Allianz SE
Annual Report 2016

Plain-text annual report

STRENGTH CONTINUITY CHANGE Allianz SE Annual Report 2016  To go directly to any chapter, simply click on the headline or the page number. All references to chapters, pages, notes, internet pages, etc. within this report are also linked. CONTENT To Our Investors Supervisory Board Report A  2  7 Mandates of the Members of the Supervisory Board  8 Mandates of the Members of the Board of Management B 10 14 16 18 19 27 32 34 45 Management Report of Allianz SE Executive Summary and Outlook Operations by Reinsurance Lines of Business Balance Sheet Review Liquidity and Funding Resources Risk and Opportunity Report Corporate Governance Report Statement on Corporate Management pursuant to § 289a of the HGB Remuneration Report Other Information Pages 1 - 8 Pages 9 - 48 C Financial Statements of Allianz SE Pages 49 - 76 FINANCIAL STATEMENTS Balance Sheets 50 Income Statement 52 NOTES TO THE FINANCIAL STATEMENTS 53 53 56 59 65 68 71 Nature of Operations and Basis of Preparation Accounting, Valuation and Calculation Methods Supplementary Information on Assets Supplementary Information on Equity and Liabilities Supplementary Information on the Income Statement Other Information List of Participations of Allianz SE, Munich as of 31 December 2016 according to § 285 No. 11 HGB in conjunction with § 286 (3) No. 1 HGB FURTHER INFORMATION 75 76 Responsibility Statement Auditor's Report TO OUR INVESTORS Annual Report 2016 Allianz SE 1 ATO OUR INVESTORSA To Our Investors Supervisory Board Report Ladies and Gentlemen, During the fiscal year 2016, 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, devoted particular attention to personnel matters related to the Board of Management, and advised the Board of Management regarding the conduct of business. OVERVIEW In all of the Supervisory Board’s 2016 meetings, the Board of Management reported on Group revenues and results as well as developments in individual business segments. The Board of Management informed us on the course of business as well as on the development of the Allianz Group and Allianz SE, including deviations in actual business developments from the planning. Within the framework of our activities, the Board of Management reported to us on a regular basis and in a timely and comprehensive manner, both verbally and in writing. Key reporting issues were strategic topics, such as the implementation of the Renewal Agenda and the portfolio strategy, the risk strategy and capital management, the ongoing challenges facing the life insurance business due to the low interest rates, the divestment of the life insur- ance business in South Korea, as well as the business development in the Asset Management segment. In addition, we were extensively involved in the Board of Management’s planning for both the fiscal year 2017 and the three-year period from 2017 to 2019. We dealt extensively with the implementation of the audit reform legislation, in particular the preparation of the audit firm rotation. Finally, we prepared for the election of the Supervisory Board in spring 2017 and also took a look at the result of the review of the efficiency of the Supervisory Board’s activities carried out with the support of an external advisor. In the fiscal year 2016, the Supervisory Board held six meetings. The meetings took place in February, March, May, August, October and December. The Board of Management’s verbal reports at the meetings were accompanied by written documents, which were sent to each member of the Supervisory Board in time for the relevant meeting. The Board of Management also informed us in writing of important events that occurred between meetings. The chairmen of the Super- visory 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 visory Board who were unable to attend meetings of the Supervisory Board or its committees were excused and, as a rule, cast their votes in writing. page 27. Members of the Super- ISSUES DISCUSSED IN THE SUPERVISORY BOARD PLENARY SESSIONS In the meeting of 18 February 2016, the Supervisory Board dealt comprehensively with the pro- visional financial figures for the fiscal year 2015 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. The Chief Compliance Officer then gave his annual report on the compliance organization and key compliance-related matters. 