inclusion. ESG in undErwritinG We apply our ESG Guidelines on Sensitive Business Areas to all insur- ance businesses globally, focusing on corporate customers. They are relevant to all contracts, whether we act as lead insurer or as part of a panel, whether it is for single projects, multi-site risks or supporting complex global insurance client needs. In 2014, we set up a support function in Allianz Global Corporate & Specialty (AGCS), our indus- trial insurer, to pre-screen business before escalation for Group review on sensitive business. The unit offers ESG support for insur- ance transactions and acts as a center of competence for Property- Casualty insurance, as well as providing proactive screening of ESG risks in portfolios. Training is a key part of successfully implementing our ESG approach and in 2014 we integrated the ESG risk escalation process into global training modules for underwriters and delivered a range of trainings to our engineering and liability underwriters. Annual Report 2014 Allianz Group 77 GrEEn SoLutionS As part of our Climate Change Strategy, we continue to offer more “green” solutions to our customers worldwide that support the transi- tion to a low-carbon economy, protect the environment and help customers prepare for the negative effects of climate change and mitigate associated risks. In 2014, we offered 156 such solutions, with revenues of € 1.3 BN (2013: € 1.2 BN)1, reaching more than 4.7 MN cus- tomers (2013: 4.3 MN). microinSurancE The people most vulnerable to risks associated with natural disasters, accidents and illness are those with low incomes, living in developing countries. Microinsurance offers an affordable way of protecting against these risks, with premiums that start from as low as € 1 a year. Allianz offers microinsurance products in eleven countries in Asia, Africa and Latin America and our products range from life insurance to crop index insurance. 2014 saw continued strong growth and we now insure 44.6 million people (2013: 26.1 million)1, with revenues of € 114 MN (2013: € 86 MN)2. For more information on future risks and opportunities, please refer to the Risk and Opportunity Report from page 123. Responsible investor Our responsibilities as an investor are two-fold: Firstly, we invest our own assets, which include premiums collected from our insurance customers, and we systematically integrate ESG issues into our own investment processes. Secondly, in our third-party asset manage- ment business, we invest on behalf of our asset management cus- tomers. We aim to tailor products, solutions and distribution that best meet our clients’ needs and further strengthen the brand of our asset management subsidiaries, Allianz Global Investors ( AllianzGI) and PIMCO, and offer a growing number of Sustainable and Respon- sible Investment (SRI) products. ESG in invEStmEnt of own aSSEtS As large institutional investors, insurance companies play an impor- tant role in funding a low-carbon economy. Climate-related invest- ments, such as renewable energy, are an attractive growth market as they contribute to greater portfolio diversification. They also provide sound and stable long-term returns that are generally not linked to the ups and downs of the financial markets – which fits in well with our investment strategy for life insurance premiums. We are one of the leading investors in renewable energy globally, with more than € 2 BN invested to the end of 2014 (2013: € 1.7 BN). We are steadily expanding in this sector, with planned investments of around € 400 MN per year. In our real estate investment, Allianz Real Estate has a compre- hensive sustainability program. We apply specific sustainability metrics in investment and property management processes and actively engage with tenants. In 2014, we started a pilot project to track sustainability indicators in order to evaluate the progress of our sustainability program. ESG in tHird-party aSSEt manaGEmEnt Embedding ESG issues into asset management and offering corre- sponding products and services are common practice in both AllianzGI and PIMCO. Building strong ESG research capabilities, engaging with the companies they invest in and pursuing active share ownership through proxy voting are at the heart of their ESG strategies. The SRI portfolio has been growing over the last few years. At the end of 2014, assets under management in our SRI funds totaled € 95.4 BN (2013: € 78.2 BN) for PIMCO and € 22.0 BN (2013: € 17.5 BN) for AllianzGI, bringing the total to € 117.4 BN – which is 7 % of our total third-party assets under management. 1 2 2013 figure was adjusted for error corrections. Figures include non-consolidated entities (i.e. India). 78 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations Business Environment Economic environment 2014 ANOTHER YEAR WITH ONLY MODERATE ECONOMIC GROWTH Global economic performance in 2014 can be described as overall moderate expansion, with rather divergent developments in the indi- vidual countries and regions. Economic output also varied widely between the respective quarters. In the United States, for example, the exceptionally cold winter put such a damper on domestic demand that overall output contracted in the first quarter. As a result, catch-up effects contributed to a significant rebound in the second quarter. In Central and Eastern Europe many countries benefitted from the modest recovery in the Eurozone. Countries like Hungary and Poland registered average growth of more than 3 % in 2014. By contrast, Russia’s economy suffered severely from structural problems, economic sanctions linked to the Ukraine conflict and the collapse in oil prices. As a result, the country slipped into recession in late 2014. All in all, global economic output is likely to have grown by 2.5 % in 2014, marginally higher than in 2013 when output increased by 2.3 %. Gross domestic product (GDP) in industrialized countries rose by about 1.6 % on average last year. While the United States registered fairly solid growth of 2.4 %, real GDP in Japan more or less stagnated, weighed down by weak domestic demand in the wake of last year’s VAT hike. Real GDP in the Eurozone increased on average by 0.9 % in 2014, the first positive result in three years. The overall Eurozone fig- ure conceals some major differences, however. For the first time in several years all member countries that underwent severe macroeco- nomic adjustments finally returned to growth. Spain, for example, registered growth of 1.4 % last year, following a protracted spell of economic contraction. Irish GDP expanded by more than 4 %. At 1.6 % the German economy recorded moderate growth, but fears that the deterioration in sentiment in the summer might trigger a downswing did not materialize. By their standards, emerging markets expanded by a rather disappointing 4.0 % on average, with economic growth in emerging Asian markets coming in at 6.1 %. In 2014, financial markets stood under the twin spell of monetary policy and geopolitical tensions – like the conflict between Russia and Ukraine. In the United States, the Federal Reserve Bank started a gradual exit from its ultra-loose monetary policy by completely phas- ing out its bond purchasing program in the course of 2014. By con- trast, the European Central Bank continued to ease its monetary policy stance, amongst other measures by further lowering its key interest rate to 0.05 %. Yields on 10-year German government bonds ended 2014 at 0.5 %, a decline of about 140 basis points compared with a year earlier. Spreads on sovereign bonds of debt-ridden Eurozone member countries continued to narrow substantially, with the exception of Greece. The performance of major stock market indices was mixed, with gains in the Eurozone more muted than in 2013. The Euro depreciated considerably against the U.S. Dollar in the second half of 2014. The diverging monetary policies of the Federal Reserve Bank and the European Central Bank were a key factor behind this downward correction. The massive drop in oil prices that started in mid-2014 exacerbated the economic crisis in Russia, prompting a steep slide in the Ruble against major currencies. Against the Euro the Russian currency lost 33 % in the course of 2014. Business environment 2014: insurance and asset management industry Against the backdrop of subdued economic growth and rising geo- political tensions, the insurance industry as a whole weathered the year 2014 rather well, with premium growth and profitability remain- ing more or less stable. However, this stability conceals considerable differences between business lines and markets. In the property- casualty sector, premium growth eased up, mainly due to the eco- nomic slowdown in the emerging markets. On the other hand, pre- mium growth in the life sector picked up, led by strong demand in China and the rebound in the United States. The relative stable prof- itability, too, masks different trends: while the gradual strengthening of premium rates and a benign claims environment were positives in 2014, the investment environment remained challenging, to say the least. The prolonged period of low interest rates increased the rein- vestment risk as assets had to be reinvested at lower rates, putting returns under pressure. In the property-casualty sector, premium growth in advanced mar- kets was basically unchanged from the previous year. Slightly lower growth in the United States was compensated by some strengthening in Europe, although some markets in southern Europe such as Spain, Italy and Greece remained in the doldrums. In emerging markets, weaker economic activity took its toll on premium growth too: many markets, first and foremost in Eastern Europe, showed significantly slower growth than in the previous year. The notable exception was the Chinese market, which was buoyed by a strong motor business. Overall, according to our own estimates and based on preliminary figures, global premiums grew by around 4 % in 2014 (in nominal terms and adjusted for foreign currency translation effects). Annual Report 2014 Allianz Group 79 Underwriting profitability remained on average stable, with combined ratios in most markets clearly below 100 %, reflecting a gen- eral positive rate development and a benign claims environment: global catastrophe losses remained low for a third year in a row. How- ever, overall profitability was restrained by the challenging invest- ment environment. Hopes for rising yields were dashed again in 2014 as interest rates fell even further, driving investment returns lower. In the life sector, premium income growth in advanced markets was markedly higher than in the previous year. The main drivers were the rebound of the U.S. market from its dip in 2013 and the strong perfor- mance of some European markets, notably Italy and France. Premium growth in emerging markets remained on average strong. In particular, the Chinese and Indian markets returned to form, putting some weaker years firmly behind them. However, markets in Latin America and Eastern Europe grew rather below their trend growth of recent years. In total, according to our own estimates and based on pre- liminary figures, global premiums grew by around 5 % in 2014 (in nominal terms and adjusted for foreign currency translation effects). The prevailing low yield environment posed the greatest chal- lenge for profitability in the life sector as it caused the spread between returns on assets and guaranteed rates to shrink. Life insurers reacted to this spread compression by enhancing asset-liability manage- ment, increasing reserves and shifting the portfolio mix toward less liquid assets such as infrastructure. Moreover, many insurers started to de-risk their product design by restructuring their business towards less interest-sensitive products with reduced or flexible guarantees. All in all, life insurers managed to maintain their rela- tively high profitability and keep their robust capital position. General economic growth in 2014 again lagged behind the long-term trend in OECD countries, with correspondingly subdued growth pros- pects for the asset management industry. For the asset management industry as a whole, it was a year of surprises, varying from falling long-term interest rates, a rising U.S. Dollar, political instability in various regions of the world and a sharp decline in oil prices in the last quarter. In addition, as for most of the past six years, capital mar- kets were also driven by the actions of central banks. Persistently low interest rates are having a major impact on interest-bearing investments. Contrary to the expectations of many market participants, 2014 did not see a broad rise in interest rates. On the one hand, yields on maturities of 10 years and longer were down, especially in the United States and in Europe. The yield on 10-year U.S. government bonds, for instance, fell from 3 % at the beginning of the year to around 2 % at the end of December. On the other hand, yields on shorter maturities continued to rise during the last months of 2014. Stock markets were highly volatile and European indices were particularly prone to strong fluctuations in the second half of 2014. At the end of the year equity markets reacted negatively to falling oil prices, to the prospects of an interest rate hike from the Federal Reserve in the first half of 2015 and to market expectations of addi- tional monetary stimulus in the Eurozone and Japan. Overall, markets recorded continuing net inflows into equity and fixed income as money provided by central banks in Western countries was flooding the markets in search of safety or returns – in particular into global equity as well as taxable and tax-exempt bonds. Most active asset managers were able to capture a portion of the organic growth, but there was also a significant shift to passive prod- ucts visible in the markets, especially in the United States. The flow development, as well as rising assets under management, drove rev- enues and profits higher. 80 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations Executive Summary of 2014 Results − Revenues increased to € 122.3 BN. − Operating profit grew 3.3 % to € 10,402 MN. − Net income increased to € 6,603 MN. − Solvency ratio remained strong at 181 %.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 Net income Solvency ratio1 in % 2014 122,253 10,402 6,603 181 2013 110,773 10,066 6,343 182 Net income rose 4.1 % to € 6,603 MN. This was mainly driven by our strong operating performance and an extraordinary tax benefit, but slightly dampened by the development of our non-operating result. Net income attributable to shareholders and non-controlling interests was € 6,221 MN (2013: € 5,996 MN) and € 381 MN (2013: € 347 MN), respec- tively. Our shareholders’ equity increased by € 10.7 BN to € 60.7 BN. Our conglomerate solvency ratio remained strong at 181 %1. Earnings summary mAnAgement’s Assessment of 2014 results Our total revenues grew 10.4 % – or 10.6 % on an internal basis2 – reach- ing € 122.3 BN. However, the operating environment remains chal- lenging, especially for our Life/Health business. Our revenue growth was mainly driven by our Life/Health business, supported by a strong increase in our Property-Casualty revenues. Revenues in our Corpo- rate and other business remained flat, while operating revenues in our Asset Management business declined. Our operating profit went up 3.3 % to € 10,402 MN, which is within the upper end of our target range. The main driver of this was the strong investment margin in our Life/Health business. In our Corpo- rate and Other business, the recovery in the banking segment was the biggest driver of the improvement, while our Property-Casualty busi- ness benefited from strong premium growth and a stable combined ratio. Our Asset Management business, however, was impacted by lower operating revenues. 1 Conglomerate solvency ratio as of 31 December 2014 was adjusted for the potential calls of hybrid capital (subordinated bonds) of € 0.4 bn in 2015. Excluding this adjustment, the solvency ratio would be 182 % (including off-balance sheet reserves) as of 31 December 2014. Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 31 December 2014 would be 172 % (31 De- cember 2013: 173 %). 2 Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 121 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the Allianz Group as a whole. Annual Report 2014 Allianz Group 81 Total revenues1 Operating profit totAl revenues – Business segments operAting profit – Business segments � mn 140,000 120,000 100,000 80,000 60,000 40,000 20,000 + 10.6 % (2.2) % (8.5) % + 19.5 % 122,2531 556 6,388 67,331 + 3.0 % 48,322 � mn 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 110,7731 551 7,162 56,784 46,579 2013 2014 10,0661 3,161 2,709 5,267 (1,004) 2013 + 3.3 % (17.6) % + 22.8 % + 2.2 % + 18.3 % 10,4021 2,603 3,327 5,382 (820) 2014 Property-Casualty Internal growth Total revenues include € (344) mn (2013: € (302) mn) from consolidation. Asset Management Life/Health 1 Corporate and Other Property-Casualty gross premiums written grew 3.7 % and totaled € 48.3 BN. Internal growth2 of 3.0 % was entirely volume driven. Life/Health statutory premiums amounted to € 67.3 BN3, an increase of 19.5 % on an internal basis2. This growth was largely driven by our fixed-indexed annuity product business in the United States, strong sales of unit-linked and savings products in Italy and an increase in the single premium business with reduced guarantees in Germany. Asset Management operating revenues amounted to € 6.4 BN, a decrease of 8.5 % compared to 2013 on an internal basis2. This was mainly due to lower performance fees, which were exceptionally high in 2013 and thus fell by € 235 MN to € 275 MN in 2014, as well as lower average assets under management. The allocation of certain entities to other business segments4 also contributed to the decrease in oper- ating revenues. Total revenues in our Banking operations (reported in our Cor- porate and Other business segment) were flat at € 556 MN. 1 2 3 4 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). Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 121 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the Allianz Group as a whole. In the fourth quarter of 2014, our French International Health business was transferred from France (Life/ Health) to the reportable segment Allianz Worldwide Partners effective 1 January 2014. Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. 82 Annual Report 2014 Allianz Group Property-Casualty Life/Health Asset Management Corporate and Other Growth Total operating profit includes € (91) mn (2013: € (68) mn) from consolidation. 1 Our Property-Casualty operating profit amounted to € 5,382 MN – up by € 115 MN or 2.2 % – driven by strong premium growth and a stable combined ratio. The underwriting result grew by € 80 MN to € 2,251 MN due to significantly lower losses from natural catastrophe events. The Life/Health operating profit increased by € 618 MN to € 3,327 MN3, mainly driven by an improved investment margin due to gains from using derivatives to lengthen duration and a recovery in the foreign currency result after the losses in 2013 on partially hedged emerging markets bonds. The allocation of certain entities previously reflected in the business segment Asset Management to the business segment Life/Health contributed € 113 MN to this development. Asset Management operating profit fell by € 558 MN to € 2,603 MN, a decrease of 14.6 % on an internal basis5. The main driver of this development was the decline in operating revenues, outpacing the decline in operating expenses. The cost-income ratio deteriorated by 3.4 percentage points to 59.2 %, mainly driven by the sharply lower performance fees compared to 2013 and lower assets under manage- ment driven income. Our operating result in Corporate and Other improved by € 183 MN to a loss of € 820 MN. This was mainly because of the costs related to the closure of the Allianz Bank’s business operations in mid-2013. 5 Operating profit adjusted for foreign currency translation and (de-)consolidation effects. C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations Non-operating result Net income Our non-operating result decreased by € 1,131 MN to a loss of € 1,554 MN, mainly driven by a € 901 MN reclassification of tax benefits attribut- able to policyholders, but also by a decreased non-operating invest- ment result. Our non-operating investment result declined by € 350 MN to € 312 MN, mainly due to a decrease in income from financial assets and liabilities carried at fair value through income. Non-operating income from financial assets and liabilities carried at fair value through income (net) decreased by € 326 MN to a loss of € 303 MN mainly due to unfavorable hedging results. Non-operating realized gains and losses (net) were down by € 141 MN to € 812 MN due to a reduction in realizations on equities. This was only partly offset by higher realizations on debt securities mainly within our Property-Casualty business segment. Net income increased by € 260 MN – from € 6,343 MN to € 6,603 MN – primarily driven by our overall strong operating performance. Net income attributable to shareholders and non-controlling interests amounted to € 6,221 MN (2013: € 5,996 MN) and € 381 MN (2013: € 347 MN), respectively. Our largest non-controlling interests in net income related to Euler Hermes and PIMCO. Basic earnings per share rose from € 13.23 to € 13.71 in 2014 and diluted earnings per share increased from € 13.05 to € 13.64. For further information on earnings per share, please refer to note 51 to the con- solidated financial statements. Proposal for appropriation of net earnings Non-operating impairments of investments (net) decreased by € 116 MN to € 197 MN. An increase in impairments on debt securities was more than offset by a respective decrease on equities. The Board of Management and the Supervisory Board propose that the net earnings (“Bilanzgewinn”) of Allianz SE of € 3,786,745,743.20 for the 2014 fiscal year shall be appropriated as follows: Non-operating interest expenses from external debt improved by € 55 MN to € 846 MN reflecting lower expenses on subordinated bonds. Reclassification of tax benefits had a negative impact on our non- operating result of € 901 MN in favor of the operating result. Thereof, € 892 MN are related to a favorable Federal Fiscal Court decision, initi- ated by Allianz Leben in Germany, concerning tax deductibility of equity losses. For the Life/Health business segment reporting, the tax benefits are reclassified and shown within the operating profit in order to adequately reflect policyholder participation. Thus, the non- operating result is reduced. For the Allianz Group reporting, the tax benefits are presented according to IAS 12 in the income tax line. Income taxes Income taxes decreased by € 1,055 MN to € 2,245 MN. The effective tax rate decreased to 25.4 % (2013: 34.2 %). The decrease in income taxes and effective tax rate was in particular due to the extraordinary tax benefits for current and previous years from the previously-men- tioned favorable court decision amounting to € 1,120 MN. The policy- holder share in the tax benefits amounted to € 892 MN. Without policy holder participation1, the Allianz Group’s effective tax rate attributable to the shareholders would be approximately 32 %. − Distribution of a dividend of € 6.85 per no-par share entitled to a dividend: € 3,111,752,678.40 − Unappropriated earnings carried forward: € 674,993,064.80 The proposal for appropriation of net earnings reflects the 2,729,536 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 € 6.85 per each share entitled to dividend. Munich, 24 February 2015 Allianz SE 1 Tax benefits for prior years allocated to policyholders of € 627 mn. Annual Report 2014 Allianz Group 83 totAl revenues And reConCiliAtion of operAting profit (loss) to net inCome (loss) Events after the balance sheet date The Allianz Group was not subject to any subsequent events which could significantly impact the Group financial results after the bal- ance sheet date and before the financial statements were authorized for issue. Other information ChAnges in segment struCture Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. In the fourth quarter of 2014, the French International Health business was transferred from the reportable segment West- ern & Southern Europe (Life/Health) to the reportable segment Allianz Worldwide Partners effective 1 January 2014 to reflect the change in management responsibility and to bundle the interna- tional health business to provide a comprehensive product range to the customers. BoArd of mAnAgement struCture 2015 The Supervisory Board of Allianz SE agreed to the request of Michael Diekmann to not further extend his board appointment beyond the Annual General Meeting (AGM) on 6 May 2015. He will remain Chair- man of the Board of Management up to that day. Oliver Bäte has been appointed as new CEO of Allianz SE with effect from 7 May 2015. His contract has been extended until 30 September 2019. Oliver Bäte will continue to be responsible for Global Property and Casualty up to the AGM 2015. The Supervisory Board also agreed to the request of Clement Booth to not further extend his board appointment. His mandate ended on 31 December 2014. Upon mutual agreement and in keeping with his request, the board mandate of Gary Bhojwani ended on 31 December 2014. The Supervisory Board appointed Sergio Balbinot as a member of the Board of Management of Allianz SE for a duration of four years starting 1 January 2015. Sergio Balbinot takes over responsibility for the insurance business in the countries of western and southern Europe (France, Benelux, Italy, Greece, Turkey and Africa). Also effective beginning of this year Dr. Axel Theis has been appointed as a member of the Board of Management of Allianz SE with a duration of four years. He is in charge of the global industrial insurance business, credit insurance, reinsurance and the insurance € mn Total revenues1 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 Claims and insurance benefits incurred (net) 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 Operating amortization of intangible assets 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 Non-operating 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 Basic earnings per share in € Diluted earnings per share in € 2014 2013 122,253 110,773 68,274 66,628 21,443 20,918 (1,301) 3,205 (415) (697) (961) 21,274 10,119 216 (49,650) (13,929) (45) (23,351) (3,238) (19) (16) (135) 901 10,402 (303) 812 (197) 312 (23) (846) 7 (104) (901) (1,554) 8,848 (2,245) 6,603 381 6,221 13.71 13.64 (1,868) 3,334 (421) (298) (905) 20,761 10,492 209 (47,802) (13,990) (86) (22,831) (3,038) – (170) (106) – 10,066 23 952 (313) 662 (15) (901) (34) (136) – (423) 9,643 (3,300) 6,343 347 5,996 13.23 13.05 1 2 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). Includes expenses for premium refunds (net) in Property-Casualty of € (307) mn (2013: € (162) mn). 84 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations business in Ireland and Great Britain. Starting 7 May 2015 he will also take over responsibility for Global Property and Casualty from Oliver Bäte. Manuel Bauer’s appointment has been extended for another year until the end of 2015. The appointments of Dr. Dieter Wemmer and Dr. Werner Zedelius have been extended by three years and the appointment of Dr. Helga Jung by five years. At 1 January 2015 Manuel Bauer also took over responsibility for the insurance business in Aus- tralia and as of the same date Jay Ralph took over responsibility for the life insurance business in the United States in addition to prior responsibilities. For further information on the current composition of the Board of Management, please refer to Strategy and Steering starting on page 70. new dividend poliCy with inCreAsed pAy-out rAtio of 50 % During the last quarter of 2014 the Board of Management and the Supervisory Board of Allianz SE decided to alter their dividend policy to target an increase in pay-out ratio from 40 to 50 % of the Allianz Group net income (attributable to shareholders). In the inter- est of dividend continuity, the objective is to keep the dividend per share at least at the level paid in the previous year. It is further intend- ed to evaluate and return to the shareholders the unused budget earmarked for external growth every three years. The first evaluation would take place at the end of 2016. The dividend policy is subject to a sustainable Solvency II ratio above 160 %. This dividend policy represents the current intention of the Board of Management and the Supervisory Board and may be revised in the future. Also, the dividend payment in any given year is subject to specific dividend proposals by the Board of Management and the Supervisory Board, each of which may elect to deviate from this divi- dend policy if appropriate under the then prevailing circumstances, as well as to the decision of the Annual General Meeting. 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 40, − Takeover-related Statements and Explanations starting on page 42 and the − Remuneration Report starting on page 45. Annual Report 2014 Allianz Group 85 Property-Casualty Insurance Operations − Gross premiums written grew 3.7 % reaching € 48.3 BN. − Operating profit increased 2.2 % to € 5,382 MN benefiting from strong premium growth and a stable combined ratio of 94.3 %. Business segment overview Key figures Our Property-Casualty business offers a wide range of products and services for both private and corporate clients. Our offerings cover many insurance classes such as motor, accident/disability, property and general liability. We conduct business worldwide in more than 70 countries. We are also a global leader in travel insurance, assistance services and credit insurance. We distrib- ute 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 Net income Loss ratio in % Expense ratio in % Combined ratio in % 2014 48,322 5,382 3,448 66.0 28.3 94.3 2013 46,579 5,267 3,817 65.9 28.4 94.3 Gross premiums written1 On a nominal basis, we recorded gross premiums written of € 48,322 MN, an increase of € 1,744 MN or 3.7 % compared to 2013. Nega- tive foreign currency translation effects amounted to € 640 MN, large- ly due to the depreciation of the Australian Dollar, the Argentine Peso and the Turkish Lira against the Euro. This was partly offset by posi- tive effects from the British Pound.2 Consolidation/deconsolidation effects were positive at € 963 MN, mainly because of the acquisition of a part of the insurance business of UnipolSai, the transfer of the French International Health business to the reportable segment Allianz Worldwide Partners3 and the acquisition of Yapı Kredi Sigorta in Turkey in 2013. On an internal basis, our gross premiums written grew 3.0 % fully driven by a favorable volume effect. Analyzing internal premium growth in terms of price and volume, we use four clusters based on 2014 internal growth over 2013: 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 3 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 2014 compared to 2013. In the fourth quarter of 2014, our French International Health business was transferred from France (Life/ Health) to the reportable segment Allianz Worldwide Partners effective 1 January 2014. 86 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations gross premiums written by region/country1 Year 2014 [2013] in % Asia-Pacific and Rest of World 8.2 [8.1] USA and Latin America 12.1 [13.0] Other Europe 16.7 [16.3] In our Credit Insurance business, gross premiums rose to € 2,158 MN. The internal growth of 2.7 % stemmed from higher vol- umes in our growth markets primarily in the Americas, Asia and the Middle East. In Latin America gross premiums were € 2,101 MN. The internal growth of 2.3 % was driven by growth in Argentina across all lines of business. However, this was partly offset by negative volume effects in Brazil. In France gross premiums went up 0.7 % on an internal basis and Germany 26.4 [27.5] France 13.8 [12.5] Spain 4.2 [4.2] Italy 8.7 [8.7] reached € 4,248 MN driven by tariff increases. cluster 3 In the United States gross premiums were € 1,958 MN. The decrease of 4.6 % on an internal basis was largely driven by adverse volume effects in our commercial lines and lower commodity prices for crop. In Italy we recorded gross premiums of € 4,196 MN. On an internal basis, gross premiums dropped 1.2 %, mainly due to a negative price effect in our motor business, which could not be offset by volume increases in our non-motor business. cluster 4 In Central and Eastern Europe gross premiums were down 5.2 % on an internal basis to € 2,227 MN. This was largely due to negative volume effects from the downscaling of our retail business – in particular our motor business – in Russia. Favorable volume effects in our motor business in the Czech Republic and Romania partly offset the overall negative impact from Russia. Switzerland 4.3 [4.8] United Kingdom 5.7 [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 the United Kingdom gross premiums increased 12.0 % on an internal basis to € 2,684 MN. This was mainly due to higher volumes in our motor retail and pet insurance business. Allianz Worldwide Partners recorded gross premiums of € 3,341 MN. The main drivers of the internal growth of 9.9 % were posi- tive volume effects in our travel business in the United States and United Kingdom as well as in our international health business. In Ireland gross premiums amounted € 439 MN – up 6.7 % on an internal basis. This was largely due to higher volumes in our personal lines. In Germany gross premiums climbed to € 9,532 MN – an increase of 2.6 % on an internal basis. This growth was generated by our motor retail and commercial non-motor business with favorable price and volume effects. cluster 2 In Asia-Pacific we recorded a 13.1 % increase in gross premiums to € 722 MN. The internal growth was mainly due to higher volumes in our motor and health business. At AGCS gross premiums stood at € 5,389 MN – a rise of 8.1 % on an internal basis. The strong volume effects in our liability and engineer- ing lines were partly offset by negative price effects in our energy and aviation lines of business. In Australia gross premiums totaled € 2,763 MN. The internal growth of 3.7 % was mainly due to higher volumes in our motor busi- ness, which could not be offset by slightly negative price effects in our domestic motor and commercial property business. In Spain gross premiums grew 2.9 % on an internal basis to € 2,015 MN. This increase was mainly generated by positive volume effects across all our lines of business. Annual Report 2014 Allianz Group 87 The following operations contributed positively to the development of our accident year loss ratio: Germany: 1.6 percentage points. This was largely because of a reduced burden from natural catastrophe events compared to the previous year – which was severely impacted by storm Andreas and the Frederic floods. The improvement was further supported by a lower attritional claims ratio and favorable price momentum, par- ticularly in our retail motor and commercial non-motor business. France: 0.3 percentage points. This was driven by an improve- ment in the attritional loss ratio supported by lower claim frequen- cies and less impact from single large losses. Reinsurance: 0.3 percentage points. The improvement resulted from lower losses from natural catastrophes. The following operations contributed negatively to the development of our accident year loss ratio: Latin America: 0.4 percentage points. The negative impact stemmed mainly from Brazil. AGCS: 0.2 percentage points. This was driven by a higher impact of single large losses. United States: 0.2 percentage points. The negative development was largely driven by commercial liability, crop and higher losses from natural catastrophes. Our run-off result decreased by € 304 MN to € 1,385 MN – resulting in a run-off ratio of 3.2 % – 0.9 percentage points lower than in 2013. Reserve releases across most of our operating entities were reduced by a 0.7 percentage point negative impact from reserve strengthening in the United States, Russia and Brazil. Total expenses amounted to € 12,400 MN in 2014, compared to € 11,942 MN in the previous year. Our expense ratio improved slightly to 28.3 %, positively impacted by the removal of the fire levy in Austra- lia amongst other effects. Receivable write-offs in Brazil and integra- tion costs for the acquisition of a part of the insurance business of UnipolSai in Italy dampened the positive development. Operating profit operating profit € mn Underwriting result Operating investment income (net) Other result1 Operating profit 2014 2,251 3,066 66 5,382 2013 2,170 3,049 48 5,267 1 Consists of fee and commission income/expenses, other income/expenses and restructuring charges. Operating profit increased by € 115 MN to € 5,382 MN. This was mainly driven by strong growth in premiums earned and a stable combined ratio. Our underwriting result grew by € 80 MN to € 2,251 MN. Signifi- cantly lower losses from natural catastrophe events were partially offset by a higher impact from single large claims and a lower run-off contribution compared to last year. Overall, the combined ratio was unchanged at 94.3 %. 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 2014 43,759 (30,263) 1,385 (28,878) (12,400) 2013 42,047 (29,402) 1,689 (27,713) (11,942) (231) 2,251 (223) 2,170 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 69.2 % – a 0.8 percentage point improvement compared to the previous year’s figure. This was pre- dominantly the result of lower losses from natural catastrophes from € 1,218 MN to € 400 MN, a decrease of 2.0 percentage points to 0.9 %. Excluding losses from natural catastrophes, our accident year loss ratio was 68.2 %, up 1.2 percentage points compared to the previ- ous year. This increase was mainly driven by Brazil and by single large claims at AGCS, which offset the favorable development in attritional losses in France and Germany. 88 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations 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) 2014 2013 3,525 6 186 (20) (323) (307) 3,066 3,542 (75) 70 (11) (315) (162) 3,049 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 APR (accident insurance with premium refunds) business, and consists of the investment-related part of “change in reserves for insurance and investment con- tracts (net)”. For further information, please refer to note 34 to the consolidated financial statements. Operating investment income (net) amounted to € 3,066 MN – up by € 17 MN. This was mainly driven by a higher foreign currency result net of hedging. Interest and similar income (net of interest expenses) decreased slightly by € 17 MN to € 3,525 MN resulting from reduced interest income on debt securities due to lower interest rates, partially com- pensated by higher income on equities. The average asset base1 stood at € 104.6 BN – up 1.9 % from € 102.6 BN compared to the previous year. Operating income from financial assets and liabilities carried at fair value through income (net) grew by € 81 MN from € (75) MN to € 6 MN. This was largely due to an improved foreign exchange result net of hedging compared to 2013. Operating realized gains and losses (net) increased by € 116 MN to € 186 MN. This reflects the higher realized gains on equities in Ger- many mainly within the APR (accident insurance with premium refunds) business. Expenses for premium refunds (net) increased by € 146 MN to € 307 MN. The change is driven by a higher policyholder participation, mainly from the higher realized gains attributable to our APR business. other result € mn Fee and commission income Other income Fee and commission expenses Other expenses Restructuring charges Other result 2014 1,260 60 2013 1,226 47 (1,180) (1,141) (45) (30) 66 (21) (62) 48 Net income Net income went down by € 369 MN to € 3,448 MN compared to the previous year. The higher operating profit was more than offset by a non-operating one-off effect from the inter-segment pension revalu- ation2 recorded in the first quarter of 2014. property-casualty business segment information € mn Gross premiums written1 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 2014 48,322 (3,961) (602) 43,759 3,595 6 186 1,260 60 48,867 2013 46,579 (3,981) (550) 42,047 3,594 (75) 70 1,226 47 46,908 Claims and insurance benefits incurred (net) (28,878) (27,713) Change in reserves for insurance and investment contracts (net) Interest expenses Operating impairments of investments (net) Investment expenses Acquisition and administrative expenses (net), excluding one-off effect from pension revaluation Fee and commission expenses Restructuring charges Other expenses Operating expenses (538) (71) (20) (323) (12,400) (1,180) (30) (45) (384) (52) (11) (315) (11,942) (1,141) (62) (21) (43,485) (41,641) Operating profit 5,382 5,267 Non-operating items Income before income taxes Income taxes Net income Loss ratio2 in % Expense ratio3 in % Combined ratio4 in % (406) 4,976 (1,528) 3,448 66.0 28.3 94.3 296 5,563 (1,746) 3,817 65.9 28.4 94.3 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), excluding one-off effect from pension revalua- tion, divided by premiums earned (net). Represents the total of acquisition and administrative expenses (net), excluding one-off effect from pension revaluation, and claims and insurance benefits incurred (net) divided by premiums earned (net). 1 Including French health business, excluding fair value option and trading. 2 A respective offsetting effect was recorded in our Corporate and Other business segment. For further information on the one-off effect from pension revaluation, please refer to note 6 to the consolidated financial statements. Annual Report 2014 Allianz Group 89 Property-Casualty insurance operations by reportable segments ProPerty-Casualty insuranCe oPerations by rePortable segments € mn Gross premiums written Premiums earned (net) Operating profit (loss) internal1 Germany2,3 Switzerland Austria German Speaking Countries3 Italy4 France Benelux5 Turkey6 Greece Africa Western & Southern Europe7 Latin America Spain Portugal Iberia & Latin America United States USA8 Allianz Global Corporate & Specialty Reinsurance PC 2 Australia United Kingdom Credit Insurance Ireland Global Insurance Lines & Anglo Markets9 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe10 Asia-Pacific Middle East and North Africa Growth Markets Allianz Global Assistance Allianz Worldwide Care Allianz Worldwide Partners11 Consolidation and Other12,13 Total 2014 9,532 1,489 976 11,997 4,196 4,248 1,135 1,082 108 96 10,865 2,101 2,015 320 4,437 1,958 1,958 5,389 3,738 2,763 2,684 2,158 439 17,172 537 419 263 330 286 199 92 89 13 2,227 722 74 3,022 2,142 1,108 3,341 2013 9,261 1,489 966 11,748 4,032 4,174 1,165 978 111 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 68 3,211 1,972 452 2,507 2014 9,487 1,476 976 11,939 3,985 4,248 1,135 1,017 108 96 10,589 2,405 2,015 320 4,740 1,963 1,963 5,404 3,738 2,952 2,547 2,131 439 17,211 622 418 273 330 304 201 92 89 19 2,347 754 75 3,176 2,129 1,108 3,329 2013 9,247 1,489 966 11,702 4,032 4,217 1,163 978 111 88 10,588 2,350 1,958 312 4,620 2,058 2,058 4,999 3,340 2,847 2,274 2,076 412 15,948 808 427 268 321 276 186 82 93 16 2,477 667 68 3,211 1,972 975 3,030 2014 7,824 1,428 831 10,083 3,906 3,926 1,065 906 89 65 9,956 1,622 1,806 271 3,699 1,874 1,874 3,162 3,118 2,180 2,439 1,482 385 12,766 528 348 223 267 238 154 68 75 8 1,909 443 49 2,401 1,987 926 2,981 2013 7,611 1,422 814 9,861 3,949 3,804 1,087 753 87 55 9,735 1,737 1,804 269 3,810 1,988 1,988 2,927 2,880 2,235 2,122 1,435 372 11,970 598 345 230 266 228 150 63 77 7 1,964 377 46 2,388 1,842 419 2,296 (4,469) 48,322 (4,081) 46,579 (4,475) 48,473 (4,104) 47,052 – 43,759 – 42,047 2014 1,303 198 75 1,575 932 428 96 90 16 11 1,580 (147) 255 (4) 104 (151) (151) 560 464 353 178 401 85 2,044 (194) 17 22 67 44 9 7 10 (1) (27) 57 8 39 102 53 105 86 5,382 2013 661 194 62 916 1,127 402 77 69 17 11 1,712 133 236 26 395 154 154 428 317 378 201 407 62 1,785 (38) 12 27 53 44 5 19 13 – 127 67 8 201 96 30 102 2 5,267 1 2 3 This reflects gross premiums written on an internal basis, adjusted for foreign currency translation and (de-)consolidation effects. The 2013 combined ratio for Germany and Reinsurance PC was impacted by a one-off effect related to the commutation of internal reinsurance resulting in a 0.9 percentage point improvement in the combined ratio for Germany and an increase of 2.3 percentage points for Reinsurance PC. This had no impact at Group level. Starting from 2014, “Münchener und Magdeburger Agrarversicherung AG” is included in Germany with gross premiums written of € 35 MN, premiums earned (net) of € 15 MN and operating profit of € 7 MN. Prior- year numbers were not adjusted. Contribution to German Speaking Countries before consolidation in 2013 4 5 6 7 was gross written premiums of € 32 MN, premiums earned (net) of € 14 MN of and operating loss of € 1 MN. Effective 1 July 2014, the Allianz Group acquired parts of the insurance business of UnipolSai Assicurazioni S.p.A., Bologna. Belgium and the Netherlands are presented as the combined region Benelux. All prior periods are presented accordingly. On 12 July 2013, Allianz Turkey acquired Yapı Kredi Bank’s shareholding in the Turkish property-casualty insurance company Yapı Kredi Sigorta. Contains € 7 MN and € 11 MN operating profit for 2014 and 2013, respectively, from a management holding located in Luxembourg. 90 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations % Germany2,3 Switzerland Austria German Speaking Countries3 Italy4 France Benelux5 Turkey6 Greece Africa Western & Southern Europe7 Latin America Spain Portugal Iberia & Latin America United States USA8 Allianz Global Corporate & Specialty Reinsurance PC 2 Australia United Kingdom Credit Insurance Ireland Global Insurance Lines & Anglo Markets9 Russia Poland Hungary Slovakia Czech Republic Romania Bulgaria Croatia Ukraine Central and Eastern Europe10 Asia-Pacific Middle East and North Africa Growth Markets Allianz Global Assistance Allianz Worldwide Care Allianz Worldwide Partners11 Consolidation and Other12,13 Total Combined ratio Loss ratio Expense ratio 2014 91.5 91.0 94.4 91.7 82.5 96.3 97.6 97.8 86.1 92.6 91.0 116.1 89.9 105.7 102.6 120.0 120.0 93.1 88.6 94.6 97.6 78.6 84.7 91.2 141.6 99.5 102.7 79.5 85.0 100.3 92.5 93.8 114.9 106.8 95.2 97.4 104.4 96.0 93.1 96.6 – 94.3 2013 99.5 91.1 96.5 98.0 78.2 97.6 97.6 96.1 83.9 95.7 89.4 98.3 90.9 95.0 94.6 103.5 103.5 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 98.1 96.1 93.3 96.7 – 94.3 2014 65.7 67.8 69.0 66.2 55.0 67.6 67.6 75.1 51.1 48.4 63.1 79.7 68.8 82.7 74.6 85.6 85.6 65.2 60.5 69.7 65.9 48.8 55.6 62.7 98.7 64.0 62.4 53.2 56.9 70.1 66.6 54.1 62.3 71.2 64.5 62.6 69.8 61.8 72.7 65.6 – 66.0 2013 73.4 67.9 70.5 72.3 53.1 68.9 68.4 71.4 50.2 52.0 62.4 66.3 70.0 72.6 68.5 69.2 69.2 67.3 61.2 68.1 64.5 50.5 59.2 63.3 69.7 65.8 60.0 54.8 56.6 72.6 44.9 50.1 59.9 62.9 60.1 61.4 62.5 61.0 73.5 63.5 – 65.9 2014 25.9 23.2 25.4 25.4 27.5 28.7 30.0 22.6 35.0 44.2 27.9 36.5 21.1 23.0 28.0 34.4 34.4 27.9 28.0 24.9 31.6 29.7 29.2 28.4 42.9 35.5 40.3 26.3 28.1 30.2 26.0 39.6 52.6 35.6 30.6 34.7 34.6 34.2 20.4 31.0 – 28.3 2013 26.1 23.2 26.0 25.7 25.1 28.7 29.2 24.7 33.8 43.6 27.1 31.9 20.9 22.4 26.0 34.3 34.3 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  8  9 10 11 The reserve strengthening for asbestos risks in 2014 at Fireman’s Fund Insurance company of € 79 MN had no impact on the financial results of the Allianz Group’s and Fireman’s Fund’s combined ratio under IFRS. Contains € 3 MN operating profit and € 7 MN operating loss for 2014 and 2013, respectively, from AGF UK. Contains income and expense items from a management holding and consolidations between countries in this region. The reportable segment Allianz Worldwide Partners includes the business 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. In the fourth quarter of 2014, the French International Health business was transferred from France (Life/Health) to the reportable segment Allianz Worldwide Partners effective 1 January 2014. The reinsurance business of Allianz Global Automotive contributed gross premiums written of € 91 MN, premiums earned (net) of € 67 MN and an operating loss of € 28 MN for 2014 and with gross premiums written of € 82 MN, premiums earned (net) of € 35 MN and an operating loss of € 24 MN for 2013. Represents elimination of transactions between Allianz Group companies in different geographic regions. The 2014 analysis of the Allianz Group’s asbestos risks resulted in a reduction of reserves and a positive run-off result of € 86 MN reflected in the operating profit for 2014. 12 13 Annual Report 2014 Allianz Group 91 Life/Health Insurance Operations − Statutory premiums grew strongly by € 10.5 bn to € 67.3 bn. − Operating profit increased 22.8 % to € 3,327 mn. 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 retail 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 premiums1 Operating profit1,2 Net income1,2 Margin on reserves (bps)1,2,3 2014 67,331 3,327 2,320 65 2013 56,784 2,709 1,941 58 Statutory premiums4,5 In 2014, statutory premiums amounted to € 67,331 mn, an increase of € 10,547 mn. On an internal basis5, premiums increased by 19.5 % or € 10,963 mn. This excludes unfavorable foreign currency translation effects of € 192 mn and adverse consolidation/deconsolidation effects of € 224 mn, largely from the transfer – effective 1 January 2014 – of our French International Health business to the reportable segment Allianz Worldwide Partners in the business segment Property-Casu- alty in the fourth quarter of 2014. We recorded premium growth in all core markets – largely driven by our single premium business. These favorable developments were also supported by our broker channel in the United States and the successful cooperation with our bancassurance channel in Italy. We experienced strong premium growth in fixed-indexed annuity prod- ucts in the United States, strong sales of unit-linked and savings products in Italy and an increase in the single premium business with savings products (in particular “Perspektive”) in Germany. This was partly offset by sizeable declines in variable annuity business in the United States, and to a lesser extent in some Eastern European countries, where profitability and risk management actions limited volumes. 1 2 3 In the fourth quarter of 2014, we transferred our French International Health business to the reportable segment Allianz Worldwide Partners effective 1 January 2014. Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. 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. 92 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations statutory premiums by region/country1 Year 2014 [2013] in % Asia-Pacific and Rest of World 8.9 [9.4] Latin America 0.5 [0.6] USA 17.6 [12.9] Other Europe 10.8 [10.9] Belgium 1.6 [1.7] Spain 1.9 [2.2] Switzerland 2.5 [2.8] Germany 33.4 [36.1] France 10.3 [13.2] Italy 12.5 [10.4] 1 After elimination of transactions between Allianz Group companies in different countries and different reportable segments. Premiums in the United States increased to € 11,840 mn, representing growth of 61.6 %. This was driven by strong fixed-indexed annuity sales as a result of an innovative index strategy and higher penetra- tion into the broker and dealer channel. However, as anticipated, in the second half of the year it was below the level in the first half due to the impact of pricing changes in response to the decreasing inter- est rate environment. This growth was partly offset by a decrease in the variable annuity business. Premiums in Italy increased 34.4 % to € 11,332 mn. This growth was mainly due to the strong contribution of unit-linked and savings products distributed via our bancassurance channel. To further improve our product design and pricing, the sale of traditional guar- antee savings products was largely replaced by savings products with 0 %-guarantees from the third quarter of 2014. In Asia-Pacific, premiums grew 15.0 % to € 5,732 mn. This was driven by favorable developments in all markets, in particular due to increased sales of single premium unit-linked products in Taiwan and higher sales of single premium investment-oriented products distributed via the bancassurance channel in South Korea. In our German life business, premiums grew 11.8 % to € 19,014 mn. This growth was driven by an increase in our single premium busi- ness with savings products while regular premiums were relatively flat. In particular the product “Perspektive” – which was launched in the second quarter of 2013 and balances reduced guarantees and higher expected returns for the policyholder with lower capital requirements for the shareholder – contributed most of this premium growth. Statutory premiums in our German health business decreased 0.6 % to € 3,245 mn due to a lower contribution from full health care coverage business. In Benelux1, we recorded premiums of € 2,518 mn, an increase of 8.3 %. This growth stemmed from both Belgium, with our 0 %-guarantee products, and Luxembourg. Premiums in France increased 3.2 % to € 8,241 mn. This was main- ly attributable to our individual life business, where we recorded growth in unit-linked products. In our protection and health busi- ness we also recorded a solid increase. In Switzerland, premiums totaled € 1,655 mn. The increase of 2.3 % was primarily driven by our single premium business in group life. This was partly offset by a decrease in our individual life business from both single and regular premiums. Premiums in Central and Eastern Europe grew 2.2 % to € 909 mn. This increase was largely because of positive business developments in Poland, driven by unit-linked sales via bancassurance. This more than compensated for the decline in premiums in Russia resulting from the termination of one bancassurance partnership and in Hun- gary due to a shifting focus from short- and mid-term single premi- um products to regular premium unit-linked pension products. In Spain, premiums totaled € 1,259 mn. The increase of 2.0 % was primarily driven by unit-linked products. Premiums earned (net) Premiums earned (net) decreased by € 66 mn to € 24,514 mn. This was mainly driven by the transfer of our French International Health busi- ness to the reportable segment Allianz Worldwide Partners. The growth in premiums in Asia-Pacific mainly due to product mix changes and an increase in the United States because of rider charg- es on parts of the variable annuity business partly offset the decrease. Present value of new business premiums (PVNBP)2 Present value of new business premiums (PVNBP), as an indicator for the volume of new business, increased by € 13.1 bn to € 61.0 bn. This was largely driven by the increase in our single premium fixed- indexed annuity business in the United States and the premium growth in Italy and Germany. This was supported by our Asia-Pacific business with higher sales in Taiwan, South Korea, Indonesia and favorable foreign exchange rate developments in Thailand and Malaysia. Overall, the growth was dominated by the broker and banc- assurance channel. 1 2 Belgium, Luxembourg and the Netherlands are presented as the combined region Benelux. All prior periods are presented accordingly. PVNBP before non-controlling interests. Annual Report 2014 Allianz Group 93 The guaranteed savings & annuities line of business accounted for the largest part of PVnbP, mostly from the products family with reduced or minimized interest rate risk and innovative products such as the index strategy product in the United States. The transfer of our French International Health business to the reportable seg- ment Allianz Worldwide Partners slightly decreased the PVnbP in our protection & health line of business. Overall, the single premium share in PVnbP increased from 60 % in 2013 to 64 % in 2014. present value of new business premiums (pvnbp) by lines of business Year 2014 [2013] in % Unit-linked without guarantee 18.8 [18.5] Protection & health 10.7 [14.0] Loadings and fees Loadings and fees includes premium and reserve based fees, unit- linked management fees and policyholder participation in expenses. loaDings anD fees € mn Loadings from premiums Loadings from reserves Unit-linked management fees Loadings and fees Loadings from premiums as % of statutory premiums Loadings from reserves as % of average reserves1 Unit-linked management fees as % of average unit-linked reserves2 2014 3,430 1,094 626 5,151 5.1 0.2 0.6 2013 3,251 1,001 458 4,709 5.7 0.2 0.6 Guaranteed savings & annuities 70.5 [67.5] 1 2 Aggregate policy reserves and unit-linked reserves. Calculation based on only unit-linked management fees, excluding Asset Management fees, on unit- linked reserves. Operating profit operating profit by profit sources The objective of the Life/Health operating profit sources analysis is to explain movements in IFRS results by analyzing underlying drivers of performance on a Life/Health business segment consolidated basis. Our loadings and fees increased by € 441 mn to € 5,151 mn. The increase of loadings from premiums by € 179 mn to € 3,430 mn largely resulted from higher sales in Germany and Asia-Pacific. Only minor contributions within loadings from premiums stemmed from the growing business in the United States as it is priced differently and expenses are financed through other profit sources, mainly investment margin. Loadings from premiums as a percentage of statutory premiums decreased by 63 basis points as a result of a higher proportion of single premium business and sales of products in Italy with relatively lower loadings. This was partially offset by the transfer of our French International Health business to the report- able segment Allianz Worldwide Partners. The increase of loadings from reserves by € 93 mn to € 1,094 mn was driven by a higher reserve volume. operating profit by profit sources € mn Loadings and fees Investment margin Expenses Technical margin Impact of change in Dac Operating profit 2014 5,151 2,972 (6,410) 1,190 425 3,327 2013 4,709 2,386 (5,752) 1,289 77 2,709 The growth in unit-linked management fees by € 169 mn to € 626 mn was largely a result of the allocation of certain entities previ- ously reflected in the business segment Asset Management to the business segment Life/Health, which contributed € 140 mn in 2014. Unit-linked management fees as a percentage of unit-linked reserves decreased by 4 basis points. This was driven by a higher share of unit- linked management fees from Italy, where average fees decreased. Our operating profit increased by € 618 mn to € 3,327 mn. This develop- ment was driven by Germany, the United States and the allocation of certain entities previously reflected in the business segment Asset Management to the business segment Life/Health. 94 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations Investment margin Investment margin is defined as IFRS investment income net of expenses less interest credited to IFRS reserves and policyholder par- ticipation (including policyholder participation beyond contractual and regulatory requirements for German life business). Expenses Expenses include acquisition expenses and commissions (excluding commission clawbacks, which are allocated to the technical margin) as well as administrative and other expenses. investment margin € mn 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 Operating impairments of investments (net) Investment expenses Other1 Technical interest Policyholder participation Investment margin expenses € mn 2014 17,307 2013 16,767 Acquisition expenses and commissions Administrative and other expenses (1,367) (1,832) Expenses 3,204 (107) (677) (903) 224 (8,713) (5,996) 2,972 3,294 (81) (331) (839) 272 (8,650) (6,215) 2,386 Acquisition expenses and commissions as % of pvnbp1 Administrative and other expenses as % of average reserves2 1 2 PVNBP before non-controlling interests. Aggregate policy reserves and unit-linked reserves. 2014 (4,833) (1,577) (6,410) (7.9) (0.3) 2013 (4,233) (1,519) (5,752) (8.8) (0.4) Investment margin2 in basis points 80 69 1 2 Other comprises the delta of out-of-scope entities, which are added here with their respective operating profit and different line item definitions compared to the financial statements, such as interest paid on deposits for reinsurance, fee and commission income and expenses excluding unit-linked management fees. Investment margin divided by the average of current and previous year-end aggregate policy reserves. Our investment margin increased by € 586 mn to € 2,972 mn, even con- sidering the low interest rate environment. Consequently, the invest- ment margin as a percentage of reserves increased by 12 basis points to 80 basis points. This growth was predominantly driven by Germany and the United States. In Germany, the investment margin improved due to gains from using derivatives to lengthen duration and a recov- ery in the foreign currency result after the losses in 2013 on partially hedged emerging markets bonds. The policyholder participation of € 5,996 mn also includes € 625 mn of policyholder benefits beyond con- tractual or regulatory requirements for the German life business in 2014. A higher investment spread for the increased fixed-indexed annuity portfolio contributed in the United States. Our expenses increased by € 658 mn to € 6,410 mn. This was mainly due to increased acquisition expenses driven by strong fixed-indexed annuity sales in the United States and products with alternative guar- antees in Germany and Asia-Pacific. The allocation of certain entities previously reflected in the busi- ness segment Asset Management to the business segment Life/Health increased the segment’s administrative expenses by € 45 mn in 2014. In France, a litigation fine of € 50 mn imposed by the regulator increased administrative expenses. Technical margin Technical margin comprises risk result (risk premiums less benefits in excess of reserves less policyholder participation), lapse result (surrender charges and commission clawbacks) and reinsurance result. Our technical margin decreased by € 99 mn to € 1,190 mn, largely driven by a regulatory change (“Lebensversicherungsreformgesetz”) for the German life business to increase the policyholder participa- tion in the technical margin. Overall, lapse margin and reinsurance margin remained stable. Annual Report 2014 Allianz Group 95 Impact of change in Dac Impact of change in DAC (deferred acquisition costs) includes effects of change in DAC, unearned revenue reserves (URR) and value of busi- ness acquired (VObA) and is the net impact of deferral and amortiza- tion of acquisition costs and front-end loadings on operating profit. Net income Net income increased by € 379 mn to € 2,320 mn, consistent with our operating performance, while a slightly improved effective tax rate also contributed positively. life/health business segment information1 impact of change in Dac € mn Capitalization of Dac Amortization, unlocking and true-up of Dac Impact of change in DAC1 2014 1,937 (1,513) 425 € mn 2013 1,596 Statutory premiums2 (1,519) Ceded premiums written 77 Change in unearned premiums Statutory premiums (net) 1 Impact of change in DAC includes effects of change in DAC, URR and VOBA and is the net impact of deferral and amortization of acquisition costs and front-end loadings on operating profit and therefore deviates to the financial statements. Deposits from insurance and investment contracts Premiums earned (net) Our impact of change in DAC improved from € 77 mn to € 425 mn. Cap- italization of DAC offset higher acquisition expenses as a result of increased fixed-indexed annuity sales in the United States. Amortiza- tion of DAC remained stable. operating profit by lines of business Loadings and fees Loadings from premiums Loadings from reserves Unit-linked management fees Investment margin Investment margin net of policyholder participation 2014 67,331 (630) (544) 66,157 (41,643) 24,514 5,151 3,430 1,094 626 2,972 2,972 2013 56,784 (648) (332) 55,803 (31,223) 24,580 4,709 3,251 1,001 458 2,386 2,386 operating profit by lines of business € mn Guaranteed savings & annuities Protection & health Unit-linked without guarantee Operating profit Expenses Acquisition expenses and commissions Administrative and other expenses (6,410) (4,833) (1,577) (5,752) (4,233) (1,519) Technical margin 1,190 1,289 2013 1,884 657 168 2,709 Operating profit before change in DAC 2,903 2,632 2014 2,385 654 288 3,327 The operating profit increase in the guaranteed savings & annuities line of business was largely driven by the higher investment margin mainly in Germany and the United States. Operating profit in the protection & health line of business was rather stable. However, it was marginally impacted by a slightly lower technical margin due to a lower risk result compared to last year. Operating profit in the unit-linked without guarantee line of business increased. This was mainly driven by the € 113 mn effect of the allocation of certain entities previously reflected in the business segment Asset Management to the business segment Life/Health. margin on reserves Our margin on reserves increased from 58 to 65 basis points. Impact of change in DAC3 Capitalization of Dac Amortization, unlocking and true-up of Dac Operating profit Non-operating items Income before income taxes Income taxes Net income 425 1,937 (1,513) 3,327 (12) 3,316 (996) 2,320 77 1,596 (1,519) 2,709 83 2,793 (852) 1,941 Margin on reserves4 in basis points 65 58 1 2 3 4 Profit sources are based on in-scope operating entities with coverage of 97.3 % of statutory premiums. Operating profit from operating entities that are not in-scope is included in investment margin. 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. Impact of change in DAC includes effects of change in DAC, URR and VOBA and is the net impact of deferral and amortization of acquisition costs and front-end loadings on operating profit and therefore deviates to the financial statements. 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. 