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 fiscal year 2015 as well as the mid-term bonus for the fiscal years 2013 – 2015. In the course of the performance assessment, we also verified the fitness and propriety of the members of the Board of Management. 2 Annual Report 2016 Allianz SE A To Our Investors In the meeting of 10 March 2016, the Supervisory Board dealt, firstly with personnel matters and appointed Ms. Jacqueline Hunt to the Board of Management as successor to Mr. Jay Ralph with effect from 1 July 2016, and Dr. Günther Thallinger as successor to Dr. Maximilian Zimmerer with effect from 1 January 2017. The Supervisory Board also 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 fiscal year 2015. The auditor confirmed that there were no discrepancies to their February report, and issued an unqualified auditor’s report for the individual and consolidated financial statements. In addition, the Board of Management sub mitted its report on risk developments in 2015. The Supervisory Board also dealt with the agenda and the proposals for resolution for the 2016 AGM of Allianz SE. It also resolved to appoint KPMG as auditor for the individual and consolidated financial statements for the fiscal year 2016 and for the auditor’s review of the 2016 half-yearly financial report. In addition, the Supervisory Board was also informed about the implementation status of the Renewal Agenda and the con- sideration of environmental, social, and governance (ESG) aspects in the investment and under- writing process. On 4 May 2016, just before the AGM, the Board of Management briefed us on the first quarter 2016 performance and on the Group’s current situation, in particular the capital adequacy, the solvency ratio, and the planned sale of the life insurance business in South Korea. Because of Ms. Ira Gloe-Semler’s and Mr. Peter Denis Sutherland’s resignation from the Supervisory Board, a by-election for the committees had to be held. Ms. Martina Grundler was elected to the Audit Committee, Dr. Friedrich Eichiner to the Risk Committee, and Mr. Jim Hagemann Snabe to the Nomination Committee. In the meeting of 4 August 2016, the Board of Management reported in depth on the half-yearly results and also dealt with the potential impact of Brexit as well as the failed coup attempt in Turkey, the situation in the Italian banking sector, the acquisition in Morocco, and planned issu- ance of shares to employees. We then dealt extensively with the implementation status of the Renewal Agenda, in particular in the main operating entities, regarding the topics True Customer Centricity, Digital by Default, Technical Excellence, Growth Engines, and Inclusive Meritocracy. The Board of Management also reported on the measures to promote women and to increase employee mobility. Finally, the Supervisory Board dealt with the audit reform legislation and the therefore required adjustments to the rules of procedure for the Supervisory Board and indi- vidual committees, as well as the objectives for the composition of the Super visory Board. The meeting was preceded by a separate informational event for the members of the Supervisory Board on the Group’s digital strategy and its implementation. The main focus of the meeting on 7 October 2016 was the strategy of the Allianz Group, in parti- cular the portfolio strategy and its integration into the Renewal Agenda, the risk strategy, and capital management. In addition, the Supervisory Board dealt with the Group’s ambitions in the health insurance business. In its report on the results, the Board of Management also addressed the divestment process for Oldenburgische Landesbank AG. Other topics discussed in the meeting included amendments to the schedule of responsibilities of the Board of Management as well as the report of the Nomination Committee in the plenary session on the proposed candidates for election to the Supervisory Board as shareholder representatives by the 2017 AGM. At the 15 December 2016 meeting, the Board of Management provided us with information about the third-quarter results and further business developments as well as the current situation of the Allianz Group. It also briefed us on the status of the divestment process in South Korea and on the settlement of a SEC investigation at PIMCO. We also discussed the planning for the fiscal year 2017 and the 2017 – 2019 three-year period, as well