96 Annual Report 2014 Allianz Group 588 577 371 640 575 436 (338) (128) (466) 71 268 121 (290) (95) (385) 83 141 114 (88) 27 168 C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations life/health operating profit by profit sources anD lines of business1 € mn Loadings from premiums Loadings from reserves Unit-linked management fees Loadings and fees Life/Health Guaranteed savings & annuities Protection & health Unit-linked without guarantee 2014 3,430 1,094 626 5,151 2013 3,251 1,001 458 4,709 2014 1,804 961 266 2013 1,707 913 223 2014 1,423 86 – 2013 1,365 69 – 3,030 2,842 1,510 1,434 2014 203 47 361 611 2013 179 20 235 433 Investment margin (net of policyholder participation) 2,972 2,386 2,881 2,312 39 64 52 10 Acquisition expenses and commissions Administrative and other expenses Expenses Technical margin (4,833) (1,577) (6,410) (4,233) (1,519) (5,752) (3,306) (1,078) (4,384) (2,750) (1,054) (3,804) (1,189) (1,193) (370) (370) (1,559) (1,562) 1,190 1,289 531 565 Operating profit before change in DAC Capitalization of Dac 2,903 1,937 2,632 1,596 2,058 1,445 1,915 1,045 Amortization, unlocking and true-up of Dac (1,513) (1,519) (1,118) (1,077) (294) (354) (101) Impact of change in DAC2 Operating profit 425 3,327 77 2,709 327 2,385 (31) 1,884 78 654 82 657 20 288 1 Profit sources are based on in-scope operating entities with coverage of 97.3 % of statutory premiums. Operating profit from operating entities that are not in-scope is included in investment margin. 2 Impact of change in DAC includes effects of change in DAC, URR and VOBA and is the net impact of deferral and amortization of acquisition costs and front-end loadings on operating profit and therefore deviates to the financial statements. Annual Report 2014 Allianz Group 97 Life/Health insurance operations by reportable segments Life/HeaLtH insurance operations by reportabLe segments € mn Statutory premiums1 Premiums earned (net) Operating profit (loss) Margin on reserves2 (bps) Germany Life Germany Health Switzerland Austria German Speaking Countries Italy France5 Benelux6 Greece Turkey7 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 Europe8 Middle East and North Africa Global Life Growth Markets Consolidation10 Total internal3 2014 2013 2014 2013 2014 2013 20144 19,014 3,245 1,655 405 24,319 11,332 8,241 2,518 88 854 57 23,090 338 1,259 247 1,844 11,840 11,840 537 537 1,646 2,026 700 423 – 938 5,732 185 252 138 147 52 71 40 23 909 176 4 6,820 17,000 3,264 1,602 385 22,251 8,430 8,510 2,326 90 419 54 19,830 329 1,224 232 1,786 7,317 7,317 515 515 1,354 1,745 686 381 – 926 5,093 127 245 165 172 84 62 35 23 913 163 6 6,174 19,014 3,245 1,640 405 24,304 11,332 8,241 2,518 88 622 57 22,858 355 1,249 247 1,851 11,822 11,822 537 537 1,583 2,071 795 437 – 969 5,855 185 252 144 155 62 71 40 24 933 179 4 6,971 17,000 3,264 1,602 385 22,251 8,430 7,987 2,326 90 419 54 19,307 329 1,224 232 1,786 7,317 7,317 515 515 1,354 1,745 686 381 – 926 5,093 127 245 165 172 84 62 35 23 913 163 6 6,174 11,468 3,244 519 325 15,557 478 3,100 520 51 148 28 4,326 123 437 83 643 984 984 398 398 509 201 285 187 6 721 1,909 73 210 42 74 49 70 34 14 566 132 1 2,607 11,538 3,264 488 282 15,572 483 3,401 541 53 81 25 4,583 145 455 83 684 883 883 430 430 494 152 247 200 6 636 1,735 40 209 46 77 83 61 30 14 560 132 2 2,429 1,079 209 83 37 1,408 173 455 132 – 26 6 791 16 191 22 229 656 656 14 14 (51) 2 61 18 3 72 104 21 38 12 15 1 17 13 6 119 24 1 247 (1,120) 67,331 (1,089) 56,784 (1,120) 67,224 (1,089) 56,261 – 24,514 – 24,580 (17) 3,327 2013 862 201 78 33 1,174 216 420 89 2 3 4 735 8 129 21 158 487 487 23 23 (129) – 60 18 7 79 36 16 29 9 17 – 4 4 1 78 17 – 131 2 2,709 20144 2013 55 77 62 80 59 32 56 85 –9 106 212 52 177 257 374 256 81 81 76 76 (48) 3 478 147 15 196 43 374 303 332 253 27 529 806 867 339 352 –9 87 –9 65 48 80 60 77 53 45 56 61 65 25 185 53 109 196 403 201 70 70 111 111 (130) –9 505 167 39 230 16 270 243 244 303 –9 132 302 221 228 304 –9 49 –9 58 1 2 3 4 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. Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking.  5  6  7  8  9 10 In the fourth quarter of 2014, we transferred our French International Health business to the reportable segment Allianz Worldwide Partners in the business segment Property-Casualty effective 1 January 2014. Belgium, Luxembourg and the Netherlands are presented as the combined region Benelux. All prior periods are presented accordingly. 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. 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. 98 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations Asset Management − Operating profit decreased 17.6 % to € 2,603 MN. − Cost-income ratio at 59.2 %. − Total assets under management grew 1.8 % to € 1,801 BN. − Third-party net outflows of € 226 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 management1 € mn Operating revenues Operating profit Cost-income ratio in % Net income Total assets under manage ment as of 31 December in € bn thereof: Third-party assets under manage ment as of 31 December in € bn 2014 6,388 2,603 59.2 1,621 1,801 1,313 2013 7,162 3,161 55.9 1,925 1,770 1,361 Assets under management Development of total assets unDer management1 € bn Total AuM (as of 12/31/2013) Net flows Market effects Consolidation, deconsoli- dation and other effects F/X effects Total AuM (as of 12/31/2014) 1,571 1,572 197 1 1,770 (221) + 111 (13) 229 0 + 155 1,801 0 500 1,000 1,500 2,000 Fixed income Equities Other Changes 1 Based on legal entity view. 1 Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. Annual Report 2014 Allianz Group 99 As of 31 December 2014, total assets under management (AuM) amounted to € 1,801 BN. Of this, € 1,313 BN related to our third-party AuM and € 488 BN to Allianz Group assets. The regional allocation of third-party AuM shifted slightly in favor of Europe and the Asia-Pacific region. This was primarily due to strong outflows at PIMCO in the United States. In 2014, we experienced net outflows of total AuM of € 221 BN. Net outflows from third-party AuM of € 226 BN were strongly driven by PIMCO in the United States and – to a lesser extent – the United King- dom, while PIMCO Canada and Japan recorded net inflows in 2014. 59 % of our net outflows were driven by traditional fixed income products. At the end of the third quarter and in the fourth quarter of 2014, PIMCO experienced heightened third-party net outflows in conjunction with the market’s reaction to the departure of PIMCO’s Chief Investment Officer, who resigned on 26 September 2014. AllianzGI recorded net inflows for the eighth consecutive quarter. Market effects contributed € 111 BN to total AuM, with € 81 BN at PIMCO and € 31 BN at AllianzGI. For further information regarding market developments, please refer to Business Environment starting on page 79. As of 1 January 2014, the Allianz Group allocated certain entities to other business segments which resulted in a decrease of € 32 BN in AuM at the beginning of 2014.1 This was partially compensated for by a change in reporting to include third-party fund of fund AuM in our total AuM. These effects were the main drivers of the net decline in total AuM of € 13 BN, reported as consolidation, deconsolidation and other effects. We recorded favorable foreign currency translation effects of € 155 BN, in particular on fixed income assets, mainly as a result of the appreciation of the U.S. Dollar against the Euro.2 In the following section, we focus on the development of third-party AuM. As of 31 December 2014, the share of third-party AuM by business unit was 80.2 % attributable to PIMCO and 19.8 % attributable to AllianzGI. thirD-party assets unDer management by region/country1 as of 31 December 2014 [31 December 2013] in % Asia-Pacific 10.8 [9.8] Other 2 0.0 [2.3] America 3 60.0 [61.5] Europe 29.2 [26.4] The relative share of our third-party AuM increased by three per- centage points in favor of equities. This development was mainly driven by strong fixed income outflows at PIMCO. This resulted in a 85 % share attributable to fixed income and a 15 % share attributable to equities as of 31 December 2014. The share of third-party AuM between our retail and institutional clients3 changed slightly – down one percentage point for retail clients (36 %) and up one percentage point for institutional clients (64 %). three-year rolling investment performance of pimco anD allianzgi1 PIMCO AllianzGI 96 90 88 (4) (10) (12) 62 55 55 (38) (45) (45) % 100 80 60 40 20 0 (20) (40) 2012 2013 2014 2012 2013 2014 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 three-year rolling investment performance of our Asset Management business remained on a high level, with 84 % of our assets outperforming their respective benchmarks (31 December 2013: 85 %). 88 % of PIMCO assets outperformed their respective bench- marks, while 55 % of AllianzGI assets did so. 1 2 3 Based on the location of the asset management company. “Other” consists of third-party assets managed by other Allianz Group companies which were allocated to other business segments as of 1 January 2014. “America” consists of the United States, Canada and Brazil (approximately € 772 BN, € 15 BN and € 1 BN third-party AuM as of 31 December 2014, respectively). 1 2 3 The third-party AuM that were reallocated with the entities amounted to € 35 BN as of 31 December 2014. Based on the closing rates on the respective balance sheet dates. Client group classification is driven by investment vehicle types. 100 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations Operating revenues Net income Our operating revenues went down by € 774 MN – or 10.8 % – to € 6,388 MN. This was mainly due to lower performance fees and lower average third-party AuM. The allocation of certain entities to other business segments also contributed to this development. On an internal basis1, operating revenues declined by 8.5 %. Net fee and commission income decreased by € 747 MN – or 10.5 % – to € 6,380 MN. This mainly reflects lower fee income due to decreased average third-party AuM at PIMCO and lower margins on our AuM. Our performance fees fell by € 235 MN to € 275 MN in 2014. This can be explained by the exceptionally high carried interest income of € 219 MN in the first half of 2013. Operating profit Operating profit dropped by € 558 MN – or 17.6 % – to € 2,603 MN, reflect- ing the decline in operating revenues and a less pronounced decline in operating expenses. On an internal basis1, operating profit went down by 14.6 %. Administrative expenses fell by € 207 MN – or 5.2 % – to € 3,787 MN, mainly driven by lower performance-driven variable personnel expenses and lower AuM-related expenses. In the fourth quarter of 2014 PIMCO introduced the Special Performance Award (SPA), as an enhancement to the regular year-end compensation process, in order to secure performance and retain talent. The SPA had an impact of € 24 MN on operating profit. Our cost-income ratio went up by 3.4 percentage points to 59.2 % mainly as a result of the strong decrease of performance fees and AuM-driven income outpacing the decline in operating expenses. Our net income decreased by € 304 MN – or 15.8 % – to € 1,621 MN, which is largely consistent with our operating profit development. 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 income1 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 2014 7,505 275 46 7,825 (1,301) (145) (1,445) 6,380 (3) 5 6 2013 8,032 510 69 8,611 (1,403) (81) (1,484) 7,127 12 12 10 6,388 7,162 (3,787) 3 (3,784) (3,994) (6) (4,001) Operating profit 2,603 3,161 Non-operating items Income before income taxes Income taxes Net income (15) 2,588 (967) 1,621 (55) 3,106 (1,181) 1,925 Cost-income ratio2 in % 59.2 55.9 1 2 Represents interest and similar income less interest expenses. Represents operating expenses divided by operating revenues. 1 Operating revenues/operating profit adjusted for foreign currency translation and (de-) consolidation effects. Annual Report 2014 Allianz Group 101 Corporate and Other Operating loss reduced by € 183 mn to € 820 mn, mainly driven by the recovery in Banking. 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 the Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communica- tion, legal, human resources, technology and other functions. Our banking products offered in Germany, Italy, France, the Nether lands and Bulgaria complement our insurance product port folio. We also provide global alternative investment man- agement 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 Operating result 2014 1,750 (2,571) (820) 2013 1,631 (2,635) (1,004) Net income (loss) (657) (1,334) Key figures reportable segments € mn holding & treasury Operating revenues Operating expenses Operating result banKing Operating revenues Operating expenses Operating result alternative investments Operating revenues Operating expenses Operating result 2014 2013 469 (1,386) (917) 1,114 (1,047) 66 176 (146) 30 361 (1,301) (939) 1,096 (1,187) (91) 175 (151) 24 1 Consolidation included. For further information about our Corporate and Other business segment, please refer to note 6 to the consolidated financial statements. 102 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations banKing3 Our operating result recovered from a loss of € 91 mn to an operating profit of € 66 mn. This improvement was driven by the closure of the Allianz Bank’s business operations in mid-2013 and the non-recur- rence of restructuring charges of € 88 mn related to this closure incurred in the preceding year. Lower loan loss provisions in our ongoing banking businesses also contributed to the improvement. In the following section, we focus on the development of our ongoing Banking business. To make the figures comparable, we have excluded the closed business operations of Allianz Bank. Our net interest, fee and commission result improved by € 25 mn to € 534 mn. Our net interest result increased by € 7 mn to € 329 mn, driven by a higher loan volume and lower interest expenses resulting from decreased interest rates. Our net fee and commission income increased from € 188 mn to € 206 mn. This was driven by increased management fee income in line with the growth in assets under management. The allocation of a former Asset Management entity to the reportable segment Banking in Italy also contributed to this increase. Administrative expenses went up by € 31 mn to € 429 mn primarily because of higher commissions paid to financial agents and costs for the opening of new financial agents’ offices in Italy. The above-men- tioned allocation also contributed to this development. Our loan loss provisions decreased by € 36 mn to € 47 mn. This was mainly because of lower loan loss provisions related to our ship financing business in Germany. Our operating income from financial assets and liabilities carried at fair value through income (net) remained unchanged at € 4 mn. alternative investments Our operating profit increased by € 6 mn to € 30 mn due to higher interest income and lower administrative expenses. This was only partly offset by minor decreases in our net fee and commission income and income from financial assets and liabilities carried at fair value. Earnings summary Our operating result improved by € 183 mn to an operating loss of € 820 mn. While all reportable segments contributed to this improve- ment, the Banking development contributed most of the increase. Our net loss more than halved from € 1,334 mn to € 657 mn. This was largely driven by a € 558 mn one-off benefit in our non-operating result from pension revaluation with our German subsidiaries1. Fur- thermore, in 2013, we recorded a € 96 mn goodwill impairment on a fully consolidated private equity investment. Operating earnings summaries by reportable segments holding & treasury Overall, our operating loss decreased from € 939 mn to € 917 mn. Other income increased from € 0 mn to € 116 mn. This positive impact on income was due to policyholder participation related to the pension revaluation with our German subsidiaries.1 Our net interest result improved by € 11 mn to a loss of € 52 mn as the decrease in interest and similar income was more than offset by a decrease in the respective expenses. Interest and similar income decreased by € 13 mn to € 265 mn, as the previous year’s figure bene- fited from interest payments on our silent participation in Commerz- bank, which was redeemed in 2013. This effect was only partly com- pensated for by increases in interest income from a larger volume of debt instruments and dividend income from equities. Our interest expenses, excluding interest expenses from external debt, were down by € 24 mn to € 317 mn. This was due to lower interest expenses on internal debt and was only partly offset by higher expenses related to an increased cash pool. Our net fee and commission result deteriorated from a loss of € 178 mn to a loss of € 205 mn. This was the result of higher IT invest- ment costs in accordance with our strategic initiatives to further digitalize our business.2 Administrative expenses (net), excluding acquisition-related expenses, increased by € 51 mn to € 736 mn. This was primarily driven by higher pension costs. In 2014 we further reduced provisions for restructuring plans mainly related to our global data center consolidation project by € 4 mn, € 30 mn less than last year. Investment expenses were down by € 7 mn to € 72 mn. 1 2 Respective offsetting effects were recorded within our other business segments, mainly within Property- Casualty. For further information on the one-off effect from pension revaluation, please refer to note 6 to the consolidated financial statements. For further information on our strategy, please refer to Strategy and Steering starting on page 70. 3 Effective 1 January 2014, the Allianz Group allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. Annual Report 2014 Allianz Group 103 Outlook 2015 − Global economic activity is likely to expand moderately in 2015. − Allianz Group operating profit outlook in the range of € 10.4 BN, plus or minus € 0.4 BN. Overview: 2014 results versus previous year outlook1 2014 results versus previous year outlook for 2014 outlook 2014 – as per annual report 2013 results 2014 allianz Group Operating profit of € 10.0 Bn, plus or minus € 0.5 Bn. Operating profit of € 10.4 Bn. Protection of shareholders’ investments, while continuing to provide attractive returns and dividends. Selective profitable growth. property-Casualty Growth in gross premiums written by more than 3.0 %. Operating profit in the range of € 5.1 Bn to € 5.7 Bn. Return on equity after income taxes of 11.2 % (2013: 11.9 %). Proposed dividend at € 6.85 (2013: € 5.30) per share. Increase in payout ratio to 50 % (2013: 40 %). Property-Casualty with continued sound risk selection and selective external growth, Life/Health with growing asset base and attractive new business margins, Asset Management with net outflows. Gross premiums written increased by 3.7 % supported by both internal and external growth, despite a negative foreign currency impact. Operating profit of € 5.4 Bn is at the mid-point of our target range, with a low impact from natural catastrophes offset by lower than expected results in Brazil, Russia and the United States. Combined ratio below 96 % over the cycle. Combined ratio was stable at a favorable 94.3 %. Pressure on operating investment income (net) due to reinvestments in a low interest rate environment. Operating investment income (net) was stable this year after a 5.6 % decline in 2013. life/HealtH Revenues in the range of € 52.0 Bn to € 56.0 Bn. Statutory premiums of € 67.3 Bn. Exceptional growth driven by the United States and Germany where we offered innovative products with managed minimum guarantees that addressed customers changing preference for safety. Operating profit between € 2.7 Bn and € 3.3 Bn. Operating profit of € 3.3 Bn at top end of target range. Margin on reserves between 50 and 70 basis points. Margin on reserves at 65 basis points. Pressure on investment income due to low interest rates and continued capital market uncertainty. Operating investment result increased by 2.8 % to € 17.5 Bn, supported by capital market-driven fair value gains. Prioritizing profitability over growth, taking further product and pricing actions as necessary. New business profitability improved and our selective growth strategy focused on managed guaranteed products. asset ManaGeMent Slight growth in total assets under management (AuM) due to positive equity, but subdued fixed income product inflows. Increase of total AuM by 1.8 % driven by positive market and foreign currency impacts and mostly offset by fixed income net outflows at piMCo. Operating profit in the range of € 2.5 Bn to € 2.9 Bn. Operating profit of € 2.6 Bn – below the mid-point of the outlook range mainly due to lower average AuM and a lower AuM-driven margin. Cost-income ratio at or below 60.0 %. Cost-income ratio deteriorated by 3.4 percentage points to 59.2 %. 1 For more detailed information on the previous year outlook for 2014, please see the Annual Report 2013 starting on page 87. 104 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations Economic outlook 2015 At the beginning of 2015 the economic picture is somewhat mixed. On the one hand, the unexpectedly drastic slide in oil prices is likely to provide an important stimulus for the global economy. As oil con- sumers make the most of their increased purchasing power and domestic demand in oil-producing countries is only partially curbed in response to lower oil revenues, global demand is likely to be bol- stered. On the other hand, economic prospects for a number of coun- tries have deteriorated significantly in recent months. One example is Russia, which is likely to experience a sharp recession in 2015 pri- marily due to the economic sanctions and the collapse in oil prices. Overall, global output is likely to expand by close to 3 % this year, fol- lowing an increase of 2.5 % last year. This acceleration is attributable in full to industrialized countries, while growth in many major emerging market economies continues to be dampened by struc- tural problems. Nevertheless, with an expected real GDP increase of 4.0 % in 2015, growth in these countries will still be considerably higher than in the industrialized world. In the Eurozone, the economic recovery is likely to continue this year, supported by Euro deprecia- tion and the fall in energy prices. We expect growth in most crisis- ridden member states to outpace last year’s performance, although uncertainty about the economic policies of certain member states could weigh on sentiment. Supported by brighter economic condi- tions in the Eurozone and a favorable environment for private con- sumption, the German economy could expand by 2 % in 2015. Infla- tion is likely to remain subdued on a global level, not least due to the recent sharp drop in energy prices and the dire unemployment situ- ation in many industrialized countries, which keeps the lid on wages. Financial market developments in 2015 will primarily be driven by monetary policy and geopolitical tensions, such as the conflict between Russia and Ukraine. Barring a major downside surprise on growth, the Federal Reserve Bank will likely start to push up interest rates this year. In contrast, in an effort to stem deflationary pressures and stimulate growth in the Eurozone, the European Central Bank has further loosened its monetary policy stance with the announce- ment of a bond purchasing program with a monthly volume of € 60 BN. This program will not only weigh on European government benchmark bond yields, but also exert considerable downward pres- sure on bond spreads of debt-ridden Eurozone countries. Ongoing reform and consolidation efforts are needed to support the econom- ic recovery and avoid a renewed flare-up of the sovereign debt crisis in the Eurozone. With short-term rates practically at zero, there are limited pros- pects 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 0.5 % and 2.2 % respectively by the end of 2015. In the early months of 2015 a number of factors, such as diverging monetary policies of the Federal Reserve Bank and the European Central Bank, will weigh on the Euro. Once it becomes evident that the economic recovery in the Eurozone is getting back onto a firmer footing, the Euro is likely to stabilize. Insurance industry outlook With economic growth forecasts more positive for 2015, demand for insurance is expected to increase slightly, supporting premium growth. At the same time, differences in growth levels between mar- kets will become wider, reflecting specific political, regulatory and economic conditions. As a result, we will see not only the usual growth gap between emerging and industrialized countries but also a widening gulf within these groups, namely between America and Europe on the one hand and Asia and other emerging markets on the other. The outlook for profitability is somewhat more subdued as many challenges remain, for example low investment returns and a more demanding regulatory environment. In the property-casualty sector, we anticipate premium growth in 2015 to be slightly above the level of the previous year. In advanced markets, increasing economic activity is a positive factor but the expected slight softening of the market might dampen growth per- spectives. However, differences in pricing in individual markets will remain significant, with the U.S. market likely to see the highest pric- ing pressure. On the other hand, emerging markets are mainly driven by economic growth. As in previous years, the strongest increases are expected in Asia, with China in the lead. Overall, we expect global premium revenue to rise between 4.5 % and 5.5 % in 2015 (in nominal terms, adjusted for foreign currency translation effects). Assuming weather-related claims are at previous years’ levels, overall underwriting profitability should remain more or less stable as reduced pricing power is offset by low – or even negative – claims inflation. On the other hand, investment returns are expected to remain low: interest rates will rise only modestly and impact returns very slowly. In the life sector, we expect premium growth to continue to recover. In advanced markets, slowly improving employment pros- pects and a new product mix will help to support top-line growth. In emerging markets, strong growth will be mainly driven by rising incomes and social security reforms, boosting demand for pension products. At the same time, with financial markets continuously developing, consumers increasingly ask for more sophisticated sav- ings products beyond simple bank deposits. All in all, we expect that global premium revenue will rise in the 4 % to 5 % range in 2015 (in nominal terms, adjusted for foreign currency translation effects). Annual Report 2014 Allianz Group 105 Low interest rates will remain a major headwind in 2015. There- fore, companies will have to continue to adapt their business models to the challenging environment. Besides a stronger focus on the pro- tection 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 de-risk their balance sheets and look for new, long-term investment opportunities, paying special attention to infrastructure investments. These adjustments should enable the insurance industry to cope with low interest rates and more stringent capital and reserve requirements. All things consid- ered, profitability is set to remain at levels seen in previous years. Asset management industry outlook life/HealtH Markets have shown some volatility in recent months and with inves- tors anticipating an increase in U.S. interest rates we expect this volatility to continue in equity as well as in fixed income markets. However, if the longer-term trend is indeed towards moderately higher interest rates – especially in the United States – coupled with global demographic developments, then bonds should remain attractive. This holds true in particular for liability-driven investors and for the growing number of retirees in the developed world look- ing for a stable stream of income. A continuing improvement of economic conditions – in particular in the United States – as well as trends in client demand, still repre- sent a positive environment for further asset management industry growth. Nevertheless, the industry has to deal with several challenges that will also put pressure on profitability: flows into passive pro- ducts as well as rising distribution or marketing costs will tighten operating margins and increased regulatory oversight and reporting will take their toll. Therefore, several factors are of vital importance for an asset manager’s ability to grow – notably above benchmark investment results and innovative client-focused investment solutions and pro- ducts. In addition, appropriate responses to clients’ needs as well as efficient operations and a sufficient business volume are important. Outlook for the Allianz Group As discussed earlier, world economic growth is expected to be mod- erately higher in 2015. Growth dynamics, however, vary significantly across the globe and there are clear risks for 2015. Geopolitical ten- sions, a renewed flare-up of the European sovereign debt crisis and currency or trade wars all could jeopardize economic development. However, the outlook provided here assumes the absence of such shocks. 106 Annual Report 2014 Allianz Group Overview: outlook and assumptions 2015 outlook 2015 allianz Group Operating profit of € 10.4 Bn, plus or minus € 0.4 Bn. Protection of shareholders’ investments, while continuing to provide attractive returns and dividends. Selective profitable growth. property-Casualty Growth in gross premiums written by approximately 3.0 %. Operating profit in the range of € 5.2 Bn to € 5.8 Bn. Combined ratio below 96 % over the cycle. Pressure on operating investment income (net) due to reinvestments in a low interest rate environment. Prioritizing profitability over growth, taking further product and pricing actions to address the prolonged low yield environment. As a result, revenues are expected to be in the range of € 59.0 Bn to € 65.0 Bn. Operating profit between € 3.0 Bn and € 3.6 Bn. Margin on reserves between 50 and 70 basis points. Pressure on investment income due to low interest rates and continued capital market uncertainty. asset ManaGeMent Slight decrease in total AuM due to continued, but receding, expected net outflows at piMCo. Operating profit in the range of € 2.2 Bn to € 2.8 Bn. Underlying cost-income ratio of 60.0 % or below. assuMptions Our outlook assumes no significant deviations from the following underlying assumptions: − Moderately higher 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 1.20. − A 10 % weakening or strengthening of the U.S. Dollar versus our planned exchange rate of 1.20 to the Euro would have a nega- tive or positive impact on operating profits of approximately € 0.3 BN, respectively. We expect our business mix and profitability to remain largely unchanged compared to 2014. Our Property-Casualty business seg- ment will carry on making up the majority of our operating profit. We anticipate that the Asset Management business segment will continue to be a significant source of operating profit, even though at a slightly reduced level. This reduction is mainly due to lower average AuM and C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations expenses associated with the Special Performance Award at PIMCO introduced in the fourth quarter of 2014, partially compensated by higher expected performance fees. In the Life/Health business seg- ment, operating profitability will remain under pressure due to low yields. However, we expect a stable development compared to the 2014 results, mainly supported by growth in our underlying asset base. Although the global economy is showing signs of recovery, investment results are likely to remain under pressure due to low interest rates and the continued uncertainty surrounding a flare-up of the European sovereign debt crisis. This will be offset by an increase in our operating asset base. Management’s assessment of expected revenues and earnings for 2015 In 2014, our total revenues amounted to € 122.3 BN, representing a 10.4 % and a 10.6 % increase on a nominal and internal basis, respec- tively, compared to last year. After the exceptional growth in 2014, we expect a slight decrease in 2015, with Property-Casualty advancing, while Life/Health and Asset Management revenues are likely to be under pressure due to our selective focus on profitable growth and the uncertain financial market outlook, respectively. In 2014, our operating profit neared the upper end of our outlook range, hitting € 10.4 BN. In 2015, we envisage operating profit of € 10.4 BN, plus or minus € 0.4 BN, as we expect a slightly higher operat- ing profit in the Property-Casualty business segment, a moderately lower operating profit in the Asset Management business segment and a largely unchanged operating profit in the Life/Health business segment. Our net income attributable to shareholders increased in line with the operating profit, reaching € 6.2 BN in 2014. Consistent with our disclosure practice in the past and given the susceptibility of our non-operating results to adverse capital market developments, we do not provide a precise outlook for net income. However, since our out- look presumes no major disruptions of capital markets, we antici- pate a slight rise in net income for 2015. property-Casualty insuranCe We expect our revenues to increase by approximately 3.0 % in 2015 (2014: 3.7 %) on a nominal basis, supported by favorable volume and to a lesser extent price effects as well as external growth. A major driver of the latter is the acquisition of a part of the insurance busi- ness of UnipolSai in Italy at the beginning of the third quarter of 2014. Premium growth in 2015 is expected mainly from our global insurance lines as well as the Anglo markets. Top line development will be further supported by positive trends in most of our European core markets, such as Germany and France. We believe the overall slow rise in prices we witnessed in a num- ber of markets in 2014 will continue in 2015. However, as in previous years, we will keep our focus 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 2015, we anticipate keeping the combined ratio below 96 % over the cycle (2014: 94.3 %). This rests on our expectation that the aggregate effect of improvements in pricing, claims management and productivity will compensate for any underlying claims inflation. Despite the high volatility of natural catastrophes in recent years, we assume such claims will be in line with their expected average level in 2015. 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 2015 operating profit to be in the range of € 5.2 BN to € 5.8 BN (2014: € 5.4 BN). life/HealtH insuranCe In 2014, our operating profit of € 3.3 BN reached the upper end of our target range, mainly due to capital market-related gains. For 2015, we expect operating profit in our Life/Health segment to be between € 3.0 BN and € 3.6 BN, mainly supported by growth in our underlying asset base. Our outlook reflects a margin on reserves ranging between 50 and 70 basis points. We will continue to prioritize profitability over growth in 2015 and we expect revenues to be lower than 2014, which showed excep- tional growth. This reflects our enhanced efforts to selectively write profitable business, given current interest rate developments and the competitive landscape. In 2015, we will continue to actively work on product and distri- bution actions, expense management and asset/liability manage- ment in order to mitigate the impacts of the difficult market condi- tions, particularly low interest rates. On top, we will keep exploring options to further optimize our capital usage. Still, it must be noted that market and accounting volatility, along with the level of net har- vesting, can significantly affect the Life/Health segment results and make precise predictions difficult. asset ManaGeMent Although the environment for the asset management industry is rather positive, we expect continued but receding net outflows in 2015. We also anticipate a slight decline in our operating profit. Lower management and loading fees due to lower average AuM, expenses associated with the Special Performance Award at PIMCO and invest- ments for future growth will weigh on the operating profit. On the other hand, we expect an increased level of performance fees, mainly stemming from illiquid alternatives vehicles. Therefore, we envisage our operating profit to be in the range of € 2.2 BN and € 2.8 BN in 2015 (2014: € 2.6 BN). Annual Report 2014 Allianz Group 107 We expect to maintain an underlying cost income ratio of 60.0 % or below in 2015 (2014: 59.2 %), supported by our focus on expense discipline and operational excellence. Corporate and otHer Our Corporate and Other business segment recorded an operating loss of € 0.8 BN in 2014. Due to slightly deteriorating operating results of the Holding & Treasury reportable segment – mainly attributable to higher pension costs – we predict an operating loss in the range of € 0.8 BN to € 1.0 BN for Corporate and Other (including consolidation) in 2015. Financing and liquidity development and capitalization The Allianz Group maintains a healthy liquidity position combined with superior financial strength and capitalization well above what supervisory authorities currently require. 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 2015 should be broadly in line with 2014. 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 development1 In November 2014, the Board of Management and the Supervisory Board of Allianz SE decided on a new allocation of net income in its dividend policy. Starting with the financial year 2014, the intention is to propose an increased regular pay-out to Allianz shareholders of 50 % of Allianz Group net income (attributable to shareholders). 1 This dividend policy represents the current intention of the Board of Management and the Supervisory Board and may be revised in the future. Also, the dividend payment in any given year is subject to specific dividend proposals by the Board of Management and the Supervisory Board, each of which may elect to deviate from this dividend policy if appropriate under the then prevailing circumstances, as well as to the decision of the Annual General Meeting. 108 Annual Report 2014 Allianz Group In the interest of dividend continuity, the objective is to keep the dividend per share at least at the level paid in the previous year. The dividend policy of the Allianz Group continues to aim for a healthy balance between an attractive yield and investments in profitable growth. To assure capital discipline, management further intends to evaluate and pay out any unused capital budget earmarked for exter- nal growth every three years. The first evaluation will take place at the end of 2016. In 2014, out of a budget of € 1.2 BN for external growth (equals 20 % of the net income attributable to shareholders for the year 2013) investments of € 0.6 BN were made resulting in additional capital consumption of € 0.3 BN. The dividend policy is subject to a sustainable Solvency II ratio above 160 %. This new policy is reflected in our proposed dividend of € 6.85 per share. 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 trends – in particular foreign currency, interest rates and equities – the Board of Management has no indication that the Allianz Group is facing any major adverse developments. Cautionary note regarding forward-looking statements The statements contained herein may include prospects, statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, perfor- mance 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 catas- trophes, 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 acquisi- tions, 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. C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations Balance Sheet Review − Shareholders’ equity increased by € 10.7 bn to € 60.7 bn. − Solvency ratio remained strong at 181 %.1 Shareholders’1equity 2 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”. + 21.3 % 60,747 13,917 17,901 28,928 Conglomerate SolvenCy1 € bn 182 % 181 %2 50 40 30 20 10 46.5 49.8 25.6 27.6 12/31/2013 12/31/2014 Solvency ratio Eligible capital Requirement 1 2 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. Allianz SE has not submitted an application so far. Excluding off-balance sheet reserves, the solvency ratio as of 31 December 2014 would be 172 % (31 December 2013: 173 %). Conglomerate solvency ratio as of 31 December 2014 was adjusted for the potential calls of hybrid capital (subordinated bonds) of € 0.4 bn in 2015. Excluding this adjustment, the solvency ratio would be 182 % (including off-balance sheet reserves) as of 31 December 2014. Compared to year-end 2013, our conglomerate solvency ratio remained strong. In 2014, the Group’s eligible capital for solvency purposes increased by € 3.3 bn to € 49.8 bn, which includes off-bal- ance sheet reserves of € 2.3 bn (31 December 2013: € 2.3 bn) and was adjusted for the potential calls of hybrid capital (subordinated bonds) in 2015. This increase in eligible capital was largely driven by our net income (net of accrued dividends and accounting for a 50 % ShareholderS’ equity € mn 70,000 60,000 50,000 40,000 30,000 20,000 10,000 50,083 6,742 14,473 28,869 12/31/2013 12/31/2014 Paid-in capital Unrealized gains/losses (net) Retained earnings (includes foreign currency translation adjustments) In 2014, shareholders’ equity increased by € 10,663 mn to € 60,747 mn as of 31 December 2014. Unrealized gains were up by € 7,176 mn, mainly due to higher fair values of debt securities triggered by declines in all major government bond yields – in particular within the Eurozone. Our net income attributable to shareholders of € 6,221 mn also contributed to this growth. A € 1,336 mn increase in foreign currency translation adjustments, mainly driven by the sig- nificant depreciation of the Euro against the U.S. Dollar – which was only minimally offset by the depreciation of the Russian ruble against the Euro – also contributed. These upward movements in sharehold- ers’ equity were only partly offset by our € 2,405 mn dividend payout in May 2014 and actuarial losses on defined benefit plans recorded in other comprehensive income of € 1,571 mn in 2014. 1 2 Conglomerate solvency ratio as of 31 December 2014 was adjusted for the potential calls of hybrid capital (subordinated bonds) of € 0.4 bn in 2015. Excluding this adjustment, the solvency ratio would be 182 % (including off-balance sheet reserves) as of 31 December 2014. 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 ratios as of 31 December 2014 and 2013 would be 172 % and 173 %, respectively. This does not include non-controlling interests of € 2,955 mn and € 2,765 mn as of 31 December 2014 and 31 December 2013, respectively. For further information, please refer to note 25 to the consolidated financial statements. Retained earnings include foreign currency translation adjustments of € (1,977) mn and € (3,313) mn as of 31 December 2014 and 31 December 2013, respectively. Annual Report 2014 Allianz Group 109 dividend payout ratio as recently introduced1) of € 3.1 bn. The issu- ance of two subordinated bonds in the first and third quarter of € 1.9 bn in total was partly offset by the redemption of a € 1.0 bn sub- ordinated bond in January 2015 and the potential call of hybrid capital of € 0.4 bn in 2015. An increase in actuarial losses on the valuation of our pension benefit obligation was in part offset by higher unrealized gains on equities (we have not elected to use unrealized gains on debt securities as eligible capital) and favorable foreign currency translation adjustments. The required funds increased by € 2.0 bn to € 27.6 bn, mainly due to higher aggregate policy reserves in Life/ Health. As a result, our eligible capital surpassed the minimum legally stipulated level by € 22.2 bn. Total assets and total liabilities As of 31 December 2014, total assets amounted to € 805.8 bn and total liabilities were € 742.1 bn. Compared to year-end 2013, total assets and total liabilities increased by € 94.7 bn and € 83.9 bn, respectively. The following section mainly focuses on our financial invest- ments in debt instruments, equities, real estate and cash, since these reflect the major developments in our asset base. StruCture of inveStmentS – portfolio overview The following portfolio overview covers the Allianz Group assets held for investment, which are mainly driven by our insurance businesses. Compared to year-end 2013, our investment portfolio increased by € 77.7 bn to € 614.6 bn as of 31 December 2014 with no material change in the overall asset allocation. Our gross exposure to equities increased by € 5.6 bn to € 41.2 bn due to new investments and to a lesser extent positive developments in almost all major stock markets in 2014. This exposure still account- ed for 7 % of our investment portfolio. Our equity gearing2 remained stable at 25 %, although we have an upswing in shareholders’ equity. Our direct exposure to real estate increased by € 0.6 bn to € 11.3 bn due to new investments. Our cash and other investments were up by € 2.4 bn to € 12.2 bn. For further information on our liquidity position, please refer to Liquidity and Funding Resources starting on page 116. Our exposure to debt instruments grew by € 69.1 bn – or 14.4 % – to € 549.8 bn and represented 89 % of our total investment portfolio, almost stable compared to last year. The increase in absolute terms was driven by higher fair values as a result of decreased interest rates as well as new investments. Furthermore, foreign currency effects were also significant, mainly driven by the appreciation of the U.S. Dollar against the Euro. fixed inCome portfolio Total fixed income portfolio as of 31 December 2014: € 549.8 bn [as of 31 December 2013: € 480.7 bn] in % Banks 6 [7] Other 10 [10] aSSet alloCation Investment portfolio as of 31 December 2014: € 614.6 bn [as of 31 December 2013: € 536.8 bn] in % Real estate 2 [2] Equities 7 [7] Other corporate bonds 26 [24] Cash/Other 2 [2] Government bonds 38 [37] Covered bonds 20 [21] Debt instruments 89 [90] The allocation of our well-diversified fixed income portfolio remained rather stable, with modest increases in the share of corporate bonds and government bonds accompanied by minor reductions in the por- tion of covered bonds and banks. About 95 % of this portfolio of debt instruments was invested in investment-grade bonds and loans.3 Our government bond exposure increased by € 29.7 bn compared to year-end 2013 and amounted to € 209.3 bn as of 31 December 2014. The allocation of our government and government-related bond exposure remained rather stable, with a marginal decrease in the share of German government bonds reflecting the decision not to 1 This dividend policy represents the current intention of the Board of Management and the Supervisory Board and may be revised in the future. Also, the dividend payment in any given year is subject to specific dividend proposals by the Board of Management and the Supervisory Board, each of which may elect to deviate from this dividend policy if appropriate under the then prevailing circumstances, as well as to the decision of the Annual General Meeting. For further information on our new dividend policy, please refer to Outlook 2015 starting on page 104. 2 3 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. Excluding self-originated German private retail mortgage loans. For 2 %, no ratings were available. 110 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations reinvest in those bonds at the low yield levels. The overall increase in our government bond exposure was primarily driven by positive mar- ket effects. Our sovereign debt exposure in Italy and Spain equaled 5.7 % and 1.1 % of our fixed income portfolio, reflecting minor realiza- tions in Italy and new investments in Spain during 2014. The corre- sponding unrealized gains (gross) amounted to € 5,587 mn in Italy and € 945 mn in Spain. Furthermore, we restored our exposure to Irish government bonds – representing 0.1 % of our fixed income portfolio – which was substantially reduced in 2012 and 2013. Our government bond exposure in Portugal remained limited, with small unrealized gains. We continued to have virtually no exposure to Greek and no exposure to Ukrainian government bonds. The respective exposure to Russia was relatively small in the context of our overall portfolio. Our covered bond portfolio was up by € 5.1 bn to € 107.6 bn. Its fixed income portfolio share decreased slightly to 20 %. 44 % (31 Decem- ber 2013: 47 %) of this portfolio was German Pfandbriefe, backed by either public sector loans or mortgage loans. Another 16 %, 10 % and 7 % of the covered bonds were attributable to France, Spain and Italy, respectively. Covered bonds provide a cushion against real estate price deterioration and payment defaults through minimum required security buffers and overcollateralization. Our corporate bonds grew by € 28.7 bn to € 145.1 bn – representing an increase from 24 % as of 31 December 2013 to 26 % of our fixed income portfolio as of year-end 2014. This was primarily driven by new invest- ments and to a lesser extent by decreased interest rates leading to fair value increases. The corporate bond portfolio weighting experi- enced a slight regional shift from Eurozone corporate bonds to bonds of the North-American region, which was driven by new investments as well as value increases in U.S. Dollar-denomi nated exposures. Our exposure to bank securities – including the exposure to sub- ordinated securities in banks – remained almost unchanged at € 32.4 bn (31 December 2013: € 33.1 bn). Given the growth in our total fixed income portfolio, the portfolio share of this exposure decreased one percentage point to 6 %. The portfolio share in U.S. banks slightly increased as matured bank securities – mainly from Germany – have been reinvested with a higher percentage going to the United States. The exposure to subordinated securities in banks slightly increased from € 4.8 bn to € 5.3 bn. Our exposure to asset-backed securities (AbS) went up by € 4.5 bn to € 22.9 bn and still accounted for 4 % of our fixed income portfolio. The increase was largely related to new investments. About 72 % of our AbS portfolio was related to mortgage-backed securities (mbS). mbS issued by U.S. agencies, which are backed by the U.S. government, increased by two percentage points and accounted for 15 % of the AbS portfolio. Overall, 98 % of the AbS portfolio received an investment grade rating, with 86 % rated “AA” or better. inveStment reSult inveStment inCome (net) € mn Operating investment result 2014 2013 Delta Interest and similar income (net)1 21,028 20,497 531 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 Subtotal 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 Total investment income (net) (1,301) 3,205 (697) (961) 21,274 (303) 812 (197) 312 21,586 (1,868) 3,334 (298) (905) 20,761 23 952 (313) 662 21,423 567 (129) (399) (56) 514 (326) (141) 116 (350) 163 1 Net of interest expenses (excluding interest expenses from external debt). Our total investment income (net) went up slightly to € 21,586 mn as the decrease in our non-operating investment result was more than compensated for by the increase in our operating investment result, which are analyzed in the following two sections. Operating investment result Our operating investment income (net) increased by € 514 mn to € 21,274 mn due to higher interest and similar income (net) and oper- ating income from financial assets and liabilities carried at fair value through income (net). Interest and similar income (net)1 increased by € 531 mn – or 2.6 % – to € 21,028 mn. This was driven by higher income from equities in line with our increased exposure to this asset class, but also from higher interest income from debt securities resulting from a higher asset base. This was predominantly due to our Life/Health business segment. Operating income from financial assets and liabilities carried at fair value through income (net) improved by € 567 mn to a loss of € 1,301 mn. The previous year’s result was considerably impacted by losses from the net of foreign currency translation effects and finan- cial derivatives, mainly within our German Life/Health business. De rivatives are used to protect against equity and foreign currency 1 Net of interest expenses (excluding interest expenses from external debt). Annual Report 2014 Allianz Group 111 fluctuations as well as to manage duration and other interest rate- related exposures. Our operating impairments of investments (net) increased from their comparatively low level by € 399 mn to € 697 mn. This was mainly driven by higher impairments on emerging market debt funds trig- gered by unfavorable currency movements of emerging markets cur- rencies in the second half of 2013. This led to impairments in 2014 due to respective accounting policies for impairments. Higher impair- ments on equities also contributed to the increase and were driven by various single equity investments. Operating realized gains and losses (net) decreased by € 129 mn to € 3,205 mn. This was driven by lower realizations on debt securities, but also on real estate. Realized gains on equities were around the same level as the previous year. Investment expenses increased by € 56 mn to € 961 mn, mainly due to the higher asset base and higher expenses for the extended real estate exposure. Non-operating investment result Our non-operating investment income (net) more than halved from € 662 mn to € 312 mn. This was mainly due to the worsening of non- operating income from financial assets and liabilities carried at fair value through income (net). Non-operating income from financial assets and liabilities car- ried at fair value through income (net) decreased by € 326 mn to a loss of € 303 mn, mainly due to unfavorable hedging results. Non-operating realized gains and losses (net) were down by € 141 mn to € 812 mn due to a reduction in realizations on equities. This was only partly offset by higher realizations on debt securities, mainly within our Property-Casualty business segment. Non-operating impairments of investments (net) decreased by € 116 mn to € 197 mn. An increase in impairments on debt securities was more than offset by a respective decrease on equities. aSSetS and liabilitieS of the property-CaSualty buSineSS Segment Property-Casualty assets Compared to year-end 2013, the Property-Casualty asset base increased by € 8.2 bn to € 109.2 bn. This was primarily driven by higher debt securities, but also by increased equities – both resulting from new investments and increased fair values. CompoSition of aSSet baSe – fair valueS1 € bn as of 31 December Financial assets and liabilities carried at fair value through income Equities Debt securities Other2 Subtotal Investments3 Equities Debt securities Cash and cash pool assets4 Other Subtotal Loans and advances to banks and customers 2014 2013 0.4 0.1 – 0.5 6.3 72.4 5.6 9.5 93.8 15.0 0.4 0.1 – 0.6 5.0 67.0 4.9 7.5 84.4 16.1 Property-Casualty asset base 109.2 101.1 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 2014 and 31 December 2013, respectively. These do not include affiliates of € 8.9 bn and € 8.9 bn as of 31 December 2014 and 31 December 2013, respectively. Including cash and cash equivalents, as stated in our business segment balance sheet of € 3.7 bn and € 2.8 bn and receivables from cash pooling amounting to € 4.2 bn and € 3.4 bn, net of liabilities from securities lending and derivatives of € (0.1) bn and € (0.3) bn, as well as liabilities from cash pooling of € (2.1) bn and € (1.0) bn as of 31 December 2014 and 31 December 2013, respectively. AbS within the Property-Casualty asset base was up slightly from € 3.7 bn to € 4.0 bn, representing an almost unchanged 3.7 % of the busi- ness segment’s asset base. 112 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations Property-Casualty liabilities development of reServeS for loSS and loSS adjuStment expenSeS1 aSSetS and liabilitieS of the life/health buSineSS Segment € bn As of 1 January 2014 Balance carry forward of discounted loss reserves2 Subtotal Loss and loss adjustment expenses paid in current year relating to previous years Loss and loss adjustment expenses incurred in previous years Foreign currency translation adjustments and other changes Changes in reserves for loss and loss adjustment expenses in current year Subtotal Ending balance of discounted loss reserves2 As of 31 December 2014 Gross 56.6 3.2 59.8 (14.7) (1.8) 2.5 16.7 62.5 (3.6) 58.9 Ceded (6.1) (0.3) (6.4) 1.4 0.4 (0.5) (1.8) (6.9) 0.3 (6.6) Net 50.5 2.9 53.4 (13.3) (1.4) 2.0 14.9 55.6 (3.3) 52.3 1 2 For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty business segment, please refer to note 19 to the consolidated fin an cial statements. Although discounted loss reserves have been reclassified to “Reserves for insurance and investment contracts” in the balance sheet in 2013, the underlying business development of these Property-Casualty reserves is still considered in the loss and loss adjustment expenses and in the loss ratio and is therefore included in the development of the reserves above. As of 31 December 2014, the business segment’s gross reserves for loss and loss adjustment expenses and discounted loss reserves amounted to € 62.5 bn – an increase of € 2.7 bn compared to year-end 2013. On a net basis, our reserves – including discounted loss reserves – increased from € 53.4 bn to € 55.6 bn. Foreign currency translation effects and other changes amounted to an increase of € 2.0 bn on a net basis. Life/Health assets The Life/Health asset base increased by € 78.9 bn – or 16.2 % – to € 565.4 bn. To a large extent, this was driven by an increased exposure to debt securities but also higher equities and was in line with the developments in our overall investment portfolio – reflecting both new investments and increased fair values. Higher financial assets for unit-linked contracts also contributed to this growth. CompoSition of aSSet baSe – fair valueS € bn as of 31 December Financial assets and liabilities carried at fair value through income Equities Debt securities Other1 Subtotal Investments2 Equities Debt securities Cash and cash pool assets3 Other Subtotal Loans and advances to banks and customers Financial assets for unit-linked contracts4 Life/Health asset base 2014 2013 1.8 2.0 (6.8) (3.0) 32.2 331.8 8.0 10.4 382.4 91.4 94.6 565.4 1.4 2.5 (4.2) (0.3) 28.9 269.3 7.5 10.0 315.8 89.9 81.1 486.5 1 2 3 4 This comprises assets of € 1.4 bn and € 1.7 bn and liabilities (including the market value lia bility option) of € (8.2) bn and € (5.9) bn as of 31 December 2014 and 31 December 2013, respectively. These do not include affiliates of € 0.2 bn and € 0.8 bn as of 31 December 2014 and 31 December 2013, respectively. Including cash and cash equivalents, as stated in our business segment balance sheet, of € 7.6 bn and € 5.8 bn and receivables from cash pooling amounting to € 3.1 bn and € 3.5 bn, net of liabilities from securities lending and derivatives of € (2.6) bn and € (1.7) bn, as well as liabilities from cash pooling of insignificant amounts as of 31 December 2014 and 31 December 2013, respectively. 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. AbS within the Life/Health asset base grew by € 3.0 bn, mainly due to new investments, and amounted to € 16.9 bn. This exposure repre- sented 3.0 % (31 December 2013: 2.8 %) of the business segment’s asset base. Annual Report 2014 Allianz Group 113 finanCial aSSetS for unit-linked ContraCtS1 € bn aSSetS and liabilitieS of the aSSet management buSineSS Segment Asset Management assets The Asset Management business segment’s results are derived pri- marily from asset management for third-party investors and the Allianz Group’s insurance operations . In this section, we refer only to the business segment’s own assets.2 The business segment’s asset base decreased from € 4.5 bn to € 2.6 bn – mainly from debt securities as a result of the allocation of certain entities to other reportable segments. Cash and cash pool assets are now the remaining main component of the business seg- ment’s asset base. Asset Management liabilities Liabilities in our Asset Management business segment decreased from € 4.0 bn as of year-end 2013 to € 2.4 bn, primarily due to the above-mentioned allocation. aSSetS and liabilitieS of the Corporate and other buSineSS Segment Corporate and Other assets The Corporate and Other asset base increased by € 3.4 bn to € 44.7 bn. This was due to a greater volume of debt securities and, to a lesser extent, equities as well as an improvement in our net position of cash and cash pool assets. It was partly offset by decreased loans and advances to banks and customers. As of 1 January 2014 Net premium inflows (outflows) Changes in fund value Foreign currency translation adjustments Other changes As of 31 December 2014 Unit-linked insurance contracts Unit-linked investment contracts 55.4 2.7 3.7 3.6 (2.7) 62.7 25.7 4.4 1.8 0.2 (0.2) 31.9 Total 81.1 7.1 5.5 3.8 (2.9) 94.6 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 Re- porting 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 € 13.5 bn – or 16.7 % – to € 94.6 bn. Unit-linked insurance contracts went up by € 7.3 bn to € 62.7 bn due to good fund performance (€ 3.7 bn) and pre- mium inflows exceeding outflows by € 2.7 bn. This was partly offset by transfers to the general account in France (€ (1.1) bn). Unit-linked investment contracts increased by € 6.2 bn to € 31.9 bn, with premium inflows significantly exceeding outflows (net € 4.4 bn). Currency effects were driven by the stronger U.S. Dollar (€ 3.1 bn) and Asian cur- rencies (€ 0.6 bn).1 Life/Health liabilities In 2014, Life/Health reserves for insurance and investment contracts increased by € 58.4 bn – or 14.9 % – to € 449.3 bn. The € 23.8 bn increase in aggregate policy reserves was mainly driven by our operations in Germany (€ 9.9 bn), the United States (€ 7.5 bn before currency effects), Italy (€ 2.1 bn), France (€ 0.8 bn) and Luxembourg (€ 0.7 bn). Reserves for premium refund increased by € 24.7 bn due to higher unrealized gains to be shared with policyholders. Currency impacts resulted from the stronger U.S. Dollar (€ 8.2 bn), Asian currencies (€ 1.5 bn) and the Swiss Franc (€ 0.2 bn).1 1 Based on the closing rates on the respective balance sheet dates. 114 Annual Report 2014 Allianz Group 2 For further information on the development of these third-party assets, please refer to Asset Management starting on page 99. Effective 1 January 2014, the Allianz Group allocated certain entities from the report- able segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations 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 47 to the consolidated financial statements for more details. The Allianz Group has also entered into contractual relation- ships with various types of structured entities. They have been designed in such a way that their relevant activities are directed by means of contractual arrangements instead of voting or similar rights. Typically, structured entities have been set up in connection with asset-backed financings, certain investment fund products, commercial mortgage loans and collateralized debt obligations. For more details on our involvement with structured entities, please refer to note 45 to the consolidated financial statements. Please refer to the Risk and Opportunity Report from page 123 onwards for a description of the main concentrations of risk and other relevant risk positions. CompoSition of aSSet baSe – fair valueS € bn as of 31 December Financial assets and liabilities carried at fair value through income Equities Debt securities Other1 Subtotal Investments2 Equities Debt securities Cash and cash pool assets3 Other Subtotal Loans and advances to banks and customers Corporate and Other asset base 2014 2013 0.1 0.2 (0.5) (0.1) 2.7 28.4 (4.1) 0.3 27.3 17.5 44.7 – – (0.2) (0.2) 1.7 26.4 (5.0) 0.3 23.4 18.2 41.3 1 2 3 This comprises assets of € 0.2 bn and € 0.3 bn and liabilities of € (0.6) bn and € (0.5) bn as of 31 December 2014 and 31 December 2013, respectively. These do not include affiliates of € 77.2 bn and € 75.4 bn as of 31 December 2014 and 31 December 2013, respectively. Including cash and cash equivalents, as stated in our business segment balance sheet, of € 2.0 bn and € 1.5 bn and receivables from cash pooling amounting to € 1.7 bn and € 0.7 bn, net of liabilities from securities lending and derivatives of € (0.0) bn and € (0.2) bn, as well as liabilities from cash pooling of € (7.9) bn and € (7.1) bn as of 31 December 2014 and 31 December 2013, respectively. AbS within the Corporate and Other asset base expanded by € 1.1 bn to € 2.0 bn. This represented an increase from 2.2 % to 4.5 % of the Corpo- rate and Other’s asset base and was mainly due to new investments. Corporate and Other liabilities Compared to 31 December 2013, other liabilities increased by € 4.4 bn to € 28.0 bn as of 31 December 2014. Most of this increase was related to higher pension obligations. Over the same period, subordinated liabilities were up by € 0.5 bn to € 12.0 bn as the redemption of a € 1.5 bn perpetual bond was more than offset by the issuance of two perpetual subordinated bonds with a volume of CHF 0.5 bn and € 1.5 bn in the first and third quarter of 2014, respectively. Certificated liabilities decreased by € 1.0 bn to € 12.2 bn.1 1 For further information on Allianz SE debt as of 31 December 2014, please refer to notes 23 and 24 to the consolidated financial statements. Annual Report 2014 Allianz Group 115 Liquidity and Funding Resources Asset mAnAgement operAtions Within our Asset Management operations, the most important sour- ces of liquidity are fees generated from asset management activities. These are primarily used to cover operating expenses. BAnking operAtions The major sources of liquidity in our Banking operations include cus- tomer deposits, interbank loans and interest and similar income from our lending transactions. The most important uses of funds are the issuance of new loans and investments in fixed income securities. The liquidity of our Banking operations is largely dependent on the ability of our private and corporate customers to meet their payment obligations arising from loans and other outstanding commitments. Our ability to retain our customers’ deposits is also equally important to us. Liquidity management and funding of Allianz SE The responsibility for managing the funding needs of the Group, maximizing access to liquidity sources and minimizing borrowing costs lies with Allianz SE. We therefore comment on the liquidity and funding resources of Allianz SE in the following sections. Restrictions on the transferability of capital within the Group result mainly from the capital maintenance rules under applicable company laws and the regulatory solvency capital requirements 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 subsidiaries and funding pro- vided by capital markets. Liquidity resources are defined as readily available assets – specifically cash, money market investments and highly liquid government bonds. Our funds are primarily used for pay- ing interest expenses on our debt funding, operating costs, internal and external growth investments and dividends to our shareholders. Organization The Allianz Group’s liquidity management is based on policies and guide lines approved by the Allianz SE Board of Management. Allianz SE and each of the operating entities are responsible for man- aging their respective liquidity positions, while Allianz SE provides central liquidity pooling for the Group. Capital allocation is steered by Allianz SE for the entire Group. This structure allows the efficient use of liquidity and capital resources and for Allianz SE to achieve the desired liquidity and capitalization levels for the Group and its oper- ating units. Liquidity management of our operating entities insUrAnCe operAtions The major sources of liquidity for our operational activities are pri- mary and reinsurance premiums received, reinsurance receivables collected, investment income and proceeds generated from the maturity or sale of investments. These funds are mainly used to pay claims arising from the property-casualty insurance business and related expenses, life policy benefits, surrenders and cancellations, acquisition costs and operating costs. We receive a large part of premiums before payments of claims or policy benefits are required, generating solid cash flows from our insurance operations. This allows us to invest the funds in the inter- im to create investment income. Our insurance operations also carry a high proportion of liquid investments, which can be converted into cash to pay for claims. Generally, our investments in fixed income securities are sequenced to mature when funds are expected to be needed. The overall liquidity of our insurance operations depends on capital market developments, interest rate levels and our ability to realize the market value of our investment portfolio to meet insur- ance claims and policyholder benefits. Other factors affecting the liquidity of our Property-Casualty insurance operations include the timing, frequency and severity of losses underlying our policies and policy renewal rates. In our Life operations, liquidity needs are gener- ally influenced by trends in actual mortality rates compared to the assumptions underlying our life insurance reserves. Market returns, crediting rates and the behavior of our life insurance clients – for example regarding the level of surrenders and withdrawals – can also have significant impacts. 