as the Declaration of Conformity with the German Corporate Governance Code. The Supervisory Board reviewed the appropriateness of the remuneration of the Board of Management based on a vertical and horizontal comparison, Annual Report 2016 Allianz SE 3 A To Our Investors set targets for the variable remuneration of the members of the Board of Management and dis- cussed general succession planning with regard to the Board of Management. The new CEO of PIMCO also introduced himself with initial considerations regarding the future direction of PIMCO. Furthermore, we dealt extensively with the proposal made by the Audit Committee regarding the mandatory audit firm rotation. In addition, the Supervisory Board nominated the candidates for the 2017 Supervisory Board election in accordance with the proposal made by the Nomination Committee and considering the objectives for the composition of the Supervisory Board. The new regulatory requirements regarding the composition of the Supervisory Board were also discussed in this context. Finally, we took a detailed look at the results of the Supervisory Board’s efficiency review carried out with the support of an external advisor. DECLARATION OF CONFORMITY WITH THE GERMAN CORPORATE GOVERNANCE CODE On 15 December 2016, the Board of Management and the Supervisory Board issued the Declara- tion of Conformity in accordance with § 161 of the German Stock Corporation Act (“Aktien- gesetz”). The Declaration was posted on the company website, where it is available to share- holders at all times. Allianz SE fully complies and will continue to fully comply with the recom mendations of the German Corporate Governance Code made in the Code’s version of 5 May 2015. Further explanations on corporate governance in the Allianz Group can be found in the Corpo- rate Governance Report starting on pursuant to § 289a of the HGB starting on details on corporate governance: page 27 and the Statement on Corporate Management page 32. The Allianz website also provides more www.allianz.com/corporate-governance. COMMITTEE ACTIVITIES The Supervisory Board has formed various committees in order to perform its duties efficiently. The committees prepare the discussion and adoption of resolutions in the plenary sessions or can adopt resolutions themselves. The Standing Committee held two meetings and adopted one resolution by written procedure in 2016. These related primarily to corporate governance issues, in particular to the adjustments to the rules of procedure for the Supervisory Board and its committees as a result of the new auditing legislation, the preparation for the AGM, the Employee Stock Purchase Plan, and the external review of the Supervisory Board’s efficiency. During the fiscal year the committee also passed resolutions to approve loans to senior executives. The Personnel Committee held three meetings, one of which was by conference call, in 2016. It dealt extensively with the successors to Mr. Ralph and Dr. Zimmerer. The committee also looked at other mandate matters for active and former members of the Board of Management. In addition to reviewing the target achievement among Board of Management members for 2015, the committee prepared the review of the remuneration system and the setting of targets for variable remuneration for 2017. The Audit Committee held five regular and two extraordinary meetings, and adopted one reso- lution by written procedure in 2016. 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 as well as the half-yearly financial report. The Audit Committee saw no reason to raise any objections. In addition, the Board of Management submitted its report on the results of the first and third quarter. The committee also dealt with the auditor’s engagement and established priorities for the annual audit for the 2016 financial year. It also discussed assignments to the auditors for non-audit services. In addition, it dealt extensively with the compliance system, the internal audit system as well as the internal finan- cial reporting process and the internal controls over financial reporting. The committee received 4 Annual Report 2016 Allianz SE A To Our Investors regular reports on legal and compliance issues and the work of the internal audit function and initiated a review of the group-wide implementation status of the governance requirements according to Solvency II. The