116 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations fUnDing soUrCes Allianz SE’s access to external funds depends on various factors such as capital market conditions, access to credit facilities, credit ratings and credit capacity. The financial resources available to Allianz SE in the capital markets for short-, mid- and long-term funding needs are described below. In general, mid- to long-term financing is covered by issuing senior or subordinated bonds or ordinary shares. Equity funding As of 31 December 2014, the issued capital registered at the Commer- cial Register was € 1,169,920,000. This was divided into 457,000,000 registered shares with restricted transferability. As of 31 December 2014, the Allianz Group held 2,751,961 (2013: 2,763,381) 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 2014: CApitAL AUthorizAtions of ALLiAnz se CApitAL AUthorizAtion nominAL AmoUnt Authorized Capital 2014/i Authorized Capital 2014/ii Authorization to issue bonds carrying conversion and/or option rights € 550,000,000 (214,843,750 shares) € 13,720,000 (5,359,375 shares) € 10,000,000,000 (nominal bond value) Conditional Capital 2010/2014 € 250,000,000 (97,656,250 shares) expirY DAte of the AUthorizAtion 6 May 2019 6 May 2019 6 May 2019 (issuance of bonds) No expiry date for Conditional Capital 2010/2014 (issuance in case option or conversion rights are exercised) Please refer to repurchase shares. page 43 regarding authorizations to issue and mAtUritY strUCtUre of ALLiAnz se’s senior AnD sUBorDinAteD BonDs As of 31 DeCemBer 2014 nominal value in € Bn 7 6 5 4 3 2 1 1.01 1.5 1.5 0.5 1.5 6.4 2.5 0.75 1.5 1.0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2041 2042 2043 perpetual Senior bonds Subordinated bonds 1 € 1.0 bn subordinated bond called for redemption effective 13 January 2015. Long-term debt funding As of 31 December 2014, Allianz SE had senior and subordinated bonds in a variety of maturities outstanding, reflecting our focus on long-term financing. As the cost and availability of external funding may be negatively affected by general market conditions or by matters specific to the financial services industry or the Allianz Group, we seek to reduce refinancing risk by actively steering the maturity profile of our funding structure. Interest expenses on senior bonds increased to € 264 MN (2013: € 261 MN). This was due to slightly higher outstanding volumes on average and the appreciation of the British Pound against the Euro. For subordinated bonds, interest expenses declined to € 554 MN (2013: € 610 MN). This was primarily driven by lower funding costs on new issuances compared to subordinated bonds that matured in 2014. Annual Report 2014 Allianz Group 117 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 2014, Allianz SE had money market securities outstanding with a carrying value of € 1,041 MN, a € 172 MN increase in the use of commercial paper compared to the previous year-end. Interest expenses on money market securities decreased to € 3 MN (2013: € 4 MN) due to a lower level of short-term interest rates on average in 2014. moneY mArket seCUrities of ALLiAnz se as of 31 December 2014 Money market securities 2013 Money market securities Carrying value € mn 1,041 869 Interest expense € mn 3 4 Average interest rate % 0.3 0.4 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 se1 as of 31 December 2014 Senior bonds Subordinated bonds Total 2013 Senior bonds Subordinated bonds Total Nominal value € mn Carrying value € mn Interest expense € mn 6,716 11,442 18,159 6,651 10,926 17,577 6,653 11,371 18,024 6,581 10,856 17,437 264 554 818 261 610 871 Weighted average interest rate2 % 3.9 5.3 4.8 4.0 5.9 5.2 1 2 For further information on Allianz SE debt (issued or guaranteed) as of 31 December 2014, please refer to notes 23 and 24 to the consolidated financial statements. Based on nominal value. The table below details the long-term debt issuances and redemp- tions of Allianz SE during 2014 and 2013: issUAnCes AnD reDemptions of ALLiAnz se’s senior AnD sUBorDinAteD BonDs € mn as of 31 December Issuances1 Redemptions1 Issuances net of redemptions 2014 Senior bonds Subordinated bonds 2013 Senior bonds Subordinated bonds 1 Based on nominal value. – 1,916 2,151 1,500 – 1,500 1,500 1,517 – 416 651 (17) 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 2014, approximately 12.2 % (2013: 9.3 %) 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 2014 Euro Non-Euro Total Senior and sub ordinated bonds 15,950 2,209 18,159 2013 Senior and sub ordinated bonds 15,950 1,627 17,577 118 Annual Report 2014 Allianz Group C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations ALLiAnz se BonDs1 oUtstAnDing As of 31 DeCemBer 2014 AnD interest expenses in 2014 1. senior BonDs2 4.0 % bond issued by Allianz Finance ii B.V., Amsterdam Volume 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 € 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 A1g nAh 1 € 62 mn € 7 mn € 74 mn € 54 mn € 24 mn € 43 mn € 264 mn € 66 mn € 116 mn 1 2 For further information on Allianz SE debt (issued or guaranteed) as of 31 December 2014, please refer to notes 23 and 24 to the consolidated financial statements. 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. 5.625 % bond issued by Allianz se 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 3.25 % bond issued by Allianz se Volume Year of issue Maturity date isin Interest expenses 3.375 % bond issued by Allianz se Volume Year of issue Maturity date isin Interest expenses Total interest expenses for subordinated bonds 3. issUes reDeemeD in 2014 5.5 % bond issued by Allianz se Volume Year of issue Maturity date isin Interest expenses Sum of interest expenses1 Interest expenses from external debt not presented in the table Total interest expenses from external debt € 1.5 Bn 2012 10/17/2042 De 000 A1r e1Q 3 € 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 085 787 250 0 € 1.5 Bn 2013 perpetUAL BonD De 000 A1Y CQ2 9 Chf 0.5 Bn 2014 perpetUAL BonD Ch 023 483 337 1 € 1.5 Bn 2014 perpetUAL BonD De 000 A13 r7z 7 € 1.5 Bn 2004 perpetUAL BonD xs 018 716 232 5 € 86 mn € 63 mn € 43 mn € 44 mn € 72 mn € 13 mn € 15 mn € 519 mn € 3 mn € 786 mn € 59 mn € 846 mn 3 The terms of the subordinated bonds do not explicitly provide for early termination rights in favor of the bondholder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. Nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments. Annual Report 2014 Allianz Group 119  Allianz Group consolidated cash flows AnnUAL ChAnges in CAsh AnD CAsh eQUiVALents € mn 40,000 30,000 20,000 10,000 0 (10,000) (20,000) (30,000) 32,232 23,239 2,656 (1,436) (3,189) (1,230) (22,801) (26,927) Net cash flow provided by operating activities Net cash flow used in investing activities Net cash flow used in financing activities Change in cash and cash equivalents1 Net cash outflow used in investing activities amounted to € 26.9 bN, up by € 4.1 bN compared to the previous year. This rise was attributable to lower net cash inflows from loans and advances to banks and customers, especially in our Life/Health business in the United States, Germany and Korea. In addition, we recorded net cash outflows from financial assets designated at fair value through income, mainly in our Life/Health business in France and at Allianz SE. Net cash outflows for available-for-sale investments further increased. This stemmed primarily from our Life/Health operation in the United States and was only partially offset by our Banking opera- tion in Italy and Allianz SE. Net cash outflow used in financing activities increased by € 1.8 bN to € 3.2 bN in 2014. Net cash outflows from liabilities to banks and customers (after net cash inflows in 2013) contributed to this devel- opment and were mainly attributable to our Banking operations in Italy and Germany. We also recorded higher dividend payments to our shareholders. Higher net cash inflows from our refinancing activi- ties1 partly offset these effects. Cash and cash equivalents grew by € 2.7 bN to € 13.9 bN as of 31 December 2014. This mainly stemmed from our insurance opera- tions in the United States and Allianz SE. 2013 2014 1 Includes effects of exchange rate changes on cash and cash equivalents of € 541 Mn and € (232) Mn in 2014 and 2013, respectively. 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 2014 6,657 397 184 6,625 13,863 2013 6,574 449 202 3,982 11,207 Net cash flow provided by operating activities increased by € 9.0 bN to € 32.2 bN in 2014. This consists of net income plus adjustments for non-cash charges, credits and other items included in net earnings and cash flows related to the net change in operating assets and lia- bilities. Net income after adding back non-cash charges and similar items rose by € 2.1 bN to € 10.9 bN in 2014. To a large extent this was driven by higher valuation results on our assets and liabilities held for trading. Operating cash flows from net changes in operating assets and liabilities, including other items, grew by € 6.9 bN to € 21.3 bN. This was largely due to higher reserves for insurance and investment contracts in our Life/Health business, mainly in the United States, Germany and Italy. We also recorded higher reserves for losses and loss adjustment expenses, in particular in our Property-Casualty busi- ness in the United States, Switzerland, Germany and Australia. Nega- tive net changes from our operating receivables/payables partially offset these effects. 120 Annual Report 2014 Allianz Group 1 Refers to cash flows from certified liabilities and subordinated liabilities. C Group Management Report Management Discussion and Analysis Business Environment 79 81 Executive Summary of 2014 Results 86 Property-Casualty Insurance Operations 92 Life/Health Insurance Operations 99 Asset Management 102 Corporate and Other 104 Outlook 2015 109 Balance Sheet Review 116 Liquidity and Funding Resources 121 Reconciliations 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). % 2014 Property-Casualty Life/Health Asset Management Corporate and Other Allianz Group 2013 2014 2013 48,322 46,579 Property-Casualty Life/Health 67,331 56,784 Asset Management Corporate and Other 6,388 7,162 Allianz Group Internal growth Changes in scope of consolidation Foreign currency translation Nominal growth 3.0 19.5 (8.5) (2.2) 10.6 (0.3) 9.1 8.5 (6.7) 4.7 2.1 (0.4) (2.5) 3.2 0.5 2.0 0.5 (0.1) 0.0 1.1 (1.4) (0.3) 0.0 0.0 (0.8) (2.3) (1.1) (2.9) 0.0 (1.7) 3.7 18.6 (10.8) 1.0 10.4 (0.7) 8.5 5.5 (6.7) 4.1 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 Net interest income1 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, excluding interest expenses from external debt Fee and commission expenses Consolidation effects (Banking within Corporate and Other) Consolidation Allianz Group total revenues 1 Represents interest and similar income less interest expenses. 6,380 (3) 5 6 556 590 10 513 (255) (305) 3 (344) 122,253 7,127 12 12 10 551 613 8 475 (281) (263) (2) (302) 110,773 Annual Report 2014 Allianz Group 121 Life/Health Insurance Operations statutory premiums The objective of the Life/Health operating profit sources analysis is to explain movements in IFRS results by analyzing underlying drivers of performance on a Life/Health business segment consolidated basis. Loadings & fees includes premium and reserve-based fees, unit- linked management fees and policyholder participation on expenses. operating profit The reconciling item scope comprises the effects from out-of-scope entities in the profit sources reporting compilation. Operating profit from operating entities that are not in-scope entities is included in the investment margin. Currently, 19 entities comprising 97.3 % of Life/Health total statutory premiums are in-scope. Expenses Expenses comprise acquisition expenses and commissions as well as administrative and other expenses. The delta shown as definitions in acquisition expenses and com- missions represents commission clawbacks, which are allocated to the technical margin. The delta shown as definitions in administra- tive and other expenses mainly represents restructuring charges, which are presented in a separate line item in the group income statement. aCquisition, administrative, Commissions and other expenses € mn URR capitalized: Capitalization amount of unearned revenue reserves (URR) and deferred profit liabilities (DPL) for FAS 97 LP. URR amortized: Total amount of URR amortized includes sched- uled URR amortization, true-up and unlocking. Both capitalization and amortization is included in the line item premiums earned (net) in the group income statement. Policyholder participation is included within change in reserves for insurance and investment contracts (net) in the group income statement. Capitalization and amortization of daC € mn Capitalization of daC (as per md&a) Definition: urr capitalized Definition: policyholder participation1 Scope Capitalization of DAC (as per Notes) Amortization, unlocking and true-up of daC (as per md&a) Definition: urr amortized Definition: policyholder participation1 Scope 2014 1,937 456 908 200 3,502 (1,513) 13 (1,033) (115) 2013 1,596 377 822 186 2,980 (1,519) (174) (777) (101) Amortization, unlocking and true-up of DAC (as per Notes) (2,648) (2,571) 1 For German Speaking Countries, policyholder participation on revaluation of DAC/URR capitalization/ amortization. 2014 2013 (4,833) 28 (398) (4,233) 35 (393) (5,203) (4,591) reConCiliation to notes € mn Acquisition expenses and commissions (as per md&a) Administrative and other expenses (as per md&a) (1,577) 115 (150) 14 (1,519) 158 (135) Capitalization of daC (as per md&a) Amortization, unlocking and true-up of daC (as per md&a) Acquisitions and administrative expenses 8 Definitions Scope (1,599) (1,487) Commissions and profit received on reinsurance business ceded Administrative expenses on reinsurance business ceded Acquisitions and administrative expenses (net) (as per Notes)1 2014 2013 (4,833) (1,577) 1,937 (1,513) (5,985) 488 (464) 88 14 (4,233) (1,519) 1,596 (1,519) (5,675) 440 (443) 67 8 (5,860) (5,603) 1 Excluding one-off effect from pension revaluation. For further details, please refer to note 6 to the con- solidated financial statements. Acquisition expenses and commissions (as per Management Discussion and Analysis (md&a)) Definitions Scope Acquisition costs incurred and commissions (as per Notes) Administrative and other expenses (as per md&a) Definitions Scope Administrative expenses on reinsurance business ceded Administrative and other expenses (net) (as per Notes)1 1 Excluding one-off effect from pension revaluation. For further details, please refer to note 6 to the con- solidated financial statements. Impact of change in Deferred Acquisition Costs (daC) Impact of change in DAC includes effects of change in DAC, unearned revenue reserves (URR) and value of business acquired (VOBA) and is the net impact of the deferral and amortization of acquisition costs and front-end loadings on operating profit. 122 Annual Report 2014 Allianz Group C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 123 144 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 and maRket enviRonment The Allianz Group is exposed to a variety of risks through its core insurance and asset management activities. These include market, credit, insurance, operational, business and strategic risks. The three largest risks in terms of their contribution to Allianz’s risk profile are: − Market risk, especially interest rate risk due to the duration mismatch between assets and liabilities for long-term savings products as well as equity risk, which we take to participate from the expected risk premium; − Credit and credit spread risk driven by assets backing long-term savings products; − Property-Casualty premium and reserve risk, resulting from natural and man-made catastrophes as well as from claims uncertainty. Allianz’s risk profile is driven by our strategic risk appetite and steered by the risk management practices and limits which are described later in this report. The risk profile and relative contribu- tions have changed in 2014 due to changes in the market environ- ment and due to model changes necessary to enhance our model to provide a basis for our internal model application for Solvency II pur- poses. These Solvency II-driven model changes reflect our current understanding of forthcoming requirements which are described in the section on model changes. In the following paragraphs we provide an overview of major developments and risks that may affect Allianz’s portfolio. Financial markets and operating environment Many countries within the Eurozone currently face weak economic growth and low inflation rates. The economic malaise is being addressed by the ECB through its expansive monetary policy. As a result, financial markets are characterized by historically low interest rates and risk premia, prompting investors to look for higher yielding (and potentially higher risk) investments. In addition to sustained low interest rates, the weakening of the Eurozone’s growth momen- tum, the challenges of implementing long-term structural reforms in key Eurozone countries and the uncertainty about the future path of monetary policy may lead in the future to higher market volatility accompanied by a flight to quality and a scenario with falling equity and bond prices due to rising spread levels accompanied by even lower interest rates. Rising geopolitical risks The increase in geopolitical risks during 2014, including the conflicts in the Middle East as well as between Russia and Ukraine – and the resulting international sanctions against Russia, are manageable for Allianz Group because our direct exposure to these regions remains relatively small in the context of our overall portfolio. Nevertheless, we are monitoring these developments since a significant deteriora- tion – for example an escalating conflict between the West and Rus- sia – may lead to spill-over effects on the global financial markets, triggering indirect effects which may have a negative impact on our business and risk profile. Over the past years Allianz Group and its operating entities have developed operational contingency plans for various crisis scenarios and continue to conduct scenario analysis on a regular basis to bolster our financial and operational resilience to strong shock scenarios. In addition, we continue to optimize our product design and pricing in the Life/Health business segment with respect to guarantees and sur- render conditions. Continuous monitoring as well as prudent risk positions and contingency planning remain priorities for our man- agement. Regulatory developments In March 2014, the European Parliament approved the Solvency II “Omnibus II” directive, allowing the new risk-based solvency frame- work for the E.U. to proceed with a planned introduction date of Janu- ary 2016. Although a new version of the European Commission’s draft for the delegated regulation of Solvency II was published in October 2014, some of the important final requirements remain unclear. This situation creates some uncertainty with respect to Allianz’s ultimate Solvency II capital requirements, especially under the application of our internal model in case the final rules deviate from our current understanding of these rules. Annual Report 2014 Allianz Group 123 In addition to Solvency II uncertainty, the future capital require- ments applicable for Global Systemically Important Insurers (so- called G-SIIs) are also unclear, contributing to uncertainty in terms of the ultimate capital requirements for Allianz. Finally, the potential for a multiplicity of different regulatory regimes, capital standards and reporting requirements will increase operational complexity and costs. In any case, due to the market value balance sheet approach, the Solvency II regime will lead to higher volatility in solvency ratios com- pared to Solvency I. management assessment The Allianz Group’s management feels comfortable with the Group’s overall risk profile and has confidence in the effectiveness of its risk management framework to meet the challenges of a rapidly changing environment as well as day-to-day business needs. This confidence is based on several factors, which are outlined in more detail in the sections that follow and are summarized here: − The Allianz Group is well capitalized and met its internal-, rating agency- and regulatory-solvency targets as of 31 December 2014. Allianz is also confident that it will meet the capital require- ments under the new regulatory regimes and will apply for approval of an internal model in early 2015. Allianz remains one of the highest-rated insurance groups in the world, as reflected by our external rating agencies. − 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 businesses and products. Capitalization For the benefit of shareholders and policyholders alike, Allianz’s aim is to ensure that the Group is adequately capitalized at all times and that all operating entities meet their respective regulatory capital requirements. Furthermore, risk capital and cost of capital are important aspects for business decisions. Our risk capital model reflecting our internal risk profile plays a significant role in the management of capital across the Group. In addition, we take into account the external requirements of regula- tors and rating agencies. While capital requirements imposed by regulators constitute a binding constraint, meeting rating agencies’ capital requirements and maintaining strong credit ratings are stra- tegic business objectives of the Allianz Group. We closely monitor the capital position of the Group and operat- ing entities along each of these dimensions and apply regular stress tests based on standard adverse scenarios. This allows us to take appropriate measures to ensure our continued capital and solvency strength. Due to our effective capital management, the Allianz Group is well capitalized and met its internal-, rating agency- and regulatory -solvency targets as of 31 December 2014. 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 requirements on a consolidated basis, which we refer to as “eligible capital”. Currently, the requirements for our insurance business are based on Solvency I. These capital requirements, as well as the defini- tion and calculation of eligible capital, will be replaced by the Sol- vency II rules once the new regulation becomes binding in January 2016. Allianz expects to be well capitalized also under these future regulatory requirements. conglomeRate solvency1 € Bn as of 31 December Eligible capital Requirement Solvency ratio 2014 49.8 27.6 181 % 2013 46.5 25.6 182 % 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 % as of 31 December 2013 and additionally adjusted by € 0.4 bn for the potential calls of hybrid capital (subordinated bonds) in 2015, 172 % as of 31 December 2014. The conglomerate solvency ratio decreased slightly by one percentage point.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. In November 2014, Moody’s 1 For further details on changes in eligible capital and solvency requirement, please refer to Balance Sheet Review from page 109. 124 Annual Report 2014 Allianz Group C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 123 144 Controls over Financial Reporting and Risk Capital affirmed the Allianz Group’s “Aa3” rating and revised the outlook from “negative” to “stable”, recognizing our capital strength and diverse business profile. Standard & Poor’s reconfirmed the "AA" rating. The Allianz Group has one of the highest ratings amongst its peers. The following table provides the ratings of the Allianz Group awarded by major rating agencies. economic principle of Solvency II rules.1 Our objective is to maintain available capital at the Group level that is significantly above the minimum indicated requirements. Our Solvency ratio based on these requirements is shown in the following table. Note, for 2014 our U.S. based life business, Allianz Life of North America (AZ Life), is included on the basis of third country equivalence treatment2. Ratings of allianz gRoup allianz gRoup: solvency ii RegulatoRy capitalization Ratings1 Insurer financial strength rating Counterparty credit rating Commercial paper (short-term) rating 2014 2013 2014 2013 2014 2013 A–1+ AA Stable outlook A–1+ (affirmed December 2014) Aa3 Negative outlook2 Prime –1 (affirmed November 2014) Prime –1 aa– Not rated Not rated Standard & Poor’s Moody’s A.M. Best AA Stable outlook (affirmed December 2014) Aa3 Stable outlook (affirmed November 2014) A+ Stable outlook (affirmed August 2014) AA Stable outlook Aa3 Negative outlook A+ AA Stable outlook (affirmed December 2014) Aa3 Stable outlook (outlook changed March 2014)2 aa– Stable outlook3 (affirmed August 2014) 1 2 3 Includes ratings for securities issued by Allianz Finance II b.V. and Allianz Finance Corporation. Rating reflects Senior unsecured debt. Issuer Credit rating. As part of the long-term financial strength rating, Standard & Poor’s has a rating for “Enterprise Risk Management” (ERM). Since 2013 Stan- dard & Poor’s has assigned Allianz its highest possible rating – “very strong” – for the ERM capabilities of our insurance operations. This indicates that Standard & Poor’s regards it as “unlikely that Allianz Group will experience major losses outside its risk tolerance”. Stan- dard & Poor’s stated that the assessment is based on Allianz’s strong risk management culture, strong controls for the majority of key risks and strong strategic risk management. In addition, Standard & Poor’s reviewed our internal capital model initially in 2012 and since then on an annual basis. Based on this review Standard & Poor’s has given further credit to the capital position of the Allianz Group since the fourth quarter of 2012 by taking our internal model results into account when determining the capital requirements in order to meet specific rating classes. solvency ii RegulatoRy capitalization The Allianz Group’s own funds as well as the capital requirements are based on the market value balance sheet approach as the major € Bn as of 31 December Own funds Capital requirement Capitalization ratio 2014 66.0 34.6 191 % 2013 52.4 23.6 222 % Our Solvency II capitalization decreased by 31 percentage points to 191 %, which was driven by an increase in risk capital partly compen- sated by an increase in own funds. This change was driven by two effects, model changes to reflect our current understanding of the forthcoming Solvency II rules and financial market movements. Impacts of model changes on our internal risk profile are presented in the section “Internal model updates in 2014”. Model changes also had a positive impact on own funds which were mainly driven by changes in transferability restrictions, the treatment of surplus funds in Germany, the third country equivalence treatment of AZ Life as well as actuarial model changes, including the adoption of the volatility adjustment in the Solvency II valuation yield curve. With regards to financial markets-driven movements, in particu- lar the decrease in interest rates affected the value and sensitivities of options and guarantees in our traditional life business. In addition, decreasing spreads increased our exposure to credit and credit spread-sensitive investments and rising equity markets outside the Eurozone, as well as a weakened Euro, led to higher exposures to equity risk, which also contributed to higher capital requirements. The following table summarizes our disclosed Solvency II regula- tory capitalization ratios over the course of the year 2014. allianz gRoup: solvency ii RegulatoRy capitalization Ratios % 31 De- cember 2014 30 Sep- tember 2014 30 June 2014 31 March 2014 1 January 2014 31 De- cember 2013 model update Capitalization ratio 191 202 205 203 194 222 1 2 Own funds and capital requirement are calculated under consideration of volatility adjustment and yield curve extension as described in Yield curve and volatility adjustment assumptions on page 127. Third country equivalence treatment for AZ Life means that the entity is included at Group level with 100 % of its local statutory capital requirement and the local statutory available funds, overall benefiting the Solvency II ratio by +15 percentage points. Annual Report 2014 Allianz Group 125 The model update as per 1 January 2014 reflected our best estimate of forthcoming Solvency II rules and related model changes at the beginning of 2014. All subsequent quarterly disclosures were based on these model assumptions. Additional model changes implement- ed for the year-end 2014 reflect our current best estimate and under- standing of the forthcoming Solvency II rules. The following table presents the sensitivity of our predicted Sol- vency II capitalization ratio under certain standard financial sce- narios. These are defined by reasonably possible individual move- ments in key market parameters while keeping all other parameters constant with the effects impacting both the available capital and internal risk capital. allianz gRoup: solvency ii RegulatoRy capitalization Ratios1 % as of 31 December Base capitalization ratio Interest rate up by 0.5 %2 Interest rate down by 0.5 %2 Equity prices up by 30 % Equity prices down by 30 % Combined scenario: Interest rate down by 0.5 %2 Equity prices down by 30 % 2014 191 205 170 199 179 2013 222 228 202 232 210 158 191 1 2 AZ Life is included in 2014 on the basis of third country equivalence with 100 % of its local statutory capital requirement and the local statutory available funds taken into account at Group level. Non-parallel interest rate shifts due to extrapolation of the yield curve beyond the last liquid point in line with forthcoming Solvency II rules. The model used at the year-end 2014 will also be the basis for our internal model application under Solvency II. Nevertheless, any fur- ther regulatory guidance may still impact our future internal model results. In addition, the internal model still needs to be approved by regulatory authorities. inteRnal Risk pRofile The internal risk profile through the eyes of management includes AZ Life in the internal model calculation instead of applying third country equivalence. This is the only difference between the Solvency II figures and the internal risk profile reported here. By that we allow for a consistent risk steering across all major entities within the Allianz Group based on the same model as applied at Group level supplemented by economic business scenarios and sensitivities. This Risk and Opportunity Report outlines the Group’s risk fig- ures reflecting its internal risk profile based on pre-diversified risk figures and Group-diversification effects. Pre-diversified risk figures reflect the diversification effect within each modeled risk category (i.e. market, credit, underwriting, business and operational risk), but does not comprise the diversification effects across risk categories. Group-diversified risk figures also capture the diversification effect across all risk categories. As of 31 December 2014, the Group-diversified risk reflecting our internal risk profile before non-controlling interests of € 38.4 Bn (2013: € 29.6 Bn1) represented a diversification benefit2 of approximately 30 % (2013: 30 %1) across risk categories and business segments. The Group-diversified risk is broken down as follows: allianz gRoup: allocated Risk accoRding to inteRnal Risk pRofile (total poRtfolio BefoRe non-contRolling inteRests) € mn Market risk Credit risk Underwriting risk Business risk Operational risk Diversification Total as of 31 December 2014 20131 2014 20131 2014 20131 2014 20131 2014 20131 2014 20131 2014 20131 Property-Casualty Life/Health 6,120 5,388 18,569 14,098 Asset Management 521 621 Corporate and Other 2,891 2,591 2,374 7,817 128 699 2,067 5,589 152 555 9,619 1,626 – 65 8,811 1,063 – 94 917 909 4,404 3,630 – – – – 1,797 2,035 668 645 1,833 (7,246) (6,729) 13,582 12,278 1,975 (10,161) (7,651) 24,291 18,703 586 679 – – (883) (829) 1,317 3,417 1,359 3,090 Total Group 28,102 22,698 11,018 8,363 11,311 9,967 5,321 4,538 5,146 5,073 (18,291) (15,209) 42,607 35,430 Tax Total Group (4,180) (5,820) 38,427 29,610 1 2013 risk profile figures recalculated based on model changes in 2014 as described in Internal model updates in 2014 from page 129. Detailed discussions of movements in respective risks are provided in the sections that follow. 126 Annual Report 2014 Allianz Group 1 2 2013 risk profile figures recalculated based on model changes in 2014 as described in Internal model updates in 2014 from page 129. Diversification before tax. C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 123 144 Controls over Financial Reporting and Risk Capital Internal risk capital framework We define internal risk capital as the capital required to protect us against unexpected, extreme economic losses, which forms the basis for determining our Solvency II regulatory capitalization and our internal risk profile. On a quarterly basis, we calculate and aggregate internal risk capital across all business segments based on a com- mon standard for measuring and comparing risks across the wide range of different activities that we undertake as an integrated finan- cial services provider. geneRal appRoach We utilize an internal risk capital model for the management of our risk profile and solvency position, reflecting our current understand- ing of the forthcoming Solvency II rules. Our model is based on a best practice technical platform with an up-to-date methodology cover- ing all modeled sources of quantifiable risks. 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 risk events from all modeled risk categories (“sources of risk”) and calculate the portfolio value based on the net fair value of assets and liabilities under potentially adverse conditions. The internal risk capital is defined as the difference between the current portfolio value and the portfolio value under adverse condi- tions dependent on the 99.5 % confidence level. Because we consider the impact of a negative or positive event on all sources of risks and covered businesses at the same time, diversification effects across products and regions are taken into account. The results of our Monte Carlo simulation allow us to analyze our exposure to each source of risk, both separately and in aggregate. In addition, in particular for market risks, we analyze several pre-defined stress scenarios either based on historically observed market movements or on hypothetical market movement assumptions. This modeling approach, therefore, also enables us to identify scenarios that have a positive impact on our solvency situation. Yield curve and volatility adjustment 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 their discounting. We apply the methodology provided by the European Insurance and Occupational Pensions Authority (EIOPA) based on the insurance stress test for 2014 for the extension of the risk-free interest rate curves beyond the last liquid tenor. In addition, we adjust the risk-free yield curves by a volatility adjustment for all business segments except unit-linked business. This is done to better reflect the underlying economics of our business as the cash flows of our insurance liabilities are, to a large degree, predictable. 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. Being a long-term investor mitigates to a great extent the risk of forced sell- ing at a loss of debt instruments prior to maturity. Therefore, we reflect this mitigation in our model using a volatility adjustment spread risk offset and view the more relevant risk to be default and migration risk rather than credit spread risk. Valuation assumption: replicating portfolios Since efficient valuation and complex, timely analysis is required, we replicate the liabilities of our Life/Health insurance business. This technique enables us to represent all options and guarantees, both contractual and discretionary, by means of standard financial instru- ments. In the risk calculation we use the replicating portfolio to determine and revalue these liabilities under all potentially adverse Monte Carlo scenarios. Diversification and correlation assumptions Our internal risk capital model considers concentration, accumula- tion and correlation effects when aggregating results at Group level. This reflects the fact that not all potential worst-case losses are likely to materialize at the same time. This effect is known as 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 and the joint movement of sources of risk. Where possible, we derive correlation parameters for each pair of market risks through statistical analysis of historical market data, considering quarterly observations over several years. In case his- torical market data or other portfolio-specific observations are insuf- ficient 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 Annual Report 2014 Allianz Group 127 risk and business experts. In general, we set the correlation param- eters to represent the joint movement of risks under adverse condi- tions. Based on these correlations, we use an industry-standard approach, the Gaussian copula approach, to determine the depen- dency structure of quantifiable sources of risk within the applied Monte Carlo simulation. Actuarial assumptions Our internal risk capital model also includes assumptions on claims trends, liability inflation, mortality, longevity, morbidity, policyholder behavior, expense, etc. We use our own internal historical data for actuarial assumptions wherever possible and also consider recom- mendations from the insurance industry, supervisory authorities and actuarial associations. The derivation of our actuarial assump- tions is based on generally accepted actuarial methods. Within our internal risk capital and financial reporting framework, comprehen- sive processes and controls exist for ensuring the reliability of these assumptions.1 scope By design, our internal risk capital model takes into account the fol- lowing risk categories: market risk, credit risk, underwriting risk, business risk and operational risk whenever these risks are present. A further breakdown of the risk categories can be found in the section on internal risk assessment. With the exception of the Asset Manage- ment business segment, all business segments are exposed to the full range of stated risk categories. By contrast, the Asset Manage- ment business segment is mainly exposed to market, credit and operational risk. Coverage of the internal risk capital model Allianz’s internal risk capital model covers all major insurance oper- ations2. This includes the relevant assets (including bonds, loans, mortgages, investment funds, equities and real estate) and liabilities (including the cash flow run-off profile of all technical reserves as well as deposits, issued debt and other liabilities). For with-profit products in the Life/Health business segment, options and guaran- tees embedded in insurance contracts – including policyholder par- ticipation rules – are taken into account.3 At Group level, the capital requirements for smaller insurance operating entities outside the European Economic Area that have only an immaterial impact on the Group’s risk profile are treated with book value deduction. 1 2 3 For additional information regarding our internal controls over financial reporting, please refer to Controls over Financial Reporting and Risk Capital from page 144. As mentioned under Solvency II capitalization and internal risk profile, AZ Life is taken into account by means of third country equivalence into the Group capitalization, but included based on the internal risk capital model for the reporting of the internal risk profile. For further information about participating life business, please refer to note 20 to the consolidated financial statements. Risk capital related to our European banking operations is allo- cated to the Corporate and Other business segment based on the approach applied by banks under the local requirements with respect to the Basel regulation (Basel standards). Capital requirements for banks represent an insignificant amount of approximately 1.4 % (2013: 1.4 %4) of our total pre-diversified internal risk. Therefore, risk management with respect to banking operations is not discussed in more detail. For our Asset Management business segment we assign internal risk capital requirements based on the sectorial regulatory capital requirements as envisaged in Solvency II. Asset Management busi- ness is mainly affected by operational risks. However, since most of our Asset Management business is not located within the Eurozone, at the Group level it also bears foreign exchange rate risk. Our Asset Management business is covered by adequate risk controlling pro- cesses including regular reporting and qualitative risk assessments (such as Top Risk Assessment) to the Group. However, since it is mainly affected by the previously mentioned two risk types (opera- tional and foreign exchange rate), and due to the fact that the impact on total pre-diversified internal risk capital is minor, risk manage- ment with respect to Asset Management is not discussed in more detail. 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 statistically a 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 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 analysis with stress testing. Our ability to back-test the model’s accu- racy is limited because of the high confidence level of 99.5 %, the one- year holding period as well as limited data for some insurance risk events – such as natural catastrophes – being available. Furthermore, as historical data is used where possible to cali- brate the model, historical data 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. To ensure proper valida- tion we established an Independent Validation Unit (IVU) within Group Risk responsible for validating our internal model within a 4 2013 risk profile figures recalculated based on model changes in 2014 as described in Internal model updates in 2014 from page 129. 128 Annual Report 2014 Allianz Group C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 123 144 Controls over Financial Reporting and Risk Capital comprehensive model validation process. Overall, we trust that our validation efforts are effective and that our model adequately assesses the risks to which we are exposed. As described in a previous section, insurance liability values in the risk calculation are derived from replicating portfolios of stan- dard financial market instruments in order to allow for effective risk management. This replication is subject to the set of available repli- cating instruments and might, therefore, be too simple or too restric- tive to capture all factors affecting the change in value of liabilities. As with other model components, the replications are subject to inde- pendent validation and to suitability assessments as well as to strin- gent data and process quality controls. Therefore, we believe that the liabilities are adequately represented by the replicating portfolios. Since the internal risk capital model takes into account the change in the economic fair value of our assets and liabilities, it is crucial to accurately estimate the market value of each item. For some assets and liabilities it may be difficult, if not impossible – notably in distressed financial markets – to obtain either a current market price or to apply a meaningful mark-to-market approach. For such assets we apply a mark-to-model approach. Non-standardized derivative instruments – such as derivatives embedded in structured financial products – are represented by the most comparable standard deriva- tive types or by means of sensitivities, because the volume of non- standard instruments is not material at either the local or Group level. For some of our liabilities, the accuracy of fair values depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed. inteRnal model updates in 2014 In 2014, we updated our internal model in order to incorporate Allianz’s current understanding of the forthcoming Solvency II rules. The model updates are mainly driven by regulatory developments as well as feedback that Allianz received during the ongoing consulta- tions with regulators and supervisors in the internal model pre- approval process. As described above, due to ongoing regulatory developments and supervisory feedback throughout 2014, we imple- mented model changes at different points in time, i.e. at the begin- ning of the year and at year-end. For the sake of clarity, however, all model changes are presented jointly within this section. Although we cannot rule out any late changes to the Solvency II rules, the updated model used for the year-end 2014 reporting will be the basis for our Solvency II internal model application in 2015. In this section we provide an overview of these model changes and the resulting changes on our internal risk profile based on the year-end 2013 data under the updated model. In all subsequent sec- tions the figures after the model change will form the basis for the movement analysis of our internal risk profile in 2014. allianz gRoup: allocated Risk accoRding to inteRnal Risk pRofile (total poRtfolio BefoRe non-contRolling inteRests) € mn Market risk Credit risk Underwriting risk Business risk Operational risk Diversification Total as of 31 December 20131 20132 20131 20132 20131 20132 20131 20132 20131 20132 20131 20132 20131 20132 Property-Casualty Life/Health Asset Management 3,669 5,388 11,653 14,098 685 621 Corporate and Other 1,987 2,591 1,881 3,590 169 277 2,067 5,589 152 555 9,627 801 – 191 8,811 1,063 – 94 992 909 1,268 1,833 (6,437) (6,729) 11,000 12,278 3,743 3,630 – – – – 917 586 385 1,975 (6,447) (7,651) 14,258 18,703 586 679 (2) – (532) (829) 1,439 2,308 1,359 3,090 Total Group 17,994 22,698 5,918 8,363 10,620 9,967 4,735 4,538 3,155 5,073 (13,418) (15,209) 29,004 35,430 Tax (5,367) (5,820) Total Group 23,637 29,610 1 2 2013 risk profile figures as reported previously. 2013 risk profile figures recalculated based on new model. The model changes focused mostly on the following risk categories: Market risk The market risk correlation settings were updated to reflect higher systemic risk across financial markets in adverse market scenarios. Furthermore, we enhanced our interest rate modeling to better reflect the risk profile of Allianz’s traditional Life/Health business under the current low yield environment. In addition, we introduced the modeling of the volatility adjustment to mitigate credit spread risk in line with updated regulatory guidance. We also included inter- nal pension obligations into our Solvency II framework, following regulatory guidance, and changed the modeling of the surplus funds in Germany. Finally, we enhanced the modeling of inflation risk and introduced it as a separate risk type – mainly reflecting the risk arising from property, casualty and health liabilities as well as inflation risk in Allianz’s internal pension obligations. Annual Report 2014 Allianz Group 129 The model changes increased market risk overall by € 4.7 Bn to € 22.7 Bn on a pre-diversified basis. This resulted in a number of sig- nificant changes in the market risk types. The newly introduced risk type of inflation risk contributed € 3.4 Bn. Equity risk increased by € 2.1 Bn, mainly due to changed correlations to reflect systemic behavior, due to the modeling of internal pension obligations and due to a refinement of hedge models for variable annuity business. Credit spread risk increased due to the correlation update better reflecting systemic market events. However, the increase was par- tially offset by the introduction of the volatility adjuster-based spread risk offset (net impact: an increase of € 0.7 Bn to € 5.1 Bn). Finally, interest rate risk decreased by € 0.9 Bn, predominantly driven by increased diversification with the newly modeled inflation risk as well as due to updated correlations. The decrease in interest rate risk was partly offset by the modeling of internal pension obligations. Credit risk The treatment of sovereign exposures has been revised to include capital requirements for sovereigns in the same way as for corpo- rates. However, in accordance with European Insurance and Occupa- tional Pensions Authority’s (EIOPA) advice on Solvency II implementa- tion measures, domestically held exposures towards European Economic Area sovereigns issued in their own currency are treated favorably. This model change led to an increase in Allianz’s credit risk of € 2.0 Bn. Further changes are a new methodology for setting cor- relation and valuation parameters. These changes improve the gran- ularity of the model in order to meet regulatory requirements. In total, credit risk increased on a pre-diversified basis by € 2.4 Bn to € 8.4 Bn – mainly driven by the changed treatment of sovereigns. Underwriting risk The increase in underwriting risk in the Life/Health business seg- ment is mainly due to the inclusion of internal pension obligations, which led to an increase in longevity risk as well as a change in the methodology for longevity stress calibration. The decrease in the Property-Casualty business segment was mainly due to a reduced reserve risk. This was mainly driven by a changed modeling approach of Group health and protection business using life techniques. Operational risk In order to increase consistency across the Group, the risk granular- ity level has been changed to reflect standards in line with Basel II, which has a negative impact on diversification within the operation- al risk model. Moreover, to be in line with historical experience and to meet regulatory expectations, conservative assumptions regarding loss severity distributions were introduced centrally. These changes led to an overall increase in operational risk of € 1.9 Bn to € 5.1 Bn. 130 Annual Report 2014 Allianz Group Treatment of smaller insurance entities In addition, we applied a book value deduction treatment for smaller insurance entities resulting in a decrease in risk figures of € 2.0 Bn, mostly affecting market risk (with a decrease of € 1.1 Bn), underwrit- ing risk (with a decrease of € 0.5 Bn) and credit risk (with a decrease of € 0.3 Bn). Internal risk assessment Risk pRofile and Risk management 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 is a key element in managing our risks efficiently by limiting the eco- nomic impact of any single event and by contributing to relatively stable results and our risk profile in general. Therefore, our aim is to maintain a balanced risk profile without any disproportionately large risk concentrations and accumulations. With respect to investments, top-down indicators such as stra- tegic asset allocations are defined and closely monitored to ensure balanced investment portfolios. Furthermore, we have a limit system in place which is defined at Group level separately for the Life/Health and the Property-Casualty business segments as well as at operating entity level. The limits comprise economic limits, in particular finan- cial VaR and credit VaR as derived from the internal model framework, complemented by stand-alone interest rate and equity sensitivity limits as well as by limits on foreign exchange exposures. Our limit-setting process ensures that prevailing statutory restrictions regarding the composition of investments are taken into account. Most statutory restrictions apply at the local level, where the statutory restrictions as binding constraints enter the limit setting processes. In addition, guidelines are derived by the Group centers for certain investments, for example concerning the use of derivatives, and compliance with the guidelines is controlled by the respective risk and controlling functions. In order to further limit the impact of any financial market changes and to ensure that assets adequately back policyholder lia- bilities, we have additional measures in place. One of these is asset/ liability management linked to the internal model framework incor- porating risks as well as return aspects stemming from our insur- ance obligations. In addition, we are using derivatives mostly to either hedge our portfolio against adverse market movements or to reduce our reinvestment risk – for example by using forwards or swaptions. 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 1 For further information about the risk concentration in the Life/Health business segment, please refer to note 20 to the consolidated financial statements. C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 123 144 Controls over Financial Reporting and Risk Capital from investments is also an element applied to manage and limit risks efficiently. For example, protective puts are used to limit the downward exposure of certain investments1. We also closely monitor concentrations and accumulation of non-market risks already on a stand-alone basis (i.e. before diversifi- cation effects) within a global limit framework in order to avoid sub- stantial losses from single events such as natural catastrophes, terror or credit events. In order to manage counterparty concentration risk, we run a Group-wide country and obligor group limit management frame- work (CRisP2), which covers credit and equity exposures and is based on data used by the investment and risk experts at the Group and operating entity levels. This limit framework forms the basis for dis- cussions 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 concen- trations and limit utilizations are appropriately monitored and man- aged. 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. 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 Finance and Risk Committee 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. Risk Based steeRing Allianz steers its portfolio on a comprehensive view of risk and return, i.e. results based on the internal risk model including scenario-based analyses are used actively for decision making: on the one hand, eco- nomic risk and concentrations are actively restricted by means of limits as outlined above and on the other hand, there is a compre- hensive analysis of the return on risk capital (RoRC). The latter allows us to identify sustainably profitable lines of business and products, which provide reasonable profits on allocated risk capital over the life time of the products. Therefore, it is a key criterion for capital alloca- tion decisions. In 2014, Allianz also updated its dividend policy, increasing the payout ratio and defining explicit budgets for external growth and linking central elements of the dividend policy to the internal model capitalization according to Solvency II. This shows that the internal model is fully integrated in the business steering of Allianz and that the planned application of the internal model satisfies the so-called “use-test” under Solvency II. In the following sections we explain the evolution of the risk pro- file per modeled risk category. All risks are presented on a pre-diver- sified basis and concentrations of single sources of risk are discussed accordingly. quantifiaBle Risks 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. Thereby, the Allianz Group holds and uses many different financial instruments. The resulting investment portfolios back the future claims and benefits to our customers. In addition, we invest share- holders’ capital, which is required to support the risks underwritten. As the fair values of our investment portfolios depend on financial markets, which may change over time, we are exposed to market risks. The following table presents our Group-wide internal risk fig- ures related to market risks by business segment and source of risk. allianz gRoup: inteRnal Risk pRofile – maRket Risk 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 Inflation Credit spread Equity Real estate Currency Total 2014 497 2013 2014 2013 372 3,466 2,834 2014 574 2013 503 2014 929 2013 942 2014 596 2013 635 6,038 3,432 1 469 1 548 481 – 228 321 5,016 4,314 5,484 4,730 1,420 1,035 – 282 – 447 – 265 24 1,352 7,789 29 1,034 6,735 5 99 6 130 2,119 1,806 7,005 4,353 4,175 3,437 6,038 5,082 2014 2013 2014 2013 57 129 491 297 975 103 266 585 332 6,120 5,388 18,569 14,098 521 621 2,891 2,591 1,286 28,102 22,698 Share of total Group pre-diversified internal risk 46.2 % 44.8 % 1 2 For further information on derivatives used for hedging, please refer to note 43 to the consolidated financial statements. Credit Risk Platform. Annual Report 2014 Allianz Group 131 Our total pre-diversified market risk showed a strong increase, mainly driven by market movements. In particular, the decreasing interest rates in 2014, combined with an increase in implied interest rate volatilities, led to higher sensitivities of options and guarantees in our Life/Health business segment. In addition, the historically low interest rates also created significant cross effects to other risk types in the Life/Health business segment due to profit sharing mecha- nisms and by that also increasing respective risk, for example equity and spread risk. In addition, equity risk increased due to higher expo- sure resulting from increasing equity markets outside the Eurozone and a weakened Euro against almost all currencies. 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, because we have to reinvest maturing assets prior to the maturity of life contracts. This interaction of investment strategy and obligations to policyholders forms an integral part of our internal risk capital model. In addition, our asset/liability management approach is closely linked to the internal risk capital framework and designed to achieve investment returns over the long-term in excess of the obli- gations related to insurance and investment contracts. These risks are reflected in the internal risk profile and managed by interest rate sensitivity limits. A significant part of the Life/Health business segment’s pre-diversified interest rate risk lies in Western Europe – 80.9 % as of 31 December 2014 (2013: 81.3 %) – mainly to cover traditional life insurance 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 the Group level. As of 31 December 2014, our interest rate-sensitive investments excluding unit-linked business – amounting to a market value of € 509.9 Bn1 – would have gained € 33.7 Bn or lost € 37.0 Bn in value in case of interest rates changing by -100 and +100 basis points, respectively. As described above, the risk related to interest rates lies in the fact that in the long run yields that can be achieved by reinvesting may not be sufficient enough to cover the guaranteed rates. In con- trast, opportunities may materialize when interest rates increase. This may result in higher returns from reinvestments than the guar- anteed rates. Inflation risk As an insurance company we are exposed to changing inflation rates, predominantly due to our non-life insurance obligations. In addition, internal pension obligations contribute to our exposure to inflation. Since inflation increases both claims and costs, higher inflation rates will lead to greater liabilities. Inflation assumptions are already taken into account in our product development and pricing and the risk of changing inflation rates is incorporated in our internal model. As of 31 December 2014, inflation risk amounted to € 4.2 Bn, showing a change of € 0.7 Bn, mainly due to lower discount rates resulting in higher market values of inflation-sensitive liabilities and internal pension liabilities. Equity risk The Allianz Group’s insurance operating entities usually hold equity investments to diversify their portfolios and take advantage of expected long-term returns. Strategic asset allocation benchmarks and investment limits are used to manage and monitor these expo- sures. In addition, equity investments fall within the scope of CRisP to avoid a disproportionately large concentration of risk. As of 31 December 2014, our investments excluding unit-linked business that are sensitive to changing equity markets – amounting to a market value of € 38.9 Bn2 – would have lost € 10.2 Bn in value assuming equity markets declined by 30 %. Risks from changes in equity prices are normally associated with decreasing share prices and increasing equity price volatilities. As stock markets also might increase, opportunities may arise from equity investments. 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 application of the volatil- ity adjustment in our internal risk model to partially mitigate spread risk as described in the section on yield curve assumptions. 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. 1 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. 2 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. 132 Annual Report 2014 Allianz Group C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 123 144 Controls over Financial Reporting and Risk Capital Currency risk Based on our foreign exchange management limit framework, cur- rency risk is monitored and managed at the operating entity and Group level. As our operating entities are typically invested in assets of the same currency as their liabilities, the major part of foreign cur- rency 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. However, at the same time the capital requirements in Euro terms from the respective non-Euro entity also decrease, partially mitigating the total impact on the capitalization. Real estate risk Despite the risk of decreasing real estate values, real estate is a suit- able addition to our investment portfolio due to good diversification benefits as well as due to the contribution of relatively predictable cash-flows in the long-term. As of 31 December 2014, about 3.5 % (2013: 3.6 %) of the total pre-diversified risk was related to real estate exposures. Credit risk The Allianz Group monitors and manages credit risk exposures and concentrations to ensure it is able to meet policyholder obligations when they are due. This objective is supported by the internal credit risk model and the CRisP as described under the section on the risk profile. Group-wide credit data is collected following a centralized process and using standard obligor and obligor group mappings. Credit risk is measured as the potential economic loss in the value of our portfolio due to changes in the credit quality of our 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 counterparty risk and country risk. Counterparty risk arises from our fixed income investments, cash positions, derivatives, structured transactions, receivables from Allianz agents and other debtors – as well as rein- surance recoverables and credit insurance. Country risk exposure is calculated as cross-border exposure to all obligors domiciled abroad from the respective operating entities’ perspective. The internal credit risk capital model is a state-of-the-art tool which provides bottom-up analysis. The major drivers of credit risk for each instrument are exposure at default, ratings, seniority, col- lateral 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 mar- ket-implied ratings and the most recently available 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 segment. To reflect portfolio specific diversification effects, the loss profiles are calculated at different levels of the Allianz Group structure (pre-diversified). They are then fed into the overall internal risk capital model for further aggregation across sources of risk to derive Group-diversified internal credit risk. By managing our credit risk on the basis of our limit manage- ment and credit risk modeling frameworks, we have composed a well-diversified credit portfolio. Our long-term investment strategy to hold investments through the cycle to maturity enables us to keep our portfolio stable, even under adverse market conditions. It also gives us the opportunity to earn planned excess returns throughout the entire holding period of the investments. In our credit insurance business, proactive credit management offers opportunities to keep losses from single credit events below expected levels and therefore strongly supports writing business that contributes to a balanced Group credit portfolio. allianz gRoup: inteRnal Risk pRofile – allocated inteRnal cRedit Risk By Business segment (total poRtfolio BefoRe tax and non-contRolling inteRests) pre-diversified, € mn as of 31 December Property-Casualty Life/Health Asset Management Corporate and Other Total Group internal credit risk Share of total Group pre-diversified internal risk 2014 2,374 7,817 128 699 11,018 18.1 % 2013 2,067 5,589 152 555 8,363 16.5 % Throughout the year the credit environment was mostly stable. There were limited rating actions as the economic situation and outlook was already reflected in current rating levels compared to the eco- nomic disruptions of previous years. Credit risk for the Group increased – mainly due to the secondary effects of lower interest rates. Especially long dated assets in the Life/Health business seg- ment have gained significantly in value and, in turn, also loss poten- tial. Additionally, the lower interest rates reduced the loss-absorbing capacity of technical provisions in the traditional life business, which further increased the credit risk after policyholder participation. Finally, for the purpose of asset/liability management under the low yield environment the amount of long duration assets has grown, which contributed to the increase of credit risk, particularly in the Life/Health business segment. Annual Report 2014 Allianz Group 133 The following table displays the sensitivities of credit risk to certain scenarios: deterioration of credit quality measured by issuer rating1 downgrades and the decline of recovery rates in the event of a default (Loss-Given-Default, LGD). The sensitivities are calculated by applying each scenario to all exposures individually, but keeping all other parameters constant.2 allianz gRoup: impact of selected cRedit scenaRios on inteRnal cRedit Risk1 pre-diversified, € mn as of 31 December Base case Rating down by 1 notch Rating down by 2 notches lgd up by 10 % Total 2014 11,018 12,106 13,595 11,703 20132 8,363 9,483 11,075 9,036 1 2 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. 2013 risk profile figures recalculated based on model changes in 2014. The majority of Credit Risk and impact of sensitivity analysis can be allocated to long-term sovereign debt as well as senior unsecured bonds with lower investment grade borrowers. Credit risk – investment As of 31 December 2014, credit risk arising from the investment port- folio accounted for 92.7 % (2013: 91.0 %) of our total Group pre-diversi- fied internal credit risk. Credit Risk in the Life/Health business seg- ment 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.3 Allianz has a well-diversified portfolio of Exchange- and OTC traded derivatives that are used as part of an efficient exposure man- agement. The counterparty credit risk arising from derivatives is low, since the derivatives usage is governed by the Group-wide internal guidelines for collateralization of derivatives that stipulate master netting- and collateral-agreements with each counterparty and require high quality and liquid collateral. In addition, Allianz closely monitors the credit ratings of counterparties and exposure move- ments. Central clearing of certain classes of OTC-derivatives as required by the European Market Infrastructure Regulation (EMIR) and additional reporting duties will contribute to further reducing counterparty credit risk and operational risk at Allianz. The different components of Allianz credit risk exposure are As of 31 December 2014, the rating distribution of our fixed described in the table below: income portfolio was as follows: allianz components of cRedit Risk exposuRe investment poRtfolio Premiums collected from our customers and shareholders’ capital, which is required to support the risks under written, are invested to a great extent in fixed income instruments. These investment portfolios ultimately cover the future claims to our customers. However, for certain life insurance products, losses due to credit events can be shared with the policyholder, as described in the context of market risks. ReinsuRance poRtfolio Credit risk to external reinsurers appears when insurance risk exposures are transferred by us to external reinsurance companies to mitigate insurance risk. Potential losses can arise either due to non-recoverability of reinsurance receivables already present at the as-of date or default on benefits that are under reinsurance treaties in-force. cRedit insuRance poRtfolio Credit risk arises from potential claim payments on limits granted by Euler Hermes to its policyholders. Euler Hermes protects its policyholders (partially) from credit risk associated with short-term trade credits advanced to clients of the policyholder. If the client of the policyholder is unable to meet its payment obligations then Euler Hermes indemnifies the loss to the policyholder. 1 2 Credit risk 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. 3 Additionally, 2.4 % (2013: 3.5 %) of our total Group pre-diversified internal credit risk is allocated to receiv- ables and potential future exposure for derivatives and reinsurance. 134 Annual Report 2014 Allianz Group C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 123 144 Controls over Financial Reporting and Risk Capital Rating distRiBution of allianz gRoup’s fixed income poRtfolio1 – faiR value € 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 2014 51.8 84.0 15.5 50.9 2.7 0.8 – – – 0.1 3.4 2013 46.2 69.8 12.9 44.2 2.1 0.5 – – – – 2014 57.2 20.2 23.1 6.0 1.0 0.1 – – – – 2013 61.5 21.0 14.1 5.1 0.7 – – – – – 3.9 0.1 0.1 2014 1.1 10.3 45.6 72.8 7.2 3.2 0.1 0.1 0.1 0.4 4.3 2013 2014 2013 2.0 9.0 35.3 56.4 6.3 2.6 0.2 0.1 – 0.4 3.9 1.5 6.6 16.8 5.6 1.5 0.1 0.1 – – – 3.8 8.1 14.3 5.6 1.0 0.2 – – – – 0.2 32.4 0.1 33.1 2014 17.3 2013 13.8 2.4 2.0 0.7 0.1 0.1 – 0.2 0.1 – – 2.3 1.3 0.6 0.1 0.1 – 0.2 – – – 22.9 18.4 2014 2013 2014 2013 2014 2013 – 1.4 0.9 0.6 0.2 – – – – – 0.3 3.6 – 1.4 0.6 0.5 0.4 – – – – – 0.3 3.3 – 0.1 0.9 0.6 – – – – – – – 0.1 1.0 0.4 – – – – – – 1.7 3.3 1.4 2.9 128.8 125.2 104.8 137.2 12.7 4.3 0.3 0.3 0.1 0.5 10.0 127.4 111.7 79.5 112.8 10.7 3.4 0.3 0.3 – 0.4 9.6 524.3 456.1 209.3 179.6 107.6 102.5 145.1 116.3 1 In accordance with the Group Management Report stated figures include investments of Banking and Asset Management. Table excludes private loans. Credit risk – reinsurance As of 31 December 2014, 0.4 % (2013: 0.7 %) of our total Group pre-diver- sified internal credit risk was allocated to reinsurance exposures – of which 58.5 % (2013: 59.4 %) was related to reinsurance counterparties in the United States and Germany. A dedicated team selects our reinsurance partners focusing on companies with strong credit profiles. We may also require letters of credit, cash deposits or other financial measures to further mitigate our exposure to credit risk. As of 31 December 2014, 82.9 % (2013: 80.6 %) of the Allianz Group’s reinsurance recoverables were distributed among reinsurers that had been assigned at least an “A” rating by Standard & Poor’s or A.M. Best. As of 31 December 2014, non-rated reinsurance recoverables represented 15.7 % (2013: 17.9 %). Reinsur- ance recoverables without a Standard & Poor’s rating include expo- sures to brokers, companies in run-off and pools – where no rating is available. Credit risk – credit insurance Our credit insurance portfolio is modeled by Euler Hermes based on a proprietary model component, which is a local adaptation of the central internal credit risk module and is reviewed by Group Risk. The result is integrated in the Group’s internal credit risk to capture the concentration and diversification effects. As of 31 December 2014, 4.5 % (2013: 4.8 %) of our total Group pre-diversified internal credit risk was allocated to Euler Hermes credit insurance exposures. 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 rele- vant. The following table presents the pre-diversified internal risk calculated for underwriting risks stemming from our insurance.1 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 2014 0.03 6.06 4.35 0.17 – 1.97 12.59 2013 0.02 5.99 3.38 0.18 – 2.08 11.65 1 Represents gross exposure broken down by reinsurer. 1 2013 risk profile figures recalculated based on model changes in 2014. Annual Report 2014 Allianz Group 135 allianz gRoup: inteRnal Risk pRofile – allocated undeRwRiting Risk By Business segment and souRce of Risk (total poRtfolio BefoRe non-contRolling inteRests)1 pre-diversified, € mn Property-Casualty Life/Health Asset Management Corporate and Other Total Group Premium natural catastrophe Premium terror Premium non-catastrophe Reserve Biometric Total 2014 451 – – – 2013 535 – – – 451 535 2014 24 – – – 24 2013 2014 2013 2014 2013 22 4,349 3,627 4,679 4,564 – – – – – – – – – – – – – – – 2014 115 2013 63 1,626 1,062 – 65 – 94 2014 9,619 1,626 – 65 22 4,350 3,627 4,679 4,564 1,807 1,219 11,311 Share of total Group pre-diversified internal risk 18.6 % 2013 8,811 1,063 – 94 9,967 19.7 % 1 As risks are measured by an integrated approach on an economic basis, internal risk profile takes reinsur- ance effects into account. For biometric risk the main driver was longevity risk due to the inclu- sion of risks from internal pensions and due to decreased interest rates, which affect the risks for long-term products by increasing the cost of longevity subsidization. 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. 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.1 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 for the Allianz Group. pRopeRty-casualty loss Ratios1 foR the past ten yeaRs % 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Loss ratio 66.0 65.9 68.3 69.9 69.1 69.5 68.0 66.1 65.0 67.2 Loss ratio excluding natural catastrophes 65.1 63.0 66.6 65.5 65.9 68.4 66.3 64.1 64.4 64.3 1 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 1 Please refer to the section Property-Casualty Insurance Operations – Property-Casualty operations by reportable segments from page 90 for a regional breakdown of loss ratios over the past two years. 136 Annual Report 2014 Allianz Group 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. Excessive risks are mitigated by external reinsurance agreements. All these measures contribute to a limitation on risk accumulation. Natural disasters, such as earthquakes, storms and floods, represent a significant challenge for risk management due to their accumulation potential and occurrence volatility. In order to mea- sure such risks and better estimate the potential effects of natural disasters, we use special modeling techniques in which we combine portfolio data (such as the geographic distribution and characteristics of insured objects and their values) with simulated natural disaster scenarios to estimate the magnitude and frequency of potential losses. Where such stochastic models do not exist, we use determin- istic, scenario-based approaches to estimate potential losses. The top five perils contributing to the natural catastrophe risk as of December 2014 were: Europe windstorm, U.S. hurricane, Germany hail, Australia hail and California earthquake. Reserve risk We estimate and hold reserves for claims resulting from past events 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. C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 123 144 Controls over Financial Reporting and Risk Capital In general, our operating entities constantly monitor the devel- opment of reserves for insurance claims on a line of business level.1 In addition, the operating entities generally conduct annual reserve uncertainty analyses based on similar methods used for reserve risk calculations. The Allianz Group performs regular independent reviews of these analyses and Group representatives participate in the local reserve committees’ meetings. In the Life/Health business segment, policyholder behavior risks are risks related to the unpredictability and adverse behavior of policyholders in exercising their different contractual options: early termination of contracts, surrenders, partial withdrawals, renewals and annuity take-up options. Assumptions on policyholder behavior are set in line with accepted actuarial methods and are based on our own historical data, to the extent available. If data is not available, assumptions are based on industry data or expert judgment. Underwriting risk Life/Health Underwriting risks in our Life/Health operations (biometric risks) include mortality, disability, morbidity, and longevity risks. Mortality, disability, and morbidity risks are associated with the unexpected increase in the occurrence of death, disability or medical claims on our insurance products. Longevity risk is the risk that due to chang- ing biometric assumptions, the reserves covering life annuities and group pension products might not be sufficient. We measure these risks within our internal risk capital model by distinguishing between the different sub-components, whenever rel- evant 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 represent- ed 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. Due to effective product design and the diversity of our products, there were no significant concentrations of underwriting risks within our Life/Health business segment as of 31 December 2014.2 Life/Health underwriting risk arises from lower profitability than expected due to changes in actuarial parameters. As profitability calculations are based on several parameters – like historical loss information, assumptions on inflation or on mortality and morbidity – the realized parameters may differ from the ones used for calcula- tion. For example, higher inflation than that incorporated in the cal- culations may lead to a loss. However, deviations can also occur in the opposite direction and be beneficial and lead to additional profit. For example, a lower morbidity rate than expected will most likely result in lower claims. Business risk Business risks include cost risks and policyholder behavior risks and are mostly driven by the Life/Health business segment and to a lesser extent by the Property-Casualty business segment. Cost risks are associated with the risk that expenses incurred in administering policies are higher than expected or that new business volume decreases to a level that does not allow Allianz to absorb its fixed costs. 1 2 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. allianz gRoup: inteRnal Risk pRofile – allocated Business Risk 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 business risk Share of total Group pre-diversified internal risk 2014 917 4,404 – – 5,321 8.7 % 2013 909 3,630 – – 4,538 9.0 % For business risk in our Life/Health business segment the main drivers were the decreased interest rates – which affect the cost risk and the lapse risk due to discounting and effects from dynamic policyholder behavior assumptions. As for underwriting risks, a positive deviation from the under- lying 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 exter- nal events – including legal and compliance risk, but excluding losses from strategic and reputational risk. Allianz has developed a consistent Group-wide operational risk management framework that focuses on the early recognition and proactive management of operational risks in all first line of defense functions. The framework defines roles and responsibilities, risk pro- cesses and methods and has been implemented in our operating entities. Local risk managers as the second line of defense ensure this framework is implemented in their respective operating entity. They identify and evaluate relevant operational risks and control weak- nesses via a dialogue between the first line of defense and the risk function. Furthermore, operational risk events are collected in a cen- tral risk event database. In 2014, Allianz became a member of a global operating loss data consortium, which will start to operate in 2015. Annual Report 2014 Allianz Group 137 An analysis of the causes of losses exceeding € 1 Mn is carried out to provide comprehensive and timely information to senior manage- ment and to share with operating entities so they can implement measures aimed at avoiding or reducing future losses. The risks related to non-compliance or other misconduct are addressed via various dedicated compliance programs. Written poli- cies detail the Allianz Group’s approach towards the management of these areas of risk. The implementation and communication of those compliance programs are monitored by the Group Compliance func- tion at Allianz SE. In close cooperation with the Risk function of the Group, the risk-mitigating measures are taken and enforced by a global network of dedicated compliance functions throughout the Allianz Group. With respect to financial statements, our internal con- trol system is designed to mitigate operational risks.1 allianz gRoup: inteRnal Risk pRofile – allocated opeRational Risk 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 operational risk Share of total Group pre-diversified internal risk 2014 1,797 2,035 668 645 5,146 8.4 % 2013 1,833 1,975 586 679 5,073 10.0 % 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, its employees and its operating entities. Our Business Continuity and Crisis Management 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, business continuity and crisis activities are embedded in the company’s risk management processes. Allianz has launched a Cyber and Information Security program to better respond to current external developments and to further strengthen the internal control environment around related opera- tional risks. 1 For additional information regarding our internal control over financial reporting, please refer to Controls over Financial Reporting and Risk Capital from page 144. 138 Annual Report 2014 Allianz Group 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, assessment, monitoring and steering. In general, the risk assessment is based on qualitative criteria or scenario analyses. The most impor- tant of these other risks are strategic, liquidity and reputational risk. Strategic risk Strategic risk is the risk of an unexpected negative change in the company’s value arising from the adverse effect of management decisions 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 market requirements, regulatory conditions, etc. to decide whether to make strategic adjustments. In addition, strategic decisions are discussed in various Board of Management level committees (e.g. Group Capital Committee, Group Finance and Risk Committee). The assessment of the associated risks is a fundamental element in these discussions. Liquidity risk Liquidity risk is defined as the risk that requirements from current or future payment obligations cannot be met or can only be met on the basis of adversely altered conditions. Liquidity risk can arise primar- ily if there are mismatches in the timing of cash-flows on the asset and liability side. Detailed information regarding the Allianz Group’s liquidity risk exposure, liquidity and funding – including changes in cash and cash equivalents – is provided in Liquidity and Funding Resources from page 116 onwards and notes 17, 23, 24 and 43 to the consolidated financial statements. The main goal of planning and managing Allianz SE’s liquidity position is to ensure that we are always able to meet payment obliga- tions. To comply with this objective, the liquidity position of Allianz SE is monitored and forecasted on a daily basis. Strategic liquidity plan- ning 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 C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 123 144 Controls over Financial Reporting and Risk Capital even under adverse conditions. Major contingent liquidity require- ments include non-availability of external capital markets, com- bined market and catastrophe risk scenarios for subsidiaries as well as lower than expected profits and dividends from subsidiaries. Our insurance operating entities manage liquidity risk locally, using asset/liability management systems designed to ensure that assets and liabilities are adequately matched. The local investment strategies particularly focus on the quality of investments and ensure a significant portion of liquid assets (e.g. high-rated government bonds or covered bonds) in the portfolios. This also allows us to meet increased liquidity requirements in the case of unlikely events. We employ actuarial methods for estimating our liabilities arising from insurance contracts. In the course of standard liquidity planning we reconcile the cash flows from our investment portfolio with the esti- mated liability cash flows. These analyses are performed at the oper- ating entity level and aggregated at the 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 perfor- mance, customer service, employee relations, intellectual capital and corporate responsibility. Reputational risk is the risk of an unex- pected drop in the value of the Allianz SE 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 Office1, Group Risk defines sensitive business areas and applicable risk guidelines, which are mandatory for all operating entities in the Allianz Group. All affected Group and operating entity functions cooperate in the identification of reputational risk. Group Communications is responsible for the risk assessment, based on a Group-wide methodology. Single reputational risk management decisions are integrated in the overall risk management framework and reputational risks are identified and assessed as part of a yearly Top Risk Assessment, dur- ing which senior management also decides on a risk management strategy and related actions. This is supplemented by quarterly updates. In addition, reputational risk is managed on a case-by-case basis. Single cases with a potential impact on other operating entities or the Group have to be reported to the Allianz Group for pre-approval. 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 the Allianz Group. 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 model framework across the Group to protect our capital base and sup- port effective capital management. − Integration of risk considerations and capital needs into man- agement and decision-making processes through the attribu- tion 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 transaction approvals, new product approvals and strategic asset allocations. 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 allocation and limit consumption reports are regularly pre- pared, communicated and monitored. Annual Report 2014 Allianz Group 139 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 sustain- able positive impact on valuation and financing. It also strengthens 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 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 of the Supervisory Board monitors the effective- ness of the Allianz risk management and monitoring framework. Furthermore, it focuses on risk-related developments as well as gen- eral 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. In 2014, the Board of Manage- ment Committee structure was streamlined. − The Group Capital Committee supports the Board of Manage- ment with recommendations regarding the capital structure, capital allocation and the investment strategy, including the strategic asset allocation. − The Group Finance and Risk Committee (GFRC) ensures over- sight of the Group’s and Allianz SE’s risk management frame- work, acting as a primary early warning function by monitoring the Allianz Group’s and Allianz SE’s risk profiles, as well as the availability of capital. The GFRC also ensures that an adequate relationship between return and risk is maintained. Addition- ally, the GFRC defines risk standards, forms the limit-setting authority within the framework set by the Board of Management and approves major single financing and reinsurance trans- actions. Overall risk organization and roles in risk management A comprehensive system of risk governance is achieved by setting standards related to organizational structure, risk strategy and appe- tite, written policies, limit systems, documentation and reporting. These standards ensure the accurate and timely flow of risk-related information and a disciplined approach towards decision-making and execution at both the global and local level. As a general principle, the “first line of defense” rests with busi- ness managers in the local operating entities and Allianz Investment Management units. They are responsible, in the first instance, for both the risks of and returns on their decisions. Our “second line of defense” is made up of our independent, global oversight functions such as Risk, Compliance and Legal. Audit forms the “third line of defense”. On a periodic basis, Group Audit independently reviews risk governance implementation, performs quality reviews of risk pro- cesses and tests adherence to business standards, including the internal control framework. Group Risk Group Risk is managed by the Group Chief Risk Officer who reports to the Board member responsible for Finance, Controlling and Risk. Group Risk supports the aforementioned Allianz Group committees responsible for risk oversight through the analysis and 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 monitoring the limits and accumulation of specific types of risks across business lines, such as natural disasters and exposures to financial markets and counterparties. In addition, Group Risk independently supports the adequacy of the operating entities’ risk management through the development of a common risk management framework and by monitoring adher- ence 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. 140 Annual Report 2014 Allianz Group C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 123 144 Controls over Financial Reporting and Risk Capital 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 stan- dards. The operating entities’ Board of Management is responsible for setting and approving a local risk strategy during the annual Stra- tegic and Planning Dialogues with the Group and ensuring operating entities’ adherence to their risk strategy. All business line management functions with a direct profit and loss responsibility (i.e. first line of defense, or “risk-taking units”) are in charge of active risk-return management through adherence to delegated limits and the operating entity’s policy framework. Second line of defense functions support, challenge and have the oversight of business functions through proactive risk management. A risk function that is independent from the business line man- agement is established by each operating entity. This function oper- ates under the direction of the operating entity’s Chief Risk Officer. In addition, a local Risk Committee supports both the operating entity’s Board of Management and the Chief Risk Officer by acting as the pri- mary risk controlling body. Group Risk is also represented on the local Risk Committees to enhance the risk dialogue between the Group and the operating entities. Other functions and bodies In addition to Group Risk and the operating entities’ risk functions, legal and compliance and actuarial functions have been established at both the Group and operating entity level, constituting additional components of the "second line of defense". 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. In addition, Group Legal and Compliance is responsible for integrity management, which aims to protect the Allianz Group, our operating entities and employees from regulatory risks. Group Actuarial contributes towards assessing and managing risks in line with regulatory requirements. These risks stem from the risk-taking/mitigating activities involving professional actuarial experience and interaction. The role includes, but is not limited to, the activities of: − Calculation and oversight of technical reserves for accounting and regulatory purposes; − Pricing and profitability oversight; − Technical actuarial support of business planning, reporting and result monitoring; − Contribution to the effective implementation of the risk man- agement system. 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 of the Emerging Risk Initiative of the Chief Risk Officer Forum, we monitor with other chief risk officers of major European insurance companies and financial conglomerates the industry-wide risk landscape and raise awareness of major risks for the insurance industry. Risk management priorities for 2015 In addition to maintaining our high standards and practices in day- to-day risk management and controlling, we have set the following priorities for 2015. Our first priority is to get the approval for our Solvency II internal model. To this end, we will continue to actively participate in the pre- approval process for Solvency II with the relevant European super- visors and file the final internal model application in 2015. In addition, we will prepare for any potential late guidance and changes to the Solvency II regulation and for any regulatory feedback on the internal model application to be ready for the final implementation of Sol- vency II in 2016. Regarding regulatory developments, our second priority is to ensure that we meet the emerging requirements for G-SII (Global Systemically Important Insurers). Therefore, we will continue to par- ticipate in the capital field-testing exercise conducted by the IAIS (International Association of Insurance Supervisors). In addition, we aim to further strengthen our liquidity risk management framework. Our third priority will be to further enhance systemic risk man- agement, first by focusing specifically on stress testing and scenario analysis in the context of managing and steering Allianz’s risk profile and, second, by continuing to strengthen the risk culture and the Group-wide risk network to further enhance efficient and effective steering also in systemic crisis situations. Annual Report 2014 Allianz Group 141 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 deal with the chal- lenges and opportunities ahead. The most important of these are outlined below. digital, climate and demogRaphic challenges The digital revolution has completely changed the way our custom- ers make purchasing decisions and buy insurance products. The boundaries between buying online and offline are quickly fading. Social networks and other online channels are gaining in importance. In parallel, expectations of service levels are increasing. We are con- tinuously 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 opportuni- ties that changing customer preferences provide. We are developing web-based and multi-access customer interaction tools to address changing customer behaviors. On the operational side, we are har- monizing systems across the Group to reduce complexity and improve efficiency. Global warming threatens to alter our climate and such changes could result in a range of risks and opportunities that affect our entire business. We have a Group-wide strategy covering climate-related risks and opportunities for our business and our customers: we finance and insure low-carbon energy projects, such as wind and solar, offer customers a range of "Green" Solutions and provide them with advice on weather-related risk reduction. As a company we con- tinually reduce and offset our own carbon emissions. We also incor- porate not only environmental, but also social and governance fac- tors into our investment and underwriting processes as well as asset management. Demographic changes are also creating both opportunities and challenges for financial services providers. While the urban popula- tions of Asia and Africa are expanding and their middle classes grow- ing, Western populations are aging and their workforces shrinking. With more people over 60 years old than ever before and declining birth rates, social security systems are under pressure and demand is growing for additional pension provisions. We are responding to these trends by providing integrated insurance and asset manage- ment solutions. Our solid market position in continental Europe and the United States, as well as our strong brand and well-diversified product portfolio, put us in an excellent position to develop solutions to meet the needs of the retirement, health care and assistance markets. In addition, many of the world's industrialized nations are reliant on infrastructure that is 30 to 50 years old and yet public-sector investments in this area have been declining across the board. In order to upgrade this aging infrastructure, billions of Euros are required per year – figures that most governments are not able to cover, especially considering the increase in social security spending due to demographic effects. At the same time, the current workforce is faced first and foremost with the need to accumulate adequate funds for retirement, which is proving very difficult in the sustained low interest rate environment. We are at the forefront of bringing these two challenges together to find solutions for the long term: bridging the public sector infrastructure investment gap and provid- ing profitable retirement provisions. But more still needs to be done in the political sphere to make this investment environment more stable and transparent for institutional investors such as Allianz. 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 protect themselves against – and better manage – the risks in life to build a more secure future. Although financial returns from microinsurance are lower than from traditional products, we believe that satisfied microinsurance policyholders will bring mid- to long- term pay-offs as many of them move up the economic ladder and are able to purchase regular Allianz products. For more information, please refer to Progress in Sustainable Development from page 73. 1 For further information on the Cautionary note regarding forward-looking statements, please refer to Outlook 2015 from page 104. 142 Annual Report 2014 Allianz Group 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 propositions – Automotive with Roadside Assistance, and International Health with Corporate Assistance – under the roof of Allianz Worldwide 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 incuba- tor to develop and pilot innovative ideas before they are implemented across the Group. C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 123 144 Controls over Financial Reporting and Risk Capital stRategic Risk and oppoRtunity management As previously described, the Group has a well-established strategy and planning process with all its operating entities, which allows us to understand and respond to local risks and opportunities. This strong diversification across markets, business segments and 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 to new markets at lower cost: Digitalization is one of our major Group initiatives and affects all areas of Allianz, including our customers and our employees. This initiative spans everything from the design of new modular products, to new forms of access, to servicing existing customers in a better way. We will continue to invest in technology at the local and Group level. We see technology as the key enabler for our business, both in the infrastructure (networks, data centers, underwriting and processing systems), but also at the customer interface (“digital”): Related investments in 2014 totaled more than € 800 Mn. Digitalization is also the basis for enhanced management information systems to improve steering. When driving digitaliza- tion, security and data confidentiality remain a major priority. Capital allocation, ensuring that capital is available and allo- cated appropriately to finance growth initiatives and leveraging the Group's diversification benefits: We will move further towards greater capital efficiency while preparing for the go-live of Solvency II on 1 January 2016. This means we will optimize the capitalization of our local entities towards a more efficient capital base, actively improve new business capital allocation between operating entities and lines of business as well as sharpen the distinction between business we run for growth and portfolios or lines of business from which we will look to extract capital. 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. We recognize both increasing risk in our operating and regulatory environment and great opportunities in the fast-changing preferences and behavior of our customers. In this spirit, we are reviewing our Group organization structures to take account of the need for strong central governance in some areas, but also greater local entrepreneurship and decision-making in others. Annual Report 2014 Allianz Group 143 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 accuracy, 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 revised framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and is regularly reviewed and updated. Our approach also includes the following five interrelated components: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring. These five components are covered by an Entity Level Control Assessment Process (ELCA), IT General Controls (ITGC) and controls at process levels. The ELCA framework contains controls such as a compliance program or committee gover- nance structure. In the ITGC framework we implemented, for example, controls regarding access right management and 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 144 Annual Report 2014 Allianz Group C Group Management Report Risk and Opportunity Report and Financial Control Risk and Opportunity Report 123 144 Controls over Financial Reporting and Risk Capital 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 poten- tial impacts and occurrence probabilities are evaluated. − Preventive and detective key controls over the financial reporting process have been put in place to reduce the likelihood and the impact of financial misstatements. If a potential risk material- izes, actions are taken to reduce the impact of the financial mis- statement. Given the strong dependence of financial reporting processes upon information technology systems, we also imple- ment IT controls. − Finally, we focus on ensuring that controls are appropriately designed and effectively executed to mitigate risk. We have set consistent documentation requirements across the Allianz Group for elements such as processes, related key controls and their execution. We conduct an annual assessment of our control system to maintain and continuously enhance its effectiveness. Group Audit and local internal audit functions ensure that the overall quality of our control system is subjected to regular con- trol-testing, to assure reasonable design and operating effective- ness. 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 governance and control policy and for creating local Disclosure Committees that are similar to the Group-level committee. The entities’ CEOs and CFOs provide periodic sign-offs to the management of Allianz SE, certifying the effectiveness of their local system of internal controls as well as the completeness, accuracy and reliability of financial data reported to the Holding. Further control mechanIsms In our opinion, a strong internal control environment is key to manage our company successfully and to reinforce trust with our stakeholders. In addition to ICOFR, for example, we have implemented an enhanced internal control environment across our largest Life insurance oper- ating entities for the Market Consistent Embedded Value (MCEV) reporting process. Risk capital controls Similar to our ICOFR framework, we have also established a robust and comprehensive control concept in the risk capital calculation and aggregation process, since our internal risk capital calculations incorporate economic factors that are not fully reflected in the accounting results. We have put in place additional controls within our management reporting processes to ensure that these additional estimates are adequately controlled and that the data quality is accurate, consistent and complete. These controls include the validation of models and assumptions by independent reviews and continuous benchmarking to market and/ or peer assumptions and practices. We benchmark and explain our non-market assumptions against practices in the industry, actuarial associations and guidance from supervisory authorities. During 2014, we further strengthened the internal control environ- ment around the computation of our internal risk capital in anticipa- tion of the future Solvency II regime. Annual Report 2014 Allianz Group 145 146 Annual Report 2014 Allianz Group Allianz Worldwide Care 48 hours Medical claims are processed within 48 hours. 95 % client retention rate 95 % of our clients choose to renew their insurance with us. Allianz Worldwide Care is the international health insurance division of Allianz Worldwide Partners, providing insurance solutions for health, life and disability on a global scale. The company’s focus is on earning and maintaining client loyalty by providing a market-leading product range, level of service and support. Allianz Worldwide Care’s multicultural staff, made up of 63 nationalities and collectively speaking 28 languages, mirrors the global nature of its client base. allianzworldwidecare.com Allianz Global Assistance Allianz Global Automotive Allianz Worldwide Care AlliAnz WorldWide CAre Allianz Worldwide Care continues to build a reputation for service excellence MyHealth app offers fastest and easiest way to submit medical claims. Allianz MyHealth App In August 2014, Allianz Worldwide Care launched a mobile app that allows its members to submit medical claims more quickly and easily than ever before, by-passing the need to complete a traditional claim form. The MyHealth app makes it possible to: Send medical claims via a mobile device Check the status of previously submitted claims and payments Find the closest hospitals and get directions to them using GPS View key medical terms in 17 languages Access latest policy documents, even offline The MyHealth app is available in English, German, French, Spanish and Portuguese from the Apple App Store and Google Play. allianzworldwidecare.com/myhealth 148 Looking after the people who look after our clients. Award-winning health and wellbeing Allianz Worldwide Care was one of the winners of the Allianz Group’s Global Innovation Awards scheme in July 2014, in recognition of its employee health and well being program. The company’s health and wellbeing initiative included weekly onsite yoga sessions, the establish- ment of sports clubs, women’s and men’s health information sessions and health screenings. The Capuchin Day Centre, a Dublin-based charity, provides 1,000 food parcels and 6,000 hot meals weekly to those expe riencing poverty. It was the bene - ficiary chosen to receive the award fund of € 10,000. Staff from Allianz Worldwide Care, which employs 900 staff worldwide, 700 of whom are in Dublin, regularly volunteer at the Capuchin Day Centre, including at weekends and bank holidays. capuchindaycentre.ie Creative solutions for client care. Planes, trains and automobiles Allianz Worldwide Care’s Medical Director has a job that requires a lot of creative thinking. One particularly challeng ing case was in 2011 when an Icelandic ash cloud grounded flights across Europe and a client who had suffered a stroke in a remote region of Kazakhstan needed to be flown home to Portugal for rehabilitation. Airports in Ireland, where Allianz Worldwide Care’s primary support center is located, were closed and the company’s air ambulance partners were also hampered by airport closures. Allianz Worldwide Care’s medical escort team took a ferry to the U.K., got a train to Paris and then flew via Azerbaijan to reach the patient. On the return journey, Paris airport was closed. So the team flew to Frankfurt instead, and then on to Lisbon. It really was a case of planes, trains and automobiles, resulting in a very moving outcome when the patient’s wife and children were able to welcome him home. allianzworldwidecare.com/member-services 149 D _ ConsoliDATeD FinAnCiAl sTATeMenTs 151 Consolidated BalanCe sheets 152 Consolidated inCome statements 153 154 155 Consolidated statements of Comprehensive inCome Consolidated statements of Changes in equity Consolidated statements of Cash flows 157 notes to the Consolidated finanCial statements General information notes to the Consolidated income Statements Pages 150 – 264 157 157 166 171 173 176  1 Nature of operations and basis of presentation  2 Summary of significant accounting policies  3 Use of estimates and assumptions  4  5 Consolidation  6 Segment reporting Recently adopted and issued accounting pronouncements notes to the Consolidated Balance Sheets 190 190 190 194 194 195 196 198 198 203 203 204 204 209 212 213 214 215 215 Financial assets carried at fair value through income Investments Loans and advances to banks and customers  7 Cash and cash equivalents  8  9 10 11 Reinsurance assets 12 Deferred acquisition costs 13 Other assets 14 Non-current assets and assets and liabilities of disposal groups classified as held for sale Intangible assets Financial liabilities carried at fair value through income Liabilities to banks and customers 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 150 Annual Report 2014 Allianz Group 219 219 220 220 221 221 221 222 222 223 223 223 223 223 224 224 224 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 227 229 240 242 242 244 248 251 253 253 255 256 263 264 Litigation, guarantees and other contingencies and commitments Financial instruments and fair value measurement Interests in unconsolidated structured entities 43 Derivative financial instruments 44 45 46 Related party transactions 47 48 Pensions and similar obligations 49 Share-based compensation plans 50 Restructuring plans 51 Earnings per share 52 Other information 53 Subsequent events List of participations of the Allianz Group as of 31 December 2014 according to § 313 (2) HGB Responsibility statement Auditor’s report D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 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 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 and assets of disposal groups 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 Liabilities of disposal groups classified as held for sale Certificated liabilities Subordinated liabilities Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity as of 31 December 2014 as of 31 December 2013 note as of 1 January 2013 7 8 9 10 11 12 42 13 14 15 16 17 18 19 20 21 42 22 14 23 24 25 13,863 5,875 486,445 117,075 94,564 13,587 22,262 1,046 37,080 235 13,755 805,787 8,496 23,015 19,800 68,989 11,207 6,660 411,148 116,800 81,064 12,609 22,203 1,508 34,632 147 13,100 711,079 6,013 23,109 18,212 66,566 12,437 7,165 401,711 119,369 71,197 13,254 19,452 1,526 35,196 15 13,090 694,411 5,397 22,425 17,939 72,540 463,334 404,072 390,984 94,564 4,932 38,609 102 8,207 12,037 742,085 60,747 2,955 63,702 81,064 3,178 36,431 – 8,030 11,554 658,230 50,083 2,765 52,849 71,197 4,034 37,357 – 7,960 11,614 641,448 50,388 2,576 52,963 805,787 711,079 694,411 Annual Report 2014 Allianz Group 151 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 (€) 152 Annual Report 2014 Allianz Group note 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 15 50 41 32 42 51 51 2014 73,883 (4,463) (1,146) 68,274 21,443 (1,604) 4,017 10,119 216 696 2013 72,051 (4,541) (882) 66,628 20,918 (1,845) 4,286 10,492 209 726 103,161 101,415 (52,140) (50,178) 2,490 (49,650) (13,929) (1,261) (45) (894) (961) (23,343) (3,238) (123) (16) (135) (720) 2,376 (47,802) (13,990) (1,322) (86) (611) (905) (22,865) (3,038) (136) (170) (106) (740) (94,314) (91,772) 8,848 (2,245) 6,603 9,643 (3,300) 6,343 381 6,221 13.71 13.64 347 5,996 13.23 13.05 D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 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 and joint ventures 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 Total other comprehensive income 2014 6,603 2013 6,343 2 1,428 1,431 (641) 7,817 7,176 34 50 85 – 54 54 – (151) (151) (1,607) 6,988 (1) (1,305) (1,307) (817) (2,537) (3,354) 10 (63) (53) – (82) (82) – 105 105 362 (4,327) Total comprehensive income 13,590 2,016 Total comprehensive income attributable to: Non-controlling interests Shareholders 534 13,056 310 1,706 For further details concerning income taxes relating to components of the other comprehensive income, please see note 42. Annual Report 2014 Allianz Group 153 Consolidated statements of Changes in equity Foreign currency translation adjustments (2,073) (1,234) – – (5) – (3,313) 1,340 – – (4) – Unrealized gains and losses (net) Shareholders’ equity Non- controlling interests Total equity 10,123 (3,382) – – 1 – 6,742 7,176 – – – – 50,388 1,706 55 (2) (24) (2,039) 50,083 13,056 59 (1) (45) (2,405) 60,747 2,576 310 – – 144 (264) 2,765 534 – – (33) (311) 2,955 52,963 2,016 55 (2) 120 (2,303) 52,849 13,590 59 (1) (78) (2,716) 63,702 (1,977) 13,917 consolidated statements of changes in eQUitY € mn Balance as of 1 January 2013 Total comprehensive income1 Paid-in capital Treasury shares Transactions between equity holders Dividends paid Balance as of 31 December 2013 Total comprehensive income1 Paid-in capital Treasury shares Transactions between equity holders Dividends paid Paid-in capital 28,815 – 55 – – – 28,869 – 59 – – – Balance as of 31 December 2014 28,928 Retained earnings 13,524 6,323 – (2) (20) (2,039) 17,786 4,540 – (1) (41) (2,405) 19,878 1 Total comprehensive income in shareholders’ equity for the year ended 31 December 2014 comprises net income attributable to shareholders of € 6,221 mn (2013: € 5,996 mn). 154 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 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: 2014 2013 32,232 (26,927) (3,189) 541 2,656 11,207 13,863 23,239 (22,801) (1,436) (232) (1,230) 12,437 11,207 6,603 6,343 (196) (146) Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers, non-current assets and assets and liabilities of disposal groups classified as held for sale (3,105) (3,676) 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 2,537 1,159 45 3,879 375 107 466 (218) (1,219) 1,120 1,039 23,036 (10) (3,384) 25,629 32,232 963 1,108 86 4,163 300 227 95 (207) (720) 832 (1,071) 12,004 375 2,562 16,896 23,239 Annual Report 2014 Allianz Group 155 Consolidated statements of Cash flows – Continued consolidated statements of cash flows € mn cash flow from investing activities Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income Available-for-sale investments Held-to-maturity investments Investments in associates and joint ventures Non-current assets and assets and liabilities of disposal groups 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 and assets and liabilities of disposal groups 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 sUpplementarY information on the consolidated statements of cash flows Income taxes paid Dividends received Interest received Interest paid 156 Annual Report 2014 Allianz Group 2014 2013 1,335 124,855 1,347 120,507 579 709 146 329 8,345 119 836 397 24 663 9,863 200 136,416 133,837 (1,693) (719) (149,120) (144,082) (331) (1,271) – (963) (5,005) (1,692) (653) (825) – (1,504) (6,940) (1,484) (160,076) (156,207) – (200) (2,403) (665) 81 (416) (695) 599 (26,927) (22,801) (873) 3,823 873 6,236 (3,435) (6,204) 51 (78) 47 12 (2,716) (2,303) 6 35 (3,189) (3,081) 1,555 18,851 (1,326) 7 (104) (1,436) (3,672) 1,355 18,657 (1,308) D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 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 2014 were authorized for issue by the Board of Management on 24 February 2015. 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 2014. 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 accept- ed 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 2014. The consolidated financial statements are prepared as of and for the year ended 31 December and presented in millions of Euro (€ mn), unless otherwise stated. Due to rounding, numbers presented may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. Previously published figures have been adjusted accordingly. 2 – Summary of significant accounting policies priNCipLes of CoNsoLiDatioN Scope of consolidation In line with IFRS 10, the consolidated financial statements of the Allianz Group comprise the financial statements of Allianz SE and its subsidiaries (including certain investment funds and structured entities) over which the Allianz Group has control. The Allianz Group controls a subsidiary when it is exposed to, or has rights to, variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. Power over a subsidiary arises when the Allianz Group has existing rights that give it the current ability to direct the relevant activities of the subsidiary. This is usually the case when the Allianz Group owns more than half of the voting rights or similar rights. In order to deter- mine whether control exists, potential voting rights that are cur- rently exercisable or convertible are taken into consideration. Where subsidiaries have been designed so that voting or similar rights are not the dominant factor of control, such as when any voting rights relate to administrative tasks only and returns are directed by means of contractual arrangements, control is assessed on the basis of the Allianz Group’s level of involvement in defining the terms and fea- tures of these contractual arrangements, as is the case for structured entities. In the case of investment funds managed by Allianz Group internal asset managers, the control assessment considers whether the Allianz Group is in a principal or agent role with a view to the investment funds assessed. This assessment takes into account kick out rights held by third-party investors as well as the aggregate eco- nomic interest of the Allianz Group in the investment funds assessed. Subsidiaries are consolidated as from the date on which control is obtained by the Allianz Group, up to the date on which the Allianz Group no longer maintains control. Accounting policies of subsid- iaries are adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group. The effects of intra- Allianz Group transactions are eliminated. Annual Report 2014 Allianz Group 157 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. In some jurisdictions the ability of subsidiaries to transfer funds to the parent company in the form of dividends or to repay loans is subject to local corporate or insurance laws and regulations and sol- vency requirements. 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. Investments in associates and joint arrangements In general, if the Allianz Group holds 20 % or more of voting power in an investee but does not control the investee, it is assumed to exer- cise 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 arrangements are structures over which the Allianz Group and one or more other parties contractually sharing control require unanimous consent when decisions over the relevant activities are to be made. Joint arrangements whereby the Allianz Group has rights to the net assets of the arrangement (joint venture) 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 arrangements, which reflects the earnings 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 arrangement are eliminated to the extent of the interest in the associate or joint arrangement. Accounting policies of associates and joint arrangements are adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group. In some jurisdictions the ability of associates and joint arrange- ments to transfer funds to the Allianz Group in the form of dividends or to repay loans is subject to local corporate or insurance laws and regulations and solvency requirements. foreiGN CurreNCY traNsLatioN Translation from any foreign currency to the functional currency The individual financial statements of each of the Allianz Group’s subsidiaries are prepared in the 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 from the functional currency 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 iNstrumeNts 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. 158 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows Offsetting Financial assets and liabilities are offset and the net amount is 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 expenses 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 substan- tially with the counterparty over the entire lifetime of the agreement of the transaction, the securities concerned are not recognized 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 agreements and is reported in interest and similar income. Securities borrowing transactions generally require the Allianz Group to deposit cash with the security’s lender. Fees paid are reported as interest expenses. Impairments of available-for-sale and held-to-maturity investments as well as loans and advances to banks and customers A held-to-maturity or available-for-sale debt security, as well as a loan, is impaired if there is objective evidence that a loss event has occurred after initial recognition of the security and up to the 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 lesser of the full original impairment loss previously recognized in the income statement and the subsequent increase in fair value. For held-to-maturity investments and loans, the impairment loss is measured as the difference between the amortized cost and the expected future cash flows using the original effective interest rate. If the amount of the impairment of a held-to-maturity debt security or a loan subsequently increases or decreases due to an event occurring after the initial measurement of impairment, the change is recorded in the income statement. For banking entities, valuation allowances of their loan book are reported as loan loss allowances. For all non-banking entities, loans to banks and customers have an investment character and valuation allowances are reported as ‘impairments of investments’. 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-bank- ing 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 report- ing 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 operation. The Allianz Group documents the hedge relationship, as well as its risk management objective and strategy for entering into the hedge Annual Report 2014 Allianz Group 159 transaction. The Allianz Group assesses, both at the hedge’s incep- tion and on an ongoing basis, whether the hedging instruments that are used are expected to be highly effective in offsetting changes in fair values or cash flows of the hedged items. Fair value hedges are hedges of a change in the fair value of a recognized financial asset or liability or an unrecognized firm com- mitment due to a specified risk. Changes in the fair value of a deriva- tive financial instrument, together with the change in fair value of the hedged item attributable to the hedged risk, are recognized in income from financial 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 highly probable forecasted transaction. Changes in the fair value of a derivative financial instru- ment that represent an effective hedge are recorded in unrealized gains and losses (net) in other comprehensive income, and are trans- ferred to the consolidated income statement when the offsetting gain or loss associated with the hedged item is recognized. Any ineffec- tiveness 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 operation. The effective pro- portion of gains or losses arising from the measurement of the deriv- ative financial instrument is recognized in foreign currency translation adjustments in other comprehensive income, while any ineffectiveness is recognized directly in income from financial assets and liabilities carried at fair value through income (net). The Allianz Group discontinues hedge accounting prospectively when the hedge is no longer expected to be highly effective, when the derivative financial instrument or the hedged item expires, or is sold, terminated or exercised, or when the Allianz Group decides that hedge accounting is no longer appropriate. Derivative financial instruments designated in hedge accounting relationships are included in the line item other assets and liabilities. 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 instruments 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 categories 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 further 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. 160 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 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 hybrid 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 Allianz Group Account- ing 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. 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 securities 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 measured at amortized cost using the effective interest method. Interest income is accrued on the unpaid principal balance, 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 the income statement togeth- er with the offsetting changes in fair value of the corresponding finan- cial liabilities for unit-linked contracts. reiNsuraNCe assets Assets and liabilities related to reinsurance are reported on a gross basis. Reinsurance assets include balances expected to be recovered from reinsurance companies. The amount of reserves ceded to re- insurers is estimated in a manner consistent with the claim liability associated with the reinsured risks. To the extent that the assuming reinsurers are unable to meet their obligations, the respective ceding insurers of the Allianz Group remain liable to its policyholders for the portion reinsured. Consequently, allowances are made for receivables on reinsurance contracts which are deemed uncollectible. Annual Report 2014 Allianz Group 161 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 deductible temporary differences between the Allianz Group’s carrying amounts of assets or liabilities in its consolidated 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 substantively enacted prior to or as of the consolidated balance sheet date are taken into account. Deferred tax assets 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 ensuring 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 a straight-line basis over the estimated useful service lives or contrac- tual terms. 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. 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 premium 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 estimated gross margins (EGm), respectively. EGP and EGm are based on best estimate assumptions which are reviewed at the end of each reporting period; the effect of changes is recognized in the reporting period’s income statement. 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 anticipated in the future from insurance contracts in force at the date of acquisition. It is amortized over the life of the related contracts. 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. 162 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows The table below summarizes estimated useful lives for real estate held for own use, equipment, software and fixed assets of alter- native investments. priNCipLes of aCCouNtiNG for iNsuraNCe, iNVestmeNt aND reiNsuraNCe CoNtraCts estimateD usefuL LiVes (iN Years) Real estate held for own use Software Equipment Fixed assets of alternative investments 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. 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 determined as the excess of the consideration transferred in a business combina- tion and any non-controlling interest over the net identifiable assets acquired. Goodwill is not amortized. It is evaluated at least annually whether the goodwill is deemed recoverable. Goodwill is allocated to each of the Allianz Group’s cash gener ating units expected to benefit from the synergies of the business combination. The Allianz Group conducts an annual impairment test of goodwill during the fourth quarter or more frequently if there is an indication that goodwill is not recoverable. The impairment test includes comparing the recov- erable amount to the carrying amount, including goodwill, of all rel- evant cash generating units. A cash generating unit is impaired if the carrying amount is greater than the recoverable amount. The impair- ment 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 are generally 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. 