preparations for the audit firm rotation from the fiscal year 2018 were one of the main areas of focus of the Audit Committee’s work. A tender procedure in accordance with the new legal requirements was carried out for this purpose and a recommendation finally submitted to the plenary session. The Risk Committee held two meetings in 2016, during which it discussed the current risk situation of the Allianz Group with the Board of Management. The risk report and other risk-related state- ments in the annual Allianz SE and consolidated financial statements as well as management and group management reports were reviewed with the auditor and the Audit Committee was informed of the result. The appropriateness of the early risk recognition system at Allianz and the result of further, voluntary risk assessments by the auditor were also discussed. The com- mittee took a detailed look at the risk strategy and capital management, as well as the effective- ness of the risk management system, in particular the limit system for the Allianz Group and Allianz SE. The interest rate sensitivity in the life insurance business and measures to reduce it were also dealt with in detail. Other matters considered were the risk strategy of Allianz SE and of the Allianz Group, the risk categories “operational risk” and “credit risk”, the effects of the prevailing low-interest environment, and the rules for Global Systematically Important Insurers (G-SII). The Nomination Committee held four meetings, two of which by conference call in 2016, in which it dealt comprehensively with the proposals made by the shareholders for the election of the Supervisory Board by the 2017 AGM. The Supervisory Board was regularly and comprehensively informed of the committees’ work. CHAIR AND COMMITTEES OF THE SUPERVISORY BOARD – as of 31 December 2016 Chairman: Dr. Helmut Perlet Vice Chairmen: Dr. Wulf H. Bernotat, Rolf Zimmermann Standing Committee: Dr. Helmut Perlet (Chairman), Dr. Wulf H. Bernotat, Gabriele Burkhardt-Berg, Prof. Dr. Renate Köcher, Rolf Zimmermann Personnel Committee: Dr. Helmut Perlet (Chairman), Christine Bosse, Rolf Zimmermann Audit Committee: Dr. Wulf H. Bernotat (Chairman), Jean-Jacques Cette, Martina Grundler, Dr. Helmut Perlet, Jim Hagemann Snabe Risk Committee: Dr. Helmut Perlet (Chairman), Dante Barban, Christine Bosse, Dr. Friedrich Eichiner, Jürgen Lawrenz Nomination Committee: Dr. Helmut Perlet (Chairman), Prof. Dr. Renate Köcher, Jim Hagemann Snabe AUDIT OF ANNUAL ACCOUNTS AND CONSOLIDATED FINANCIAL STATEMENTS In compliance with the special legal provisions applying to insurance companies, the statutory auditor and the auditor for the review of the half-yearly financial report are appointed by the Supervisory Board of Allianz SE not the AGM. The Supervisory Board has appointed KPMG as statu- tory auditor for the annual Allianz SE and consolidated financial statements, as well as for the review of the half-yearly financial report of the fiscal year 2016. KPMG audited the financial state- ments of Allianz SE and the Allianz Group as well as the respective management reports. They issued an auditor’s report without any reservations. The consolidated financial statements were prepared on the basis of the International Financial Reporting Standards (IFRS), as adopted in the European Union. KPMG performed a review of the half-yearly financial report. The third-quar- ter results were subject to a voluntary review by KPMG. In addition, KPMG was also mandated to per form an audit of the market value balance sheet according to Solvency II. Annual Report 2016 Allianz SE 5 A To Our Investors All Supervisory Board members received the documentation relating to the annual financial state- ments and the auditor’s reports from KPMG on schedule. The provisional financial statements and KPMG’s audit results were discussed in the Audit Committee on 15 February 2017 and in the plenary session of the Supervisory Board on 16 February 2017. The final financial statements and KPMG’s audit reports were reviewed on 9 March 2017 by the Audit Committee and in the Supervisory Board plenary session. The auditors participated in these discussions and pre- sented the main results from the audit. No material weaknesses in the internal financial report- ing control process were discovered. There were no circumstances that might give cause for concern about the auditor’s independence. In addition, the market-value balance sheet as of 31 December 2016 as well as the relevant KPMG report, were addressed by the Audit Committee and Supervisory Board. On the basis of our own reviews of the annual Allianz SE and consolidated financial statements, the management and group management reports and the recommendation for appropriation of earnings, we raised no objections and agreed with the results of the KPMG audit. We approved the Allianz SE and consolidated financial statements prepared by the Board of Management. We agree with the Board of Management’s proposal on the appropriation of earnings. 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 Ms. Ira Gloe-Semler resigned from her office of employee representative on the Supervisory Board effective 31 March 2016, due to her change of function with the union ver.di. The SE Works Council appointed Ms. Martina Grundler, also a representative of the union ver.di, as her successor. Mr. Peter Denis Sutherland stepped down from the Supervisory Board following the AGM on 4 May 2016, having reached retirement age. Dr. Friedrich Eichiner was elected to the Supervisory Board as his successor by the AGM. As already mentioned, the 2016 financial year also saw personnel changes within Allianz SE’s Board of Management. Mr. Jay Ralph and Dr. Maximilian Zimmerer stepped down from the Board of Management with effect from 30 June 2016 and 31 December 2016, respectively. Ms. Jacqueline Hunt was appointed as successor to Mr. Ralph with effect from 1 July 2016. Dr. Zimmerer was replaced by Dr. Günther Thallinger with effect from 1 January 2017. Munich, 9 March 2017 For the Supervisory Board: Dr. Helmut Perlet Chairman 6 Annual Report 2016 Allianz SE Mandates of the Members of the Supervisory Board A To Our Investors DR. HELMUT PERLET Chairman Member of various Supervisory Boards Membership in other statutory supervisory boards and SE administrative boards in Germany Commerzbank AG GEA Group AG (Chairman since 20 April 2016) DR. WULF H. BERNOTAT Vice Chairman Member of various Supervisory Boards Membership in other statutory supervisory boards and SE administrative boards in Germany Bertelsmann Management SE Bertelsmann SE & Co. KGaA Deutsche Telekom AG Vonovia SE (Chairman) ROLF ZIMMERMANN Vice Chairman Chairman of the (European) SE Works Council of Allianz SE DANTE BARBAN Employee of Allianz S.p.A. CHRISTINE BOSSE Member of various Supervisory Boards Membership in comparable1 supervisory bodies P/F BankNordik (Chairwoman) TDC A/S GABRIELE BURKHARDT-BERG Chairwoman of the Group Works Council of Allianz SE Membership in other statutory supervisory boards and SE administrative boards in Germany Allianz Deutschland AG since 1 September 2016 JÜRGEN LAWRENZ Employee of Allianz Managed Operations & Services SE Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Managed Operations & Services SE JIM HAGEMANN SNABE Member of various Supervisory Boards Membership in other statutory supervisory boards and SE administrative boards in Germany SAP SE Siemens AG Membership in comparable1 supervisory bodies A.P. Møller-Mærsk A/S since 12 April 2016 Bang & Olufsen A/S Danske Bank A/S until 17 March 2016 PETER DENIS SUTHERLAND until 4 May 2016 Member of various Supervisory Boards Membership in comparable1 supervisory bodies BW Group Ltd. Koç Holding A.Ş. 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. DR. FRIEDRICH EICHINER since 4 May 2016 Member of various Supervisory Boards Membership in other statutory supervisory boards and SE administrative boards in Germany Festo AG Membership in comparable1 supervisory bodies Festo Management AG IRA GLOE-SEMLER until 1 April 2016 Regional Representative Financial Services of ver.di Hamburg MARTINA GRUNDLER since 1 April 2016 National Representative Insurances, ver.di Berlin 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 1 Generally, we regard memberships in other supervisory bodies as “comparable” if the company is listed on a stock exchange or has more than 500 employees. Annual Report 2016 Allianz SE 7 A To Our Investors Mandates of the Members of the Board of Management OLIVER BÄTE Chairman of the Board of Management Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Deutschland AG Membership in comparable1 supervisory bodies Membership in Group bodies Allianz France S.A. until 5 May 2016 DR. CHRISTOF MASCHER Operations, Allianz Worldwide Partners Membership in other statutory supervisory boards and SE administrative boards in Germany Volkswagen Autoversicherung AG Membership in Group bodies Allianz Managed Operations & Services SE (Chairman) Membership in comparable1 supervisory bodies Membership in Group bodies Allianz Worldwide Partners S.A.S. 