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 settle- ments, as well as the reinsurance element of technical provisions are accounted for in accordance with the conditions of the reinsurance contracts and with consideration of the original contracts for which the reinsurance was concluded. Insurance liability adequacy testing Liability adequacy tests are performed for each insurance portfolio on the basis of estimates of future claims, costs, premiums earned and proportionate investment income. For short-duration contracts, a premium deficiency is recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policy- holders, DAC, and maintenance expenses exceeds related unearned premiums while considering anticipated investment income. For traditional long-duration contracts and limited-payment contracts, if actual experience regarding investment yields, mortality, morbidity, terminations or expense indicate that existing contract liabilities, along with the present value of future gross premiums, will not be sufficient to cover the present value of future benefits and to recover DAC, a premium deficiency is recognized. 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 DAC, a premium deficiency is recognized. Please refer to note 3, where the processes and controls for ensur- ing an appropriate use of estimates and assumptions are explained. Annual Report 2014 Allianz Group 163 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 expected cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other societal and economic factors. Trends in claim frequency, severity and time lag in reporting are examples of factors used in projecting the IBnR reserves. IBnR reserves are reviewed and revised periodically as additional information becomes available and actual claims are reported. 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. 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 features which are not closely related to the underlying insurance contracts 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 assumptions used in the calculation of deferred acquisition costs and aggregate policy reserves are 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 % 164 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 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 ensur- ing 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/contractual regulations or at the entity’s discretion to the accounts of the policyholders and the amounts resulting from the differences between these IFRS-based financial statements and the local financial statements (latent reserve for pre- mium refunds), which will reverse and enter into future profit par- ticipation calculations. Unrealized 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 regula- tions when they are realized, based on and similar to shadow account- ing. The profit participation allocated to participating policyholders or disbursed to them reduces the reserve for premium refunds. fiNaNCiaL LiaBiLities for uNit-LiNkeD CoNtraCts The fair value measurement of financial liabilities for unit-linked contracts is equal to the fair value measurement 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. Where benefits are linked to returns on specified assets, the defined benefit obligation is determined by reference to the fair value of the plan assets. All actuarial gains and losses are recognized in other comprehensive income (OCI). Service and interest costs are recognized in the profit or loss. The interest income 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 compensation 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 the main features of a detailed formal plan have been announced to those affected or the implementation of the restructur- ing plan has started. 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 the net assets of controlled mutual funds. These interests qualify as a financial liability of the Allianz Group, as they give the holder the right to put the instrument back to the Allianz Group for cash or another financial asset (putta- ble instrument). These liabilities are generally required to be record- ed at the redemption amount with changes recognized in the income statement. 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. Annual Report 2014 Allianz Group 165 EQUITY Issued capital represents the mathematical per share value received from the issuance of shares. Additional paid-in capital represents the premium, exceeding the issued 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. Treasury shares are deducted from shareholders’ equity. No gain or loss is recognized on the sale, issuance, acquisition or cancellation of these shares. Any consideration paid or received is recorded directly in shareholders’ equity. Please refer to the above section on foreign currency translation, where foreign currency changes that are recognized in other compre- hensive income are explained. The effective portion of gains and losses of hedging instruments designated as hedges of a net invest- ment in a foreign operation is also recognized in foreign currency translation adjustments. 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 flow hedge accounting. 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 con- tracts 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 liability, 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 ventures. Dividends are recognized in income when the right to receive the dividend is established. Share of earnings from investments in associates and joint ventures represents the share of net income from entities accounted for using the equity method. 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 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 as well as refinancing 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 manage- ment 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 policy account balances and interest credited to policy account bal- ances. 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 ensuring 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 state- ments. The section below describes how certain reported figures can be significantly affected by the use of estimates and assumptions, and the processes the Allianz Group has in place to control the judg- ments 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 166 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 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 2014, the Allianz Group reported:1 − reserves for loss and loss adjustments expenses of € 68,989 mn mainly for the Property-Casualty operations, including run-off business and reinsurance business assumed, − reserves for insurance and investment contracts of € 463,334 mn mainly for the Life/Health operations, and − deferred acquisition costs of € 22,262 mn. 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. For Life/Health and for Property-Casualty the central oversight pro- cess 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 reserve 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 actuaries. 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. Life/Health reserves are dependent on estimates and assump- tions, especially on the life expectancy and health of an insured indi- vidual (mortality, longevity and morbidity risk) and on the develop- ment of interest rates and investment returns (asset-liability mismatch risk). These assumptions also have an impact on the pre- sentation of costs arising from the origination of insurance business (acquisition costs and sales inducements) and the value of acquired insurance business (PVFP). To ensure consistency in the application of actuarial methods and assumptions in the Life/Health reserving process, the Allianz Group has designed a two-stage reserving process: Stage one: Life/Health reserves are calculated by qualified local staff experienced in the 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 consis- tent and plausible assumptions. The appropriateness of the reserves and compliance with the group-wide standards is confirmed by the local actuary. Stage two: 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. Annual Report 2014 Allianz Group 167 being non-observable). Level 3 financial assets represent 2.5 % of the Allianz Group’s total financial assets carried at fair value. Financial liabilities classified as Level 3 represent 7.0 % 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 esti- mate 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 internal control policy regarding impairment assessment, mea- surement 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. Property-Casualty reserves are set by leveraging the use of actu- arial techniques and educated judgment. A two-stage process exists for the setting of reserves in the Allianz Group: Stage one: Property-Casualty reserves are calculated by local reserving actuaries in the Allianz operating entities. Reserves are set based on a thorough analysis of historical data, enhanced by interac- tions with other business functions (e.g. Underwriting, Claims and Reinsurance). Actuarial judgment is applied where necessary, espe- cially in the cases where data is unreliable, scanty or unavailable. The judgment of Property-Casualty actuaries is based on past experience of the characteristics of each line of business, the current stage of the underwriting cycle and the external environment in which the sub- sidiary operates. The reserves are proposed to a local reserve com- mittee, whereby the rationale of the selections are discussed and subsequently documented. A final decision on the reserve selection is made in the reserve committee. Local actuaries are responsible for their compliance with the Group Actuarial Standards and Guidelines. Stage two: The Allianz Group Actuarial Department forms an opinion on the adequacy of the reserves proposed by the local entities. The Allianz Group Actuarial Department challenges the operating entities’ selection through their continuous interaction with local teams and quarterly attendance in the local reserve committees. The ability to form a view on reserve adequacy is further enabled by regu- lar reviews of the local reserving practices. Such reviews consist of an evaluation of the reserving process, appropriateness and consistency of assumptions and analysis of movement of reserves. Significant findings from such reviews are communicated in the Allianz Group Reserve Committee to initiate actions where necessary. fair VaLue aND impairmeNts of fiNaNCiaL iNstrumeNts As of 31 December 2014, the Allianz Group reported financial instru- ments carried at fair value as follows:1 − € 171,131 mn of the financial assets and € 93,688 mn of the financial liabilities carried at fair value are classified within level 1 of the fair value hierarchy (unadjusted quoted prices in active markets) − € 381,659 mn of the financial assets and € 4,135 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) − € 14,037 mn of the financial assets and € 7,310 mn of the financial liabilities carried at fair value are classified within level 3 of the fair value hierarchy (valuation techniques with significant input 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. 168 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows assessmeNt of the iNCLusioN methoD The relevant criteria for determining the appropriate inclusion method of a company are summarized in note 2 of this Annual Report. The determination of the appropriate inclusion method of some entities involves management judgment. For some subsidiaries where the Allianz Group does not hold a majority stake, management has assessed that the Allianz Group controls these companies. The Allianz Group controls these entities on the basis of distinctive rights stipulated by shareholder agree- ments between the Allianz Group and the other shareholders in these companies. There are some companies where the Allianz Group holds a majority stake but where management has assessed that the Allianz Group does not control these entities because it has no majority representation in the governing bodies and/or it requires at least the confirmative vote of another investor to pass any decisions over rel- evant activities. Although the Allianz Group’s share in some companies is below 20 %, management has assessed that the Allianz Group has signifi- cant influence over these companies because it is represented in the governing bodies that decide on the relevant activities of these com- panies. To determine control for investment funds managed by the Allianz Group, management considers in particular the remunera- tion to which the asset manager is entitled, the exposure to variability of returns from these investments and the rights held by other parties. When the exposure to variability of returns is within a certain range, significant judgment is required for the determination of the appro- priate inclusion method of these investment funds. For certain investment funds managed by the Allianz Group in which the Allianz Group holds a minority stake, management has assessed that the Allianz Group controls these investment funds because of its asset management role combined with its aggregate economic interest in these investment funds. For certain investment funds managed by third parties where the Allianz Group holds a majority stake, management has assessed that the Allianz Group does not control these investment funds because it has neither a majority representation in the governing bodies of these investment funds nor any substantial removal rights to replace the asset manager. For certain investment funds in which the Allianz Group holds a stake of above 20 %, management has assessed that the Allianz Group has no significant influence because it is not represented in the governing bodies of these investment funds. Pursuant to IFRS 11, investments in joint arrangements have to be classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Allianz Group has assessed the nature of all its joint arrangements and determined them to be joint ventures. For further details, please refer to the explanations to the list of participations of the Allianz Group from page 256 of this Annual Report onwards. GooDWiLL As of 31 December 2014, the Allianz Group reported total goodwill of € 12,166 mn, of which:1 − € 2,440 mn related to the business segment Property-Casualty − € 2,232 mn related to the business segment Life/Health − € 7,187 mn related to the business segment Asset Management and − € 307 mn related to the business segment Corporate and Other. Goodwill represents the excess of the consideration transferred in a business combination and any non-controlling interest over the net identifiable assets acquired. Upon acquisition, goodwill is allocated to the cash generating units (CGUs) that are expected to benefit from the synergies of the acquisition. Since goodwill is not amortized, the Allianz Group must evaluate at least annually 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 estima- tion 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 param- eters of the well-defined planning and controlling processes. Impor- tant 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 1 Please refer to note 2 Summary of significant accounting policies and note 15 Intangible assets for further details. Annual Report 2014 Allianz Group 169 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 2014, the Allianz Group reported deferred tax assets of € 1,046 mn. The deferred tax assets before netting with deferred tax liabilities amounted to € 17,887 mn. € 1,585 mn thereof resulted from tax losses which are carried forward to future periods.1 Deferred tax assets are determined based on tax loss carry for- wards, unused tax credits and on deductible temporary differences between the Allianz Group’s carrying amounts of assets and liabili- ties in its consolidated balance sheet and their tax bases. Deferred tax assets are recognized only to the extent it is probable that suffi- cient future taxable income will be available for their realization. Assessments as to the recoverability of deferred tax assets require the use of judgment regarding assumptions related to estimated future taxable profits. This includes the character and amounts of taxable future profits, the periods in which those profits are expected to occur 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 profes- sionals. Given the potential significance surrounding the underlying estimates and assumptions, Group-wide policies and procedures have been designed to ensure consistency and reliability around the recoverability 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 pre- ceding period. Recognition and recoverability of all significant deferred tax assets are reviewed by tax professionals at Group level and the Allianz Group Tax Committee. peNsioN LiaBiLities aND simiLar oBLiGatioNs As of 31 December 2014, the Allianz Group reported a defined benefit obligation for defined benefit plans of € 22,767 mn which is offset by the fair value of plan assets of € 13,123 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 trends are defined centrally at the Allianz Group level considering the circum- stances in the particular countries. In order to ensure their thorough and consistent determination, all input parameters are discussed and defined, taking into consideration economic developments, peer reviews as well as currently available market and industry data. The discount rate assumptions 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, market yields on government bonds are generally used as discount rates. Due to changing market and economic conditions, the under- lying assumptions may differ from actual developments. Potential financial impacts from deviations in certain critical assumptions based on respective sensitivity analyses are disclosed in note 48. restruCturiNG proVisioNs As of 31 December 2014, the Allianz Group reported a provision for restructuring programs of € 109 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 severance 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 depart- ment, where qualified staff members review all restructuring pro- grams. This includes a review of all estimates and assumptions, and an assessment of whether all requirements for setting up a restruc- turing 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 48 Pensions and similar obliga- tions for further details. 3 Please refer to note 2 Summary of significant accounting policies and note 50 Restructuring plans for further details. 170 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 4 – Recently adopted and issued accounting pronouncements recently adopted accounting pronouncements effective 1 January 2014 iFrss 10, 11, 12, Amendments to ias 27 and 28 – Consolidation As of 1 January 2014, the Allianz Group implemented IFRSs 10, 11 and 12 as well as amendments to IAS 27 and IAS 28. IFRS 10, Consolidated Financial Statements, superseded the requirements of IAS 27, Consolidated and Separate Financial State- ments and SIC-12, Consolidation – Special Purpose Entities. IFRS 10 establishes a single control concept as the basis for determining which entities are to be included in the consolidated financial state- ments because they are controlled by the reporting entity. The exis- tence of control is based on the following three elements: − power over the investee, − exposure, or rights, to variable returns from the involvement with the investee, and − the ability to use power over the investee to affect the amount of the investor’s returns. The following table presents the impacts of the implementation of IFRS 10 on the consolidated balance sheet as of 31 December 2013. cHange oF consolidated Balance sHeet as oF 31 decemBer 2013 relating to tHe implementation oF iFrs 10 € mn as of 31 December 2013 Financial assets carried at fair value through income Investments Total assets Other liabilities Total liabilities As previously reported Adoption of iFrs 10 As reported 7,245 411,015 711,530 36,883 658,682 (585) 133 (452) (452) (452) 6,660 411,148 711,079 36,431 658,230 Total liabilities and equity 711,530 (452) 711,079 Allianz Group. In total, these changes in the scope of consolidation led to a reduction of the balance sheet total of € 452 mn as of the date IFRS 10 was adopted. The impact of the adoption of IFRS 10 on the consolidated income statements, the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the consoli- dated statements of cash flows is immaterial. IFRS 11, Joint Arrangements, superseded IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities – Non-Monetary Con- tributions by Ventures. The IFRS requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations arising from the arrangement. The IFRS classifies joint arrangements into two types: joint operations and joint ventures. For joint operations the reporting entity has to recognize and measure the assets and liabilities (and recognize the related revenues and expenses) in relation to its interest in the arrangement in accordance with relevant IFRSs applicable to the par- ticular assets, liabilities, revenues and expenses. In contrast, for joint ventures the reporting entity has to recognize an investment and to account for that investment using the equity method in accordance with IAS 28. The application of IFRS 11 had no material impact on the financial position and the financial results of the Allianz Group. The revised version of IAS 28, Investments in Associates and Joint Ventures, superseded 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. The adoption of the revised version of IAS 28 had no material impact on the financial posi- tion and financial results of the Allianz Group. IFRS 12, Disclosure of Interests in Other Entities, contains disclo- sure requirements previously set out in IASs 27, 28 and 31. Further- more, the new standard includes disclosure requirements regarding interests in unconsolidated structured entities. The disclosure requirements defined by IFRS 12 are initially presented in this Annual Report. Further adopted accounting pronouncements In addition to the implementation of IFRSs 10, 11, 12 and the amend- ments to IAS 27 and IAS 28 the following amendments and revisions to existing standards became effective for the Allianz Group’s con- solidated financial statements as of 1 January 2014: The adoption of IFRS 10 required the additional consolidation of cer- tain investment funds where the Allianz Group has the ability to direct the relevant asset management activities without having a majority investment. In contrast, numerous third-party managed investment funds in which the Allianz Group has invested were deconsolidated to the extent that the Allianz Group cannot exercise power. Furthermore, IFRS 10 led to the deconsolidation of certain investment funds related to unit-linked contracts because invest- ment decisions over these assets are not in the discretion of the − IAS 36, Recoverable Amount Disclosures for Non-Financial Assets, − IAS 32, Offsetting Financial Assets and Financial Liabilities, − IAS 39, Novation of Derivatives and Continuation of Hedge Accounting. The Allianz Group adopted the revisions and amendments as of 1 January 2014, with no material impact on its financial results or financial position. Annual Report 2014 Allianz Group 171 reCentlY issued aCCountinG pronounCements effective on or after 1 January 2015 and not adopted early iFrs 9, Financial Instruments IFRS 9, Financial Instruments, was issued by the IASB in July 2014 and will replace IAS 39 with a new standard. IFRS 9 provides a new approach on how to classify financial instruments based on their cash flow characteristics and the business model under which they are managed. Furthermore, the standard introduces a new impair- ment model for debt instruments based on expected credit losses, while equity investments will no longer be subject to impairment under IFRS 9. The new hedge accounting rules in IFRS 9 provide more opportunities to apply hedge accounting and aim to better align risk management and accounting in order to improve the information about risk management. The effective date announced by the IASB is 1 January 2018, while early application is permitted. However, IFRS 9 has not yet been endorsed by the European Union. The Allianz Group is currently evaluating the impact of adopting IFRS 9 on its consolidated financial statements. Further amendments and interpretations standard/interpretation iFriC 21, Levies ias 1, Disclosure Initiative ias 19, Defined Benefit Plan: Employee Contributions Annual Improvements to iFrss 2010 – 2012 Annual Improvements to iFrss 2011 – 2013 Annual Improvements to iFrss 2012 – 2014 iFrs 15, Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. IFRS 15 supersedes IAS 18, Revenue, IAS 11, Construction Contracts, and a number of revenue-related interpretations. With the introduction of IFRS 15, the IASB pursued the objective of developing a single revenue standard containing comprehensive principles for recognizing revenue. As the core IFRS 15 principle an entity recog- nizes revenue from contracts with customers when and to the extent that it transfers promised goods or services to the customer. The new standard includes a set of quantitative and qualitative disclosure requirements providing information about the nature, amount, tim- ing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. The new standard is generally effective for periods beginning on or after 1 January 2017; earlier application is permitted. The Allianz Group is currently evaluating the impact of IFRS 15 on its consoli- dated financial statements. Allianz Group will decide on the applica- tion date of IFRS 15 once it has been endorsed by the E.U. 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 adopted early by the Allianz Group. eFFeCtiVe date Annual periods beginning on or after 17 June 2014 Annual periods beginning on or after 1 January 2016 (not yet endorsed by e.u.) Annual periods beginning on or after 1 July 2014 Annual periods beginning on or after 1 July 2014 Annual periods beginning on or after 1 July 2014 Annual periods beginning on or after 1 January 2016 (not yet endorsed by e.u.) iFrs 11, Accounting for Acquisitions of Interests in Joint Operations Annual periods beginning on or after 1 January 2016 (not yet endorsed by e.u.) ias 16 and ias 38, Clarification of Acceptable Methods of Depreciation and Amortisation Annual periods beginning on or after 1 January 2016 (not yet endorsed by e.u.) iFrs 10 and ias 28, Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Annual periods beginning on or after 1 January 2016 (not yet endorsed by e.u.) 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. other reClassiFiCations Certain prior-period amounts have been reclassified to conform to the current period presentation. 172 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 5 – Consolidation scope oF consolidation The number of entities by type listed in the table below is included in the scope of consolidation in addition to the parent company Allianz SE. scope oF consolidation Number of fully consolidated entities (subsidiaries) Germany Other countries Subtotal Number of fully consolidated investment funds Germany Other countries Subtotal Total number of fully consolidated entities Number of joint ventures valued at equity Number of associates valued at equity 2014 2013 131 695 826 37 40 77 903 26 58 130 690 820 38 38 76 896 23 108 All subsidiaries, joint ventures and associates are individually listed in the list of participations of the Allianz Group from page 256 of this Annual Report onwards. signiFicant acquisitions signiFicant acquisitions Equity interest Date of initial consolidation Segment 2014 Part of Property-Casualty insurance business of UnipolSai Assicurazioni S.p.A., Bologna 2013 HsBc Taiwan Life branch, Taipei Yapı Kredi Sigorta a.Ş., Istanbul Business portfolios from Pastor Vida s.a. de Seguros y Reaseguros, Madrid 1 At the date of initial consolidation. Goodwill1 € mn Transaction % – – 1 July 2014 Property-Casualty 257 Acquisition 21 June 2013 Life/Health 94.0 12 July 2013 Property-Casualty – 31 December 2013 Life/Health / Asset Management – 222 – Acquisition Acquisition Acquisition In the following section all significant acquisitions during the year ended 31 December 2014 are described. Part of Property-Casualty insurance business of UnipolSai Assicurazioni S.p.A., Bologna Effective 1 July 2014, the Allianz Group acquired specific distribution activities of the Property-Casualty insurance business of UnipolSai Assicurazioni S.p.A., Bologna (“Distribution Activities”). The acquired Distribution Activities include, inter alia, a network of 725 agencies Annual Report 2014 Allianz Group 173 and 470 employees. Effective 31 December 2014, the Allianz Group additionally received the Property-Casualty insurance in-force port- folio managed by the transferred agencies (“Portfolio”) after receipt of the approval by the Italian insurance regulator Istituto per la Vigilanza sulle Assicurazioni (IVASS). The acquired business represents insurance activities with pre- miums equal to approximately € 0.9 Bn (for the full year 2014). It gives the Allianz Group the unique opportunity to further increase its share in a key profitable market. The following table summarizes the recognized amounts of assets acquired and liabilities assumed related to the Distribution Activities and the Portfolio: property-casualty insurance Business oF unipolsai assicurazioni s.p.a. – identiFiaBle assets and liaBilities € mn Cash and cash equivalents Deferred acquisition costs Deferred tax assets Other assets Intangible assets Total assets Unearned premiums Other liabilities Total liabilities Total net identifiable assets Distribution Activities as of 1 July 2014 Portfolio as of 31 December 2014 – – 4 28 113 145 – (27) (27) 118 154 39 – 49 1 243 (231) (11) (242) 1 the Allianz Group during the second half of 2014 and (ii) policies transferred with the Portfolio. A payment of € 179 mn was pro- cessed on 20 February 2015. As of 1 July 2014, the Allianz Group recognized an amount of € 175 mn for the contingent consideration arrangement attributable to the Distribution Activities and as of 31 December 2014 a further amount of € 1 mn attributable to the Portfolio. During the fourth quarter of 2014, the fair value of the contingent consideration attributable to the Distribution Activities was increased by € 5 mn to € 180 mn resulting in the recognition of a corresponding loss. The fair value of the total contingent consideration of € 181 mn is based on information at the reporting date regarding policies renewed by the Allianz Group during the second half of 2014 and on information provided by the seller regarding policies transferred with the Portfolio. The latter were confirmed in the first quarter of 2015, leading to a final reduction of the contingent consideration to € 179 mn. The acquired Distribution Activities comprise goodwill which was determined as follows as of 1 July 2014: property-casualty insurance Business oF unipolsai assicurazioni s.p.a. – determination oF goodwill € mn Total consideration allocated to the Distribution Activities consisting of € 200 mn initial payment plus € 175 mn contingent consideration Total net identifiable assets of the Distribution Activities Goodwill Fair value 375 118 257 Intangible assets consist of the customer relationships related to the acquired agency network and the present value of the transferred in- force business. Other assets mainly include receivables from policyholders for premiums due and receivables from agents. Other liabilities comprise mainly payables to agents and employees. The assumed other liabilities related to the Distribution Activities are provisional due to the pending receipt of the final valu- ations of those liabilities. The carrying amounts allocated to the identifiable assets and liabilities of the Portfolio are provisional due to pending receipt of the final valuations of those assets and liabilities. The aggregate consideration for the acquired Property-Casualty insurance business of UnipolSai Assicurazioni S.p.A. amounted to a maximum of € 440 mn. It includes: − a payment of € 200 mn processed on 30 June 2014; plus − a contingent consideration of up to € 240 mn, calculated as a per- centage of the premiums generated by (i) policies renewed by The goodwill of € 257 mn consists largely of synergies, new business and cross-selling opportunities expected to be generated from the acquired network of agencies and is expected to be deductible for income tax purposes. Acquisition-related costs in the amount of € 8 mn (including € 6 mn registration taxes and € 2 mn legal and consulting fees) are included in administrative expenses. Further acquisition-related costs in the amount of € 6 mn are expected to be incurred in the first quarter of 2015. The impact of the acquired Property-Casualty insurance busi- ness of UnipolSai Assicurazioni S.p.A. on the Allianz Group’s total revenues and net income since the acquisition was € 211 mn and € (60) mn, respectively, impacted by non-recurring integration costs. It is impracticable to provide consistent information about the gross premiums written, total revenues and net income of the combined entity (Allianz Group including the acquired Property-Casualty insur- ance business of UnipolSai Assicurazioni S.p.A.) for the year ended 31 December 2014 because the Allianz Group did not have access to the UnipolSai database and systems for periods before 1 July 2014. 174 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows signiFicant acquisition aFter tHe reporting date Property-Casualty insurance business of the Territory Insurance Office (tio), Darwin Effective 1 January 2015, the Allianz Group acquired the Property- Casualty insurance business of the Territory Insurance Office (TIO Business), Darwin, and entered into a 10-year agreement to manage the compulsory motor accidents compensation scheme (mAC Con- tract). The acquired TIO Business includes, inter alia, all relevant insurance assets and liabilities, operations, employees and the brand related to the TIO Business. The acquired TIO Business represents insurance activities with premiums equal to approximately € 88 mn (for the year 2014). It pro- vides the necessary scale for the Allianz Group to implement a growth strategy in Northern Australia and to respond to the relation- ship challenges in existing financial institution and broker partner- ships because of a current lack of presence. The preliminary total consideration paid in cash amounts to € 154 mn. This preliminary consideration was partly determined by reference to the net asset value of the TIO Business as of 30 June 2014 and is subject to change according to the movements in the net asset value of the TIO Business until 31 December 2014. Total identifiable assets and liabilities expected to be recognized as of 1 January 2015 amount to approximately € 0.3 Bn and € 0.2 Bn, respectively. At the time the consolidated financial statements were authorized for issue, the purchase accounting for the business com- bination was not entirely completed due to the pending receipt of the final valuations for investments, intangible assets, insurance liabili- ties and reinsurance assets, deferred taxes, and other liabilities. It is expected that goodwill will result from the business combi- nation which will reflect largely the benefits associated with cost and reinsurance synergies and the ability to revert to an existing infra- structure in a new geographical market. None of this goodwill that will be recognized is expected to be deductible for income tax purposes. Acquisition-related costs in the amount of € 1 mn are included in administrative expenses. signiFicant disposals and deconsolidations During 2014 and 2013, no significant disposals or deconsolidations occurred. signiFicant disposal aFter tHe reporting date Personal insurance business of Fireman’s Fund Insurance Company Corp., Novato At the end of the financial year 2014, the Allianz Group announced its decision to realign its Property-Casualty insurance business in the United States. One integral part of the reorganization is the sale of the personal insurance business to ACE which is expected to be executed in 2015. The sale, which will take place by means of a renewal rights arrangement, is still subject to regulatory approval of the California Department of Insurance. In addition, the realignment comprises the integration of Fireman’s Fund Insurance Company’s commercial business into Allianz Global Corporate & Specialty North America, as well as the internal transfer of the discontinued run-off business through a reinsurance agreement within the Allianz Group. The reor- ganization is expected to have a negative impact of approximately USD 0.2 Bn on the Allianz Group’s financial statements in 2015. Expenses in the context of the restructuring will comprise expenses for HR-related items, office buildings and IT infrastructure. signiFicant cHanges in non-controlling interests acquisitions oF signiFicant non-controlling interests Date of acquisition Equity interest change Costs of acquisition Increase / (decrease) in shareholders’ equity Decrease in non-controlling interests 2014 Euler Hermes Group s.a., Paris 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 31 March 2014 and 30 June 2014 5 March 2013 20 September 2013 12 November 2013 from 14 October until 18 November 2013 Annual Report 2014 Allianz Group % 0.3 34.0 50.0 22.8 5.8 € mn € mn € mn 17 22 9 9 41 (5) (11) – (4) (12) (12) (11) (9) (5) (29) 175 6 – Segment reporting IdentIfIcatIon of reportable segments The business activities of the Allianz Group are first organized by product 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 activities are further divided into the business segments Property-Casualty and Life/Health. In accordance with the responsibilities of the Board of Management, each of the insurance business segments 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 reportable segments: Holding & Treasury, Banking and Alternative Investments. In total, the Allianz Group has identified 17 reportable segments in accordance with IFRS 8, Operating Segments. The types of products and services from which the reportable segments derive revenue are described below. Property-Casualty In the business segment Property-Casualty, reportable segments offer a wide variety of insurance products to both private and corporate customers, including motor liability and own damage, accident, gen- eral liability, fire and property, legal expense, credit and travel insurance. Life/Health In the business segment Life/Health, reportable segments offer a comprehensive range of life and health insurance products on both an individual and a group basis, including annuities, endowment and term insurance, unit-linked and investment-oriented products, as well as full private health, supplemental health and long-term care insurance. 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 primary asset management markets. Corporate and Other The reportable segment Holding & Treasury includes the management and support of the Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial reporting, controlling, communication, legal, human resources, technology and other func- tions. The reportable segment Banking consists of the banking activ- ities in Germany, France, Italy, the Netherlands and Bulgaria. The banks offer a wide range of products for corporate and retail clients, with a primary focus on the latter. The reportable segment Alternative Investments provides global alternative investment management services in the private equity, real estate, renewable energy and infra- structure sectors, mainly on behalf of the Allianz Group’s insurance operations. 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 parties. Transactions between reportable segments are eliminated in the Consolidation. For the reportable segment Asset Management, interest revenues are reported net of interest expenses. Financial infor mation is recorded based on reportable segments. Cross-seg- mental country-specific information is not determined. 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. Operating profit highlights the portion of income before income taxes attribut- able 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 understanding of the Allianz Group’s underlying operating performance and the com- parability of its operating performance over time. 176 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows To better understand the ongoing operations of the business, the Allianz Group generally excludes the following non-operating effects: The following exceptions apply to this general rule: − acquisition-related expenses and the amortization of intangible assets, as these relate to business combinations, − 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. recent organIzatIonal changes Effective 1 January 2014, the Allianz Group prospectively allocated certain entities from the reportable segment Asset Management to the reportable segments German Speaking Countries, Western & Southern Europe and Growth Markets within the business segment Life/Health and to the reportable segment Banking. In the fourth quarter of 2014, the French International Health business was reclassified from the reportable segment Western & Southern Europe (Life/Health) to the reportable segment Allianz Worldwide Partners effective as of 1 January 2014 to reflect the change in management responsibility and to bundle the international health business to provide a comprehensive product range to the customers. − interest expenses from external debt, as these relate to the capital 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 vary, sometimes materially, through time, − one-off effect from pension revaluation. Allianz SE has a joint liability for a large part of the pension provisions of its German subsidiaries. Service costs incurred in this context are reim- bursed by the German subsidiaries of Allianz SE, resulting in corresponding service revenues at Allianz SE. Effective 1 January 2014, the German subsidiaries of Allianz SE changed the applica- tion of the option provided by article 67 (1) sentence 1 of the Introductory Act to the German Commercial Code (EGHGB) to distribute the conversion expenses due to the first-time applica- tion of the German Accounting Law Modernization Act ( BilMoG) in 2010 over a period of up to 15 years in the way that the conver- sion expenses were fully recognized in the first quarter of 2014. The resulting one-off expenses at the German subsidiaries and one-off income at Allianz SE are shown as non-operating items. In case of policyholder participation within the Life/Health insurance business, the one-off expenses and the corresponding one-off income at Allianz SE are presented within operating profit. On the Allianz Group level, the one-off expenses and income offset each other. The only impact on the Allianz Group level is the related policyholder participation, which had a posi- tive impact of € 116 mn on operating profit and income before income taxes in 2014. Annual Report 2014 Allianz Group 177 busIness segment InformatIon – consolIdated balance sheets busIness segment InformatIon – consolIdated balance sheets Property-Casualty Life/Health Asset Management Corporate and Other Consolidation 2014 2013 2014 2013 2014 2013 2014 2013 3,668 601 97,129 14,963 – 8,466 4,595 1,013 23,494 61 2,722 156,710 2,773 638 88,432 16,131 – 7,922 4,354 1,083 21,664 131 2,478 145,607 7,555 5,238 374,589 91,411 94,564 5,176 17,667 240 18,723 92 3,063 618,318 5,828 5,548 309,037 89,922 81,064 4,717 17,690 261 17,850 – 2,640 534,557 Property-Casualty Life/Health Asset Management Corporate and Other Consolidation 2014 2013 2014 129 878 16,595 58,925 14,276 – 2,681 19,445 – 38 – 78 1,189 15,367 56,614 13,389 – 2,154 17,127 – 37 – 8,240 4,273 3,222 10,081 449,263 94,564 4,226 13,739 – 13 95 2013 5,869 2,260 2,855 9,960 390,873 81,064 2,420 14,009 – 12 95 112,969 105,956 587,714 509,417 (838) (521) (94,048) (6,917) (752) (468) (91,189) (7,868) (55) (30) (2,167) (16,684) (1,684) (14,526) – – – – – – – – (121,229) (116,517) 2014 1,449 46 106 72 – – – – 177 2,951 7,286 12,087 – – – – – 2 – – – 2,231 2,407 2013 1,860 635 1,140 449 – – 159 167 2,188 16 7,268 13,883 1 – – – – – – 123 2,591 14 4,043 2,028 511 108,669 17,547 1,782 8,595 83 685 139,900 – – – – – – – 1,497 307 103,727 18,166 1,680 7,457 714 133,549 – – – – – – – – – 2014 2013 2014 2013 2014 2013 174 1,315 648 20,749 534 21,337 (521) (3,057) (17) (18) (205) – – (2,167) (24,834) (4,075) (50) (34,943) (469) (2,991) (10) (9) (190) – – (1,684) (20,900) (5,205) (64) (31,521) Total equity Total liabilities and equity 189 28,028 102 12,231 11,992 73,938 164 23,605 13,186 11,509 70,335 Group 2014 13,863 5,875 486,445 117,075 94,564 13,587 22,262 1,046 37,080 235 13,755 805,787 Group 2014 8,496 23,015 19,800 68,989 463,334 94,564 4,932 38,609 102 8,207 12,037 742,085 63,702 805,787 2013 11,207 6,660 411,148 116,800 81,064 12,609 22,203 1,508 34,632 147 13,100 711,079 2013 6,013 23,109 18,212 66,566 404,072 81,064 3,178 36,431 – 8,030 11,554 658,230 52,849 711,079 € 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 and assets of disposal groups 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 Liabilities of disposal groups classified as held for sale Certificated liabilities Subordinated liabilities Total liabilities 178 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 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 2014 1,449 46 106 72 – – – 177 2,951 – 7,286 12,087 2013 1,860 635 1,140 449 – – 159 167 2,188 16 7,268 13,883 2014 2013 2014 2013 2,028 511 108,669 17,547 – – – 1,782 8,595 83 685 1,497 307 103,727 18,166 – – – 1,680 7,457 – 714 (838) (521) (94,048) (6,917) – (55) – (2,167) (16,684) – – (752) (468) (91,189) (7,868) – (30) – (1,684) (14,526) – – 139,900 133,549 (121,229) (116,517) Property-Casualty Life/Health Asset Management Corporate and Other Consolidation 2014 – 174 – – – – 2 2,231 – – – 2,407 2013 1 1,315 – – – – 123 2,591 – – 14 4,043 2014 2013 2014 2013 648 20,749 – – – – 189 28,028 102 12,231 11,992 73,938 534 21,337 – – – – 164 23,605 – 13,186 11,509 70,335 (521) (3,057) (17) (18) (205) – (2,167) (24,834) – (4,075) (50) (34,943) Total equity Total liabilities and equity (469) (2,991) (10) (9) (190) – (1,684) (20,900) – (5,205) (64) (31,521) Financial assets carried at fair value through income Investments Loans and advances to banks and customers Financial assets for unit-linked contracts Non-current assets and assets of disposal groups classified as held for sale € mn as of 31 December assets Cash and cash equivalents Reinsurance assets Deferred acquisition costs Deferred tax assets Other assets 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 Liabilities of disposal groups classified as held for sale Deferred tax liabilities Other liabilities Certificated liabilities Subordinated liabilities Total liabilities 2014 2013 2014 2013 3,668 601 97,129 14,963 – 8,466 4,595 1,013 23,494 61 2,722 156,710 129 878 16,595 58,925 14,276 – 2,681 19,445 38 – – 2,773 638 88,432 16,131 – 7,922 4,354 1,083 21,664 131 2,478 145,607 78 1,189 15,367 56,614 13,389 – 2,154 17,127 37 – – 7,555 5,238 374,589 91,411 94,564 5,176 17,667 240 18,723 92 3,063 618,318 8,240 4,273 3,222 10,081 449,263 94,564 4,226 13,739 – 13 95 2014 2013 2014 5,828 5,548 309,037 89,922 81,064 4,717 17,690 261 17,850 – 2,640 534,557 2013 5,869 2,260 2,855 9,960 390,873 81,064 2,420 14,009 – 12 95 112,969 105,956 587,714 509,417 Group 2014 13,863 5,875 486,445 117,075 94,564 13,587 22,262 1,046 37,080 235 13,755 805,787 Group 2014 8,496 23,015 19,800 68,989 463,334 94,564 4,932 38,609 102 8,207 12,037 742,085 63,702 805,787 2013 11,207 6,660 411,148 116,800 81,064 12,609 22,203 1,508 34,632 147 13,100 711,079 2013 6,013 23,109 18,212 66,566 404,072 81,064 3,178 36,431 – 8,030 11,554 658,230 52,849 711,079 Annual Report 2014 Allianz Group 179 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) € mn Total revenues1 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 Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net)2 Loan loss provisions Acquisition and administrative expenses (net), excluding acquisition-related expenses and one-off effect from pension revaluation Fee and commission expenses Operating amortization of intangible assets 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 One-off effect from pension revaluation Non-operating 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 Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group 2014 48,322 43,759 3,595 6 186 (71) (20) (323) 3,373 1,260 60 (28,878) (538) – (12,400) (1,180) – (30) (45) – 5,382 (114) 463 (168) 180 – – – (537) (49) – (406) 4,976 (1,528) 3,448 159 3,290 2013 46,579 42,047 3,594 (75) 70 (52) (11) (315) 3,210 1,226 47 (27,713) (384) – (11,942) (1,141) – (62) (21) – 5,267 25 520 (217) 328 – – – – (32) – 296 5,563 (1,746) 3,817 167 3,650 2014 67,331 24,514 17,307 (1,367) 3,204 (107) (677) (903) 17,457 1,017 156 (20,775) (12,563) – (5,860) (387) (19) 3 (217) – 3,327 (131) 183 (21) 31 – – – (7) (36) – (12) 3,316 (996) 2,320 122 2,198 2013 56,784 24,580 16,767 (1,832) 3,294 (81) (331) (839) 16,979 646 157 (20,096) (13,555) – (5,603) (251) – (50) (98) – 2,709 27 88 (17) 99 – – – – (15) – 83 2,793 (852) 1,941 80 1,861 342 332 2,603 (820) (1,004) 2014 6,388 2013 7,162 (10) (28) 7,825 8,611 – 40 12 – – – 25 10 – – – (3,994) (1,484) (6) – – – 3,161 – 2 – 2 – – – – (32) (26) (55) 3,106 (1,181) 1,925 93 1,832 (3,787) (1,445) – 7 5 – – – 2 6 – – – – 3 – – – 4 – 4 – – 6 – (14) (11) (15) 2,588 (967) 1,621 86 1,535 2014 556 – 876 33 – – (573) (77) 259 724 117 (45) (1,310) (567) – – – 8 – (7) (33) 184 (7) 144 (42) (846) 1 558 (8) – (192) (1,013) 356 (657) 15 (673) 2013 551 903 40 (623) (82) 238 687 – – – 1 – – (86) (1,295) (493) (53) (2) – – (46) 346 (80) 220 (17) (901) (2) (106) – – (806) (1,810) 476 (1,334) 7 (1,341) 2014 (344) – (342) 22 (184) 346 – 342 183 (707) (124) (828) 3 – 7 – – – – – – – 134 901 (91) (25) (22) (47) 19 (901) (929) (1,020) 890 (129) – (129) (1,301) (1,868) 2013 (302) – (386) (14) (30) 363 44 332 309 (678) (6) (50) 7 – 3 – – – 15 (68) 17 (4) – 13 2 – – – 44 – 59 (9) 3 (6) – (6) 2014 122,253 68,274 21,443 3,205 (415) (697) (961) 21,274 10,119 216 (49,650) (13,929) (45) (23,351) (3,238) (19) (16) (135) 901 10,402 (303) 812 (197) 312 (23) (846) 7 – (104) (901) (1,554) 8,848 (2,245) 6,603 381 6,221 2013 110,773 66,628 20,918 3,334 (421) (298) (905) 20,761 10,492 209 (47,802) (13,990) (86) (22,831) (3,038) (170) (106) – – 10,066 23 952 (313) 662 (15) (901) (34) (136) – – (423) 9,643 (3,300) 6,343 347 5,996 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 2 For the year ended 31 December 2014, includes expenses for premium refunds (net) in Property-Casualty of € (307) mn (2013: € (162) mn). 180 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows Property-Casualty Life/Health Asset Management Corporate and Other Consolidation Group 2014 6,388 – 7 5 – (10) – – 2 7,825 6 – – – (3,787) (1,445) – 3 – – 2,603 – 4 – 4 – – 6 (14) (11) – (15) 2,588 (967) 1,621 86 1,535 2013 7,162 – 40 12 – (28) – – 25 8,611 10 – – – (3,994) (1,484) – (6) – – 3,161 – 2 – 2 – – (32) – (26) – (55) 3,106 (1,181) 1,925 93 1,832 2014 556 – 876 33 – (573) – (77) 259 724 117 – – (45) (1,310) (567) – 8 (7) – 2013 551 – 903 40 – (623) – (82) 238 687 1 – – (86) (1,295) (493) – (53) (2) – (820) (1,004) (33) 184 (7) 144 (42) (846) 1 558 (8) – (192) (1,013) 356 (657) 15 (673) (46) 346 (80) 220 (17) (901) (2) – (106) – (806) (1,810) 476 (1,334) 7 (1,341) 2014 (344) – (342) 22 (184) 346 – 342 183 (707) (124) 3 (828) – 7 342 – – 134 901 (91) (25) (22) – (47) 19 – – – – (901) (929) (1,020) 890 (129) – (129) 1 Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating 2 For the year ended 31 December 2014, includes expenses for premium refunds (net) in Property-Casualty revenues in Asset Management and total revenues in Corporate and Other (Banking). of € (307) mn (2013: € (162) mn). Annual Report 2014 Allianz Group 2013 (302) – (386) (14) (30) 363 44 332 309 (678) (6) 7 (50) – 3 332 – – 15 – (68) 17 (4) – 13 2 – – – 44 – 59 (9) 3 (6) – (6) 2014 122,253 68,274 21,443 2013 110,773 66,628 20,918 (1,301) (1,868) 3,205 (415) (697) (961) 21,274 10,119 216 (49,650) (13,929) (45) (23,351) (3,238) (19) (16) (135) 901 10,402 (303) 812 (197) 312 (23) (846) 7 – (104) (901) (1,554) 8,848 (2,245) 6,603 381 6,221 3,334 (421) (298) (905) 20,761 10,492 209 (47,802) (13,990) (86) (22,831) (3,038) – (170) (106) – 10,066 23 952 (313) 662 (15) (901) (34) – (136) – (423) 9,643 (3,300) 6,343 347 5,996 181 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 revenues1 Premiums earned (net) Operating investment result Interest and similar income Investment expenses Subtotal Fee and commission income Other 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) Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net)2 Loan loss provisions Acquisition and administrative expenses (net), excluding acquisition-related expenses and one-off effect from pension revaluation Fee and commission expenses Operating amortization of intangible assets 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 One-off effect from pension revaluation Non-operating 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 2014 48,322 43,759 3,595 6 186 (71) (20) (323) 3,373 1,260 60 (28,878) (538) (12,400) (1,180) (30) (45) 5,382 (114) 463 (168) 180 – – – – – – – (537) (49) (406) 4,976 (1,528) 3,448 159 3,290 2013 46,579 42,047 3,594 (75) 70 (52) (11) (315) 3,210 1,226 47 (27,713) (384) (11,942) (1,141) (62) (21) 5,267 25 520 (217) 328 – – – – – – – – (32) 296 5,563 (1,746) 3,817 167 3,650 2014 67,331 24,514 17,307 (1,367) 3,204 (107) (677) (903) 17,457 1,017 156 (20,775) (12,563) – 3 – (5,860) (387) (19) (217) 3,327 (131) 183 (21) 31 – – – – (7) (36) (12) 3,316 (996) 2,320 122 2,198 2013 56,784 24,580 16,767 (1,832) 3,294 (81) (331) (839) 16,979 646 157 (20,096) (13,555) (5,603) (251) (50) (98) 2,709 – – – – – – – – 27 88 (17) 99 (15) 83 2,793 (852) 1,941 80 1,861 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), excluding one-off effect from pension revaluation 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) One-off effect from pension revaluation 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 ratio3 in % Expense ratio4 in % Combined ratio5 in % German Speaking Countries Western & Southern Europe Iberia & Latin America Growth Markets Allianz Worldwide Partners Consolidation and Other2 Property-Casualty USA1 Global Insurance Lines & Anglo Markets 2014 11,997 (1,879) (35) 10,083 1,118 5 186 133 30 2013 11,748 (1,882) (5) 9,861 1,124 (52) 70 149 34 2014 2013 10,865 10,547 (806) (103) 9,956 870 (8) – 39 8 (725) (87) 9,735 880 15 – 23 7 2014 4,437 (705) (33) 3,699 197 8 – – 18 2013 4,620 (738) (72) 3,810 203 6 – – – 11,554 11,186 10,866 10,660 3,922 4,019 2,112 2,224 14,344 13,484 2,618 2,630 3,544 2,802 (6,680) (460) (8) (20) (103) (2,564) (121) (4) (19) (7,134) (322) (20) (11) (97) (2,534) (132) (3) (16) (6,281) (6,070) (2,758) (2,611) (1,603) (1,376) (8,010) (7,574) (1,676) (1,491) (1,956) (1,457) (28,878) (27,713) (40) (17) – (106) (40) (11) – (98) (6) (3) – (14) (4) (3) – (14) (2,782) (2,637) (1,035) (992) (644) (683) (39) (17) (5) (35) (53) (4) – – (1) – – – (3,631) (502) (6) (18) (3,493) (498) (7) – (831) (54) – (2) (851) (72) – (1) (9,979) (10,270) (9,286) (8,948) (3,818) (3,624) (2,263) (2,070) (12,300) (11,699) (2,579) (2,428) (3,439) (2,700) 1,575 916 1,580 1,712 104 395 (151) 154 2,044 1,785 39 201 105 102 5,382 5,267 (49) 121 (35) (530) (2) (495) 1,080 (271) 810 (3) 812 66.2 25.4 91.7 12 114 (32) – (2) 93 1,009 (283) 726 (4) 730 72.3 25.7 98.0 (45) 172 (98) – (34) (6) 1,575 (600) 975 14 960 63.1 27.9 91.0 12 216 (150) – (17) 60 1,773 (684) 1,088 15 1,073 62.4 27.1 89.4 2 13 (2) – (2) 11 115 (12) 103 (1) 105 74.6 28.0 102.6 5 18 (15) – (2) 6 401 (127) 274 7 267 68.5 26.0 94.6 2014 1,958 (115) 31 1,874 240 2013 2,058 (125) 56 1,988 236 (2) (1) – – – (8) – – (3) (3) – – (3) 15 (7) – – 6 (146) 63 (83) – (83) 85.6 34.4 120.0 (9) – – (3) – – – – – – 2 5 – – – 7 161 (34) 127 – 127 69.2 34.3 103.5 2014 17,172 (4,015) (391) 12,766 977 4 – – 597 (7) (38) – (87) (13) 127 (19) (7) (9) 79 2,123 (597) 1,526 119 1,407 62.7 28.4 91.2 2013 15,969 (3,841) (158) 11,970 970 (45) 590 – – (10) (26) – (92) (6) 153 (16) – (7) 124 1,909 (529) 1,380 119 1,261 63.3 29.2 92.5 2014 3,022 (663) 42 2,401 158 (1) – 56 4 (4) (4) – (9) (6) 12 (7) – (7) (8) 31 (55) (25) 27 (52) 69.8 34.6 104.4 2013 3,211 (673) (150) 2,388 161 1 – 78 2 – (3) – (9) – 10 (4) – (8) (2) 199 (53) 146 28 118 62.5 35.7 98.1 2014 3,341 (247) (113) 2,981 38 – – – 526 (13) (1) – (2) (924) (544) – – – 3 – – – 3 108 (27) 81 3 78 65.6 31.0 96.6 2013 2,507 (78) (133) 2,296 33 – – 1 471 (2) – – (1) (763) (478) 1 – – 3 – – – 4 106 (36) 70 2 68 63.5 33.2 96.7 2014 2013 2014 2013 (4,469) (4,081) 4,469 4,081 (2) (13) 48,322 (3,961) (602) 43,759 3,595 6 186 1,260 60 48,867 (538) (71) (20) (323) 46,579 (3,981) (550) 42,047 3,594 (75) 70 1,226 47 46,908 (384) (52) (11) (315) (12,400) (11,942) (1,180) (1,141) (30) (45) (62) (21) (43,485) (41,641) 4,976 5,563 (1,528) (1,746) 3,448 3,817 (114) 463 (168) (537) (49) (406) 159 3,290 66.0 28.3 94.3 25 520 (217) – (32) 296 167 3,650 65.9 28.4 94.3 (84) (96) 13 11 73 – – 98 – – – – 1 – – – – 2 – – – – 4 4 6 – 6 – 6 –6 –6 –6 – – – – (90) – (92) 86 – 1 – – 11 79 – – 178 86 – – – – 4 4 90 (30) 60 – 60 –6 –6 –6 1 2 3 The reserve strengthening for asbestos risks in 2014 at Fireman’s Fund Insurance Company of € 79 mn had no impact on the financial results of the Allianz Group and Fireman’s Fund’s combined ratio under IFRS. The 2014 analysis of the Allianz Group’s asbestos risks resulted in a reduction of reserves and a positive run-off result of € 86 mn reflected in the operating profit for 2014. Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 4 5 6 Represents acquisition and administrative expenses (net), excluding one-off effect from pension revalu- ation, divided by premiums earned (net). Represents the total of acquisition and administrative expenses (net), excluding one-off effect from pension revaluation, and claims and insurance benefits incurred (net) divided by premiums earned (net). Presentation not meaningful. 182 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows Growth Markets Allianz Worldwide Partners Consolidation and Other2 Property-Casualty 11,554 11,186 10,866 10,660 3,922 4,019 2,112 2,224 14,344 13,484 2,618 2,630 2014 3,022 (663) 42 2,401 158 (1) – 56 4 2013 3,211 (673) (150) 2,388 161 1 – 78 2 2014 3,341 (247) (113) 2,981 38 – – 526 – 3,544 2013 2,507 (78) (133) 2,296 33 – – 471 1 2,802 USA1 Global Insurance Lines & Anglo Markets 2014 1,958 (115) 31 1,874 240 2013 2,058 (125) 56 1,988 236 (2) (1) – – – – – – 2014 17,172 (4,015) (391) 12,766 977 4 – 597 – 2013 15,969 (3,841) (158) 11,970 970 (45) – 590 – 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 through 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 Claims and insurance benefits incurred (net) Change in reserves for insurance and investment contracts (net) Interest expenses Investment expenses Operating impairments of investments (net) Acquisition and administrative expenses (net), excluding one-off effect from pension revaluation 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) One-off effect from pension revaluation 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 ratio3 in % Expense ratio4 in % Combined ratio5 in % German Speaking Countries Western & Southern Europe Iberia & Latin America 2014 2013 10,865 10,547 2014 11,997 (1,879) (35) 10,083 1,118 5 186 133 30 (6,680) (460) (8) (20) (103) (2,564) (121) (4) (19) (49) 121 (35) (530) (2) (495) 1,080 (271) 810 (3) 812 66.2 25.4 91.7 2013 11,748 (1,882) (5) 9,861 1,124 (52) 70 149 34 (7,134) (322) (20) (11) (97) (2,534) (132) (3) (16) 12 114 (32) – (2) 93 1,009 (283) 726 (4) 730 72.3 25.7 98.0 (806) (103) 9,956 870 (8) – 39 8 (40) (17) – (106) (39) (17) (5) (45) 172 (98) – (34) (6) 1,575 (600) 975 14 960 63.1 27.9 91.0 (725) (87) 9,735 880 15 – 23 7 (40) (11) – (98) (35) (53) (4) 12 216 (150) – (17) 60 1,773 (684) 1,088 15 1,073 62.4 27.1 89.4 2014 4,437 (705) (33) 3,699 197 8 – – 18 (6) (3) – (14) – – (1) 2 13 (2) – (2) 11 115 (12) 103 (1) 105 74.6 28.0 102.6 2013 4,620 (738) (72) 3,810 203 6 – – – – – – (4) (3) – (14) 5 18 (15) (2) – 6 401 (127) 274 7 267 68.5 26.0 94.6 1 The reserve strengthening for asbestos risks in 2014 at Fireman’s Fund Insurance Company of € 79 mn had 4 Represents acquisition and administrative expenses (net), excluding one-off effect from pension revalu- no impact on the financial results of the Allianz Group and Fireman’s Fund’s combined ratio under IFRS. ation, divided by premiums earned (net). 2 The 2014 analysis of the Allianz Group’s asbestos risks resulted in a reduction of reserves and a positive 5 Represents the total of acquisition and administrative expenses (net), excluding one-off effect from run-off result of € 86 mn reflected in the operating profit for 2014. pension revaluation, and claims and insurance benefits incurred (net) divided by premiums earned (net). 3 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 6 Presentation not meaningful. (6,281) (6,070) (2,758) (2,611) (1,603) (1,376) (8,010) (7,574) (1,676) (1,491) (1,956) (1,457) (8) – – (3) (9) – – (3) (2,782) (2,637) (1,035) (992) (644) (683) – (3) – – – – (7) (38) – (87) (3,631) (502) (6) (18) (10) (26) – (92) (3,493) (498) (7) – (4) (4) – (9) (831) (54) – (2) – (3) – (9) (851) (72) – (1) (13) (1) – (2) (924) (544) – – – (2) – (1) (763) (478) 1 – (9,979) (10,270) (9,286) (8,948) (3,818) (3,624) (2,263) (2,070) (12,300) (11,699) (2,579) (2,428) (3,439) (2,700) 1,575 916 1,580 1,712 104 395 (151) 154 2,044 1,785 39 201 105 102 (3) 15 (7) – – 6 (146) 63 (83) – (83) 85.6 34.4 120.0 2 5 – – – 7 161 (34) 127 – 127 69.2 34.3 103.5 (13) 127 (19) (7) (9) 79 2,123 (597) 1,526 119 1,407 62.7 28.4 91.2 (6) 153 (16) – (7) 124 1,909 (529) 1,380 119 1,261 63.3 29.2 92.5 (6) 12 (7) – (7) (8) 31 (55) (25) 27 (52) 69.8 34.6 104.4 – 10 (4) – (8) (2) 199 (53) 146 28 118 62.5 35.7 98.1 – 3 – – – 3 108 (27) 81 3 78 65.6 31.0 96.6 – 3 – – – 4 106 (36) 70 2 68 63.5 33.2 96.7 Annual Report 2014 Allianz Group 2014 2013 2014 2013 (4,469) (4,081) 4,469 4,081 – – (2) – – (90) – (92) 86 – 1 – – 11 79 – – 178 86 – – – – 4 4 90 (30) 60 – 60 –6 –6 –6 – – (13) – – (84) 1 (96) – – 13 – – 11 73 – – 98 2 – – – – 4 4 6 – 6 – 6 –6 –6 –6 48,322 (3,961) (602) 43,759 3,595 6 186 1,260 60 48,867 46,579 (3,981) (550) 42,047 3,594 (75) 70 1,226 47 46,908 (28,878) (27,713) (538) (71) (20) (323) (384) (52) (11) (315) (12,400) (11,942) (1,180) (1,141) (30) (45) (62) (21) (43,485) (41,641) 5,382 5,267 (114) 463 (168) (537) (49) (406) 25 520 (217) – (32) 296 4,976 5,563 (1,528) (1,746) 3,448 3,817 159 3,290 66.0 28.3 94.3 167 3,650 65.9 28.4 94.3 183 reportable segments – lIfe/health reportable segments – lIfe/health € mn Statutory premiums1 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 Fee and commission expenses Operating amortization of intangible assets 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) One-off effect from pension revaluation Non-operating 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 reserves2 in basis points (14,507) (13,139) (8,615) (9,273) (81) (376) (603) (98) (275) (557) (3,826) (2,178) (22) (293) (225) (1,817) (249) – (4) (13) (4,113) (2,364) (24) (76) (213) (1,795) (208) – (16) (10) German Speaking Countries Western & Southern Europe Iberia & Latin America USA Growth Markets Consolidation Life/Health Global Insurance Lines & Anglo Markets 2014 2013 2014 2013 24,319 (151) (342) 23,826 (8,269) 15,557 9,108 375 2,365 82 132 22,251 (167) (163) 21,922 (6,350) 15,572 8,936 (1,141) 2,648 49 126 23,090 (1,015) (7) 22,068 19,830 (1,086) 22 18,766 (17,742) (14,183) (1,185) (1,078) (10,734) (6,312) (3,712) (3,300) (41,643) (31,223) 4,326 3,864 (67) 742 531 21 4,583 3,878 138 487 437 31 27,620 26,189 9,417 9,554 1,215 1,095 2,542 3,022 3,703 3,366 (65) 44,832 43,613 (1,060) (1,054) (68) (88) (5,860) (5,603) (24) (24) 2014 1,844 (12) (4) 1,828 643 374 32 26 140 – (605) (100) (2) (1) (7) (202) (70) – – – – 1 – – (16) (15) 213 (48) 165 44 121 256 2013 1,786 (19) (4) 1,762 684 371 21 16 3 – (626) (99) (3) (1) (7) (201) (1) – – – – – – – – – 158 (47) 112 23 89 201 2014 11,840 (115) (8) 11,717 984 3,030 (1,641) 57 113 – (84) (672) (8) – (38) – – – – – – (126) (6) (131) 524 (154) 371 – 371 81 2013 7,317 (115) (7) 7,195 883 2,733 (781) 106 80 – (93) (1,346) (7) 23 (34) – – – 487 33 28 – – (1) 59 546 (148) 398 – 398 70 2014 537 (110) (29) 398 – 398 57 (58) (1) – – 396 (288) (25) (1) – – – – – – – – – – – – 14 (9) 5 – 5 76 (337) (1,465) (1,788) (973) (472) (20,775) (20,096) (12,563) (13,555) 2013 515 (82) (4) 430 – 430 76 (1) – – 451 (54) (1) (1) – – – – – – – – – – – – 23 (7) 16 – 16 111 2014 6,820 (347) (154) 6,319 2,607 914 7 17 154 3 (34) (7) (30) (937) (14) – 8 (5) 247 – 35 (4) – (7) 24 271 (56) 215 45 171 87 2013 6,174 (269) (177) 5,728 2,429 836 (16) 37 81 – (10) (2) (29) (902) (1) (31) – – – 25 (4) – (8) 13 144 (32) 111 37 75 49 2014 2013 (1,120) (1,089) 1,120 1,089 – – – – – – – – 2 3 – – – – – – – – – – – (41) (15) (3) (3) – (63) 41 (17) (17) (17) (64) (3) – – 63 – – – – – – 2 – – 2 2 – – – 2 – – – – – – 2 – 2 – 2 (1,367) (1,832) 2014 67,331 (630) (544) 66,157 24,514 17,307 3,204 1,017 156 (107) (677) (903) (387) (19) 3 (217) (131) 183 (21) (7) (36) (12) 3,316 (996) 2,320 2013 56,784 (648) (332) 55,803 24,580 16,767 3,294 646 157 (81) (331) (839) (251) – (50) (98) 27 88 (17) – (15) 83 2,793 (852) 1,941 122 2,198 80 1,861 –3 –3 65 58 229 158 656 14 23 131 (17) 3,327 2,709 (26,212) (25,015) (8,627) (8,819) (987) (937) (1,886) (2,535) (383) (428) (3,455) (3,235) 45 66 (41,504) (40,904) 1,408 1,174 – – – (7) (1) (8) 1,400 (478) 922 (1) 923 59 – – – – (1) (1) 1,173 (410) 763 – 763 53 791 (5) 153 (17) – (11) 119 910 (251) 659 33 626 52 735 (5) 36 (13) – (5) 12 747 (208) 539 21 518 53 (32) (19) (1) (199) (19) – (3) (88) Acquisition and administrative expenses (net), excluding one-off effect from pension revaluation (1,778) (1,564) 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. 