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 Membership in comparable1 supervisory bodies UBS Group AG since 10 May 2016 JAY RALPH until 30 June 2016 Asset Management, US Life Insurance Membership in comparable1 supervisory bodies Membership in Group bodies Allianz Life Insurance Company of North America (Chairman) DR. GÜNTHER THALLINGER since 1 January 2017 Investment Management Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Asset Management AG Allianz Investment Management SE (Chairman) Membership in comparable1 supervisory bodies Membership in Group bodies Allianz S.p.A. since 22 July 2016 DR. AXEL THEIS Global Insurance Lines & Anglo Markets 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 Australia Ltd. Allianz Insurance plc (Chairman) Allianz Irish Life Holdings plc Euler Hermes Group S.A. (Chairman since 25 May 2016) DR. WERNER ZEDELIUS Insurance German Speaking Countries and Central & Eastern Europe Membership in other statutory supervisory boards and SE administrative boards in Germany FC Bayern München AG Membership in Group bodies Allianz Deutschland AG (Chairman) Allianz Investment Management SE Membership in comparable1 supervisory bodies Membership in Group bodies Allianz Elementar Lebensversicherungs-AG (Chairman) Allianz Elementar Versicherungs-AG (Chairman) Allianz Investmentbank AG Allianz Suisse Lebensversicherungs-Gesellschaft AG Allianz Suisse Versicherungs-Gesellschaft AG Allianz Tiriac Asigurari S.A. since 31 January 2017 DR. MAXIMILIAN ZIMMERER until 31 December 2016 Investments, Global Life/Health Insurance Asia Pacific 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 SERGIO BALBINOT Insurance Western & Southern Europe Insurance Middle East, Africa Asia Pacific since 1 January 2017 Membership in comparable1 supervisory bodies Bajaj Allianz General Insurance Co. Ltd. since 12 January 2016 Bajaj Allianz Life Insurance Co. Ltd. since 12 January 2016 UniCredit S.p.A. since 9 June 2016 Membership in Group bodies Allianz France S.A. Allianz S.p.A. until 22 July 2016 Allianz Sigorta A.S. Allianz Yasam ve Emeklilik A.S. JACQUELINE HUNT since 1 July 2016 Asset Management, US Life Insurance Membership in comparable1 supervisory bodies Membership in Group bodies Allianz Life Insurance Company of North America (Chairwoman) since 22 July 2016 DR. HELGA JUNG Insurance Iberia & Latin America, Legal, Compliance, Mergers & Acquisitions Membership in other statutory supervisory boards and SE administrative boards in Germany Deutsche Telekom AG since 25 May 2016 Membership in Group bodies Allianz Asset Management AG (Chairwoman) Allianz Deutschland AG since 11 March 2016 Allianz Global Corporate & Specialty SE Membership in comparable1 supervisory bodies UniCredit S.p.A. until 31 May 2016 Membership in Group bodies Allianz Compañía de Seguros y Reaseguros S.A. Companhia de Seguros Allianz Portugal S.A. 1 Generally, we regard memberships in other supervisory bodies as “comparable” if the company is listed on a stock exchange or has more than 500 employees. 8 Annual Report 2016 Allianz SE Annual Report 2016 Allianz SE 9 MANAGEMENT REPORT OF ALLIANZ SEBB Management Report of Allianz se Executive Summary and Outlook Earnings summary CONDENSED INCOME STATEMENT € mn Gross premiums written Premiums earned (net) Claims (net) Underwriting expenses (net) Other technical reserves (net) Net underwriting result Change in claims equalization and similar reserves Net technical result Investment result Allocated interest return Other non-technical result Non-technical result Net operating income Taxes Net income 2016 10,820 9,625 (6,344) (2,946) 65 400 (528) (128) 3,290 (22) (459) 2,809 2,681 267 2,948 2015 8,328 7,183 (4,907) (2,065) 13 224 (193) 31 6,009 (60) (2,782) 3,167 3,198 356 3,554 Change 2,492 2,442 (1,437) (881) 52 176 (335) (159) (2,719) 38 2,323 (358) (517) (89) (606) NET UNDERWRITING RESULT Gross premiums written increased to € 10,820 MN, mainly due to the new quota share agreements with European Allianz entities. In total, € 10,385 MN (2015: € 7,769 MN) of gross premiums came from Property- Casualty reinsurance and € 435 MN (2015: € 559 MN) from Life/Health reinsurance. The net retention ratio increased to 92.7 % (2015: 90.3 %) due to optimized retrocession structure. Premiums earned (net) rose by € 2,442 MN to € 9,625 MN (2015: € 7,183 MN), mainly driven by the deve- lopment of gross premiums written and lower retrocessions. The accident year loss ratio (net) in Property-Casualty reinsu- rance dropped to 69.9 % (2015: 72.8 %). Natural catastrophe losses amounted to € 226 MN for the accident year 2016 (2015: € 244 MN). This represented a negative impact on the accident year loss ratio (net) of 2.4 (2015: 3.6) percentage points. Natural catastrophes € mn Major Events in 2016 Storms Lea, Marine and Neele, Germany Earthquake, New Zealand Storm Elvira, Germany Storm Friederike, Germany Hailstorm, Canada Hailstorm, Netherlands Earthquake Kumamoto, Japan Other Total Major Events in 2015 Storm Niklas, Germany New South Wales storms, Australia Sydney hailstorm, Australia Storm Thompson, Germany Storm Siegfried, Germany Hailstorm Edgar, Germany Storms Elon and Felix, Germany Other Total Losses for Allianz SE 40 39 34 27 16 13 10 47 226 Losses for Allianz SE 63 38 37 21 20 16 15 34 244 The positive run-off result increased substantially from € 324 MN to € 427 MN and was mainly influenced by the development of fire rein- surance (€ 180 MN), engineering reinsurance (€ 99 MN), personal accident reinsurance (€ 48 MN) and business interruption reinsu rance (€ 36 MN). In total, there was a decrease of the loss ratio (net) in Property- Casualty reinsurance to 65.3 % (2015: 68.0 %). The expense ratio (net) in Property-Casualty reinsurance increased substantially to 31.0 % (2015: 28.9 %). This was particularly driven by an increase of 2.3 percentage points in the commission ratio to 30.1 % (2015: 27.8 %), largely resulting from the new quota share agreements with European Allianz entities. At the same time, the administrative expense ratio dropped by 0.2 percentage points to 0.9 % (2015: 1.1 %). The net underwriting result almost doubled by 78.7 % from € 224 MN to € 400 MN, mainly because of the positive development of calendar year claims ratio in 2016 and the overall portfolio growth. NET TECHNICAL RESULT In 2016, a change in claims equalization and similar reserves of € 528 MN (2015: € 193 MN) resulted from the substantial premium growth as well as the positive underwriting result. The strengthening was mainly driven by fire reinsurance (€ 183 MN), other reinsurance lines (€ 122 MN), motor reinsurance (€ 106 MN) and liability reinsu rance (€ 45 MN). Driven by the increase of equalization and similar reserves the net technical result turned negative with € (128) MN (2015: € 31 MN). 10 Annual Report 2016 Allianz SE NON-TECHNICAL RESULT INVESTMENT RESULT € mn Investment income Income from profit transfer agreements Income from affiliated enterprises and participations Income from other investments Realized gains Income from reversal of impairments Subtotal Investment Expenses Expenses for the management of investments, interest and other investment-related expenses Depreciation and impairments of investments Realized losses Expenses for losses taken over Subtotal Investment result 2016 2015 Change 1,943 1,727 945 365 105 3,001 (1,058) 3,820 (2,093) 945 361 3 – 4 102 5,085 8,130 (3,045) (1,106) (1,122) (183) (198) (308) (1,795) 3,290 (594) (184) (221) (2,121) 6,009 16 411 (14) (87) 326 (2,719) The investment result decreased by € 2,719 MN to € 3,290 MN. Income from profit transfer agreements declined by € 1,058 MN to € 1,943 MN, primarily due to a lower profit transfer from Allianz Deutschland AG, which went down by € 1,084 MN to € 850 MN. This was partly offset by higher profit transfers from Allianz Global Corpo- rate & Specialty SE and from Allianz Asset Management AG, which slightly rose by € 15 MN to € 700 MN and by € 7 MN to € 381 MN. Income from affiliated enterprises and participations decreased by € 2,093MN to € 1,727 MN, mainly because the dividend payment received from our subsidiary Allianz Europe B.V. was reduced by € 2,100 MN to € 1,350 MN in 2016. Income from other investments remained stable at € 945 MN, par- ticularly consisting of interest income from intra-group loans (€ 417 MN) and bonds (€ 386 MN). Realized gains slightly increased by € 4 MN