184 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 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 (17,742) (14,183) (1,185) (1,078) (10,734) (6,312) 27,620 26,189 9,417 9,554 1,215 1,095 2,542 3,022 643 374 32 26 140 – 684 371 21 16 3 – 984 3,030 (1,641) 57 113 – 883 2,733 (781) 106 80 – 2014 1,844 (12) (4) 1,828 2013 1,786 (19) (4) 1,762 2014 11,840 (115) (8) 11,717 2013 7,317 (115) (7) 7,195 2014 537 (110) (29) 398 – 398 57 (58) – (1) – 396 (288) (25) (1) – – 2013 515 (82) (4) 430 – 430 76 (54) – (1) – 451 2014 6,820 (347) (154) 6,319 2013 6,174 (269) (177) 5,728 (3,712) (3,300) 2,607 914 7 17 154 3 2,429 836 (16) 37 81 – 3,703 3,366 (337) (1,465) (1,788) (1) (1) – – (88) – – – – (973) (472) (34) (7) (30) (937) (14) – 8 (5) (10) (2) (29) (902) (1) – (31) – 2014 2013 (1,120) (1,089) 1,120 1,089 – – – – (41) (15) (3) (3) – (63) – – 41 – – 2 3 – – – – – – – (64) 2 – (3) – (65) – – 63 – – 2 2 – – – 2014 67,331 (630) (544) 66,157 2013 56,784 (648) (332) 55,803 (41,643) (31,223) 24,514 17,307 24,580 16,767 (1,367) (1,832) 3,204 1,017 156 3,294 646 157 44,832 43,613 (20,775) (20,096) (12,563) (13,555) (107) (677) (903) (81) (331) (839) (5,860) (5,603) (387) (19) 3 (217) (251) – (50) (98) (605) (100) (2) (1) (7) (202) (70) – – – (626) (99) (3) (1) (7) (201) (1) – – – (84) (672) (8) – (38) (93) (1,346) (7) 23 (34) (1,060) (1,054) (68) (24) (24) – – – – – – – – – – (26,212) (25,015) (8,627) (8,819) (987) (937) (1,886) (2,535) (383) (428) (3,455) (3,235) 45 66 (41,504) (40,904) 1,408 1,174 229 158 656 – 1 – – (16) (15) 213 (48) 165 44 121 256 – – – – – – 158 (47) 112 23 89 201 (126) (6) – – – (131) 524 (154) 371 – 371 81 487 33 28 – – (1) 59 546 (148) 398 – 398 70 14 23 – – – – – – 14 (9) 5 – 5 76 – – – – – – 23 (7) 16 – 16 111 247 – 35 (4) – (7) 24 271 (56) 215 45 171 87 131 (17) – – – – – – (17) – (17) – (17) – 25 (4) – (8) 13 144 (32) 111 37 75 49 2 – – – – – – 2 – 2 – 2 3,327 2,709 (131) 183 (21) (7) (36) (12) 3,316 (996) 2,320 27 88 (17) – (15) 83 2,793 (852) 1,941 122 2,198 80 1,861 –3 –3 65 58 Annual Report 2014 Allianz Group 185 Operating income from financial assets and liabilities carried at fair value through income (net) Claims and insurance benefits incurred (net) Changes in reserves for insurance and investment contracts (net) Acquisition and administrative expenses (net), excluding one-off effect from pension revaluation (1,778) (1,564) Non-operating income from financial assets and liabilities carried at fair value through income (net) reportable segments – lIfe/health reportable segments – lIfe/health € mn Statutory premiums1 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 Interest expenses Investment expenses Operating impairments of investments (net) Fee and commission expenses Operating amortization of intangible assets Restructuring charges Other expenses Operating expenses Operating profit Non-operating realized gains/losses (net) Non-operating impairments of investments (net) One-off effect from pension revaluation Non-operating 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 reserves2 in basis points 2014 2013 2014 2013 24,319 (151) (342) 23,826 (8,269) 15,557 9,108 375 2,365 82 132 22,251 (167) (163) 21,922 (6,350) 15,572 8,936 (1,141) 2,648 49 126 (14,507) (13,139) (8,615) (9,273) (81) (376) (603) (32) (19) (1) (199) – – – (7) (1) (8) 1,400 (478) 922 (1) 923 59 (98) (275) (557) (19) – (3) (88) – – – – (1) (1) 1,173 (410) 763 – 763 53 23,090 (1,015) (7) 22,068 4,326 3,864 (67) 742 531 21 (3,826) (2,178) (22) (293) (225) (1,817) (249) – (4) (13) 791 (5) 153 (17) – (11) 119 910 (251) 659 33 626 52 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) 36 (13) – (5) 12 747 (208) 539 21 518 53 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. reportable segments – asset management reportable segments – asset management € mn Net fee and commission income1 Net interest income2 Income from financial assets and liabilities carried at fair value through income (net) Other income Operating revenues Administrative expenses (net), excluding acquisition-related expenses and one-off effect from pension revaluation Restructuring charges Operating expenses Operating profit Realized gains/losses (net) Acquisition-related expenses One-off effect from pension revaluation 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 ratio3 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. 2014 6,380 (3) 5 6 6,388 (3,787) 3 (3,784) 2013 7,127 12 12 10 7,162 (3,994) (6) (4,001) 2,603 3,161 4 6 (14) (11) (15) 2,588 (967) 1,621 86 1,535 59.2 2 (32) – (26) (55) 3,106 (1,181) 1,925 93 1,832 55.9 186 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows Annual Report 2014 Allianz Group 187 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 and one-off effect from pension revaluation 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 One-off effect from pension revaluation 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 Holding & Treasury Banking Alternative Investments Consolidation Corporate and Other 2014 265 27 61 116 469 (317) – (72) (736) (266) 4 – 2013 278 31 53 – 361 (341) – (78) (684) (231) 34 – (1,386) (1,301) (1,047) (1,187) (146) (151) (917) (32) 171 (6) – (846) 1 563 (8) (157) (1,074) 389 (685) – (685) (939) (44) 295 (79) – (901) (2) – (10) (741) (1,680) 456 (1,224) – (1,224) Cost-income ratio1 for the reportable segment Banking in % 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses and one-off effect from pension revaluation, 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. 188 Annual Report 2014 Allianz Group 2014 590 10 513 – 1,114 (255) (45) (1) (438) (305) 3 (7) 66 – 13 (1) – – – (1) – 11 77 (24) 53 7 45 79.9 2013 613 475 8 – 1,096 (281) (86) – (468) (263) (88) (2) (91) – 23 (1) – – – – – 22 (69) 20 (49) 5 (54) 100.9 (137) (145) (42) (17) 2013 12 (1) 163 1 175 (2) – (5) – 1 – 24 – – – – – – (96) (112) (88) 5 (83) 2 (85) 2014 22 (4) 157 – 176 (2) – (8) 30 – 1 – – – – – – (4) – (46) (16) (9) (25) 8 (33) 2014 (1) (7) (8) – – – 1 – 3 1 3 – – 8 – – – – – – – – – – – – – – 2013 – 3 – (4) (2) – – 1 2 – – – 4 3 – – – – – – (3) 27 25 27 (5) 22 – 22 2014 876 33 724 117 1,750 (573) (45) (77) (1,310) (567) 8 (7) (2,571) (820) (33) 184 (7) (42) (846) 1 558 (8) (192) (1,013) 356 (657) 15 (673) 2013 903 40 687 1 1,631 (623) (86) (82) (1,295) (493) (53) (2) (2,635) (1,004) (46) 346 (80) (17) (901) (2) – (106) (806) (1,810) 476 (1,334) 7 (1,341) D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 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 and one-off effect from pension revaluation 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 One-off effect from pension revaluation 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 2014 265 27 61 116 469 (317) (72) (736) (266) – 4 – (917) (32) 171 (6) – 1 (846) 563 (8) (157) (1,074) 389 (685) – (685) 2013 278 31 53 – 361 (341) – (78) (684) (231) 34 – (939) (44) 295 (79) – (901) (2) – (10) (741) (1,680) 456 (1,224) – (1,224) Cost-income ratio1 for the reportable segment Banking in % 1 Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses income (net), fee and commission income, other income, interest expenses, excluding interest expenses and one-off effect from pension revaluation, restructuring charges and other expenses divided by interest from external debt, and fee and commission expenses. and similar income, operating income from financial assets and liabilities carried at fair value through Holding & Treasury Banking Alternative Investments Consolidation Corporate and Other 2014 590 10 513 – 1,114 (255) (45) (1) (438) (305) 3 (7) 2013 613 8 475 – 1,096 (281) (86) – (468) (263) (88) (2) 2014 22 (4) 157 – 176 (2) – (8) 2013 12 (1) 163 1 175 (2) – (5) (137) (145) – 1 – – 1 – (1,386) (1,301) (1,047) (1,187) (146) (151) 66 – 13 (1) – – – (1) – 11 77 (24) 53 7 45 79.9 (91) – 23 (1) – – – – – 22 (69) 20 (49) 5 (54) 100.9 30 – – – (42) – – (4) – (46) (16) (9) (25) 8 (33) 24 – – – (17) – – – (96) (112) (88) 5 (83) 2 (85) 2014 (1) – (7) – (8) 1 – 3 1 3 – – 8 – – – – – – – – – – – – – – – 2013 – 3 (4) – (2) – – 1 2 – – – 4 3 (3) 27 – – – – – – 25 27 (5) 22 – 22 2014 876 33 724 117 1,750 (573) (45) (77) (1,310) (567) 8 (7) (2,571) (820) (33) 184 (7) (42) (846) 1 558 (8) (192) (1,013) 356 (657) 15 (673) 2013 903 40 687 1 1,631 (623) (86) (82) (1,295) (493) (53) (2) (2,635) (1,004) (46) 346 (80) (17) (901) (2) – (106) (806) (1,810) 476 (1,334) 7 (1,341) Annual Report 2014 Allianz Group 189 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 2014 6,657 397 184 6,625 13,863 Investments 2013 € mn as of 31 December 6,574 Available-for-sale investments 449 202 Held-to-maturity investments Funds held by others under reinsurance contracts assumed 3,982 Investments in associates and joint ventures 11,207 Real estate held for investment Total 2014 465,914 3,969 1,154 4,059 11,349 486,445 2013 392,233 4,140 893 3,098 10,783 411,148 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 2014 2013 402 195 1,618 2,214 1,887 1,773 3,660 5,875 360 139 2,013 2,512 2,278 1,870 4,148 6,660 190 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 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 France Italy Germany United States South Korea Belgium Austria Spain Switzerland Netherlands Hungary Ireland Russia Portugal Greece Supranationals All other countries Subtotal Corporate bonds1 Other Subtotal Equity securities2 Total 2014 2013 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Fair Value 3,548 13,685 4,313 31,113 25,203 12,900 10,574 6,156 5,866 5,476 5,055 4,695 4,102 868 620 472 198 1 15,726 33,401 162,426 193,315 2,471 379,757 26,113 405,870 192 546 284 9,509 5,557 2,152 875 882 1,818 1,698 944 610 506 105 28 – 29 2 3,202 2,013 29,928 18,807 499 50,255 11,313 61,568 (2) (44) (46) (21) (5) (5) (34) – – (1) (1) – (1) – – (71) – – (3) (196) (338) (837) (2) (1,269) (255) (1,524) 3,738 2,515 14,186 4,552 40,601 30,755 15,048 11,415 7,038 7,684 7,173 5,997 5,305 4,607 972 648 401 227 3 18,925 35,217 192,016 211,284 2,968 428,743 37,171 465,914 11,226 3,460 31,410 26,304 14,852 8,411 5,798 5,968 4,941 2,813 4,376 3,627 773 38 839 196 1 14,571 30,015 154,933 168,353 2,230 342,717 23,022 365,739 103 693 210 2,471 2,001 918 239 427 613 468 178 330 159 60 1 10 2 2 663 934 9,476 9,212 324 20,018 9,623 29,641 (16) (86) (40) (177) (91) (46) (171) (26) (3) (23) (35) (80) (26) – – (19) (2) – (56) (704) (1,459) (1,397) (4) (3,002) (146) (3,148) 2,602 11,833 3,630 33,704 28,214 15,724 8,479 6,199 6,578 5,386 2,956 4,626 3,760 833 39 830 196 3 15,178 30,245 162,950 176,168 2,550 359,733 32,499 392,233 1 Include bonds issued by Spanish banks with a fair value of € 472 MN (2013: € 418 MN), thereof subordinated bonds with a fair value of € 134 MN (2013: € 115 MN). 2 Include shares invested in Spanish banks with a fair value of € 408 MN (2013: € 402 MN). held-to-maturIty Investments held-to-maturIty Investments € mn as of 31 December 2014 2013 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Amortized Cost Unrealized Gains Unrealized Losses Fair Value Government and government agency bonds Corporate bonds1 Total 2,398 1,571 3,969 379 362 741 – (1) (1) 2,777 1,933 4,710 2,411 1,729 4,140 375 144 519 (4) (8) (12) 2,782 1,865 4,647 1 Also include corporate mortgage-backed securities. Annual Report 2014 Allianz Group 191 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 2014 and 2013. unrealIzed losses on avaIlable-For-sale Investments and held-to-maturIty Investments € mn as of 31 December 2014 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 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 Up to 12 months Greater than 12 months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses 46 1,087 722 6,871 13,782 126 22,633 3,566 26,200 608 1,114 668 36,119 37,148 77 75,734 2,661 78,395 (1) (17) (10) (141) (550) (1) (720) (250) (970) (15) (31) (30) (1,258) (1,094) (3) (2,431) (144) (2,575) 63 1,049 900 3,579 4,086 3 9,680 11 9,691 12 817 224 2,217 3,651 12 6,933 81 7,014 (1) (27) (36) (197) (288) – (550) (5) (554) (1) (55) (10) (205) (311) (1) (583) (2) (585) 109 2,136 1,621 10,450 17,868 130 32,314 3,577 35,891 620 1,931 892 38,336 40,799 89 82,667 2,742 85,409 (2) (44) (46) (338) (837) (2) (1,270) (255) (1,525) (16) (86) (40) (1,463) (1,405) (4) (3,014) (146) (3,160) Government and government agency bonds Total unrealized losses amounted to € 338 mn as of 31 December 2014. The Allianz Group holds a large variety of government bonds, mostly of OECD countries (Organization of Economic Cooperation and Devel- opment). In general, the credit risk of government and government 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 spread over many countries, in particular com- ing from emerging markets. During 2014, government and govern- ment agency bond performance has been largely positive, due to a decreasing interest rate level, resulting in a decrease of unrealized losses of € 1,125 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 2014. 192 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows Investments In assocIates and joInt ventures As of 31 December 2014, 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 € 654 mn (2013: € 577 mn). assocIates and joInt ventures € mn Share of earnings Share of other comprehensive income Share of total comprehensive income 2014 196 54 250 2013 146 (82) 64 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 2014 13,837 (3,053) 10,783 983 – (192) 30 (99) 57 (232) (24) 44 11,349 3,054 14,403 2013 12,443 (2,796) 9,646 706 806 (349) 377 (117) (43) (211) (54) 22 10,783 3,053 13,837 As of 31 December 2014, real estate held for investment pledged as security and other restrictions on title were € 36 mn (2013: € 36 mn). Corporate bonds Total unrealized losses amounted to € 837 mn as of 31 December 2014. The Allianz Group holds a large variety of bonds issued by corpora- tions mostly domiciled in OECD countries. For the vast majority of the Allianz Group’s corporate bonds, issuers and/or issues are of “invest- ment grade”. The decrease in unrealized losses of € 568 mn is spread over almost all sectors, due to a decreasing 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 2014. Equity securities As of 31 December 2014, unrealized losses from equity securities amounted to € 255 mn. These unrealized losses concern equity secu- rities 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 2014, by con- tractual term to maturity, are as follows: contractual term to maturIty € mn as of 31 December 2014 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 26,410 102,012 117,230 134,104 379,757 367 1,519 723 1,360 3,969 27,589 108,272 130,046 162,837 428,743 396 1,621 835 1,857 4,710 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 2014 Allianz Group 193 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. 2014 Customers – 4 – 55,950 12 55,966 (298) 55,668 Banks 3,622 121 696 56,4141 555 61,407 – 61,407 Total 3,622 125 696 112,363 567 117,373 (298) 117,075 2013 Customers – – – 51,595 15 51,611 (194) 51,416 Banks 3,275 613 315 60,5111 670 65,383 – 65,383 Total 3,275 613 315 112,106 686 116,994 (194) 116,800 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 2014 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 3,281 2,856 6,137 4,312 3,394 7,706 8,075 5,476 13,551 10,996 7,052 18,048 34,743 37,188 71,931 Total 61,407 55,966 117,373 As of 31 December 2014, impaired loans amounted to € 728 mn (2013: € 786 mn). The interest income recognized on these impaired loans amounted to € 2 mn (2013: € 8 mn). 11 – Reinsurance assets reInsurance assets € mn as of 31 December Unearned premiums Reserves for loss and loss adjustment expenses Aggregate policy reserves Other insurance reserves Total 2014 1,519 6,947 4,998 123 2013 1,538 6,494 4,463 115 13,587 12,609 194 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows Changes in aggregate policy reserves ceded to reinsurers are as follows: 12 – Deferred acquisition costs changes In aggregate PolIcy reserves ceded to reInsurers deFerred acquIsItIon costs € 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 2014 4,463 430 114 (9) 4,998 2013 4,295 (131) 10 289 4,463 € mn as of 31 December Deferred acquisition costs Property-Casualty Life/Health Asset Management1 Subtotal Present value of future profits Deferred sales inducements Total 2014 2013 4,595 16,089 – 20,685 870 708 22,262 4,354 15,837 159 20,350 1,046 807 22,203 1 The respective entities have been prospectively reclassified, effective 1 January 2014, from the business segment Asset Management to the business segment Life/Health. For further information, please see note 6. 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 Reclassification of entities from Asset Management to Life/Health Additions Foreign currency translation adjustments Changes in shadow accounting Amortization Carrying amount as of 31 December asset management Total 2014 2013 4,354 5,847 39 82 (5,727) 4,595 4,323 5,530 (3) (135) (5,361) 4,354 15,837 13,521 159 3,350 892 (1,832) (2,318) 16,089 – 20,685 – 2,813 (390) 2,204 (2,310) 15,837 159 20,350 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 with up to 100 % on an arm’s length basis in these cessions, in line with local requirements. The risk coming from these cessions is also limited by external retro- cessions. 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 2014 and 2013. The Allianz Group primarily maintains business relations with highly rated reinsurers. Annual Report 2014 Allianz Group 195 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 Changes in shadow accounting Amortization Carrying amount as of 31 December Accumulated amortization as of 31 December Cost as of 31 December deFerred sales Inducements deFerred sales Inducements € mn Carrying amount as of 1 January Additions Foreign currency translation adjustments Changes in shadow accounting Amortization Carrying amount as of 31 December 2014 2,954 (1,908) 1,046 – – 27 (34) (170) 870 2,151 3,021 2013 2,783 (1,838) 945 40 214 (57) 20 (115) 1,046 1,908 2,954 2014 807 121 142 (203) (158) 708 2013 524 114 (47) 347 (131) 807 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 Total1 2014 2013 5,846 4,348 1,951 4,711 (693) 16,163 1,996 1,426 3,422 7,836 25 256 281 477 2,566 2,142 1,291 1,465 7,464 1,437 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 37,080 34,632 1 Includes other assets due within one year of € 28,069 MN (2013: € 27,547 MN). 196 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 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 2014 3,497 (1,074) 2,423 346 – (35) (32) (81) 11 (68) 2 2,566 1,071 3,637 2013 4,021 (1,135) 2,885 93 17 (66) (379) (16) (43) (68) – 2,423 1,074 3,497 Equipment equIPment € mn Cost as of 1 January 2014 3,828 2013 3,640 Accumulated depreciation as of 1 January (2,655) (2,673) 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 2014, assets pledged as security and other restric- tions on title were € 113 mn (2013: € 108 mn). € 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 Foreign currency translation adjustments Depreciation Impairments Carrying amount as of 31 December Accumulated depreciation as of 31 December Cost as of 31 December 1 Include fixed assets of wind parks, solar parks and Selecta. Software soFtware € mn Cost as of 1 January 2014 5,632 2013 5,057 Accumulated amortization as of 1 January (3,800) (3,467) 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 December1 Accumulated amortization as of 31 December Cost as of 31 December 1,832 691 9 (7) 15 (393) (4) 2,142 4,218 6,360 1,590 657 6 (19) (17) (384) (1) 1,832 3,800 5,632 1 As of 31 December 2014, includes € 1,398 MN (2013: € 1,122 MN) for self-developed software and € 743 MN (2013: € 710 MN) for software purchased from third parties. Annual Report 2014 Allianz Group 1,173 349 18 (52) 1 35 (226) (5) 1,291 2,580 3,871 2014 2,005 (701) 1,304 279 – (4) (1) (114) (1) 1,465 815 2,280 966 534 10 (74) 6 (27) (242) (1) 1,173 2,655 3,828 2013 1,804 (579) 1,225 48 161 (7) (2) (120) – 1,304 701 2,005 197 As of 31 December 2014, real estate held for own use classified as held for sale comprised several office buildings allocated to the reportable segment Global Insurance Lines & Anglo Markets (Property- Casualty). Upon measurement of these buildings at fair value less costs to sell, an impairment loss of € 18 mn was recognized for the year ended 31 December 2014. The sale of these buildings will be com- pleted by the end of the third and fourth quarter of 2015, respectively. Real estate held for own use classified as held for sale comprised as of 31 December 2013 an office building allocated to the reportable segment Asset Management, which was sold as expected during the first quarter of 2014. 15 – Intangible assets IntangIble assets € mn as of 31 December Intangible assets with indefinite useful lives Goodwill Brand names1 Subtotal Intangible assets with finite useful lives Distribution agreements2 Customer relationships3 Other4 Subtotal Total 2014 2013 12,166 289 12,455 948 231 121 1,300 13,755 11,544 296 11,840 996 149 115 1,260 13,100 1 2 3 4 Include primarily the brand name of Selecta aG, Muntelier. Include primarily the long-term distribution agreements with Commerzbank aG of € 335 MN (2013: € 372 MN), Banco Popular s.a. of € 353 MN (2013: € 370 MN), Yapı Kredi Bank of € 147 MN (2013: € 151 MN) and hsbc Asia, hsbc Turkey and btPN Indonesia of € 90 MN (2013: € 78 MN). Include primarily customer relationships from the acquisition of UnipolSai Assicurazioni S.p.A. of € 100 MN (2013: € – MN), Selecta of € 85 MN (2013: € 118 MN), Assurances Médicales s.a. of € 18 MN (2013: € – MN) and Yapı Kredi of € 8 MN (2013: € 10 MN). Include primarily acquired business portfolios of € 64 MN (2013: € 76 MN) and heritable building rights of € 17 MN (2013: € 17 MN). 14 – Non-current assets and assets and liabilities of disposal groups classified as held for sale non-current assets and assets and lIabIlItIes oF dIsPosal grouPs classIFIed as held For sale € mn as of 31 December Assets of disposal groups classified as held for sale Münsterländische Bank Thie & Co. kg, Münster Subtotal Non-current assets classified as held for sale Investments in associates and joint ventures Real estate held for investment Real estate held for own use Subtotal Total Liabilities of disposal groups classified as held for sale Münsterländische Bank Thie & Co. kg, Münster Total 2014 2013 83 83 – 92 61 152 235 102 102 – – 131 – 16 147 147 – – assets and lIabIlItIes oF dIsPosal grouPs classIFIed as held For sale During the fourth quarter of 2014, the Allianz Group decided to dis- pose of Münsterländische Bank Thie & Co. KG, Münster. Thus, the assets and liabilities of this consolidated entity allocated to the reportable segment Banking were reclassified as held for sale. As of 31 December 2014, no cumulative gains or losses were recognized in other comprehensive income relating to the disposal group classified as held for sale. The sale is expected to occur during the first quarter of 2015. Upon remeasurement of the disposal group at fair value less costs to sell, no impairment loss was recognized for the year ended 31 December 2014. non-current assets classIFIed as held For sale As of 31 December 2014, real estate held for investment classified as held for sale comprised several office buildings allocated to the reportable segment German Speaking Countries (Life/Health). The sale of these buildings is expected to be completed by the end of the first quarter of 2015. Upon measurement of these buildings at fair value less costs to sell, no impairment loss was recognized for the year ended 31 December 2014. The investment in an associated Italian real estate company allocated to the reportable segment Western & Southern Europe (Property-Casualty) was sold as expected during the third quarter of 2014. 198 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows IntangIble assets wIth IndeFInIte useFul lIves Impairment test for goodwill and 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 2014 12,534 (990) 11,544 290 – 331 – 12,166 990 13,156 2013 12,573 (894) 11,679 226 – (265) (96) 11,544 990 12,534 2014 Additions in 2014 are related to goodwill arising from the acquisition of specific distribution activities of the Property-Casualty insurance business of UnipolSai Assicurazioni S.p.A., Bologna, the acquisition of Assurances Médicales S.A., Paris, as well as the acquisition of sev- eral windparks. 2013 Additions of 2013 mainly include goodwill from the acquisition of 93.94 % in Yapı Kredi Sigorta A.Ş., Istanbul. The allocated goodwill of the cash generating unit (CGU) Selecta AG was in 2013 impaired by € 96 mn in the business segment Corpo- rate and Other. This impairment was triggered by a slower recovery of Selecta’s major European vending 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 Soci- ety “Rosno” was amortized by € 4 mn in 2014. The brand name will be completely amortized in 2015. Allocation principles For the purpose of impairment testing, the Allianz Group has allo- cated goodwill to CGUs1. These CGUs represent the lowest level at which goodwill is monitored for internal management purposes. CGUs in the Property-Casualty business segment are: − Insurance German Speaking Countries, − Insurance Western & Southern Europe including France, the Netherlands, Turkey, Belgium, Italy, Greece, Luxembourg and Africa, − Insurance Iberia & Latin America including South America, Mexico, Portugal and Spain, − Asia-Pacific and Middle East, − Central and Eastern Europe including Bulgaria, Croatia, Czech Republic, Hungary, Slovakia, Poland, Romania, Ukraine and Rus- sia, − Global Insurance Lines & Anglo Markets including the United Kingdom, Ireland and Australia, − Specialty Lines I including Allianz Re, Allianz Global Corpo- rate & Specialty and Credit Insurance, − Specialty Lines II including Allianz Worldwide Partners. CGUs in the Life/Health business segment2 are: − Insurance 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, − Central and Eastern Europe including Bulgaria, Croatia, Czech Republic, Hungary, Slovakia, Poland, Romania, Ukraine and Rus- sia, − Insurance USA. The business segment Asset Management is represented by the CGU Asset Management, including mainly Allianz Global Investors and PImCO. The CGU in the Corporate and Other business segment consists of the CGU Selecta AG. 1 2 The following paragraphs include all cGUs that contain goodwill. Some Asset Management entities have been allocated to the Life/Health business segment. Please refer to note 6 – Segment reporting for details. Annual Report 2014 Allianz Group 199 The carrying amounts of goodwill and brand names are allocated to the Allianz Group’s CGUs as of 31 December 2014 and 2013 as follows: allocatIon oF carryIng amounts oF goodwIll and brand names to cgus € mn as of 31 December cgu ProPerty-casualty Insurance German Speaking Countries Insurance Western & Southern Europe Insurance 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 Insurance German Speaking Countries Health Germany Insurance Western & Southern Europe Asia-Pacific and Middle East Central and Eastern Europe1 Insurance usa Subtotal asset management corPorate and other Selecta ag Subtotal Total 2014 2013 Goodwill Brand names Goodwill Brand names 287 1,358 21 86 307 321 38 21 2,440 602 326 656 171 23 454 2,232 7,187 – – – – 3 – – – 3 – – – – – – – – 284 1,086 21 83 427 314 38 20 2,273 593 326 633 171 – 436 2,159 6,806 – – – – 10 – – – 10 – – – – – – – – 307 307 12,166 286 286 289 307 307 11,544 286 286 296 1 Some Asset Management entities have been allocated to the Life/Health business segment. Please refer to note 6 – Segment reporting for details. Valuation techniques The recoverable amounts for all CGUs 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 CGUs 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 calcula- tions are the results of the structured management dialogues between the Board of Management of the Allianz Group and the operating entities in connection with a reporting process integrated into these dialogues. Generally, the business plans comprise a plan- ning 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 earn- ings. The financing of the assumed eternal growth in the terminal values is accounted for by appropriate profit retention. For all CGUs 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 CGUs in the Life/Health business segment, the Market Consistent Embedded Value (mCEV) and a multiple of the Market Consistent Value of New Business is used. The mCEV is an industry-specific valuation method to assess the current value of the in-force portfolio and is in compli- ance with the general principles of the discounted earnings methods. The mCEV approach applied is based on the CFO Forum Principles1 and the Allianz Group’s Embedded Value guidelines. It is a risk- neutral valuation that includes explicit allowance for non-financial risk as well as allowance for options and guarantees using market- consistent stochastic simulations that are in line with market prices for similar financial instruments. Significant assumptions In determining the business plans, certain key assumptions were made in order to project future earnings. For entities included in the CGUs 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 1 The cFo Forum published MceV Principles for the determination of MceV in order to increase consistency among the European Insurers. They are especially designed to bring a shareholders’ perspective on value, a market consistent approach to financial risk, a greater focus on the disclosure of cash emerging from covered business and disclosure of combined Group MceV information. 200 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows planning and controlling process. The discount rates and eternal growth rates for the CGUs in the Property-Casualty business segment are as follows: dIscount rates and eternal growth rates For the cgus In the ProPerty-casualty busIness segment % reFerence rates For the cgus In the lIFe/health busIness segment cgus in the Life/Health business segment Reference rate for entities with Appraisal Value based on mcev Insurance German Speaking Countries Euro swap curve minus 10 bPs credit risk adjustment plus 13 bPs volatility adjustment chF swap curve minus 10 bPs credit risk adjustment plus 4 bPs volatility adjustment cgus in the Property-Casualty business segment Discount rate Eternal growth rate Health Germany Euro swap curve minus 10 bPs credit risk adjustment plus 13 bPs volatility adjustment Insurance German Speaking Countries Insurance Western & Southern Europe Insurance Iberia & Latin America Asia-Pacific and Middle East Central and Eastern Europe Global Insurance Lines & Anglo Markets Specialty Lines I Specialty Lines II 7.8 8.1 16.5 10.8 9.3 9.0 8.0 8.0 1.0 1.0 4.0 3.0 1.5 1.5 1.0 1.0 For entities included in the CGUs of the business segment Life/Health, the projection of profits underlying the mCEV calculations is based on assumptions set with allowance for profit-sharing as well as a projec- tion of unrealized capital gains and unallocated premium reserves. The profits estimated for the mCEV calculations consist of premium income, investment return on technical reserves, expenses, commis- sions, 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 perfor- mance of the operating entity. This requires consideration of the development of the market together with assumptions on the operat- ing 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 consideration 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, was used for determining the mCEV. The following table provides an overview of the discount rates for the CGUs in the Life/Health business segment: Insurance Western & Southern Europe Euro swap curve minus 10 bPs credit risk adjustment plus 13 bPs volatility adjustment Asia-Pacific and Middle East Central and Eastern Europe Insurance usa Local swap curve minus 10 bPs credit risk adjustment (South Korea only) plus 5 bPs volatility adjustment (South Korea only) For those entities reporting in eur: Euro swap curve minus 10 bPs credit risk adjustment plus 23 bPs volatility adjustment For other entities: Local swap curve minus 10 bPs credit risk adjustment plus volatility adjustment for the following currencies only (hrk: 28 bPs, czk: 4 bPs, Pln: 18 bPs) Local swap curve minus 11 bPs credit risk adjustment plus 50 bPs volatility adjustment The new business value calculation is based on a best estimate of one year of value of new business, multiplied by a factor (multiple) to capture expected future new business. The best estimate of new 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 CGUs 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 the higher of a multiple valuation and a value in use. The discount rate applied to determine the value in use is 9.6 %. The value in use results from the discounted expected sales proceeds, assuming a sale to occur in the mid-term future. The sale proceeds are estimated by using a multiple valuation. The multiple is derived from industry peer companies and management judgment and is applied to projected results derived from the internal business plan, which is mainly based on expectations regarding future economic developments in Selecta’s core markets. Annual Report 2014 Allianz Group 201 Sensitivity analysis Sensitivity analyses were performed with regard to discount rates and key value drivers of the business plans. For the CGUs 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 CGUs, excluding Property-Casualty Asia-Pacific and Middle East as well as Property-Casualty Central and Eastern Europe, dis- counted earnings value sensitivities still exceeded their respective carrying values. For the CGU Central and Eastern Europe and the CGU Asia Pacific and Middle East an increase of more than 0.5 % points in the discount rate or the combined ratio may result in the recoverable amount of the CGU getting close to its respective carrying value. In the Life/Health business segment sensitivity analyses were performed based on mCEV sensitivity testing on the reference rate. The analyses have shown that in case of a decrease in reference rates by 50 basis points the appraisal value of each CGU still exceeds its carrying value. The customer relationships of Selecta AG have useful lives of 10 years, which were determined by the multi-period excess earnings method. They are amortized on a straight-line basis over the remain- ing useful lives of 2.5 years. The customer relationships of Assur- ances Médicales S.A. have useful lives of 13 years, which were deter- mined by the discounted cash flow method. They are armortized on a straight-line basis over the remaining useful lives of 12 years. The customer relationships coming from the acquisition of Yapı Kredi Sigorta A.Ş. have useful lives of 8 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 on a straight-line basis over the remaining useful lives of 6 years. The customer relationships acquired from UnipolSai Assi- curazioni S.p.A. 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 decrease of the customer relationships over the remaining useful lives of 9.5 years. IntangIble assets wIth FInIte useFul lIves The long-term distribution agreements with Commerzbank AG have useful lives of 13.5 years and 15 years, which were determined by con- tractual agreements. They are amortized on a straight-line basis over the remaining useful life of 9 years. The long-term distribution agree- ments with Banco Popular S.A. have useful lives of 25 years, which were determined by contractual agreements. They are amortized on a straight-line basis over the remaining useful lives of 22 years. The long-term distribution agreements with Hongkong & Shanghai Bank- ing Corporation Holdings PLC (HSBC) in Asia and Turkey have useful lives of 11 years and 10 years, which were determined by contractual agreements. They are amortized on a straight-line basis over the remaining useful lives of 9 years and 8.5 years. The long-term distri- bution agreements with Yapı Kredi Bank have useful lives of 15 years, which were determined by contractual agreements. They are amor- tized on a straight-line basis over the remaining useful lives of 13.5 years. 202 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 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 Total 2014 2013 8,493 3 8,496 6,010 3 6,013 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 2014 Banks Customers 69 – 971 1,197 2,715 4,278 9,230 4,803 2,846 1,946 – – 4,191 13,786 Total 4,872 2,846 2,916 1,197 2,715 8,469 23,015 2013 Banks Customers 696 – 980 1,028 2,216 5,050 9,970 4,473 2,873 2,157 3 – 3,634 13,140 liabilities to banks and customers by contractual maturity liabilities to banks and customers by contractual maturity € mn as of 31 December 2014 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 4,222 10,592 14,814 1,090 689 1,779 1,124 1,573 2,697 1,248 182 1,429 1,546 750 2,296 Annual Report 2014 Allianz Group Total 5,169 2,873 3,136 1,031 2,216 8,684 23,109 Total 9,230 13,786 23,015 203 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 2014 58,925 10,081 (18) 68,989 2013 56,614 9,960 (9) 66,566 2014 16,595 3,222 (17) 19,800 2013 15,367 2,855 (10) 18,212 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 2014 and 2013. change in the reserves For loss and loss adjustment expenses in the property-casualty business segment € mn As of 1 January Balance carry forward of discounted loss reserves Subtotal 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 changes1 Changes in the consolidated subsidiaries of the Allianz Group Subtotal Ending balance of discounted loss reserves As of 31 December Gross 56,614 3,207 59,821 32,773 (1,752) 31,021 (16,113) (14,684) (30,797) 2,477 – 62,522 (3,597) 58,925 2014 Ceded (6,070) (306) (6,376) (2,510) 367 (2,143) 703 1,392 2,095 (478) – (6,903) 326 (6,577) Net 50,544 2,901 53,445 30,263 (1,385) 28,878 (15,410) (13,292) (28,702) 1,999 – 55,619 (3,271) 52,349 2013 Ceded (6,904) – Gross 62,711 – 62,711 (6,904) 31,831 (2,185) 29,646 (16,136) (15,099) (31,235) (1,434) 132 59,821 (3,207) 56,614 (2,429) 496 (1,933) 687 1,569 2,256 266 (59) (6,376) 306 (6,070) Net 55,807 – 55,807 29,402 (1,689) 27,713 (15,449) (13,530) (28,979) (1,168) 72 53,445 (2,901) 50,544 1 Include effects of foreign currency translation adjustments for prior years claims of gross € 1,534 mn (2013: € (1,371) mn) and of net € 1,282 mn (2013: € (1,184) mn) and for current year claims of gross € 165 mn (2013: € (295) mn) and of net € 130 mn (2013: € (253) mn). Other changes include for 2014 an increase in reserves due to the reclassification of the French International Health business of gross € 410 mn and of net € 285 mn. 204 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 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 2014, the Allianz Group recorded additional income of € 1,385 mn (2013: € 1,689 mn) net in respect of losses occurring in prior years. During the year ended 31 December 2014, this amount as a percentage of the net balance of the beginning of the year was 2.6 % (2013: 3.0 %). 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 devel- opment of discounted loss reserves. The run-off triangle, also known as the “loss triangle”, is a tabu- lar 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 occurrence). 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 ulti- mate 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 2005 & Prior 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 22,597 12,242 5,851 3,965 2,750 2,005 1,441 1,408 1,348 1,355 11,760 6,403 1,643 955 586 397 265 266 162 12,631 6,397 1,744 934 687 483 323 211 13,130 7,350 2,151 1,034 716 497 303 13,368 6,688 1,725 1,107 712 465 14,094 6,945 1,972 1,113 729 14,316 7,434 2,090 1,169 14,443 7,181 1,890 15,449 7,009 15,410 Annual Report 2014 Allianz Group 22,597 24,002 24,886 25,135 26,167 26,459 26,545 27,828 28,979 28,702 205  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 2005 & Prior 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 49,656 35,483 27,052 21,637 18,376 16,274 15,126 15,390 13,887 13,138 13,848 7,612 4,488 3,432 2,815 2,440 2,026 1,662 1,508 14,012 7,449 5,038 3,911 2,973 2,417 1,953 1,574 14,222 7,620 5,666 4,337 3,249 2,601 2,198 14,074 7,456 5,147 4,061 3,117 2,492 14,729 7,218 5,238 3,837 3,105 15,596 7,861 5,190 4,066 15,564 7,239 5,223 13,957 7,101 15,215 49,656 49,331 48,677 47,796 48,539 50,850 52,836 55,807 53,445 55,619 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 2005 & Prior 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Surplus1 Reduction/(increase) 2014 to 20132 72,253 70,322 67,743 66,293 65,780 65,684 65,977 67,649 67,494 68,101 4,152 25,609 25,776 24,295 24,194 24,164 24,185 24,037 23,939 23,947 1,662 26,643 26,477 25,810 25,617 25,367 25,294 25,153 24,984 1,659 27,353 28,100 28,297 28,002 27,630 27,478 27,378 (25) (606) (8) 169 100 27,442 27,512 26,928 26,950 26,718 26,557 885 161 28,823 28,257 28,250 27,962 27,958 865 29,912 29,610 29,029 29,074 838 30,007 28,863 28,736 1,271 29,407 29,560 (153) 4 (45) 127 (153) 30,625 – 3 – 3 11,153 (251) 1 2 Includes effects from foreign currency translation adjustments and other changes. The total development 2014 to 2013 of € (251) mn represents the cumulative surplus from reestimating the ultimate loss for prior year claims. Considering foreign currency translation adjustments of net € 1,282 mn as well as changes in the consolidated subsidiaries and other changes of in total € 354 mn, this leads to an effective run-off result of net € 1,385 mn, which can be found in the table “Change in the reserves for loss and loss adjustment expenses” within this note. Presentation not meaningful. 3 206 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 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 2006 2007 2008 2009 2010 2011 2012 2013 2014 Premiums earned (net) € mn 37,950 38,553 38,213 37,828 39,303 39,898 41,705 42,047 43,759 2006 % 67.5 67.9 64.0 63.8 63.7 63.7 63.3 63.1 63.1 2007 % 69.1 68.7 66.9 66.4 65.8 65.6 65.2 64.8 2008 % 71.6 73.5 74.1 73.3 72.3 71.9 71.6 Accident year 2009 % 2010 % 2011 % 2012 % 2013 % 2014 % 72.5 72.7 71.2 71.2 70.6 70.2 73.3 71.9 71.9 71.1 71.1 75.0 74.2 72.8 72.9 72.0 69.2 68.9 69.9 70.3 70.0 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. contractual cash Flows As of 31 December 2014, reserves for loss and loss adjustment expenses, which are expected to be due in 2015 amounted to € 18,172 mn, those which are expected to be due between 2016 and 2019 amounted to € 18,462 mn and those which are expected to be due after 2019 to € 18,985 mn. changes in reserves For loss and lae during 2014 As noted above, prior year loss and LAE reserves of the Allianz Group developed favorably during 2014 by € 1,385 mn net of reinsurance, rep- resenting 2.6 % of net reserves as of 31 December 2013. The following table provides a breakdown of these amounts by line of business. changes in reserves For loss and lae during 2014 Net reserves as of 31 December 2014 Net reserves as of 31 December 2013 Net development related to prior years € mn € mn 15,737 15,249 14,743 8,836 14,046 7,791 5,060 5,575 4,641 1,500 1,142 1,071 2,890 55,619 4,469 1,461 1,204 1,145 2,505 53,445 € mn 346 (86) 470 329 3 105 42 (13) 189 1,385 Motor vehicle liability insurance General liability insurance Reinsurance Fire and other damage to property insurance Worker's compensation insurance Marine, aviation and transport insurance Income protection insurance Other motor insurance Other Allianz Group 1 In % of net reserves as of 31 December 2013. % 1 2.3 (0.6) 6.0 5.9 0.1 7.2 3.5 (1.1) 7.5 2.6 The major highlights of the reserve developments in 2014 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 entities are included and therefore the amounts do not fully reconcile to the line of business totals in the above table. Annual Report 2014 Allianz Group 207 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 coverage litigation. However, given the expansion of coverage and liability by the courts and the legislatures in the past and the possi- bilities of similar interpretation in the future, there is significant uncertainty regarding the extent of insurer liability. As a result, the range of reasonable potential outcomes for A & E liabilities provided in these analyses is particularly large. Given this inherent uncertainty in estimating A & E liabilities, significant deviation from the currently carried A & E reserve position is possible. 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 2014, A & E liabilities decreased from € 2,711 mn to € 2,679 mn due to claim payments of € 212 mn partially offset by claims development and foreign exchange rate effects of € 181 mn. Motor vehicle liability insurance For motor vehicle liability insurance, net loss and LAE reserves devel- oped favorably during 2014 by € 346 mn, or 2.3 % of reserves at 31 De cember 2013. Favorable development was seen for different effects across several operating entities. The following subsidiaries were the largest contributors: € 176 mn at Allianz Italy. The reduction was driven by favorable claim settlements due to the economic environment as well as ongoing effects of claim initiatives. € 120 mn at Allianz Australia due to actual claims inflation being lower than expected in 2014. General liability insurance For general liability insurance, net loss and LAE reserves developed unfavorably during 2014 by € 86 mn, or 0.6 % of reserves at 31 Decem- ber 2013. This overall minor development consists of several offset- ting developments at different operating entities. An unfavorable development of € (255) mn was observed at Fireman’s Fund Insurance Company due to a continued adverse trend in severities which has been recognized in the reassessment of reserves. Reinsurance For reinsurance, net loss and LAE reserves developed favorably during 2014 by € 470 mn, or 6.0 % of reserves at 31 December 2013. Favorable development was seen for different effects across several operating entities. The following subsidiaries were the largest contributors: € 277 mn at Allianz Global Corporate & Specialty mainly related to the German corporate liability, property, marine and aviation segments, due to the release of IBnR based on better than expected experience. € 84 mn presented as reinsurance at Euler Hermes Re originating from credit business at Euler Hermes entities. Fire and other damage to property insurance For fire and other damage to property insurance, net loss and LAE reserves developed favorably during 2014 by € 329 mn, or 5.9 % of reserves at 31 December 2013. Favorable development was seen for different effects across several operating entities. The largest contributor was Fireman’s Fund Insurance Company with a favorable development of € 134 mn mainly due to a better than expected development for hurricane Sandy claims. 208 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 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 € mn as of 31 December a & e net reserves a & e gross reserves As percentage of the Allianz Group’s Property-Casualty gross reserves 2014 2,173 2,679 4.5 % 2013 2,303 2,711 4.8 % aggregate policy reserves changes in aggregate policy reserves € mn As of 1 January Balance carry forward of discounted loss reserves Subtotal Foreign currency translation adjustments Changes in the consolidated subsidiaries of the Allianz Group Changes recorded in the consolidated income statement The following table shows total A & E loss activity for the years ended 31 December 2014 and 2013. Premiums collected Separation of embedded derivatives change in a & e gross reserves For loss and loss adjustment expenses € 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 2014 2,711 (212) 181 2,679 2013 3,066 (282) (73) 2,711 Interest credited Dividends allocated to policyholders Releases upon death, surrender and withdrawal Policyholder charges Portfolio acquisitions and disposals Other changes1 Subtotal Ending balance of discounted loss reserves As of 31 December 2014 365,519 (3,207) 362,312 9,600 2013 350,244 – 350,244 (3,441) – 168 3,514 28,085 972 3,879 1,356 (13,711) (1,628) (52) 1,302 395,630 3,597 399,227 4,827 18,833 960 4,163 1,360 (13,527) (1,292) (383) 400 362,312 3,207 365,519 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 2014 399,227 63,026 1,081 463,334 2013 365,519 37,772 781 404,072 1 Mainly relate to insurance contracts when policyholders change their contract from a unit-linked to a universal life-type contract. As of 31 December 2014, participating life business represented approximately 54 % (2013: 56 %) of the Allianz Group’s gross insurance in force. During the year ended 31 December 2014, participating poli- cies represented approximately 65 % (2013: 65 %) of gross statutory premiums written and 64 % (2013: 64 %) of life premiums earned. discounting oF reserves For loss and loss adjustment expenses In general, reserves for loss and loss adjustment expenses are not discounted, except when payment amounts are fixed and timing is reasonably determinable. As of 31 December 2014, the Allianz Group’s consolidated Property-Casualty reserves included discounted reserves of € 3,597 mn (2013: € 3,207 mn) with a total amount of the discount of € 2,232 mn (2013: € 1,957 mn). The interest rates used for discounting were in the range from 0.1 % to 5.7 % (2013: 0.6 % to 5.5 %) as of 31 December 2014. Annual Report 2014 Allianz Group 209 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 2014 2013 13,231 (7) (1) 1,797 15,020 24,541 51 – 11,979 (5) – 1,257 13,231 28,052 (48) 10 Changes due to fluctuations in market value 21,338 (4,337) Changes due to valuation differences charged to income As of 31 December Total 2,077 48,006 63,026 864 24,541 37,772 concentration oF insurance risk in the liFe/health business segment The Allianz Group’s Life/Health business segment provides a wide variety of insurance and investment contracts to individuals and groups in over 30 countries around the world. Individual contracts include both traditional contracts and unit-linked contracts. Without taking policyholder participation into account, traditional contracts generally incorporate significant investment risk for the Allianz Group, while unit-linked contracts generally result in the contract holder assuming the investment risk. Traditional contracts include life, endowment, annuity, and health contracts. Traditional annuity contracts are issued in both deferred and immediate types. In addition, the Allianz Group’s life insurance operations in the United States issue a significant amount of equity-indexed deferred annuities. In certain markets, the Allianz Group also issues group life, group health and group pension contracts. As of 31 December 2014 and 2013, 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: concentration oF insurance risk in the liFe/health business segment per reportable segment € mn as of 31 December 2014 German Speaking Countries Western & Southern Europe Iberia & Latin America USA Global Insurance Lines & Anglo Markets Growth Markets Consolidation Total 2013 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 8,231 2,377 56 4,385 108 2,511 – 17,667 8,566 2,508 55 4,321 73 2,167 – 17,690 196,981 97,911 7,845 67,335 1,690 18,806 (3,414) 387,154 186,627 92,856 7,395 51,699 1,877 16,357 (2,985) 353,826 46,839 12,435 1,449 – – 470 (1) 61,192 29,706 5,903 505 – – 297 (1) 36,410 223 241 – – 6 452 (5) 917 204 291 – – 6 142 (5) 637 244,043 110,588 9,294 67,335 1,696 19,728 (3,420) 449,263 216,536 99,050 7,900 51,699 1,883 16,796 (2,991) 390,873 6,830 51,500 158 25,445 – 10,631 – 94,564 6,228 43,170 106 22,314 – 9,247 – 81,064 Total 250,873 162,088 9,452 92,780 1,696 30,359 (3,420) 543,826 222,764 142,220 8,005 74,013 1,883 26,042 (2,991) 471,937 210 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 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 48 % (2013: 49 %) of the Allianz Group’s reserves for insurance and investment contracts as of 31 December 2014, include a substantial level of policy- holder participation in all sources of profit including mortality/mor- bidity, investment and expense. As a result of this policyholder par- ticipation, 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. 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 2014 and 2013) can be summarized by country as follows: weighted average guaranteed minimum interest rates oF liFe insurance entities as of 31 December 2014 2013 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 % 2.8 0.5 2.1 0.9 2.1 4.5 2.9 € bn 155.1 55.0 29.7 72.9 10.3 9.7 8.5 % 97.3 76.0 53.1 74.1 93.5 89.4 95.4 % 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 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 2014, 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 € (64) mn on the consolidated income statement. If current interest rate levels persist, further reserve strengthening for certain portfolios may become necessary. Annual Report 2014 Allianz Group 211 Future policy benefits As of 31 December 2014, benefits for insurance and investment con- tracts which are expected to be due in 2015 amounted to € 48 Bn, those which are expected to be due between 2016 and 2019 amounted to € 168 Bn and those which are expected to be due after 2019 to € 914 Bn. The resulting total benefits for insurance and investment con- tracts in the amount of € 1,130 Bn include contracts where the timing and amount of payments are considered fixed and determinable, and contracts 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 are undiscounted and do not include any expected future premiums; therefore they exceed the reserves for insurance and investment contracts presented in the consolidated balance sheet. For contracts without fixed and determinable payments, the Allianz Group has made assumptions in estimating 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 used to establish the reserves for insurance and investment contracts in accordance with the Allianz Group’s established accounting policy. Due to the uncer- tainty of the assumptions used, the amount presented could be materially different from the actual incurred payments in future periods. 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 Reclassifications1 As of 31 December Unit-linked insurance contracts 2014 Unit-linked investment contracts 55,357 3,602 – 7,868 3,693 (5,140) (1,551) 23 (1,196) 62,656 25,707 210 – 8,860 1,786 (4,453) (99) (75) (27) 31,907 Unit-linked insurance contracts 2013 Unit-linked investment contracts 50,078 (1,909) – 8,066 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 Total 81,064 3,811 – 16,728 5,479 (9,593) (1,650) (53) (1,223) 94,564 Total 71,197 (2,256) 1,477 15,055 6,125 (8,682) (1,564) (51) (237) 81,064 1 These reclassifications mainly relate to insurance contracts when policyholders change their contract from a unit-linked to a universal life-type contract. 212 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 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 Total1 2014 2013 4,934 1,460 1,615 8,009 420 1,801 1,387 3,187 613 24 283 307 9,765 2,327 606 109 12 134 1,684 14,637 1,843 281 1,793 7,520 38,609 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 42 131 1,617 12,386 1,874 158 2,612 6,514 36,431 1 Includes other liabilities due within one year of € 25,013 mn (2013: € 24,915 mn). Annual Report 2014 Allianz Group 213 23 – Certificated liabilities certiFicated liabilities € mn1 Allianz se2 Senior bonds Fixed rate Contractual interest rate Money market securities Fixed rate Contractual interest rate Total Allianz SE2 Banking subsidiaries Senior bonds Fixed rate Contractual interest rate Floating rate Current interest rate Total banking subsidiaries Total Contractual maturity date 2015 2016 2017 2018 2019 Thereafter as of 31 December 2014 as of 31 December 2013 – – 1,041 0.30 % 1,041 63 1.51 % – – 63 1,496 4.00 % – – 1,496 79 1.41 % – – 79 1,104 1,575 – – – – – 44 0.93 % – – 44 44 499 1.38 % – – 499 – – – – – 1,484 4.75 % 3,174 3.68 % – – – – 1,484 3,174 – – – – – – – 327 0.46 % 327 3,501 499 1,484 6,653 – 1,041 – 7,694 186 – 327 – 513 6,581 – 869 – 7,450 193 – 387 – 580 8,207 8,030 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. 214 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 24 – Subordinated liabilities subordinated liabilities € mn1 Allianz se2 Subordinated bonds3 Fixed rate Contractual interest rate Floating rate Current interest rate Total Allianz SE2 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 2015 2016 2017 2018 2019 Thereafter – – 1,000 4 6.50 % 1,000 – – – – – – – – 1,000 – – – – – – – – – – – – – – – 15 5.61 % 15 83 4.27 % 83 20 4.35 % 20 – – – – – 15 – – – – – 83 – – – – – 20 – – – – – – – – – – – – – – 1,621 5.44 % 8,750 4.84 % 10,371 103 4.47 % 103 400 4.63 % 45 1.70 % 445 10,919 as of 31 December 2014 as of 31 December 2013 1,621 – 9,750 – 1,519 – 9,337 – 11,371 10,856 221 – 221 400 – 45 – 445 254 – 254 399 – 45 – 444 12,037 11,554 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 € 1.5 Bn bond and the issuance of a CHF 0.5 Bn bond in the first quarter of 2014, and due to the issuance of a € 1.5 Bn bond in the third quarter of 2014. € 1.0 Bn subordinated bond called for redemption effective 13 January 2015. 25 – Equity equity € mn as of 31 December Shareholders’ equity Issued capital Additional paid-in capital Retained earnings1 Foreign currency translation adjustments Unrealized gains and losses (net)2 Subtotal Non-controlling interests Total 2014 2013 1,170 27,758 19,878 (1,977) 13,917 60,747 2,955 63,702 1,169 27,701 17,786 (3,313) 6,742 50,083 2,765 52,849 1 2 As of 31 December 2014, include € (222) mn (2013: € (220) mn) related to treasury shares. As of 31 December 2014, include € 288 mn (2013: € 203 mn) related to cash flow hedges. issued capital Issued capital as of 31 December 2014 amounted to € 1,170 mn divided into 457,000,000 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 2014, Allianz SE had authorized capital for the issu- ance of 214,843,750 shares until 6 May 2019, with a notional amount of € 550 mn (Authorized Capital 2014/I). The shareholders’ subscrip- tion rights can be excluded for capital increases against contribu- tions in kind. For a capital increase against contributions in cash, the shareholders’ subscription rights can be excluded: (i) for fractional amounts (ii) if the issue price is not significantly below the market price and the shares issued under exclusion of the subscription rights pursuant to § 186 (3) sentence 4 of the German Stock Corpora- tion Law (Aktiengesetz) do not exceed 10 % of the share capital, and Annual Report 2014 Allianz Group 215 In October 2014, 500,000 (2013: 550,000) shares were issued for cash out of the Authorized Capital 2014/II at a price of € 117.80 (2013: € 99.45) per share, enabling employees of Allianz Group subsidiaries in Germany and abroad to purchase shares. As a result, issued capital increased by € 1 MN and additional paid-in capital by € 58 MN. The Authorized Capital 2014/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 7 May 2014. All shares issued during the years ending 31 December 2014 and 2013 are qualifying shares from the beginning of the year of issue. dividends For the year ending 31 December 2014, the Board of Management will propose to shareholders at the AGM the distribution of a dividend of € 6.85 per qualifying share. For the year ended 31 December 2013, Allianz SE paid a dividend of € 5.30 per qualifying share. treasury shares As of 31 December 2014, Allianz SE held 2,751,360 (2013: 2,761,795) own shares. Of these, 145,191 (2013: 155,626) were held for covering sub- scriptions by employees of the Allianz Group in the context of the Employee Stock Purchase Plan 2015, whereas 2,606,169 (2013: 2,606,169) were held as a hedge for obligations from the Allianz Equity Incentive Program (former Group Equity Incentive Program). In the fourth quarter of 2014, 500,000 (2013: 550,000) new Allianz shares were issued in the context of a capital increase for the Employee Stock Purchase Plan 2014. In 2014, 510,435 (2013: 565,643) shares were sold to employees of Allianz SE and its subsidiaries. Of these, 155,626 (2013: 171,269) originated from the capital increase for the Employee Stock Purchase Plan in 2013 and 354,809 (2013: 394,374) from the capital increase for the Employee Stock Purchase Plan in 2014. Employees of the Allianz Group purchased shares at prices ranging from € 93.52 (2013: € 71.03) to € 111.33 (2013: € 100.84) per share. The remaining 145,191 (2013: 155,626) shares from the capital increase in 2014 will be used for the Employee Stock Purchase Plan of Allianz SE and its subsidiaries in 2015. The total change of holdings in Allianz SE own shares for the year ending 31 December 2014 amounted to a decrease of 10,435 (2013: decrease of 15,643) shares, which cor- responds to € 26,714 (2013: € 40,046) or 0.002 % (2013: 0.003 %) of issued 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 mandatory conversion. An overall limit for the exclu- sion of subscription rights of up to € 234 MN (corresponding to 20 % of the share capital at year-end 2013) applies for the Authorized Capital 2014/I and the Conditional Capital 2010/2014. In addition, Allianz SE has authorized capital (Authorized Capi- tal 2014/II) for the issuance of shares against cash until 6 May 2019. The shareholders’ subscription rights can be excluded in order to issue new shares to employees of Allianz SE and its Group companies. As of 31 December 2014, the Authorized Capital 2014/II amounted to € 14 MN (5,359,375 shares). Further, as of 31 December 2014, Allianz SE had conditional cap- ital totaling € 250 MN (97,656,250 shares) (Conditional Capital 2010/2014). This conditional capital increase will only be carried out if conversion or option rights attached to bonds which Allianz SE or its Group companies have issued against cash payments according to the resolutions of the AGM on 5 May 2010 or 7 May 2014 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 if certain events occur, subject to a floor price of at least € 74.90 per share. Within the same period, the investors have the right to convert the notes into Allianz shares at a price of € 187.26 per share. Both con- version prices are subject to anti-dilution provisions. The subscrip- tion rights of shareholders for these convertible notes have been excluded with the consent of the Supervisory Board and pursuant to the authorization of the AGM on 5 May 2010. The granting of new shares to persons entitled under such convertible notes is secured by the Conditional Capital 2010/2014. On or before 31 December 2014, there was no conversion of any such notes into new shares. Changes in the number of issued shares outstanding number of issued shares outstanding 2014 2013 Issued shares outstanding as of 1 January 453,736,619 453,171,976 Capital increase for employee shares 500,000 550,000 Change in treasury shares held for non-trading purposes 11,420 14,643 Issued shares outstanding as of 31 December 454,248,039 453,736,619 Treasury shares Total number of issued shares 2,751,961 2,763,381 457,000,000 456,500,000 216 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows Changes in the treasury shares were: changes in treasury shares as of 31 December Acquisition costs € mn 2014 Allianz se Other Total 2013 Allianz se Other Total 222 – 222 220 – 220 2,751,360 601 2,751,961 2,761,795 1,586 2,763,381 Number of shares Issued capital % 0.60 – 0.60 0.61 – 0.61 non-controlling interests non-controlling interests € mn as of 31 December Unrealized gains and losses (net) Share of earnings Other equity components Total 2014 189 381 2,385 2,955 2013 93 347 2,325 2,765 The share of earnings attributable to non-controlling interests mainly consists of Euler Hermes Group companies of € 92 mn (2013: € 99 mn), PImCO of € 86 mn (2013: € 72 mn), CreditRas Vita of € 27 mn (2013: € 18 mn) and Allianz Ayudhya of € 28 mn (2013: € 31 mn). The other equity components of non-controlling interests mainly consists of Euler Hermes Group companies of € 688 mn (2013: € 672 mn), PImCO of € 235 mn (2013: € 179 mn), CreditRas Vita of € 269 mn (2013: € 274 mn) and Allianz Ayudhya of € 141 mn (2013: € 91 mn). Further information about companies with non-controlling interests are given in the list of participations of the Allianz Group. 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 2014, the Allianz Group’s eligible capital for the solvency margin, required for the insurance segments and the Asset Management and Banking business, was € 49.8 Bn (2013: € 46.5 Bn) including off-balance sheet reserves1 of € 2.3 Bn (2013: € 2.3 Bn), sur- passing the minimum legally stipulated level by € 22.2 Bn (2013: € 20.9 Bn). This margin resulted in a preliminary cover ratio of 181 % (2013: 182 %) as of 31 December 2014.2 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 and thereby also form the basis for the FCD capital requirements. In this context the Allianz Group is going to apply for internal model approval at the beginning of 2015 in order to be able to determine capital require- ments under Solvency II based on its internal model. 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 1 2 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 reported solvency ratio as of 31 December 2014 would be 172 % (31 December 2013: 173 %). Conglomerate solvency ratio as of 31 December 2014 was adjusted for the potential calls of hybrid capital (subordinated bonds) of € 0.4 Bn in 2015. Excluding this adjustment, the solvency ratio would be 182 % (including off-balance sheet reserves) as of 31 December 2014. Annual Report 2014 Allianz Group 217 insurance reserves, investment risks, mortality risks, credit risks, underwriting risks and off-balance sheet risks. As of 31 December 2014, the Allianz Group’s insurance subsidiar- ies 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 require that a company may only pay dividends up to an amount in excess of certain regulatory capital levels or based on the levels of undistributed earned surplus or current year income or a percentage thereof. 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 the 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. With respect to dividend payments, Allianz also updated its dividend policy in 2014 by increasing the payout ratio, defining explicit budgets for external growth and linking central elements to the internal model capitalization according to Solvency II, which is expected to become regulatory binding. For further information on the dividend policy update please refer to the Outlook 2015 in the Group Management Report. 218 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows Notes to the CoNsolidated iNCome statemeNts 26 – Premiums earned (net) 27 – Interest and similar income 2014 166 1,562 13,609 196 848 4,868 193 21,443 2013 182 1,354 13,202 146 791 5,067 176 20,918 Premiums earned (net) € mn 2014 Premiums written Direct Assumed Subtotal Ceded Net Change in unearned premiums Direct Assumed Subtotal Ceded Net Premiums earned Direct Assumed Subtotal Ceded Net 2013 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 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 – (100) (100) 70,253 3,630 73,883 45,238 3,084 48,322 (3,961) 44,362 (408) (107) (515) (88) (602) 44,830 2,978 47,808 (4,048) 43,759 43,967 2,612 46,579 (3,981) 42,597 (442) (71) (512) (37) (550) 43,525 2,541 46,066 (4,019) 42,047 25,015 646 25,660 (602) 25,058 (523) (21) (544) – (544) 24,492 624 25,116 (602) 24,514 24,804 725 25,530 (617) 24,913 (324) (7) (331) (2) (332) 24,481 719 25,199 (619) 24,580 100 (4,463) Interest from loans to banks and customers – – 5 5 (5) – – (95) (95) 95 – – (58) (58) 58 – – (1) (1) 1 – – (59) (59) 59 – 69,420 Other interest income Total (931) (123) (1,053) (93) (1,146) 69,322 3,508 72,829 (4,555) 68,274 68,771 3,279 72,051 (4,541) 67,510 (765) (79) (844) (38) (882) 68,006 3,200 71,206 (4,579) 66,628 Annual Report 2014 Allianz Group 219 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 2014 Property- Casualty Life/Health Asset Management Corporate and Other Consolidation Income (expenses) from financial assets and liabilities held for trading (net) (313) (3,472) (1) (141) 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 2013 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 2 (4) 206 161 (88) 1,901 (108) (1,497) 33 28 (19) (92) (50) (567) 277 (138) (1,376) (1,804) 2 – 3 5 – 62 (49) – 12 18 – 123 – 30 1 – (37) (6) Group (3,928) 182 (91) 2,234 (1) (1) – – (3) (1,604) 5 (1) – – 3 (499) 367 (207) (1,506) (1,845) Foreign currency gains and losses are reported within income from financial assets carried at fair value through income (net) (2014: income of € 2,234 MN; 2013: expenses of € 1,506 MN). These foreign cur- rency gains and losses arise subsequent to initial recognition on all assets and liabilities denominated in a foreign currency that are monetary items and not measured at fair value through income. The Allianz Group uses freestanding derivatives, included in the line item income (expenses) from financial assets and liabilities held for trad- ing (net), to hedge against foreign currency fluctuations (2014: expenses of € 2,502 MN; 2013: income of € 653 MN). Additionally included in the business segment Life/Health are derivative financial instruments from German entities which relate to duration management (2014: income of € 780 MN; 2013: expenses of € 317 MN) and protection against equity fluctuations (2014: expenses of € 125 MN; 2013: income of € 34 MN), and from U.S. entities which relate to fixed-indexed annuity products and guaranteed benefits under unit-linked contracts (2014: expenses of € 1,783 MN; 2013: expenses of € 790 MN). 29 – Realized gains/losses (net) realized gains/losses (net) € mn realized gains Available-for-sale investments Equity securities Debt securities Subtotal Investments in associates and joint ventures1 Real estate held for investment Loans and advances to banks and customers Non-current assets classified as held for sale 2014 2013 1,736 2,296 4,033 27 141 287 32 2,104 2,308 4,412 73 147 412 104 Subtotal 4,519 5,147 realized losses Available-for-sale investments Equity securities Debt securities Subtotal Investments in associates and joint ventures2 Real estate held for investment Loans and advances to banks and customers Non-current assets classified as held for sale Subtotal Total (205) (279) (484) (12) (4) (1) (1) (502) 4,017 (253) (578) (831) (12) (11) (4) (3) (861) 4,286 1 2 During the year ended 31 December 2014, include realized gains from the disposal of subsidiaries and businesses of € 1 mN (2013: € 48 mN). During the year ended 31 December 2014, include realized losses from the disposal of subsidiaries and businesses of € 1 mN (2013: € – mN). 220 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 30 – Fee and commission income 32 – Income and expenses from fully consolidated private equity investments fee and commission income € mn ProPerty-casualty Fees from credit and assistance business Service agreements Subtotal life/health Service agreements Investment advisory Other Subtotal asset management Management fees Loading and exit fees Performance fees Other Subtotal corPorate and other Service agreements Investment advisory and banking activities Subtotal 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 2014 2013 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 Consolidation1 Total 2014 2013 696 696 (216) (469) (54) (738) 19 (23) 726 726 (219) (492) (32) (743) 2 (15) 1 This consolidation effect results from the deferred policyholder participation recognized in the result from fully consolidated private equity investments within operating profit in the Life/Health business segment that was reclassified to expenses from fully consolidated private equity investments in non- operating profit to ensure the consistent presentation of the Allianz Group‘s operating profit. 790 471 1,260 97 919 1 1,017 6,834 670 275 46 7,825 70 654 724 (707) 10,119 753 473 1,226 75 571 – 646 7,317 715 510 69 8,611 62 625 687 (678) 10,492 2014 2013 24 2 26 187 2 216 34 – 35 169 5 209 Annual Report 2014 Allianz Group 221 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 2014 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 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 Property- Casualty Life/Health Consoli- dation Group (30,797) (20,946) 47 (51,696) (224) (231) (31,021) (21,177) 12 58 (444) (52,140) 2,095 49 2,143 375 27 402 (42) 2,428 (14) (56) 62 2,490 € mn 2014 Gross Property- Casualty Life/Health Consoli- dation Group Aggregate policy reserves (238) (6,189) Other insurance reserves 2 (252) – – (6,427) (250) Expenses for premium refunds Subtotal Ceded Aggregate policy reserves Other insurance reserves Expenses for premium refunds Subtotal Net Total 2013 Gross (313) (6,390) (827) (7,529) (549) (12,830) (827) (14,206) 7 (1) 5 10 246 11 11 268 – – (1) (1) 253 10 15 277 – – (6,174) (240) (307) (6,379) (828) (7,514) (538) (12,563) (828) (13,929) (28,702) (20,571) 5 (49,268) Aggregate policy reserves (231) (5,943) Other insurance reserves – (241) (175) (204) (2) (382) (28,878) (20,775) 3 (49,650) Expenses for premium refunds (31,235) (20,216) 32 (51,419) 1,589 (353) (29,646) (20,568) 4 37 1,240 (50,178) 2,256 (322) 1,933 462 10 472 (27) 2,691 (3) (30) (315) 2,376 Aggregate policy reserves (232) (7,545) Other insurance reserves 7 (209) (4) – (7,781) (202) Expenses for premium refunds Subtotal Ceded Aggregate policy reserves Other insurance reserves Expenses for premium refunds Subtotal (161) (5,959) (386) (13,712) (46) (50) (6,165) (14,148) 3 (1) (1) 2 140 9 7 157 – – – – 143 9 6 158 (28,979) (19,753) 1,267 (343) (27,713) (20,096) 5 1 7 (48,727) Net 925 (47,802) Aggregate policy reserves (229) (7,404) Other insurance reserves 7 (199) (4) – (7,638) (193) Expenses for premium refunds Total (162) (5,951) (384) (13,555) (46) (50) (6,159) (13,990) 222 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 35 – Interest expenses 38 – Investment expenses interest expenses € mn Liabilities to banks and customers Deposits retained for 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 2014 (241) (48) (285) (585) (102) 2013 (259) (49) (272) (642) (100) (1,261) (1,322) 2014 (561) (232) (168) (961) 2013 (527) (211) (167) (905) 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 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) aCquisition and administrative expenses (net) 2014 (133) 68 20 (45) 2013 € mn (166) 62 18 (86) 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 2014 2013 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 (391) (56) (448) (108) (54) (24) (31) (665) Non-personnel expenses Subtotal 18 22 15 55 Corporate and other Administrative expenses Subtotal Consolidation Total (894) (611) (553) (345) (898) – (24) (16) (5) (944) – 44 6 51 2014 2013 (10,102) (9,828) 448 6,138 (6,035) (9,551) (3,386)1 479 5,868 (5,705) (9,186) (2,755) (12,937) (11,942) (5,203) (4,591) 88 3,502 (2,648) (4,261) (1,606)1 (5,868) (2,380)1 (1,415) (3,795) 67 2,980 (2,571) (4,115) (1,487) (5,603) (2,607) (1,419) (4,026) (750)1 (750) (1,297) (1,297) 7 3 (23,343) (22,865) 1 Include one-off effect from pension revaluation. Please refer to note 6 for further details. Annual Report 2014 Allianz Group 223 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 Expenses from non-current assets classified as held for sale1 Other Total inCome taxes € mn Current income taxes Deferred income taxes Total 2014 2013 (820) (360) (755) (386) (1,180) (1,141) 2014 (2,454) 209 (2,245) 2013 (2,899) (401) (3,300) (34) (353) (387) (1,301) (145) (1,445) (269) (298) (567) 342 (39) (212) (251) During the year ended 31 December 2014, current income taxes included income of € 485 mn (2013: expenses of € 138 mn) related to prior years. Of the deferred income taxes for the year ended 31 December 2014, income of € 198 mn (2013: expenses of € 47 mn) are attributable to the recognition of deferred taxes on temporary differences, and expenses of € 15 mn (2013: € 356 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 € 26 mn (2013: € 2 mn). For the years ended 31 December 2014 and 2013, the income taxes relating to components of other comprehensive income consist of the following: (1,403) (81) (1,484) (231) (263) (493) 332 (3,238) (3,038) inCome taxes relating to Components of other Comprehensive inCome € 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 and joint ventures Miscellaneous Items that may never be reclassified to profit or loss Actuarial gains (losses) on defined benefit plans Total 2014 2013 124 (2,820) (40) (1) (160) 695 (2,201) (23) 1,451 21 6 96 (171) 1,379 2014 (7) (103) (18) (7) (135) 2013 (2) (85) – (19) (106) 1 For the year ended 31 December 2014, consist of impairments of real estate held for own use classified as held for sale in the amount of € (18) mn. The fair value is classified as level 3 in the fair value hierarchy and based on an income approach. The recognized income taxes for the year ended 31 December 2014 are € 391 mn below (2013: € 418 mn above) the calculated income taxes based on income before income taxes multiplied by the respec- tive applicable country-specific tax rates. The following table shows the reconciliation from the calculated income taxes based on income before income taxes multiplied by the respective applicable country- specific tax rates to the effectively recognized taxes of the Allianz Group. The Allianz Group’s reconciliation is a summary of the indi- vidual company-related reconciliations which are based on the 224 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows respective country-specific tax rates after taking into consideration consolidation effects with an impact on the Group result. The appli- cable tax rate used in the reconciliation for domestic Allianz Group companies includes corporate tax, trade tax and the solidarity sur- charge, and amounted to 31.0 % (2013: 31.0 %). The effective tax rate is determined on the basis of the effective income tax expenses on income before income taxes. effeCtive tax rate € mn Income before income taxes Applied weighted income tax rate Calculated income taxes Trade tax and similar taxes Net tax exempt income Effects of tax losses Other effects Effective income taxes Effective tax rate 2014 8,848 29.8 % 2,636 210 (2) 142 (740) 2,245 25.4 % 2013 9,643 29.9 % 2,882 244 (185) 9 351 3,300 34.2 % In 2014, Allianz Leben received a favorable decision of the German Federal Tax Court (BFH) effecting that losses recognized in 2002 on equity investments held via investment funds were considered tax deductible. This court decision led in 2014 to a tax benefit for the Group of € 229 mn and for the policyholders of € 892 mn. The tax ben- efit from this court decision consisted of current taxes and deferred taxes (mainly on tax losses carried forward) in respect of the finan- cial year 2014 and previous years. In the tax reconciliation for 2014, the other effects of € (740) mn include € (846) mn current and deferred taxes for prior years resulting from the above-mentioned court deci- sion. The tax benefits for prior years resulting from this court decision led to a reduction of the effective tax rate 2014 by 9 %, of which 7 % was allocated to the policyholders and 2 % remained with the shareholders. The effective tax rate 2014 remaining with shareholders is 32 %. For the year ended 31 December 2014, the write-down of deferred taxes on tax losses increased the tax expenses by € 167 mn (2013: € 21 mn). The reversal of write-down of deferred tax assets on tax losses carried forward resulted in deferred tax income of € 6 mn (2013: € – mn). Due to the use of tax losses carried forward, for which deferred tax assets were previously written off, the current income tax expenses decreased by € 9 mn (2013: € 3 mn). Deferred tax income increased by € 10 mn (2013: € 9 mn) due to the use of tax losses carried forward, for which deferred tax assets were previously written off. The above-mentioned 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 2014 ranged from 10.0 % to 40.0 %. Changes to tax rates already adopted on 31 De- cember 2014 are taken into account. In 2014, Spain enacted a tax rate decrease from 30 % to 28 % in 2015 and to 25 % from 2016 onwards, which led to deferred tax income of € 26 mn. 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 € 375 mn (2013: € 149 mn). deferred tax assets and liabilities 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) 2014 2013 53 3,202 1,759 1,283 166 2,435 4,616 4,353 871 23 3,092 1,158 1,363 119 2,213 3,862 3,317 1,059 18,738 16,206 (850) (652) (16,841) (14,047) 1,046 1,508 128 9,643 4,824 1,017 410 2,691 2,609 450 159 5,732 4,335 725 400 2,691 2,430 754 21,773 (16,841) 4,932 (3,886) 17,225 (14,047) 3,178 (1,670) Annual Report 2014 Allianz Group 225 Taxable temporary differences associated with investments in Allianz Group companies for which no deferred tax liabilities are recognized as the Allianz Group is able to control the timing of their reversal and which will not reverse in the foreseeable future, amounted to € 707 mn (2013: € 757 mn). Deductible temporary differences arising from investments in Allianz Group companies for which no deferred tax assets are recognized as it is not probable that they will reverse in the foreseeable future amounted to € 191 mn (2013: € 183 mn). tax losses Carried forward Tax losses carried forward at 31 December 2014 of € 10,521 mn (2013: € 9,885 mn) resulted in recognition of deferred tax assets to the extent that there is sufficient certainty that the unused tax losses will be utilized. € 9,422 mn (2013: € 8,848 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 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 >10 years Unlimited Total 2014 33 75 46 64 98 46 26 61 79 291 282 9,422 10,521 226 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows Other InfOrmatIOn 43 – Derivative financial instruments Derivative financial instruments € mn as of 31 December 2014 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 2013 Positive fair values Negative fair values Interest rate contracts OTC Forwards Swaps Swaptions Caps Options Exchange traded Futures Forwards Subtotal Equity/Index contracts OTC Forwards Swaps Options Warrants Exchange traded Futures Forwards Options Warrants Subtotal Foreign exchange contracts OTC Futures Forwards Swaps Options Exchange traded Futures Subtotal Credit contracts OTC Swaps Options Floors Exchange traded Swaps Subtotal Real estate contracts OTC Options Subtotal Total 575 681 7,907 – 19 5,189 78 14,450 834 4,751 143,678 – 20,560 – 6,347 2,678 2,065 4,186 19,243 4,937 – – – 95 26,637 5,077 2 – – – 30,432 31,811 2,735 31,504 32,228 4,939 19 5,189 78 76,693 424 556 120 – – 34 3 – (397) – (18) (3) (8) – 1,136 (426) 1,605 24,171 30,501 4,952 – 4,521 – 65,750 77 342 404 1 – 1 – (14) (949) (18) (3) – (44) – 825 (1,028) 42 279 2,143 – – – – 6 50 1,302 1,604 4,513 926 6,332 147,424 4,513 149 20,709 – – – – 6,347 2,684 65 34 469 – 86 – 84 51 (15) (39) (7,315) (181) 646 3,080 106,639 2,679 (65) 12,607 – – – 15 7,819 1,627 178,848 2,469 7,618 188,936 789 (7,616) 135,112 411 32,828 172 – – 33,411 310 793 218 34 – 1,356 – – 246 – – 721 33,621 637 34 – 246 35,013 947 2,395 683 4,025 1 – – – – – – – 7 2 – 7 948 2,395 690 4,033 5 5 – – – – 6 6 1 121 19 8 – 148 19 – – 3 22 1 1 (16) (663) (27) – – 553 34,106 228 46 3 (706) 34,936 (26) 2,508 – – – – 1 6 (26) 2,515 – – 6 6 124 6 469 3 95 – 61 126 884 1 332 6 11 – 350 26 – – 3 29 – – (10) (51) (4,671) (143) (109) – (30) – (5,014) (21) (74) (7) – – (102) (23) – (1) – (24) – – 227,662 36,653 40,366 304,681 2,096 (8,774) 238,319 2,088 (6,168) Annual Report 2014 Allianz Group 227 Additionally, the Allianz Group uses fair value hedges to hedge its equity portfolio against equity market risk. As of 31 December 2014, the derivatives used as hedging instruments in the related fair value hedges had a total positive fair value of € 21 mn (2013: total fair value of € – mn). For the year ended 31 December 2014, the Allianz Group recog- nized for fair value hedges a net loss of € 30 mn (2013: net gain of € 36 mn) on the hedging instruments and a net gain of € 35 mn (2013: net loss of € 54 mn) on the hedged items attributable to the hedged risk. Cash flow hedges During the year ended 31 December 2014, 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 2014, the derivative instruments utilized had a total positive fair value of € 412 mn (2013: € 41 mn). Unrealized gains and losses (net) in shareholders’ equity increased by € 84 mn (2013: decreased by € 53 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 2014, the Allianz Group hedges part of its U.S. Dollar, British Pound and Swiss Franc net investments through the issuance of U.S. Dollar, British Pound and Swiss Franc denominated liabilities with a nominal amount of USD 1.0 bn, GbP 0.8 bn and CHF 0.5 bn as well as the use of forward sales of USD and GbP with a notional of USD 1.5 bn and GbP 0.4 bn. The total negative fair value in 2014 was € 80 mn (2013: total positive fair value of € 2 mn). offsetting The Allianz Group mainly enters into enforceable master netting arrangements and similar arrangements for derivatives transactions. 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 44 – Financial instruments and fair value measurement. 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 2014 and 2013, 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 and Opportunity Report which forms part of the Group Management Report. freestanDing Derivative financial instruments As of 31 December 2014, freestanding derivatives, included in the line item financial assets and liabilities held for trading, had a notional principal amount of € 297.2 bn (2013: € 233.0 bn), as well as a positive fair value of € 1.6 bn (2013: € 2.0 bn) and a negative fair value of € 8.5 bn (2013: € 6.0 bn). Out of the total allocated to the freestanding deriva- tives, € 189.2 bn (2013: € 115.6 bn) of the notional principal relate to annuity products. These products are equity-indexed or contain cer- tain embedded options or guarantees which are considered embed- ded 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 € 6.7 bn (2013: € 4.2 bn). Further information on the fair value measurement of these deriva- tives, can be found in note 44 – Financial instruments and fair value measurement. Derivative financial instruments useD in accounting heDges As of 31 December 2014, derivatives which form part of hedge accounting relationships, included in the line items other assets and other liabilities, had a notional amount of € 7.5 bn (2013: € 5.3 bn), as well as a positive fair value of € 477 mn (2013: € 75 mn) and a negative fair value of € 281 mn (2013: € 158 mn). These hedging instruments mainly include interest rate forwards with a total positive fair value of € 395 mn (2013: € 44 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 2014, the derivative financial instruments used for the related fair value hedges of the Allianz Group had a total negative fair value of € 157 mn (2013: € 126 mn). Within the Allianz Group’s Banking business, derivatives to hedge against interest rate changes are implemented for individual trans- actions (micro hedges) or for a portfolio of similar assets or liabilities (macro hedges). 228 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 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 and Opportunity Report in the Group Management Report: − Internal risk capital model including all subsections, − Limitations, − Risk profile and risk management, − Quantifiable risks including all subsections other than Busi- ness 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 Investments in associates and joint ventures Real estate held for investment Loans and advances to banks and customers Financial assets for unit-linked contracts Derivative financial instruments and firm commitments included in other assets Real estate held for own use 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 Subordinated liabilities 2014 2013 Carrying amount Fair value Carrying amount Fair value 13,863 2,214 3,660 465,914 3,969 4,059 11,349 117,075 94,564 477 2,566 8,496 23,015 94,564 281 1,793 8,207 12,037 13,863 2,214 3,660 465,914 4,710 4,820 16,323 140,238 94,564 477 3,646 8,496 23,607 94,564 281 1,793 9,293 13,253 11,207 2,512 4,148 392,233 4,140 3,098 10,783 116,800 81,064 75 2,423 6,013 23,109 81,064 158 2,612 8,030 11,554 11,207 2,512 4,148 392,233 4,647 3,597 15,625 129,528 81,064 75 3,626 6,013 23,282 81,064 158 2,612 8,576 12,323 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 observable 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, whether a market is established for the particular instrument, specific trans- action 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 2014, fair values could not be reliably measured for equity investments with carrying amounts totaling € 189 mn (31 December 2013: € 214 mn). These investments are primarily investments in privately held corpo- rations and partnerships. During the year ended 31 December 2014, such investments with carrying amounts of € 78 mn (2013: € 35 mn) were sold. The gains and losses from these disposals were immaterial. Annual Report 2014 Allianz Group 229 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: − 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. 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 for identical assets or liabilities on the last exchange trading day prior to or at the balance sheet date, if the latter is a trading day. Valuation techniques – Market observable inputs – Fair value level 2: Level 2 applies if the market for a financial instrument is not active or when the fair value is determined by using valuation 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 instru- ments 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. 230 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 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 2014 and 31 December 2013. fair value hierarchy as of 31 December 2014 (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 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 Equity 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 79 47 260 385 887 1,624 2,512 2,897 43 – 259 29,810 15,885 273 30,077 76,347 91,885 2 171,131 49 – 49 91,885 – 1,754 93,688 323 133 1,336 1,792 981 38 1,018 2,810 3,695 14,146 4,075 162,166 188,946 1,966 868 375,862 2,511 476 381,659 1,315 3 1,319 2,511 281 24 4,135 – 15 22 38 19 110 129 167 – 40 218 39 6,452 729 6,226 13,704 166 – 14,037 7,129 – 7,129 166 – 15 7,310 Total 402 195 1,618 2,214 1,887 1,773 3,660 5,875 3,738 14,186 4,552 192,016 211,284 2,968 37,171 465,914 94,564 477 566,830 8,493 3 8,496 94,564 281 1,793 105,134 Annual Report 2014 Allianz Group 231 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 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 Equity 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 – 22 284 306 – 1,867 1,867 2,173 – – – 35,570 18,939 – 26,013 80,522 78,230 – 160,925 136 – 136 78,230 – 2,595 80,961 360 103 1,691 2,154 2,278 – 2,278 4,432 2,602 11,800 3,418 127,324 154,080 1,777 765 301,766 2,655 75 308,928 1,447 3 1,450 2,655 158 18 4,281 – 14 38 52 1 3 4 56 – 33 212 56 3,149 773 5,722 9,945 179 – 10,180 4,427 – 4,427 179 – – 4,606 Total 360 139 2,013 2,512 2,278 1,870 4,148 6,660 2,602 11,833 3,630 162,950 176,168 2,550 32,499 392,233 81,064 75 480,033 6,010 3 6,013 81,064 158 2,612 89,848 232 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows Valuation methodologies of financial instruments carried at fair value For fair value measurements categorized within level 2 and level 3, the Allianz Group uses valuation techniques consistent with the three widely used classes of valuation techniques listed in IFRS 13: Available-for-sale investments Available-for-sale investments – Debt securities Debt securities include: − 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 unlisted equity securi- ties measured at cost. − 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, 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. 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. 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. Financial liabilities for unit-linked contracts are valued based on their corresponding assets. Annual Report 2014 Allianz Group 233 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 deterministic discounted cash flow models. A significant proportion of derivative liabilities represent derivatives embedded in certain life insurance and annuity contracts. Signifi- cant 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 market approach and the income approach. 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. For some listed infrastructure debt investments, market prices are available through broker quotes although the trading activity of these investments decreased to a very low level after the issuance period. To harmonize the valuation technique for the entire asset class, prices for all infrastructure debt investments are derived from discounted cash flow models including significant unobservable inputs. The review of the valuation technique led to the need to reclassify € 809 mn of available-for-sale infrastructure debt invest- ments from level 1 or level 2 to level 3. 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 (€ 5.2 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. 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 (€ 4.7 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 securities in isolation could result in a decreased fair value, while a significant yield decrease could result in an increased fair value. However, a 10 % stress of the main non-market observable inputs has only an imma- terial impact on fair value. 234 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 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 (€ 7.0 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 has only 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 2014 Valuation technique(s) Non-market observable input(s) 5,168 Net asset value n/a Range n/a 4,686 Discounted cash flow method Option adjusted spread 0 bps – 725 bps 6,952 5,501 Discounted cash flow method Annuitizations Variable annuities 1,451 Discounted cash flow method Surrenders Mortality Withdrawal benefit election Volatility Surrenders Mortality 0 % – 25 % 0 % – 25 % 0 % – 100 % 0 % – 50 % n/a 0.5 % – 35 % 0 % – 100 % Annual Report 2014 Allianz Group 235 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 Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other debt securities Equity 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 236 Annual Report 2014 Allianz Group Carrying value (fair value) as of 1 January 2014 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 2014 – 14 38 52 1 3 4 33 212 56 3,149 773 5,722 9,945 179 10,180 – 22 14 35 3 110 113 – 4 31 1,980 137 1,020 3,172 5 3,325 – – – – – – – (4) – – 974 6 – 975 1 976 – – (188) (188) – – – (4) (51) (26) (445) (49) (1,034) (1,609) (15) (1,811) Carrying value (fair value) as of 1 January 2014 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 2014 4,427 179 – 4,606 1,377 5 3 1,385 – 1 – 1 (516) (15) – (531) – (3) 156 153 1 – 1 3 7 – 35 1 23 69 – 223 1,059 – 12 1,071 – – – – – – – 8 30 1 207 (24) 569 791 (4) 787 – (4) – (3) (1) (21) (129) (151) – (151) – – – – – – – – – – – – – – – – 2 2 – – – 4 16 4 515 7 (29) 517 – 519 782 – – 782 Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date (17) – – (17) 14 (3) 11 – – (27) 35 (101) 85 (7) – (12) – 15 22 38 19 110 129 40 218 39 6,452 729 6,226 13,704 166 14,037 – – 2 2 – – – – – – – – – – – 2 Net losses (gains) in profit or loss attributable to a change in unrealized gains or losses for financial liabilities held at the reporting date – – – – 7,129 166 15 7,310 2,202 – – 2,202 D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 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 Debt securities Equity securities Subtotal Available-for-sale investments Financial assets designated at fair value through income Corporate mortgage-backed securities (residential and commercial) Other asset-backed securities Government and government agency bonds Corporate bonds Other debt securities Equity 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 – 14 38 52 1 3 4 33 212 56 3,149 773 5,722 9,945 179 10,180 – 22 14 35 3 110 113 – 4 31 1,980 137 1,020 3,172 5 3,325 – – – – – – – – – 6 – 1 (4) 974 975 976 – 1 – 1 (188) (188) – – – – – (4) (51) (26) (445) (49) (1,034) (1,609) (15) (1,811) (516) (15) – (531) Carrying value (fair value) as of 1 January 2014 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 2014 Net gains (losses) in profit or loss attributable to a change in unrealized gains or losses for financial assets held at the reporting date – (3) 156 153 1 – 1 3 7 – 35 1 23 69 – 223 – – – – – – – 8 30 1 207 (24) 569 791 (4) 787 – – – – – – – – – – (1) (21) (129) (151) – (151) – – 2 2 – – – 4 16 4 515 7 (29) 517 – 519 – (17) – (17) 14 (3) 11 – – (27) 35 (101) 85 (7) – (12) – 15 22 38 19 110 129 40 218 39 6,452 729 6,226 13,704 166 14,037 – – 2 2 – – – – – – – – – – – 2 Carrying value (fair value) as of 1 January 2014 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 2014 Impairments 4,427 179 – 4,606 1,377 5 3 1,385 1,059 – 12 1,071 – (4) – (3) – – – – 782 – – 782 – – – – 7,129 166 15 7,310 Annual Report 2014 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 2,202 – – 2,202 237 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 or if fair value less cost to sell is used as the measurement basis under IFRS 5, corresponding disclosures can be found in note 37 – Impairments of investments (net) or note 41 – Other expenses. fair value information about financial assets anD liabilities not carrieD at fair value fair value hierarchy as of 31 December 2014 (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 1,182 330 – 494 – 2,006 7,984 – – 7,984 3,525 18 – 96,339 – 99,882 1,608 8,618 13,012 23,239 2 4,472 16,323 43,403 3,646 67,846 14,015 675 241 14,931 Level 1 – Quoted prices in active markets Level 2 – Market observable inputs Level 3 – Non-market observable inputs 981 316 – 402 – 1,699 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 Total 4,710 4,820 16,323 140,238 3,646 169,737 23,607 9,293 13,253 46,154 Total 4,647 3,597 15,625 129,528 3,626 157,023 23,282 8,576 12,323 44,181 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 fair value hierarchy as of 31 Decmeber 2013 (items not carrieD at fair value) € mn 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 238 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 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. As of 31 December 2013, the carrying amount and fair value of the CDOs was € 166 mn and € 156 mn, respectively. As of 31 December 2014, the carrying amount and fair value of the CDOs was € 167 mn and € 169 mn, respectively. For the year ended 31 December 2014, the net profit related to the CDOs was not significant. 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. 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. 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. transfers of financial assets As of 31 December 2014, 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 lend- ing 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 Decem- ber 2014, the carrying amount of the assets transferred for securities lending trans actions amounted to € 7,596 mn (2013: € 6,836 mn). For repurchase agreements, the carrying amount of the assets trans- ferred amounted to € 1,119 mn (2013: € 991 mn) and the carrying amount of the associated liabilities amounted to € 1,168 mn (2013: € 1,001 mn). 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 2014 2013 – 4,734 2,877 7,611 2,628 2,628 10,239 3 4,034 2,941 6,978 2,112 2,112 9,090 As of 31 December 2014, the Allianz Group has received collateral, consisting of fixed income and equity securities, with a fair value of € 2,501 mn (2013: € 2,170 mn), which the Allianz Group has the right to sell or repledge. For the years ended 31 December 2014 and 2013, no pre viously received collateral was sold or repledged by the Allianz Group. As of 31 December 2014, the Allianz Group received cash collat- eral with a carrying amount of € 15 mn (2013: € 191 mn). Annual Report 2014 Allianz Group 239 45 – Interests in unconsolidated structured entities nature, purpose anD role of the allianz group in structureD entities To improve transparency and to meet requirements of regulators and other financial authorities, IFRS 12 introduced additional disclosure requirements for unconsolidated structured entities often referred to as off-balance sheet activities. Unconsolidated structured entities, particularly securitization vehicles and asset-backed financings, were identified by regulators as forming part of such activities. Under IFRS 12 a structured entity is defined as an entity that has been designed so that voting rights or similar rights are not the dom- inant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. The Allianz Group engages in some business activities that involve entities that fit to the above-mentioned definition of struc- tured entities. Primarily, the Allianz Group is involved with such enti- ties due to its investment activities in the insurance business and due to its asset management activities. Furthermore, structured entities are used by the Allianz Group to source out certain risks to investors as part of its reinsurance business. Generally, the classification of entities as structured entities may require significant judgment. In the following, the business activities involving unconsolidated structured entities are described. Investments in asset backed securities (abs) and mortgage backed securities (mbs) issued by securitization vehicles The Allianz Group acts as investor in AbS or mbS issuing securitization vehicles which purchase pools of assets including commercial mort- gage loans (CmbS), residential mortgage loans (RmbS), auto loans, credit card receivables and others. These securitization vehicles refi- nance the purchase of assets by issuing tranches of AbS or mbS, whose repayment is linked to the performance of the assets held by the vehicles. Securitization vehicles invested in by the Allianz Group have been set up by third parties. Furthermore, the Allianz Group has neither transferred any assets to these vehicles nor has it provided any further credit enhancements to them. Income derived from investments in securitization vehicles mainly includes interest income generated from AbS and mbS as well as realized gains and losses from disposals of these securities. Within the asset management business, the Allianz Group acts as asset manager for some securitization vehicles. The assets under management of these vehicles amounted to € 2,202 mn as at 31 December 2014. Some of the affected vehicles have been set up by the Allianz Group whereas others have been set up by third parties. In this respect, the role of the Allianz Group is limited to the asset management activity. The Allianz Group has not invested in these vehicles being managed. Income derived from the management of securitization vehicles comprises asset management fees. Investments in investment funds Considering the broad variety of investment funds across different jurisdictions, the classification of investment funds as structured entities based on the definition in IFRS 12 and current industry prac- tice is judgmental. As a general rule, the relevant activities of an investment fund are dedicated to the fund manager via asset man- agement agreements. In contrast, influence from investors on the relevant activities of unconsolidated funds is usually either precluded by legal or regulatory provisions or is not deemed to be substantial. Investment funds are generally subject to stringent regulatory requirements from financial authorities in all jurisdictions across the world. Comprehensive regulation of funds protects fund inves- tors and also serves to limit investment risk. These mechanisms result in a legal set-up of funds, agreed and accepted by investors and investment managers, that may lead to a classification as structured entities under IFRS 12. With regard to investment activities, income mainly includes distributions from the funds as well as realized gains and losses from disposals. Fund management activities Within the asset management business, investment funds are estab- lished and managed to accommodate retail and institutional clients’ requirements to hold investments in specific assets, market seg- ments or regions. Within the insurance business, policyholder mon- ey is partly invested in investment funds, which include funds man- aged by Allianz Group internal asset managers as well as funds set up and managed by third parties. Investment funds managed or invested in by Allianz Group may include mutual funds, special funds and other funds. Income derived from the management of investment funds includes asset management fees and performance based fees as far as own managed funds are concerned. Investment funds launched by group internal asset managers can be considered to be sponsored by the Allianz Group. As a sponsor, the Allianz Group through its asset management subsidiaries is involved in the legal set-up and marketing of internally managed investment funds. This may include providing seed capital to the funds and providing administrative services to ensure the invest- ment funds’ operation. Investment funds managed by group internal asset managers can be reasonably associated with the Allianz Group. The use of the Allianz name for investment funds is another indicator that the Allianz Group has acted as a sponsor for the respective funds. Information on the management fees generated in the asset man- agement business are disclosed in note 30 of this annual report. 240 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows Reinsurance business The Allianz Group also uses structured entities in the reinsurance business, where hurricane and earthquake risks are sourced to exter- nal investors via the issuance of catastrophe bonds issued by bank- ruptcy remote structured entities. The performance of the issued bonds is linked to the occurrence or non-occurrence of specific catas- trophe events. The cash received from the issued bonds is invested into low-risk structured notes. In parallel, the structured entities enter into derivative contracts with the Allianz Group under which the underlying risks are transferred from Allianz Group to the struc- tured entities. Thus, the Allianz Group transfers exposure to variable returns into the structured entities instead of exposing itself to them. Since the Allianz Group is not exposed to the variable returns of these entities, they are not consolidated within the consolidated financial statements of the Allianz Group. Income derived from the involvement in these structured entities is only driven by the valuation of the derivatives under which insur- ance risks are transferred. According to the purpose those derivatives are held to maturity. They are treated as freestanding derivatives and are thus measured at fair value through profit or loss. nature of risks associateD with unconsoliDateD structureD entities Interests in asset backed securities (abs) and mortgage backed securities (mbs) issued by securitization vehicles carrying amounts of abs anD mbs investments by type of category € mn as of 31 December 2014 u.s. agency cmbs rmbs cmo/cDo Auto Credit card Other Total Financial assets carried at fair value through income Loans and advances to banks and customers Investments – – – 3 – – 16 19 3,445 10,347 2,435 940 270 871 4,178 22,485 – – 215 192 – – – 407 Total 3,445 10,347 2,649 1,135 270 871 4,194 22,912 carrying amounts of abs anD mbs investments by rating € mn as of 31 December 2014 Financial assets carried at fair value through income aaa aa a bbb Non-investment grade Not rated Total Loans and advances to banks and customers – 112 103 – 164 28 407 Total 17,266 2,413 2,021 695 476 40 22,912 Investments 17,253 2,301 1,917 695 309 11 13 – 1 – 3 1 19 22,485 The carrying amounts in the tables listed above represent the maxi- mum exposure to loss for the Allianz Group from these investments. In the reporting period, the Allianz Group has not provided any finan- cial or other support to these entities, nor has it the intention to pro- vide such support in the future. Investments in investment funds investments in investment funDs by asset class € mn as of 31 December 2014 Debt funds Stock funds Private equity funds Property funds Other funds Total Financial assets carried at fair value through income 340 884 – – 196 1,420 Investments 5,908 3,370 5,685 1,531 238 Total 6,248 4,254 5,685 1,531 433 16,731 18,150 Out of the total investment fund exposure, investments of € 10.0 bn (55 %) relate to listed investment funds, whereas investments of € 8.1 bn (45 %) relate to unlisted investment funds . As of the reporting date, the Allianz Group has receivables to unconsolidated investment funds being due for asset management services amounting to € 724 mn. Furthermore, the Allianz Group has commitments to invest in private equity funds and similar financial instruments totaling € 4,388 mn as of 31 December 2014. The carrying amounts mentioned before represent the maxi- mum exposure to loss for the Allianz Group from these investments. In the reporting period, the Allianz Group has not provided any financial or other support to these entities, nor has it the intention to provide such support in the future. Annual Report 2014 Allianz Group 241 Besides the above-mentioned investments in investment funds, the Allianz Group also holds investment funds to fund unit-linked insurance contracts. However, these holdings are held on behalf and for the benefit of unit-linked policyholders only. For that reason, these holdings are not included in the above-mentioned table. As at 31 December 2014 the volume of unit-linked assets amounted to € 94,564 mn. The maximum exposure to loss on these investments is covered by liabilities recorded for unit-linked contracts. Reinsurance business As of 31 December 2014, the outstanding volume of catastrophe bonds linked to hurricane and earthquake risks sponsored by the Allianz Group amounted to € 343 mn. The aggregated fair value of the derivatives between the Allianz Group and the structured entities issuing the catastrophe bonds amounted to € (4) mn. 46 – 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 45. 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. 47 – Litigation, guarantees and other contingencies and commitments 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 business, including, amongst others, their activi- ties 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 242 Annual Report 2014 Allianz Group 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 minor- ity 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. 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 a violation of the False Claims Act in connection with FFIC’s involvement as a pro- vider of federal crop insurance from 1997 to 2003. The investigation concerns the issue of whether FFIC employees submitted 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. FFIC has made a proper provision for this matter. Allianz Life Insurance Company of North America (Allianz Life) has been named as a defendant in class action lawsuits in connec- tion with the marketing and sale of deferred annuity products. Two of those lawsuits in California, which have been certified as class actions and have been consolidated, generally allege that the defen- dant engaged in, among other practices, deceptive trade practices and misleading advertising in connection with the sale of such prod- ucts. The parties reached a settlement agreement in the consolidated action in the very low three-digit U.S. Dollar millions range and the settlement received approval by the court. Allianz Life has made a provision for the estimated cost of the settlement. The ultimate out- come of the other cases cannot yet be determined. guarantees anD other contingencies Guarantees The guarantees issued by the Allianz Group consist of financial guar- antees, indemnification contracts and performance contracts. 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. D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows As of 31 December 2014, the financial guarantees amount to € 434 mn (2013: € 455 mn), € 389 mn of which are due within one year. The collateral held amounts to € 49 mn (2013: € 72 mn). Nearly all customers of the letters of credit have no external credit rating. 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. 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. As of 31 December 2014, the indemnification contracts amount to € 108 mn (2013: € 91 mn), which are almost entirely due after five years. No collateral was held. Nearly all customers of the indemnifica- tion contracts have an external credit rating of A. 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. As of 31 December 2014, the performance guarantees amount to € 43 mn (2013: € 169 mn), € 25 mn of which are due within one year. The collateral held amounts to € 55 mn (2013: € 36 mn). 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 Bank- haus W. Fortmann & Söhne KG. 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 contingent payment obligation of the Allianz Group was reduced in 2012 following a reduction of the nominal amount of the Tier 1 Capi- tal Securities from € 1,000 mn to € 416 mn. The securities have no scheduled maturity and the security holders have no right to call for commitments Loan commitments The Allianz Group engages in various lending commitments to meet the financing needs of its customers. They consist of advances, stand- by facilities, guarantee credits, mortgage loans and public-sector loans. As of 31 December 2014, the total of loan commitments amount to € 953 mn (2013: € 868 mn) and 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, these loan commitments are not representative of actual liquidity requirements for such commitments. 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. As of 31 December 2014, the future minimum lease payments under non-cancelable operating leases were as follows: future minimum lease payments € mn Due in 1 year or less Due after 1 year and up to 5 years Due after 5 years Subtotal Subleases Total 2014 338 1,116 1,156 2,610 (53) 2,558 For the year ended 31 December 2014, rental expenses totaled € 322 mn (2013: € 350 mn), net of sublease rental income received of € 15 mn. Purchase obligations The Allianz Group has commitments for mortgage loans and to buy multi-tranche loans of € 3,388 mn (2013: € 2,810 mn) as well as to invest in private equity funds and similar financial instruments totaling € 4,388 mn (2013: € 2,978 mn) as of 31 December 2014. As of 31 Decem- ber 2014, 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 € 1,209 mn (2013: € 860 mn). Annual Report 2014 Allianz Group 243 In addition, as of 31 December 2014, the Allianz Group has other purchase obligations of € 743 mn (2013: € 477 mn) mainly refer- ring to maintenance, real estate development, sponsoring and other obligations. Other commitments Within the Allianz Group several entities are obliged to make contri- butions to an industry-specific compensation scheme. The most important ones are the following: 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 2014, the future liabilities of Allianz Lebens versicherungs-Aktiengesellschaft and its subsidiaries to the insurance guarantee scheme pursuant to the SichLVFinV amount to annual contributions of € 10.3 mn (2013: € 9.7 mn) and an obligation for special payments of, in principle, € 157 mn (2013: € 138 mn) per year. In accordance with §§ 124 ff. of the German Insurance Super- vision Act (“Versicherungsaufsichtsgesetz” - VAG), Allianz Private Krankenversicherungs-AG is a member of the mandatory insurance guarantee scheme (Sicherungsfonds) for German health insurers. In case the guarantee scheme has to resume responsibility for insur- ance 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 2014, the potential liabilities of Allianz Private Krankenversicherungs-AG to the insurance guarantee scheme amount to an obligation for special payments of € 51 mn (2013: € 48 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 insur- ance guarantee scheme or to Protektor, in the event that the funds provided to the mandatory insurance guarantee scheme are not suf- ficient to handle an insolvency case. Such obligation is based on a maximum of 1 % of the sum of the net underwriting reserves with deduction of payments already provided to the insurance guarantee scheme. As of 31 December 2014, and under inclusion of the contribu- tions to the mandatory insurance scheme mentioned above and assuming that no life insurer is exempted from payments, the aggre- gate out standing commitment of Allianz Lebensversicherungs- Aktiengesellschaft and its subsidiaries to the insurance guarantee scheme and to Protektor is € 1,420 mn (2013: € 1,252 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 GmbH, PImCO Deutschland GmbH and risklab GmbH are currently members of EdW (“Entschädigungseinrichtung der Wert- papierhandelsunternehmen”, Berlin). The annual contribution is determined in consideration of each member’s scope of business. In addition, EdW may levy special contributions from its members, if the funds available to EdW are insufficient to satisfy all eligible claims. Special contributions are determined by reference to the pre- ceding yearly contribution. For 2014, the yearly contributions for above-mentioned entities have been determined by notification from the EdW in the amount of € 2 mn (2013: € – 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 2014 in the amount of € 5 mn (2013: € 2 mn). The above-mentioned entities have appealed the special contributions. For received, but not yet paid notifications, and for the estimated special contribution for 2014, adequate provisions have been accrued. 48 – 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 implementing a ben- efits rule as part of the standard for HR. New plans are primarily based on contributions and may include in some cases guarantees like preservation of contributions or minimum interest rate. 244 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows In the Pension Task Force the heads of Group HR, Group Account- ing and Reporting, Group Treasury and Corporate Finance, Group Planning and Controlling, Group Risk and AIm met four times to pro- vide global governance and pre-align 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 or its plan assets. Germany Germany accounts for 75.2 % of the Allianz Group’s defined benefit obligation and 62.1 % 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 and APV are legal- ly separate administered pension funds with trustee boards being responsible for the investment of the assets and the risk manage- ment. AVK is subject to German 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 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 apart from AVK are guaran- teed at least with 1 % p.a. Depending on legal requirements some pen- sion increases are linked to inflation. In AVK the complete surplus share of the retirees is used to increase their pension. The employee has a choice between lump sum payments and annuities in the AVK and the bPV, 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. Sur- viving 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 8.1 % of the Allianz Group’s defined benefit obli- gation and 12.4 % 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 pensiona- ble 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. Annual Report 2014 Allianz Group 245 Switzerland Switzerland accounts for 4.8 % of the Allianz Group’s defined benefit obligation and 8.9 % 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 risk manage- ment. The plans are contribution-based and cover the risks of longev- ity, disability and death. Employees contribute only a small amount whereas the employer contributes for the complete risk coverage and a large part of the savings components. The interest rate is decided annually by the board of the pension funds. For the mandatory part the minimum interest rate is regulated by law and reviewed annu- ally (1.75 % in 2014). 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 annu- ity according to the rules of the pension fund, taking legal require- ments 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 Amounts recognized in the Allianz Group’s consolidated balance sheet 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 2014 7,500 (3) 21 662 (737) 2,264 9,707 (58) 9,765 2013 8,010 6 (13) 661 (642) (522) 7,500 (94) 7,594 The following table sets out the changes in the defined benefit obli- gation, in the fair value of plan assets and in the effect of the 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 19,110 19,161 2014 2013 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 payments1 Defined benefit obligation as of 31 December2 change in fair value of plan assets 398 663 107 6 3,227 (111) (4) 197 (680) (4) (5) 15 (152) 22,767 414 619 106 40 (554) 35 (7) (82) (629) 9 (1) – (1) 19,110 Fair value of plan assets as of 1 January 11,668 11,206 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 paid3 Changes in the consolidated subsidiaries of the Allianz Group Divestitures Assets distributed on settlement 411 860 317 107 177 (381) (4) (1) (31) 366 46 364 106 (70) (351) 3 (1) (1) Fair value of plan assets as of 31 December 13,123 11,668 change in effect of asset ceiling4 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 58 1 2 1 63 55 1 3 (1) 58 1 2 3 4 These include a settlement payment of € 121 mn in South Korea for a plan change into a defined contribu- tion pension plan. As of 31 December 2014, € 8,271 mn (2013: € 6,673 mn) of the defined benefit obligation are wholly unfunded, while € 14,496 mn (2013: € 12,437 mn) are wholly or partly funded. As for other plans where benefits are linked to variable returns on specified assets, the defined benefit obligation for a part of the Allianz Pensionsverein was determined as of 31 December 2014 by reference to the fair value of the plan assets. Without this, the defined benefit obligation would have been € 890 mn higher. In addition, the Allianz Group paid € 306 mn (2013: € 283 mn) directly to plan participants. The asset ceiling is determined by taking the reduction of future contributions into account. 246 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows As of 31 December 2014, post-retirement health benefits included in the defined benefit obligation and in the net amount recognized amounted to € 13 mn (2013: € 13 mn) and € 13 mn (2013: € 13 mn), respectively. During the years ended 31 December 2014 and 2013, the defined benefit costs related to post-retirement health benefits were not significant. 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 and internal Allianz Group retirement projections. Although this represents the best estimate as of today, considering a further increase in life expectancy could be reasonable. The weighted aver- age life expectancy of a currently 65-year-old plan participant is about 89.0 years for women and 86.5 years for men. An increase in life expectancy by one year would lead to an increase of the defined ben- efit obligation by € 605 mn. The weighted average values of the assumptions for the Allianz Group’s defined benefit plans used to determine the defined benefit obligation and the recognized expense are as follows: The range for the sensitivity calculations was derived by analyzing the average volatility over a five-year period. An increase (or decrease) in the discount rate by 50 basis points would lead to a decrease of € 1.6 bn (or increase of € 1.9 bn) in the defined benefit obligation. An increase of pre-retirement benefit assumptions (e.g. salary increase) of 25 basis points would have an effect of € 67 mn on the defined benefit obligation. However, the increase of post-retirement assumptions (e.g. inflation-linked increases of pension payments) of 25 basis points would affect the defined benefit obligation by € 491 mn. A change in the medical cost trend rate by 100 basis points would have an effect of € 1 mn on the defined benefit obligation and no material effect on the defined benefit costs. Plan Assets/Asset Liability Management (alm) Based on the estimated future cash flows of € 719 mn for 2015, € 716 mn for 2016, € 737 mn for 2017, € 756 mn for 2018, € 804 mn for 2019 and € 4,262 mn for 2020 – 2024, the weighted duration of the defined benefit obligation is 19.4 years. The Allianz Group uses, based on the liability profiles of the defined benefit obligation and on the regulatory fund- ing requirements, 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 that could have an impact on the liquidity of the Allianz Group. The target allocation for the plan assets compares to the current assumptions for DefineD benefit plans % as of 31 December Discount rate Rate of compensation increase Rate of pension increase Rate of medical cost trend 2014 2.2 2.1 1.8 2.6 2013 asset allocation as follows: asset allocation of plan assets 3.5 2.2 2.0 3.7 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 Eurozone, 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 and consistently used by Group Risk, Group Audit, AIm and PImCO. as of 31 December Equity securities Quoted Non-quoted Debt securities Quoted Non-quoted Real estate Annuity contracts Other Total Target allocation Real allocation % 15.1 % 14.9 Real allocation 2014 Real allocation 2013 € mn € mn 58.2 52.9 6.1 19.1 1.5 5.0 17.0 10.2 1,955 – 4,816 2,125 654 2,232 1,341 1,594 – 4,212 1,927 561 2,071 1,303 100.0 100.0 13,123 11,668 Annual Report 2014 Allianz Group 247 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 € 5.2 mn of own transferable financial instruments. In addition to the plan assets of € 13.1 bn, the Allianz Group has dedicated assets at Group level amounting to € 3.2 bn as of 31 Decem- ber 2014, which are likewise managed according to Allianz ALm stan- dards. Contributions For the year ending 31 December 2015, the Allianz Group expects to contribute € 301 mn to its defined benefit plans and to pay € 323 mn directly to participants in 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 2014, the Allianz Group re- cognized expenses for defined contribution plans of € 224 mn (2013: € 213 mn). Additionally, the Allianz Group paid contributions for state pension schemes of € 344 mn (2013: € 335 mn). 49 – Share-based compensation plans group eQuity incentive plans The Group Equity Incentive plans (GEI plans) of the Allianz Group help focus senior management, in particular the Board of Manage- ment, on the long-term increase in the value of the Allianz Group. Until 2010, the GEI plans included grants of stock appreciation rights (SAR) and restricted stock units (RSU). From the 2011 grant onwards, the Allianz Equity Incentive plan (AEI plan) has replaced the GEI plans. With the AEI Plan, only restricted stock units (RSU) are granted to the plan participants. 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 up to 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: − 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. In addition, upon the death of a plan participant, a change of control or notice for operational reasons, 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 (for the year ended 31 December 2014, the plan issued in 2008 is “out of the money”), the expected life has been estimated to equal the term to maturity of the SAR. 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 2014, the Allianz Group recognized compensation expenses related to the unexercised SAR of € 7 mn (2013: € 62 mn). As of 31 December 2014, the Allianz Group recorded a provision of € 54 mn (2013: € 86 mn) in other liabilities for the unexercised SAR. 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 the 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. 248 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 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 prevail- ing 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 2014, the Allianz Group recognized a compensation expense related to the non-vested RSU of € 24 mn (2013: € 58 mn). As of 31 December 2014, the Allianz Group recorded a provision of € 90 mn (2013: € 141 mn) in other liabilities for the non-vested RSU. allianz eQuity incentive plan Since the 2011 grant year, the Allianz Equity Incentive plan (AEI plan) has replaced the GEI plans. The AEI plan is granted in the form of restricted stock units (RSU) and is part of a new variable compensa- tion component 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 reasons, the RSU vest immediately and will be exercised by the company. 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 the fair value of the RSU at grant date: assumptions of aei plans Share price Average dividend yield Average interest rate Expected volatility 20151 2014 2013 148.75 120.65 110.40 4.8 0.2 19.3 4.5 0.5 20.0 4.6 0.5 20.9 € % % % 1 The rSU 2015 are deemed to have been granted to participants as part of their 2014 remuneration. Consequently, the assumptions for rSU grants delivered in March 2015 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 2014, the Allianz Group recognized a compensa- tion expense related to the AEI plans of € 160 mn (2013: € 132 mn). As of 31 December 2014, the Allianz Group recorded a provision of € 399 mn (2013: € 248 mn) for these RSU in other liabilities. 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 on 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 2014, the Allianz Group recognized a compensation expense related to the Class B equity units of € (10) mn (2013: € 15 mn). In addition, the Allianz Group recognized an expense related to the priority claim on the adjusted operating profits of PImCO LLC of € 3 mn (2013: € 16 mn). The Allianz Group called a total of 3,254 Class B equity units during the year ended 31 December 2014. The total amount paid related to the call of the Class B equity units was € 143 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 2014, the Allianz Group recorded a liability for the Class B equity units of € 47 mn (2013: € 196 mn). Annual Report 2014 Allianz Group 249 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. Partici- pants in the plan are granted options to acquire a new class of equity instruments (M-units), which vest in one-third increments on approximately the third, fourth and fifth anniversary of the option grant date. Upon vesting, options will 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 the lastest. With the M-unit Plan, participants can directly participate in PImCO’S performance. Class M-units are non-voting common equity with limited informa- tion 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 quarterly 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-unit 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 on 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-unit 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 2014 2013 567.49 1,047.87 3.84 24.9 13.3 1.1 3.84 31.6 13.2 0.7 € % % % The number and weighted average exercise price of the M-unit options outstanding and exercisable are as follows: reconciliation of outstanDing m-unit options 2014 2013 Number of options Weighted average exercise price € Number of options Weighted average exercise price € Outstanding as of 1 January 214,109 13,709.98 204,091 12,597.93 Granted Exercised Forfeited Outstanding as of 31 December Exercisable as of 31 December 48,894 19,749.44 50,600 16,959.07 (43,321) 12,508.00 (30,412) 8,213.51 (44,322) 16,879.96 (10,170) 13,069.76 175,360 17,212.31 214,109 13,709.98 – – – – The aggregate intrinsic value of share options outstanding was € 65 mn and € 232 mn for the years ended 31 December 2014 and 2013, respectively. As of 31 December 2014, the M-unit options outstanding have an exercise price of between € 11,938.35 and € 19,843.81 and a weighted average remaining contractual life of 2.77 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 on their fair value as of the grant date. The total compensation expense is recognized over the vesting period. During the year ended 31 December 2014, the Allianz Group recorded a compensation expense of € 31 mn (2013: € 74 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, and some employees whose performance 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 employ- ees), 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 250 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows to sell is exercised, multiplied by a ratio representing the consider- ation proposed 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 on 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 2014, the Allianz Group rec- ognized total compensation expenses related to the modified share option plans of € (1) mn (2013: € 2 mn). As of 31 December 2014, the Allianz Group recorded a provision for these plans of € 3 mn (2013: € 8 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 one to five years. During the year ended 31 Decem- ber 2014, the number of shares sold to employees under these plans was 510,435 (2013: 565,643). During the year ended 31 December 2014, 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, amounting to € 7 mn (2013: € 7 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 2014, the total expense recorded for these plans was € 2 mn (2013: € 7 mn). 50 – Restructuring plans As of 31 December 2014, 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 relat- ing to the termination of lease contracts that will arise in connection with the implementation of the relevant 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 2014 214 8 24 (28) (75) (35) 2 109 2013 304 166 19 (53) (104) (116) (2) 214 The development of the restructuring provisions reflects the imple- mentation status of the restructuring initiatives. Based on the spe- cific 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 that would have been used if a restructuring initiative was not in place. This applies for each single contract. For personnel costs, at the time 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 provi- sions. 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 Allianz Bank did not grow as profitably as expected in a highly com- petitive 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. Annual Report 2014 Allianz Group 251 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 Sachversi- cherung” 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, approximately 9 FTE remain as of 31 December 2014. 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 40 FTE remains as of 31 Decem- ber 2014. During the year ended 31 December 2014, restructuring charges of € 1 mn were recorded. As of 31 December 2014, the Allianz Germany Group recorded restructuring provisions of € 8 mn related to this program. effect of the reversal of Discounting For the year ended 31 December 2014, there was no effect of the rever- sal of discounting arising from the passage of time (2013: € 4 mn). In 2014, a release of restructuring provisions for the closure of Allianz Bank of € 6 mn was recorded. As of 31 December 2014, the restructuring provision amounted to € 4 mn. olDenburgische lanDesbank’s restructuring plan A change in customer demand concerning distribution channels of retail banking and a rise of regulatory costs for banking business led to a restructuring program being launched in the third quarter of 2014 in order to implement a more efficient consultancy and service structure. For this program, restructuring charges of € 4 mn were recorded in 2014. As of 31 December 2014, restructuring provisions amounted to € 4 mn. allianz italy’s restructuring plan In December 2014, Allianz Italy extended the restructuring plan that was initiated in the fourth quarter of 2013. Allianz Italy aims to adapt its business model and significantly streamline its processes. A uni- fied 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, especially after the acquisition of the former book of business and agency network from UnipolSai Assicurazioni S.p.A. By imple- menting voluntary early retirement plans, headcount will be reduced by an additional 180 employees. During the year ended 31 December 2014, restructuring charges of € 20 mn were recorded. As of 31 December 2014, Allianz Italy recorded restructuring provisions of € 40 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 is being 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 2014, restructuring charges of € 1 mn were recorded. As of 31 December 2014, restructuring provi- sions for this program amounted to € 12 mn. 252 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 51 – 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. 52 – Other information numBer of employees numBer of employees as of 31 December Germany Rest of Europe Basic earnings per share € mn Net income attributable to shareholders used to calculate basic earnings per share 2014 6,221 2013 Asia Pacific & Africa America 5,996 Total 2014 40,692 70,346 21,366 15,021 2013 40,537 71,927 20,157 15,006 147,425 147,627 Weighted average number of common shares outstanding 453,841,370 453,297,832 Basic earnings per share (€) 13.71 13.23 The average total number of employees for the year ended 31 Decem­ ber 2014 was 147,444. 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: 2014 6,221 (24) 6,197 2013 5,996 (76) 5,920 453,841,370 453,297,832 Share-based compensation plans 425,532 189,395 Weighted average number of common shares outstanding after assumed conversion 454,266,902 453,487,227 Diluted earnings per share (€) 13.64 13.05 For the year ended 31 December 2014, the weighted average number of common shares excludes 2,738,082 (2013: 2,753,127) treasury shares. personnel expenses personnel expenses € mn Salaries and wages Social security contributions and employee assistance Expenses for pensions and other post-retirement benefits Total 2014 9,037 1,293 1,186 11,515 2013 9,105 1,304 1,107 11,516 issuance of the Declaration of compliance with the german corporate governance coDe accorDing to § 161 aktg On 11 December 2014, 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 2014 and was made available to the shareholders on a permanent basis. Annual Report 2014 Allianz Group 253 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 KPMG International (KPMG) are dis­ closed in four categories. Effective 1 October 2014, the operational structure of KPMG changed. KPMG AG was part of KPMG Europe LLP, which was dissolved. Therefore, as of 31 December 2014, KPMG AG no longer has “affiliated entities”. To reflect the change, previous year figures have been adjusted accordingly. kpmg fees € mn Audit fees Audit-related fees Tax fees All other fees Total kpmg worldwide thereof: kpmg ag 2014 38.1 7.9 2.8 6.0 54.8 2013 36.3 8.3 4.8 8.1 57.5 2014 9.9 6.5 1.2 2.9 20.5 2013 9.7 6.6 3.0 7.0 26.2 Audit fees KPMG billed the Allianz Group an aggregate of € 38.1 Mn (2013: € 36.3 Mn) in connection with professional services rendered for the audit of the Allianz Group’s consolidated financial statements, statutory audits of the financial statements of Allianz SE and its subsidiaries and ser­ vices normally provided by KPMG in connection with statutory 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 € 7.9 Mn (2013: € 8.3 Mn) for assurance and 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 finan­ cial reporting standards and financial due diligence services. All other fees KPMG invoiced the Allianz Group an aggregate of € 6.0 Mn (2013: € 8.1 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 is assigned in more than 73 % of all audit­related tasks. Auditing firms other than KPMG billed the Allianz Group an aggregate of € 16.4 Mn (2013: € 15.0 Mn). remuneration for the BoarD of management As of 31 December 2014, 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 2014, excluding the notional accruals of the MTB 2013 – 15 and excluding the pension service cost, amounts to € 30 Mn (2013: € 31 Mn). The equity­related remuneration is comprised in 2014 of 88,8801 (2013: 106,5592) Restricted Stock Units (RSU). RSU with a total fair value of € 10.6 Mn (2013: € 11.0 Mn) were granted to the Board of Management for the year ended 31 December 2014. In 2014, remuneration and other benefits totaling € 6 Mn (2013: € 9 Mn) were paid to former members of the Board of Management and dependents, reserves for current pension obligations and accrued pension rights totaled € 102 Mn (2013: € 100 Mn). The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2.0 Mn (2013: € 2.0 Mn). Tax fees KPMG fees for professional services, rendered for tax advice and tax compliance, amounted to € 2.8 Mn (2013: € 4.8 Mn) and resulted pri­ marily from tax advice. 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 The relevant share price used to determine the final number of RSUs granted is only available after sign-off of the Annual Report by the external auditors, thus numbers are based on a best estimate. The disclosure in the Annual Report 2013 was based on a best estimate of the RSU grants. The figure shown here for 2013 now includes the actual fair value as of the grant date (13 March 2014). The value therefore differs from the amount disclosed last year. 254 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 53 – Subsequent events The Allianz Group was not subject to any subsequent events that sig­ nificantly impacted the Group financial results after the balance sheet date and before the financial statements were authorized for issue. Munich, 24 February 2015 Allianz SE The Board of Management Annual Report 2014 Allianz Group 255  List of participations of the Allianz Group as of 31 December 2014 according to § 313 (2) HGB % 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 AGA Service Deutschland GmbH, Aschheim 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 Deutschland AG, Munich Allianz Digital Accelerator GmbH, Munich Allianz DLVR Fonds, Frankfurt am Main Allianz EEE Fonds, Frankfurt am Main Allianz Esa cargo & logistics GmbH, Bad Friedrichshall Allianz Esa EuroShip GmbH, Bad Friedrichshall Allianz FAD Fonds, Frankfurt am Main Allianz Finanzbeteiligungs GmbH, Munich Allianz Global Corporate & Specialty SE, Munich Allianz Global Investors GmbH, Frankfurt am Main 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 Allianz Private Equity GmbH, Munich 0.0 2 0.0 2 100.0 100.0 100.0 100.0 99.3 79.6 100.0 94.8 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 100.0 3 100.0 100.0 100.0 5 100.0 100.0 100.0 100.0 100.0 3 100.0 3 100.0 51.0 100.0 3 100.0 100.0 100.0 100.0 3 100.0 3 100.0 3 100.0 3 95.0 100.0 5 100.0 3 100.0 100.0 100.0 100.0 100.0 3 100.0 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 256 Annual Report 2014 Allianz Group 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 Taunusanlage GbR, Stuttgart Allianz Treuhand GmbH, Stuttgart Allianz UGD 1 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 AllSecur Deutschland AG, Munich APKV Private Equity Fonds GmbH, Munich Atropos Vermögensverwaltungsgesellschaft mbH, Munich AUG. PRIEN Immobilien PE Verwaltung Brahms- Quartier GmbH, Stuttgart Auros GmbH, Munich Auros II 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 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 100.0 100.0 100.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 3 100.0 100.0 3 100.0 100.0 3 99.5 100.0 100.0 3 100.0 3 100.0 100.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 43.7 2,4 100.0 100.0 100.0 94.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 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, Sulzbach 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 Euler Hermes Aktiengesellschaft, Hamburg Euler Hermes Collections GmbH, Potsdam Euler Hermes Rating Deutschland GmbH, Hamburg GA Global Automotive Versicherungsservice GmbH, Halle (Saale) InnoSolutas GmbH, Bad Friedrichshall 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, Sulzbach Selecta Holding GmbH, Sulzbach Signa 12 Verwaltungs GmbH, Düsseldorf Spherion Beteiligungs GmbH & Co. KG, Stuttgart Spherion Objekt GmbH & Co. KG, Stuttgart UfS Beteiligungs-GmbH, Munich VLS Versicherungslogistik GmbH, Berlin Volkswagen Autoversicherung AG, Braunschweig 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 Calau GmbH & Co. KG, Sehestedt Windpark Cottbuser See GmbH & Co. KG, Sehestedt Windpark Dahme GmbH & Co. KG, Sehestedt 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 % owned 1 100.0 100.0 3 100.0 100.0 100.0 100.0 100.0 94.9 95.0 50.1 50.4 100.0 3 100.0 3 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 90.2 100.0 5 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 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 D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 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 Allianz Global Benefits 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 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 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 esa EuroShip GmbH & Co. KG Underwriting for Shipping, Bad Friedrichshall Kapitalbeteiligungsgesellschaft der Deutschen Versi- cherungswirtschaft Aktiengesellschaft, Berlin Mühl Product & Service und Thüringer Baustoff- handel Beteiligungs- und Verwaltungs GmbH, Kranichfeld Reisegarant GmbH, Hamburg Umspannwerk Putlitz GmbH & Co. KG, Frankfurt am Main Other participations between 5 and 20 % of voting rights EXTREMUS Versicherungs-Aktiengesellschaft, Cologne FC Bayern München AG, Munich MLP AG, Wiesloch Protektor Lebensversicherungs-AG, Berlin Sana Kliniken AG, Ismaning ForeiGn entities Consolidated affiliates 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 Administradora de Inversión Colseguros S.A., Bogotá D.C. Annual Report 2014 Allianz Group % owned 1 % owned 1 % owned 1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 55.3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 75.2 100.0 100.0 70.8 100.0 100.0 6,9 100.0 9 100.0 100.0 100.0 100.0 50.0 50.1 7 51.0 8 40.0 39.4 25.0 24.0 25.4 16.0 8.3 8.9 10.0 13.9 96.5 100.0 100.0 100.0 100.0 100.0 55.0 100.0 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 Assistance Japan Co. Ltd., Tokyo 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 AGA Servis Hizmetleri A.S., Istanbul AGA Sigorta Aracilik Hizmetleri LS, Istanbul AGCS Marine Insurance Company, Chicago, IL AGCS Resseguros Brasil S.A., Rio de Janeiro AGF Benelux S.A., Luxembourg AGF FCR, Paris AGF Holdings (UK) Limited, Guildford AGF Insurance Limited, Guildford AGF Inversiones S.A., Buenos Aires 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 Japon (couvert), Paris Allianz Actions Indice US (couvert), Paris Allianz Actions Internationales, Paris Allianz Actions Japon, Paris Allianz Actions US, Paris Allianz Africa S.A., Paris Allianz Air France IFC, Paris Allianz Alapkezelõ Zrt., Budapest Allianz America Holding B.V., Amsterdam Allianz Amerika Aandelen Fonds, Rotterdam 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 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 100.0 3 100.0 100.0 100.0 100.0 100.0 80.1 100.0 100.0 100.0 100.0 100.0 97.6 97.0 100.0 100.0 100.0 100.0 100.0 4 100.0 100.0 100.0 100.0 100.0 3 100.0 3 100.0 100.0 100.0 100.0 78.0 4 70.1 4 94.3 4 84.3 4 92.1 4 61.3 4 73.1 4 57.1 4 98.4 4 99.2 4 55.2 4 81.7 4 100.0 100.0 4 100.0 100.0 83.0 4 100.0 100.0 100.0 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 62.6 Allianz Bank Bulgaria AD, Sofia Allianz Bank Financial Advisors S.p.A., Milan Allianz Banque S.A., Courbevoie Allianz Benelux N.V., Brussels Allianz Bénin Assurances SA, Cotonou Allianz Bonds Diversified Euro, Paris Allianz Bonds Euro High Yield, Paris Allianz Bulgaria Holding AD, Sofia Allianz Burkina Assurances SA, Ouagadougou Allianz Burkina Assurances Vie SA, Ouagadougou Allianz Business Services Limited, Lancaster Allianz business services s.r.o., Bratislava Allianz Cameroun Assurances SA, Douala Allianz Cameroun Assurances 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 SA, Bangui Allianz Chicago Private Reit LP, Wilmington, DE 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 Combinatie Fonds, Rotterdam Allianz Compagnia Italiana Finanziamenti S.p.A., Milan Allianz Compañía de Seguros y Reaseguros S.A., Barcelona Allianz Congo Assurances SA, Brazzaville Allianz Cornhill Information Services Private Ltd., Trivandrum Allianz Côte d'Ivoire Assurances SA, Abidjan Allianz Côte d'Ivoire Assurances Vie SA, Abidjan Allianz Creactions 1, Paris Allianz Creactions 2, Paris Allianz Defensief Mix Fonds, Rotterdam Allianz Discovery Asia Strategy, Senningerberg Allianz do Brasil Participações Ltda., São Paulo Allianz Duurzaam Wereld Aandelen Fonds, Rotterdam Allianz Dynamic Asia High Yield, Senningerberg Allianz Dynamic Global Bond, George Town Allianz EDUKACJA S.A., Białobrzegi Allianz Efficio, Paris Allianz Efficio Plus, Paris Allianz Egypt for Financial Investments Company S.A.E., New Cairo Allianz Elementar Lebensversicherungs-Aktiengesell- schaft, Vienna Allianz Elementar Versicherungs-Aktiengesellschaft, Vienna Allianz Emerging Markets Flexible Bond, Sennin- gerberg Allianz Emerging Markets Local Currency Bond, Senningerberg 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-linked Bond, Senningerberg Allianz Euro Oblig 1-3 Plus, Paris Allianz Euro Obligations Crédit ISR, Paris Allianz Euro Tactique, Paris Allianz Euroland Equity SRI, Senningerberg Allianz Europa Aandelen Fonds, Rotterdam Allianz Europa Obligatie Fonds, Rotterdam Allianz Europe B.V., Amsterdam Allianz Europe Ltd., Amsterdam 99.9 100.0 100.0 100.0 83.5 100.0 3 100.0 3 66.2 60.3 71.8 100.0 100.0 75.4 75.8 99.9 4 100.0 100.0 100.0 88.3 100.0 100.0 51.0 76.0 4 100.0 100.0 93.9 4 100.0 99.9 100.0 100.0 74.1 71.0 100.0 3 100.0 3 100.0 4 47.0 2,4 100.0 55.1 4 44.8 2,4 98.2 4 100.0 99.9 4 100.0 4 100.0 100.0 100.0 100.0 4 100.0 4 100.0 100.0 3 100.0 100.0 3 97.1 4 58.8 4 41.9 2,4 90.4 4 58.2 4 89.0 4 40.0 2,4 84.3 4 75.4 4 87.3 4 100.0 100.0 257 % owned 1 % owned 1 Allianz Finance Corporation, Novato, CA 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 VII Luxembourg S.A., Luxembourg Allianz Finance VIII Luxembourg S.A., Luxembourg 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 Fund Investments S.A., Luxembourg Allianz Garantie Fonds 3%, Rotterdam Allianz Garantie Fonds 4.75%, Rotterdam Allianz Garantiefonds 3.35%, Rotterdam Allianz Garantiefonds 5%, Rotterdam Allianz Geldmarkt Fonds, Rotterdam 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 New Zealand Limited, Auckland Allianz Global Corporate & Specialty do Brasil Partici- pações Ltda., Rio de Janeiro Allianz Global Corporate & Specialty of Africa (Propri- etary) Ltd., Johannesburg Allianz Global Corporate & Specialty South Africa Ltd., Johannesburg Allianz Global Equity Selection, Senningerberg Allianz Global Investors Distributors LLC, Dover, DE 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 Nominee Services Ltd., George Town Allianz Global Investors Schweiz AG, Zurich Allianz Global Investors Singapore Ltd., Singapore Allianz Global Investors Taiwan Ltd., Taipei 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., Chicago, IL Allianz Grenelle SAS, Paris Allianz Groen Rente Fonds, Rotterdam Allianz Hayat ve Emeklilik A.S., Istanbul Allianz Hellas Insurance Company S.A., Athens 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 Indiceo 2015, Paris Allianz Individual Insurance Group LLC, Minneapolis, MN 100.0 100.0 100.0 100.0 100.0 95.4 4 100.0 100.0 100.0 83.0 4 100.0 60.3 4 99.8 4 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 4 99.5 4 100.0 4 100.0 4 62.8 4 100.0 51.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 4 89.0 100.0 100.0 100.0 100.0 100.0 100.0 3 100.0 3 100.0 3 100.0 100.0 100.0 3 50.5 4 100.0 4 100.0 258 Annual Report 2014 Allianz Group 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 Holdco I S.A., Luxembourg Allianz Infrastructure Luxembourg Holdco II S.A., Luxembourg Allianz Infrastructure Luxembourg I S.à r.l., Luxem- bourg Allianz Infrastructure Spain Holdco I S.à r.l., Luxembourg Allianz Insurance (Hong Kong) Ltd., Hong Kong Allianz Insurance Company Ghana Limited, Accra Allianz Insurance Company Lanka Limited, Saram Allianz Insurance Company-Egypt S.A.E., Cairo Allianz Insurance plc, Guildford Allianz International Equity Growth, Senningerberg Allianz International Ltd., 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., Luxem- bourg Allianz Investments II Luxembourg S.à r.l., Luxem- bourg Allianz Investments III Luxembourg S.à r.l., Luxem- bourg Allianz Investments IV Luxembourg S.à r.l., Luxem- bourg 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 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 SA, Antananarivo Allianz Malaysia Berhad p.l.c., Kuala Lumpur Allianz Mali Assurances SA, Bamako Allianz Managed Operations & Services Thailand Co. Ltd., Bangkok Allianz Managed Operations & Services Netherlands 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 Monde, Paris Allianz Multi Croissance, Paris 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 89.0 100.0 79.0 4 100.0 100.0 100.0 3 100.0 3 100.0 3 100.0 4 100.0 4 100.0 100.0 95.6 4 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 66.5 100.0 51.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 75.0 77.0 100.0 100.0 100.0 65.0 100.0 99.9 100.0 95.1 4 99.9 4 Allianz Multi Dynamisme, Paris Allianz Multi Equilibre, 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 Company S.A., Athens Allianz Nederland Administratie B.V., Utrecht Allianz Nederland Asset Management B.V., Nieu- wegein Allianz Nederland Groep N.V., Rotterdam Allianz Nederland Levensverzekering 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., Novato, CA Allianz Offensief Mix Fonds, Rotterdam 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 Pacific Aandelen Fonds, Rotterdam 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 Allianz Popular Vida Compañía de Seguros y Rease- guros 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 Partners IV, 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 % owned 1 94.1 4 98.0 4 57.0 4 45.4 2,4 56.8 4 100.0 4 100.0 4 100.0 4 100.0 4 100.0 4 78.8 4 72.9 4 98.8 4 97.0 4 88.7 4 99.7 4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 92.9 4 79.6 4 99.8 4 100.0 100.0 4 100.0 100.0 100.0 3 99.3 4 100.0 4 100.0 86.3 4 100.0 3 100.0 100.0 100.0 100.0 75.5 4 96.2 4 100.0 100.0 100.0 100.0 60.0 100.0 100.0 4 100.0 4 86.8 3 92.0 3 99.6 3 100.0 3 100.0 100.0 99.5 4 100.0 100.0 100.0 100.0 100.0 100.0 98.5 98.5 100.0 D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 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 Saúde 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., Bogotá D.C. Allianz Seguros S.A., São Paulo Allianz Selectie Fonds, Rotterdam Allianz Selection European Equity Dividend, Hong Kong Allianz Selection Income and Growth, Hong Kong Allianz Selection Total Return Asian Equity, Hong Kong Allianz Selection US High Yield, Hong Kong Allianz Selection US Income, Hong Kong Allianz Sénégal Assurances SA, Dakar Allianz Sénégal Assurances Vie 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 Subalpina Holding S.p.A., Turin Allianz Suisse Immobilien AG, Wallisellen Allianz Suisse Lebensversicherungs-Gesellschaft AG, Wallisellen Allianz Suisse Rückversicherungs AG, Zurich Allianz Suisse Versicherungs-Gesellschaft AG, Wallisellen 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 Assurances SA, Lome Allianz UK Credit Fund, Paris Allianz UK Infrastructure Debt GP Limited, London Allianz Ukraine LLC, Kiev Allianz Underwriters Insurance Company Corp., Burbank, CA Allianz US Equity Dividend, Senningerberg 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 Vie S.A., Paris Allianz Worldwide Care S.A., Paris Allianz Worldwide Care Services Ltd., Dublin Allianz Worldwide Partners S.A.S., Paris 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 % owned 1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 4 100.0 100.0 98.0 4 95.3 4 90.9 4 97.4 4 100.0 100.0 100.0 85.3 4 82.4 4 35.2 2,4 97.1 4 92.3 4 99.8 4 83.2 95.5 100.0 94.0 100.0 100.0 85.6 100.0 100.0 100.0 100.0 3 100.0 3 98.1 100.0 100.0 100.0 100.0 99.7 100.0 52.2 100.0 97.9 100.0 3 100.0 100.0 100.0 90.0 4 100.0 100.0 100.0 100.0 54.7 4 100.0 100.0 100.0 100.0 80.0 83.2 51.0 Allianz ZB d.o.o. Company for the Management of Voluntary Pension Funds, Zagreb AllianzGI Best Styles Emerging Markets Equity Fund, Boston, MA AllianzGI China Equity Fund, Boston, MA AllianzGI Emerging Markets Consumer Fund, Boston, MA AllianzGI Emerging Markets Debt Fund, Boston, MA AllianzGI Emerging Markets Small-Cap Fund, Boston, MA AllianzGI Europe Equity Growth, São Paulo AllianzGI Global Fundamental Strategy Fund, Boston, MA AllianzGI Global Growth Allocation Fund, Boston, MA AllianzGI Global Small-Cap Opportunity Portfolio, Boston, MA AllianzGI Global Sustainability Fund, Boston, MA AllianzGI Multi-Asset Real Return Fund, Boston, MA AllianzGI NFJ Emerging Markets Value Fund, Boston, MA AllianzGI Retirement 2055 Fund, Boston, MA AllianzGI Small-Cap Blend Fund, Boston, MA AllianzGI U.S. Unconstrained Equity Portfolio, Boston, MA AllianzGo S.r.l., Trieste Allianz-Slovenská DSS a.s., Bratislava Allianz-Slovenská poist'ovna a.s., Bratislava 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 European Services SAS, Paris AMOS IT Suisse AG, Wallisellen AMOS Italy S.p.c.A., Milan AMOS of America LLC, Novato, CA Ann Arbor Annuity Exchange Inc., Ann Arbor, MI Antoniana Veneta Popolare Vita S.p.A., Trieste APEH Europe VI, Paris APKV US Private REIT GP LLC, New York, NY APKV US Private REIT LP, New York, NY APP Broker S.r.l., Trieste Approfrais SA, Evreux Arab Gulf Health Services LLC, Dubai 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 Assurances Médicales SA, Paris 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 AWP Romania S.A., Bucharest 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 Real Estate GP LLC, New York, NY 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., Kitchener, ON AZGA Service Canada Inc., Kitchener, ON % owned 1 51.0 93.7 4 84.9 4 100.0 4 99.9 4 100.0 4 66.1 4 97.3 4 53.5 4 100.0 4 100.0 4 81.1 4 35.7 2,4 55.5 4 92.1 4 100.0 4 100.0 100.0 99.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 50.0 2 99.6 3 100.0 100.0 100.0 100.0 100.0 99.9 4 100.0 100.0 4 100.0 100.0 100.0 100.0 100.0 100.0 65.0 100.0 100.0 4 100.0 4 99.2 4 98.8 4 94.7 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 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) 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 Imóveis e Participações Ltda., São Paulo Bright Mission Berhad Ltd., Kuala Lumpur British Reserve Insurance Co. Ltd., Guildford BSMC (Thailand) Limited, Bangkok Bulgaria Net AD, Sofia Bureau d'Expertises Despretz S.A., Brussels Calobra Investments Sp. z o.o., Warsaw Calypso S.A., Paris CAP Rechtsschutz-Versicherungsgesellschaft AG, Wallisellen Centrale Photovoltaique de Saint Marcel sur aude SAS, Paris Centrale Photovoltaique de Valensole SAS, Paris CEPE de Haut Chemin S.à r.l., Versailles CEPE de Langres Sud S.à r.l., Versailles CEPE de Mont Gimont S.à r.l., Versailles CEPE des Portes de la Côte d'Or S.à r.l., Versailles CEPE du Bois de la Serre 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 Companhia de Seguros Allianz Portugal S.A., Lisbon Compañía Colombiana de Servicio Automotriz S.A., Bogotá D.C. Consultatio Renta Mixta F.C.I., Buenos Aires Corn Investment Ltd., London Corsetec Assessoria e Corretagem de Seguros 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 Emerald Global Investments, Paris Energie Eolienne Lusanger S.à r.l., Versailles Eolica Erchie S.r.l., Lecce Etablissements J. Moneger SA, Dakar Euler Gestion, Paris la Défense Euler Hermes ACI Services LLP, Baltimore, MD Euler Hermes ACMAR Services SARL, Casablanca Euler Hermes Asset Management France S.A., Paris la Défense 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 Consulting (Shanghai) Co. Ltd., Shanghai Euler Hermes Crédit France S.A.S., Paris la Défense Annual Report 2014 Allianz Group % owned 1 100.0 100.0 50.0 2 100.0 66.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 98.4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 64.8 100.0 100.0 3 100.0 99.5 100.0 100.0 100.0 4 50.0 2 50.0 2 100.0 50.1 100.0 100.0 100.0 100.0 100.0 4 100.0 100.0 100.0 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 259 % owned 1 % owned 1 % owned 1 Euler Hermes Credit Management Services Ireland Ltd., Dublin Euler Hermes Credit Services (JP) Ltd., Tokyo Euler Hermes Excess North America LLC, Owings Mills, MD Euler Hermes Group SA, Paris la Défense Euler Hermes Hellas Credit Insurance SA, Athens Euler Hermes Hellas Services Ltd., Athens Euler Hermes Hong Kong Service Limited, Hong Kong Euler Hermes Korea Non-life Broker Company Limited, Seoul 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, Luxembourg Euler Hermes Real Estate SPPICAV, Paris Euler Hermes Recouvrement France S.A.S., Paris la Défense Euler Hermes Reinsurance AG, Wallisellen Euler Hermes Risk Yönetimi A.S., Istanbul Euler Hermes S.A., Brussels Euler Hermes Seguros de Crédito S.A., São Paulo Euler Hermes Service AB, Stockholm Euler Hermes Services AG, Wallisellen Euler Hermes Services B.V., 's-Hertogenbosch Euler Hermes Services Belgium S.A., Brussels Euler Hermes Services Bulgaria EOOD, Sofia Euler Hermes Services G.C.C. Limited, Dubai Euler Hermes Services India Privat Limited, Mumbai Euler Hermes Services S.A.S., Paris la Défense Euler Hermes Services South Africa Ltd., Johannes- burg Euler Hermes Services Sp. z o.o., Warsaw Euler Hermes Services Tunisia S.à r.l., Tunis 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 Taiwan Services Limited, Taipei Euler Hermes Tech SAS, Paris la Défense 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 la Défense Euler Hermes, Mierzejewska-Kancelaria Prawna Sp.k, Warsaw Eurl 20/22 Le Peletier, Paris Euro Garantie AG, Pfäffikon Eurosol Invest S.r.l., Udine FAI Allianz Ltd., Sydney FCP LBPAM IDR, 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 la Défense Financière Callisto SAS, Paris la Défense Fireman's Fund Financial Services LLC, Dallas, TX Fireman's Fund Indemnity Corporation, Liberty Corner, NJ Fireman's Fund Insurance Company Corp., Novato, CA 100.0 100.0 100.0 69.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 60.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 4 100.0 3 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 260 Annual Report 2014 Allianz Group 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 Fondo Chiuso Allianz Infrastructure Partners I, Milan Fragonard Assurance S.A., Paris Friederike MLP S.à r.l., Luxembourg Fusion Brokerage Inc., Richmond, VA Fusion Company Inc., Richmond, VA Gaipare Action, Paris GamePlan Financial Marketing LLC, Woodstock, GA Generation Vie S.A., Courbevoie Genialloyd S.p.A., Milan Gestion de Téléassistance et de Services S.A., Chatillon GIE Euler Hermes SFAC Services, Paris la Défense Global Transport & Automotive Insurance Solutions Pty Limited, Sydney Hauteville Insurance Company Limited, St Peter Port 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 Inforce Solutions LLC, Woodstock, GA Insurance CJSC "Medexpress", Saint Petersburg Intermediass S.r.l., Milan International Film Guarantors Limited, London International Film Guarantors LLC, Santa Monica, CA Interpolis Kredietverzekeringen N.V., 's-Hertogen- bosch Interstate Fire & Casualty Company, Chicago, IL Investitori Real Estate Fund, Milan Investitori SGR S.p.A., Milan ITEB B.V., Rotterdam 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 "Medexpress-service", Saint Petersburg LLC "Progress-Med", Moscow LLC "Risk Audit", Moscow Lloyd Adriatico Holding S.p.A., Trieste Magdeburger Sigorta A.S., Istanbul Magyar Posta Rövid Kötvény Befektetési Alap, Budapest Martin Maurel Vie SA, Courbevoie Medi24 AG, Bern 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 Portugal Serviços de Assistência Lda., Paco de Aros Mondial Assistance Réunion S.A., Saint Denis Mondial Assistance s.r.o., Prague Mondial Assistance Service España S.A., Madrid Mondial Assistance Services Hellas A.E., Athens Mondial Assistance Sp. z o.o., Warsaw 100.0 100.0 100.0 100.0 3 100.0 100.0 100.0 80.0 100.0 4 100.0 52.5 100.0 100.0 100.0 73.1 100.0 100.0 100.0 100.0 100.0 100.0 100.0 4 100.0 100.0 99.8 100.0 100.0 100.0 100.0 100.0 100.0 3 100.0 100.0 40.0 2 100.0 69.0 100.0 100.0 99.9 100.0 4 100.0 100.0 100.0 100.0 100.0 99.9 100.0 37.1 2,4 100.0 100.0 100.0 100.0 95.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 51.0 100.0 Mondial Assistance United Kingdom Ltd., Croydon Surrey Mondial Chile Asistencia Veinticuatro Horas y Viajes Limitada, Santiago Mondial Contact Center Italia S.r.l., Milan 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 Morgan Stanley Italian Office Fund, Milan National Surety Corporation, Chicago, IL Neoasistencia Manoteras S.L., Madrid Nextcare Bahrain Ancillary Services Company B.S.C., Manama NEXtCARE Egypt LLC, Cairo NEXtCARE Holding WLL, Manama NEXtCARE Lebanon SAL, Beirut Nextcare Tunisia S.à r.l., Tunis NFJ Investment Group LLC, Dover, DE Northstar Mezzanine Partners VI U.S. Feeder II L.P., Dover, DE 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 OOO Mondial Assistance, Moscow OPCI Allianz France Angel, Paris 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, Dover, 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 PIMCO (Schweiz) GmbH, Zurich PIMCO Asia Local Bond Fund, Dublin PIMCO Asia Ltd., Hong Kong PIMCO Asia Pte Ltd., Singapore PIMCO Australia Pty Ltd., Sydney PIMCO California Municipal Bond Fund, Boston, MA PIMCO Canada Corp., Toronto, ON PIMCO Canada Credit Bond Trust, Toronto, ON PIMCO Canada Credit Long Bond Trust, Toronto, ON PIMCO Canadian Real Return Bond Fund, Toronto, ON 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 3 100.0 100.0 100.0 100.0 75.0 100.0 100.0 100.0 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 95.6 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 92.0 4 100.0 100.0 100.0 38.4 2,4 100.0 100.0 4 100.0 4 53.8 4 D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows % owned 1 99.9 4 75.0 4 100.0 3 100.0 49.1 2,4 100.0 100.0 100.0 100.0 94.2 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 4 100.0 100.0 100.0 51.2 4 57.3 4 54.2 4 99.7 4 100.0 4 100.0 4 100.0 4 100.0 4 100.0 4 100.0 4 100.0 4 100.0 4 100.0 4 100.0 4 100.0 94.9 4 99.9 4 65.9 100.0 100.0 100.0 100.0 3 100.0 99.8 97.8 100.0 100.0 94.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 3 100.0 100.0 100.0 100.0 PIMCO Cayman Global Credit Alpha Fund, George Town PIMCO Covered Bond Source UCITS ETF, Dublin PIMCO Euro Low Duration Investment Grade Corpo- rate Fund, Dublin PIMCO Europe Ltd., London PIMCO German Government Bond Index Source UCITS ETF, Dublin 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 Bond Strategy Fund, George Town PIMCO Global Holdings LLC, Dover, DE PIMCO GP I LLC, Wilmington, DE PIMCO GP III LLC, Wilmington, DE PIMCO GP IX LLC, Wilmington, DE PIMCO GP V LLC, Wilmington, DE PIMCO GP VII LLC, Wilmington, DE PIMCO GP X LLC, Wilmington, DE PIMCO GP XI LLC, Wilmington, DE PIMCO GP XII LLC, Wilmington, DE PIMCO GP XIII LLC, Wilmington, DE PIMCO GP XIV LLC, Wilmington, DE PIMCO International Dividend Fund, Wilmington, DE PIMCO Investments LLC, Dover, DE PIMCO Japan Ltd., Road Town PIMCO Latin America Administradora de Carteiras Ltda., Rio de Janeiro PIMCO Low Duration Euro Corporate Bond Source UCITS ETF, Dublin PIMCO Low Duration Global Investment Grade Credit Fund, Dublin PIMCO Low Duration US Corporate Bond Source UCITS ETF, Dublin PIMCO Multi Strategy Alternative Fund, Boston, MA PIMCO Real Path Blend 2020 Fund, Wilmington, DE PIMCO Real Path Blend 2025 Fund, Wilmington, DE PIMCO Real Path Blend 2030 Fund, Wilmington, DE PIMCO Real Path Blend 2035 Fund, Wilmington, DE PIMCO Real Path Blend 2040 Fund, Wilmington, DE PIMCO Real Path Blend 2045 Fund, Wilmington, DE PIMCO Real Path Blend 2050 Fund, Wilmington, DE PIMCO Real Path Blend 2055 Fund, Wilmington, DE PIMCO Real Path Blend Income Fund, Wilmington, DE PIMCO Real Retirement 2055 Fund, Boston, MA PIMCO REIT Management LLC, Wilmington, DE PIMCO Select UK Retirement Strategy Fund, Dublin PIMCO U.S. Dividend Fund, Wilmington, DE POD Allianz Bulgaria AD, Sofia Primacy Holdings Pty Ltd., Melbourne Primacy Underwriting Management Ltd., Wellington Primacy Underwriting Management Pty Ltd., Melbourne 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 Queenspoint S.L., Madrid 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 Real Faubourg Haussmann SAS, Paris Real FR Haussmann SAS, Paris Annual Report 2014 Allianz Group % owned 1 % owned 1 Redoma S.à r.l., Luxembourg Retail Vending Ltd., Birmingham Rhea SA, Luxembourg Risikomanagement und Softwareentwicklung GmbH, Vienna Roster Financial LLC, Mount Laurel, NJ 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 Etoile, Paris SAS Allianz Forum Seine, Paris SAS Allianz Logistique, Paris SAS Allianz Platine, Paris SAS Allianz Rivoli, Paris SAS Allianz Serbie, Paris SAS Angel Shopping Centre, Paris SAS Madeleine Opéra, Paris SAS Passage Des Princes, Paris SAS Société d'Exploitation du Parc Eolien de Nélausa, Paris Sättravallen Wind Holding AB, Strömstad 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 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 Group S.à r.l., Luxembourg 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 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 SLC "Allianz Life Ukraine", Kiev 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 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 75.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 94.8 100.0 100.0 100.0 100.0 100.0 Société Européenne de Protection et de Services d'Assistance à Domicile S.A., Paris Société Foncière Européenne B.V., Amsterdam 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 Ticket Guard Small Amount & Short Term Insurance Co. Ltd., Tokyo 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 TU Allianz Polska S.A., Warsaw 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 VermögensManagement 2027 Plus, Senningerberg VertBois S.à r.l., Luxembourg Vigny Depierre Conseils SAS, Archamps 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 YAO Investment S.à r.l., Luxembourg Yorktown Financial Companies Inc., Minneapolis, MN ZAD Allianz Bulgaria, Sofia ZAD Allianz Bulgaria Zhivot, Sofia ZAD Energia, Sofia 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 Northern Ireland Limited, Belfast Allianz Risk Consultants B.V., Rotterdam Assurance France Aviation S.A., Paris business lounge GmbH, Vienna 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 SARL, Dakar 56.0 100.0 66.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.9 100.0 100.0 100.0 99.4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 75.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 4 100.0 100.0 100.0 100.0 4 87.5 100.0 100.0 100.0 100.0 100.0 100.0 87.4 99.0 51.0 99.9 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.9 100.0 100.0 100.0 100.0 100.0 99.5 4 99.6 261 Data Quest SAL, Beirut Douglas Emmett Partnership X LP, Santa Monica, CA Dr. Ignaz Fiala GmbH, Vienna European Outlet Mall Fund FCP-FIS, Luxembourg Foncière des 6e et 7e arrondissements de Paris (SIIC) SA, Paris Four Oaks Place LP, Wilmington, DE Graydon Holding N.V., Amsterdam Helios Silesia Holding B.V., Amsterdam Henderson UK Outlet Mall Partnership LP, Edinburgh IPE Tank and Rail Investment 1 S.C.A., Luxembourg JPMorgan IIF UK1 LP, Dublin Medgulf Allianz Takaful B.S.C., Seef New Path S.A., Buenos Aires OeKB EH Beteiligungs- und Management AG, Vienna OJSC "Avariinyi Comissar", Moscow OVS Opel VersicherungsService GmbH, Vienna P H R V Paris Hotels Roissy Vaugirard SA, Paris PAR Holdings Limited, Hamilton PGREF V 1301 Sixth Holding LP, Wilmington, DE PGRESS Debt Holdings LP, Wilmington, DE PGRESS Equity Holdings LP, Wilmington, DE Residenze CYL S.p.A., Milan SAS Alta Gramont, Paris 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 Sodor Holdings I Limited, London Solveig Gas Holdco AS, Oslo 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 Sri Ayudhya Capital Public Company Limited, Bangkok Zagrebacka banka d.d., Zagreb % owned 1 36.0 28.6 33.3 25.1 4 26.5 49.0 27.5 45.0 19.5 8 48.8 24.2 25.0 40.0 49.0 23.3 40.0 30.6 22.0 24.5 20.0 20.0 33.3 49.0 49.0 25.8 49.0 49.0 49.0 49.0 30.0 30.0 10.0 8 18.0 8.8 16.8 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 dependent entity is below 100 %. Controlled by the Allianz Group. Investment fund. Mutual, private equity or special 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 IFRS 11. Classified as associate according to IAS 28. Insolvent. RE-AA SA, 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 Top Versicherungs-Vermittler Service GmbH, Vienna Jonit 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 AZ/JH Co-Investment Venture (DC) LP, Wilmington, DE AZ/JH Co-Investment Venture (IL) LP, Wilmington, DE 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 Fiumaranuova S.r.l., Genoa 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 NET4GAS Holdings s.r.o., Prague NRF (Finland) AB, Västeras One Beacon Joint Venture LP, Wilmington, DE Previndustria - Fiduciaria Previdenza Imprenditori S.p.A., Milan SC Holding SAS, Paris SES Shopping Center AT1 GmbH, Salzburg Solunion Compania Internacional de Seguros y Reaseguros SA, Madrid TopTorony Ingatlanhasznosító Zrt., Budapest Associates Adriatic Motorways d.d., Zagreb 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 Invest Cash, Vienna Allianz Invest Eurorent Liquid, Vienna Allianz Invest Osteuropa, Vienna Allianz Invest Vorsorgefonds, Vienna Allianz Saudi Fransi Cooperative Insurance Company, Riyadh Allianz Securicash SRI, Paris Archstone Multifamily Partners AC JV LP, Engelwood, CO Archstone Multifamily Partners AC LP, Wilmington, DE Areim Fastigheter 2 AB, Stockholm 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 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 CJSC "MedCentreStrakh", Moscow CPIC Allianz Health Insurance Co. Ltd., Shanghai % owned 1 97.5 100.0 100.0 100.0 100.0 100.0 60.0 100.0 50.0 50.0 50.0 50.0 50.0 80.0 7 80.0 7 50.0 50.0 50.0 50.0 83.3 4,7 50.1 7 49.0 7 50.0 50.0 50.0 4 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 33.3 49.0 32.4 4 32.4 4 26.8 29.0 4 29.4 4 29.9 4 29.0 4 32.5 23.4 4 40.0 28.6 23.3 20.0 49.0 26.0 26.0 20.0 20.0 30.0 25.0 33.6 49.9 36.4 22.9 262 Annual Report 2014 Allianz Group D Consolidated Financial Statements 151 Consolidated Balance Sheets 152 Consolidated Income Statements 153 Consolidated Statements of Comprehensive Income 154 Consolidated Statements of 157 Notes to the Consolidated Financial Changes in Equity Statements 155 Consolidated Statements of Cash Flows 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 posi- tion of the group, together with a description of the principal oppor- tunities and risks associated with the expected development of the Group. Munich, 24 February 2015 Allianz SE The Board of Management Annual Report 2014 Allianz Group 263 In our opinion, based on the findings of our audit, the consoli- dated financial statements comply with IFRSs, as adopted by the E.U., 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, 2 March 2015 KPMG AG Wirtschaftsprüfungsgesellschaft Becker Wirtschaftsprüfer (Independent Auditor) Dr. Pfaffenzeller Wirtschaftsprüfer (Independent Auditor) auditoR’s RepoRt We have audited the consolidated financial statements prepared by Allianz SE, Munich, comprising the consolidated balance sheets, the consolidated income statements, the consolidated statements of comprehensive income, the consolidated statements 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 January to 31 December 2014. The preparation of the consoli- dated financial 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 [Handelsgesetzbuch “German Commercial Code”] 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 and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Ger- many] (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 consolidated financial statements in accordance with the applicable financial 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. 264 Annual Report 2014 Allianz Group Euler Hermes Euler Hermes, the world’s leading provider of trade-related insurance solutions, helps customers worldwide trade wisely and develop their business safely. With more than 100 years of experience, the company offers business-to-business (B2B) clients financial services to support cash and trade receivables management. It is the global leader in trade credit insurance and a recognized specialist in the areas of bonding, guarantees and collections. Its proprietary intelligence network tracks and analyzes daily changes in corporate solvency among companies active in markets representing 92 % of global GDP. Its financial strength, risk analysis and integrated global structure enable Euler Hermes to provide companies of all sizes with domestic and export market knowledge and support, fa cilitating successful trade receivables management and sales expansion in changing economic environments. Euler Hermes is a subsidiary of Allianz, listed on Euronext Paris (ELE.PA) and rated AA- by Standard & Poor’s and Dagong Europe. eulerhermes.com 6,000 Euler Hermes employs more than 6,000 people. 50 countries The company is present in over 50 countries. EulEr HErmEs The global leader in trade credit insurance A collaborative approach to risk manage- ment and the sharing of essential knowledge, information and experience. Acer Partnership is often an over-used word in business, yet it perfectly captures the relationship between Acer, the global IT giant, and Euler Hermes, the world’s leading trade credit insurer. Christian Greisberger, Acer’s Senior Corp. Director – Global Credit Risk Management, says, “Euler Hermes World Agency teams honestly and genuinely take the time to get to know our business, talk to our senior executives and visit our buyers. Not just so they can understand the risks, but also so they can understand our specific position and business model. It is about having an honest and open relationship, where their team is seen very much as part of our own team, operating with a shared mission.” 266 Protecting margins and securing sales development. Couleurs de Tollens Couleurs de Tollens, a French paint distributor, has had its credit insured by Euler Hermes for over 20 years. How- ever, this partnership goes beyond compensation for unpaid invoices. A crucial part of the relationship is the ongoing financial health check, where information about both customers and business prospects is exchanged. The availability of accurate solvency data on a daily basis from Euler Hermes’ extensive network is particularly valuable, as Tollens’ portfolio of their clients’ accounts receiv- able involves complex and voluminous credit lines. Further- more, credit insurance helps disseminate both customer credit awareness and a culture of risk management across the Tollens group. eulerhermes.fr/couleurs-de-tollens Time is money: using credit insurance to increase efficiency. Hadco Metal Trading Hadco Metal Trading is a U.S.-based company operating in the competitive metal supply industry. For this inter- national business, the ability to make quick and accurate credit decisions can mean the difference between deals won and deals lost. Credit insurance has transformed the way Hadco does business and makes decisions. By lever- aging the risk protection of its Euler Hermes policy, the company could begin to offer open terms to buyers that it would not have considered before. With Euler Hermes, the firm receives comprehensive company, sector and geo- graphic information and analyses that help it decide how and where to grow. eulerhermes.us/hadco-metal-trading 267 E _ fuRTHER InfoRMATIon Pages 268 – 277 Joint Advisory Council of the Allianz Companies International Advisory Board 269 270 271 Mandates of the Members of the Supervisory Board 272 Mandates of the Members of the Board of Management 273 277 Glossary Index 268 Annual Report 2014 Allianz Group E Further Information 269 Joint Advisory Council of the 271 Mandates of the Members of Allianz Companies the Supervisory Board 273 Glossary 277 Index 270 International Advisory Board 272 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. tHomaS enDerS Chief Executive Officer Airbus Group franz feHrenbacH Managing Partner Robert Bosch Industrietreuhand KG Chairman of the Supervisory Board Robert Bosch GmbH Prof. Dr. Dieter HunDt, Senator e.H. Chairman of the Supervisory Board Allgaier Werke GmbH ambaSSaDor Prof. Dr. Wolfgang iScHinger since 1 January 2015 Chairman of Munich Security Conference Prof. Dr.-ing. Dr.-ing. e.H. HanS-Peter Keitel Vice-President of BDI-Federation of German Industries Dr. nicola leibinger-Kammüller Chief Executive Officer TRUMPF GmbH & Co. KG Dr. rüDiger grube Chairman of the Board and Chief Executive Officer Deutsche Bahn AG Dr. tHomaS rabe CEO & Chairman of the Executive Board Bertelsmann SE & Co. KGaA Herbert Hainer Chairman of the Board of Management adidas AG Dr. Jürgen HeraeuS Chairman of the Supervisory Board Heraeus Holding GmbH 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 Dr. manfreD ScHneiDer Chairman of the Supervisory Board RWE AG Linde AG Jim Hagemann Snabe until 6 May 2014 General Manager Snabe ApS Prof. Dr. DenniS J. SnoWer President of the Kiel Institute for the World Economy Peter terium Chief Executive Officer RWE AG Dr.-ing. e.H. HeinricH WeiSS Chairman of the Supervisory Board SMS Holding GmbH manfreD Wennemer President of the Administrative Board Sulzer AG Annual Report 2014 Allianz Group 269 International Advisory Board Dr. Paul acHleitner Chairman of the Supervisory Board of Deutsche Bank AG minoru maKiHara until 31 December 2014 Senior Corporate Advisor of Mitsubishi Corporation Paulo De azeveDo Chief Executive Officer of Sonae SGPS, S.A. cHriStoPHe De margerie † 20 October 2014 Chairman and Chief Executive Officer of Total S.A. alfonSo cortina De alcocer Vice Chairman of Rothschild Europe BV, Senior Advisor at Texas Pacific Group ambaSSaDor robert m. Kimmitt Senior International Counsel of Wilmer Cutler Pickering Hale and Dorr Peter coStello Chairman of ECG Financial Pty Ltd Dr. Jürgen HambrecHt Chairman of the Supervisory Board of BASF SE Dr. freD Hu Founder and Partner of Primavera Capital Group Dr. franz b. Humer Chairman of DIageo plc, Retired Chairman of Roche Holding Ltd izumi KobayaSHi since 3 January 2015 Member of the Board of Directors of ANA Holdings Inc., Director of Mitsui & Co., Ltd lorD iain vallance of tummel Chairman of Amsphere Ltd Dr. mario monti President of Bocconi University, Chairman of the High-level Group on Own Resources of the European Union JacqueS a. naSSer Chairman of BHP Billiton, Senior Consultant of One Equity Partners Dr. gianfelice rocca Chairman of Techint Group of Companies angel ron Chairman of Banco Popular antHoni Salim President and Chief Executive Officer of Salim Group louiS ScHWeitzer Président d’Honneur de Renault Dr. marco troncHetti Provera until 31 December 2014 Chairman and Chief Executive Officer of Pirelli & C. S.p.A. 270 Annual Report 2014 Allianz Group E Further Information 269 Joint Advisory Council of the 271 Mandates of the Members of Allianz Companies the Supervisory Board 273 Glossary 277 Index 270 International Advisory Board 272 Mandates of the Members of the Board of Management Mandates of the Members of the Supervisory Board 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) Deutsche Telekom AG METRO AG RoLf ZiMMERMann Vice Chairman Chairman of the (European) SE Works Council of Allianz SE DanTE BaRBan Employee of Allianz S.p.A. CHRiSTinE BoSSE Former Group Chief Executive Officer of the Executive Management of Tryg Membership in comparable1 supervisory bodies Aker ASA Flügger A/S (Chairwoman) until 18 September 2014 TDC A/S GaBRiELE BURKHaRDT-BERG Chairwoman of the Group Works Council of Allianz SE JEan-JaCQUES CETTE Chairman of the Group Works Council of Allianz France S.A. Membership in comparable1 supervisory bodies Membership in Group bodies Allianz France S.A. iRa GLoE-SEMLER Regional Representative Financial Services of ver.di Hamburg 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 until 7 May 2014 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 comparable1 supervisory bodies Sanofi S.A. JiM HaGEMann SnaBE since 7 May 2014 Chairman of Centre for Global Industries, World Economic Forum Membership in other statutory supervisory boards and SE administrative boards in Germany SAP SE since 7 July 2014 Siemens AG Membership in comparable1 supervisory bodies Bang & Olufsen A/S (Vice Chairman) Danske Bank A/S SAP Labs LLC (Group mandate SAP) until 21 May 2014 Success Factors Inc. (Group mandate SAP) until 21 May 2014 Syclo LLC (Group mandate SAP) until 21 May 2014 PETER DEniS SUTHERLanD Chairman of Goldman Sachs International Membership in comparable1 supervisory bodies BW Group Ltd. Goldman Sachs International (Chairman) Koç Holding A.Ş. 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 2014 Allianz Group 271 Mandates of the Members of the Board of Management MiCHaEL DiEKMann until 6 May 2015 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) until 23 February 2015 Allianz Deutschland AG Membership in comparable1 supervisory bodies Membership in Group bodies Allianz France S.A. (Vice Chairman) Allianz S.p.A. oLivER BäTE Insurance Western & Southern Europe until 31 December 2014 Global Property-Casualty until 6 May 2015 Chairman of the Board of Management from 7 May 2015 Membership in comparable1 supervisory bodies Membership in Group bodies Allianz France S.A. Allianz S.p.A. (Vice Chairman until 6 February 2015) Allianz Sigorta A.S. (Vice Chairman) until 1 January 2015 Allianz Yasam ve Emeklilik A.S. until 1 January 2015 Yapi Kredi Sigorta A.S. (Vice Chairman) until 30 September 2014 SERGio BaLBinoT since 1 January 2015 Insurance Western & Southern Europe Membership in comparable1 supervisory bodies Membership in Group bodies Allianz France S.A. Allianz S.p.A. (Vice Chairman since 7 February 2015) Allianz Sigorta A.S. Allianz Yasam ve Emeklilik A.S. ManUEL BaUER Insurance Growth Markets Membership in comparable1 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) until 11 December 2014 Allianz Tiriac Asigurari S.A. (Chairman) OJSC IC Allianz (Chairman) until 16 March 2014 TUiR Allianz Polska S.A. (Chairman) until 30 October 2014 TU Allianz Życie Polska S.A. (Chairman) until 30 October 2014 GaRy BHoJWani until 31 December 2014 Insurance USA Membership in comparable1 supervisory bodies Hormel Foods Corp. since 28 July 2014 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 until 31 December 2014 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 comparable1 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 Asset Management AG (Chairwoman) since 23 February 2015 Allianz Global Corporate & Specialty SE (Vice Chairwoman) Membership in comparable1 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 comparable1 supervisory bodies Membership in Group bodies Allianz Worldwide Partners SAS (Chairman) Jay RaLPH Asset Management U.S. Life Insurance since 1 January 2015 Membership in comparable1 supervisory bodies Membership in Group bodies Allianz Life Insurance Company of North America (Chairman) since 1 January 2015 DR. axEL THEiS since 1 January 2015 Global Insurance Lines & Anglo Markets Global Property-Casualty from 7 May 2015 Membership in other statutory supervisory boards and SE administrative boards in Germany ProCurand GmbH & KGaA (Chairman) Membership in Group bodies Allianz Global Corporate & Specialty SE (Chairman) Membership in comparable1 supervisory bodies Membership in Group bodies Allianz Insurance plc Allianz Irish Life Holdings plc Fireman’s Fund Insurance Company Euler Hermes S.A. from 27 May 2015 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 DR. WERnER ZEDELiUS Insurance German Speaking Countries, Banking, Human Resources Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Deutschland AG (Chairman) Membership in comparable1 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, Global Life/Health 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) 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. 272 Annual Report 2014 Allianz Group E Further Information 269 Joint Advisory Council of the 271 Mandates of the Members of Allianz Companies the Supervisory Board 273 Glossary 277 Index 270 International Advisory Board 272 Mandates of the Members of the Board of Management Glossary The accounting terms explained here are intended to help the reader understand 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 balance sheet – and provisions for risks associated with contin­ gencies, such as guarantees, loan commitments or other obligations, which are stated as liabilities. Where it is determined that a loan cannot be repaid, the uncollect­ able amount is written off against any existing specific loan loss allowance, or directly recognized as an expense in the income statement. Recoveries on loans previously written off are recognized in the income statement under 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. 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. Rules determine how the cost of defaults are allocated to the classes. combined rAtio Represents the total of acquisition and administrative expenses (net), excluding one­off effect from pension revaluation, 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. cost­income rAtio Represents operating expenses divided by operating revenues. 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. C D 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. deferred Acquisition costs (dAc) 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 commissions paid, underwriting expenses and policy issuance costs. Annual Report 2014 Allianz Group 273 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. E eArnings per shAre (eps) Ratio calculated by dividing the net income for the year attributable to shareholders by the weighted average number of shares outstanding (basic eps). In order to calculate diluted earnings per share, the number of com­ mon 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 (diluted eps). 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), excluding one­off effect from pension revaluation, 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 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 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 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. 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. 274 Annual Report 2014 Allianz Group E Further Information 269 Joint Advisory Council of the 271 Mandates of the Members of Allianz Companies the Supervisory Board 273 Glossary 277 Index 270 International Advisory Board 272 Mandates of the Members of the Board of Management 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 AdditionAl pAid­in cApitAl 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. life/heAlth operAting profit sources The objective of the Life/Health operating profit sources analysis is to explain movements in ifrs results by analyz­ ing underlying drivers of performance on a Life/Health business segment consolidated basis. Loadings & fees: Includes premium and reserve based fees, unit­linked management fees and policyholder participation in expenses. Investment margin: Is defined as ifrs investment income net of expenses less interest credited to ifrs reserves and policyholder participation. Expenses: Includes commissions, acquisition expenses and administration expenses. Technical margin: Comprises risk result (risk premiums less benefits in excess of reserves less policyholder partici­ pation), lapse result (surrender charges and commission clawbacks) and reinsurance result. Impact of change in DAC: Includes effects of change in dAc, urr and vobA and is the net impact of deferral and amortization of acquisition costs and front­end loadings on operating profit. loss rAtio Represents claims and insurance benefits incurred (net) divided by premiums earned (net). L N life/heAlth – definition of terms Further wordings used in the Life/Health business segment performance analysis: Front-end load products: Products with a commission applied at the time of the initial recognition. Commission clawbacks: Commission recovered from intermediaries on lapse of (typically newer) contracts. True-up: Retrospective update of assumptions for dAc calculation. Unlocking: Prospective update of assumptions for dAc calculation. life/heAlth lines of business Guaranteed savings & annuities: Guaranteed savings and annuities are life insurance obligations that always relate to the length of human life. Life obligations may be related to guarantees offering life and/or death coverage of the insured in the form of single or multiple payments to a beneficiary. Protection & health: Protection and health insurance cov­ ers different risks which are linked to events affecting the physical or mental integrity of a person. Unit-linked without guarantee: Conventional unit­linked products are those where all of the benefits provided by a contract are directly linked to the value of assets contained in an internal or external fund held by the in­ surance undertakings. Performance is linked to a separate account and the investment risk is borne by the policy­ holder rather than the insurer. 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 standard­ ized 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. present vAlue of new business premiums (pvnbp) Present value of projected new regular premiums, discounted with risk­free rates, plus the total amount of single premiums received. R reinsurAnce An insurance company transfers part of its insurance risk assumed to another insurance company. replicAting portfolio Representation of the liabilities of the 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. Annual Report 2014 Allianz Group 275 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. uneArned revenue reserves (urr) urr contain premium components that refer to future periods, which are reserved and released over the lifetime of the corresponding contracts. us gAAp Generally Accepted Accounting Principles in the United States of America. V vAlue of the business Acquired (vobA) vobA refers to the present value of future profits asso­ ciated with a block of business purchased. 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. 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 accept, 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. S 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 policyholders 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). 276 Annual Report 2014 Allianz Group Index A Accounting Policies 157ff. AGCS 87f. Allianz Worldwide Partners 87 Alternative Investments 64, 103 Analysts 28 Asia-Pacific 87, 93 Asset Management 64, 69, 70f., 78ff., 82, 99ff., 106f., 114, 116 Audit Committee 20f., 37 Australia 68, 87 B Banking 64, 103, 116 Basic earnings per share 83, 253 BeNeLux 93, 252 Board of Management 24ff., 35f., 42ff., 72, 84f., 272 Board of Management Remuneration 45ff. Board of Management Committees 35f. Brand 74f. Business environment 79f. Business operations 63ff. C Cash Flows 120, 155f. Central and Eastern Europe 87, 93 Changes 48ff., 68, 84f., 108 Climate Change 75, 78 Combined Ratio 86ff. Conglomerate solvency 81, 109f.124 Corporate and Other 64, 82, 102f., 108, 114f. Corporate governance and declaration 19, 40, 253 Corporate governance report 35ff. Corporate Social Responsibility 73ff. Cost-income Ratio 99, 101, 104, 106, 108 Credit Insurance 87, 135 Customers 63ff., 70f., 73ff. D Demographic Change 142 Digitalization 12f., 143 Directors’ dealings 39 Distribution 63ff. Diversity 76f. Dividend 10, 28f. E Economic Environment 79 Employees 76f. Employee stock purchase plan 251 Executive remuneration principles 45ff. Executive summary 81ff. F Financial Calendar Cover France 67, 87f., 93, 250f. Funding 116ff. G General Meeting 39, 83 Germany 66, 87f., 252 H Holding & Treasury 64, 102f., 108 Insurance Markets 63ff. I Intangible Assets 163, 198ff. Internal controls over financial reporting 144f. International Executive Committee 27 Investment result 82ff., 89, 104ff., 111f. Investor Relations 29 Investors 28f. Italy 66f., 87, 93, 252 Investments 75, 78, 110ff. K Key financial indicator/Key performance indicator Cover, 72 L Latin America 69, 87, 88 Letter to the investors 7ff. Life/Health 63, 80, 82, 92ff., 105, 107 , 113f. Liquidity 108, 116ff. Loss adjustment expenses 113, 164, 167, 204ff. Low interest rate environment 67f., 71, 79f., 95, 105ff., 123, 142, 211 M Management’s assessment of 2014 results 81 Management’s overall assessment of the current economic situation 108 Market position 65ff., 70, 142 Markets 65ff. Microinsurance 78, 142 Multi-year review Cover N Net Promoter Score (NPS) 74 Nomination Committee 21, 37 O Off-balance sheet arrangements 115 Outlook 104ff. P Performance fees 101 Personnel Committee 19ff, 37 Products and services 63ff. Property-Casualty 63, 82, 86ff., 104ff., 112f. Publication date Cover R Rating 124f., 133ff. Regulatory changes 67 Reinsurance PC 88 Remuneration of the Supervisory Board 56ff. Reportable segments 63, 90f., 98 Reserves 113f. Results 2014 actual versus prior year outlook for 2014 104 Risk Committee 19ff., 35, 37 S Statement on Corporate Management pursuant to §289 a of the German Commercial Code 40f. Share 28f. Shareholders’ equity 109 Shareholder structure 29 Solvency II 17, 39, 123ff., 141, 143, 145, 217f. Spain 87, 93 Standing Committee 19ff., 37 Strategy 70ff. Subsequent events 84 Supervisory Board 16ff., 23, 36ff. Sustainable development 73ff. Switzerland 93, 246 T Takeover-related statements and explanations 42ff. Talent management 76 Third-party assets under management 100 Three-year bonus 45ff. Total assets under management 99f. U United Kingdom 68f., 87, 245 United States 68, 79f., 87, 88, 93 Financial calendar Important dates for shareholders and analysts1 Annual General Meeting _______________________________ 6 May 2015 Interim Report/Financial Results 1Q ______________________ 12 May 2015 Interim Report/Financial Results 2Q ______________________ 7 August 2015 Interim Report/Financial Results 3Q ______________________ 6 November 2015 Financial Results 2015 __________________________________ 19 February 2016 Annual Report 2015 ___________________________________ 11 March 2016 Annual General Meeting _______________________________ 4 May 2016 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 – Phone +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: 13 March 2015 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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