to € 365 MN, mainly resulted from the sale of bonds (€ 326 MN). Income from reversal of impairments went up by € 102 MN to € 105 MN and primarily stemmed from write-ups related to our bond portfolio (€ 98 MN). Expenses for the management of investments, interest and other investment-related expenses were further reduced by € 16 MN to € 1,106 MN. Despite an overall increase of financial liabilities, interest expenses went down as a result of lower refinancing rates for the roll- over of matured debt instruments. Depreciation and impairments of investments significantly declined by € 411 MN to € 183 MN. The impairments in 2016 were par- ticularly attributable to our bond portfolio (€ 118 MN). Realized losses increased by € 14 MN to € 198 MN, stemming from the sale of bonds (€ 114 MN) and the sale of our subsidiary Allianz Life Insurance Company Ltd. Korea (€ 85 MN). Expenses for losses taken over rose by € 87 MN to € 308 MN. This was primarily due to higher losses taken over from our service provider Allianz Managed Operations & Services SE, which increased by € 69 MN to € 283 MN. B Management Report of Allianz se OTHER NON-TECHNICAL RESULT The other non-technical result improved significantly by € 2,323 MN to € (459) MN. This development was primarily driven by a decrease of interest expenses on pensions to the amount of € 654 MN and on long- term provisions to the amount of € 166 MN. Furthermore, the renego- tiation of the pension cost allocation contract with the German sub- sidiaries, which had negatively affected the result by € (228) MN in the previous year, had a positive impact of € 148 MN in the fiscal year 2016. The release of pension provisions to the amount of € 143 MN, due to the reduction of the assumed pension trend, also led to an increase of the result. In addition, the improved currency result influenced the positive development by € 600 MN, the improved result on derivatives by € 340 MN. For further information regarding other income and expenses please refer to note 23. TAXES AND NET INCOME As far as legally permissible, Allianz SE acts as the controlling company (“Organträger”) of the German tax group most German sub sidiaries belong to. As the controlling company, Allianz SE is liable for the income taxes of this German tax group. After being offset against tax losses, the current tax charge of Allianz SE amounted to € 257 MN (2015: € 306 MN). Moreover, Allianz SE received a tax allocation of € 523 MN (2015: € 664 MN) by Allianz SE tax group companies that recorded taxable income. Taking into account other taxes, the tax income amounted to € 267 MN (2015: € 356 MN). The decrease of the net income by € 606 MN to € 2,948 MN (2015: € 3,554 MN) is primarily driven by the significant drop of the investment result by € 2,719 MN to € 3,290 MN. This was partly offset by the rise of the other non-technical result by € 2,323 MN to € (459) MN. Economic outlook1 Following a slight acceleration in the final quarter of 2016, the world economy currently finds itself in fairly good shape and has made a positive start into the year 2017. In the industrialized countries, growth prospects are quite favorable overall. In the United States, despite the fact that there is still not much clarity about the specifics of economic policy under the new U.S. administration, a change in the policy mix is on the horizon: Monetary policy will provide somewhat less stimulus for the economic development, whereas fiscal policy will do more as the new U.S. administration is expected to deliver on the promise to cut taxes and launch investment initiatives. In the course of 2017, these measures are expected to buoy economic growth, despite some dampening effects such as higher inflation. All in all, the U.S. economy is likely to expand by 2.2 % this year. In the Eurozone, the economic recovery is likely to continue. We expect real gross domestic product to increase by 1.8 % (2016: 1.7 %). While the upward movement in oil prices and rising inflation will weigh on pri- vate consumption, household spending will be supported by rising employment. The group of emerging market economies is set for a moderate acceleration of growth, mainly driven by a gradual stabiliza- tion in the group’s heavyweights, Russia and Brazil, and by a recovery in commodity-exporting countries. Overall, global output is likely to expand by about 2.8 % in 2017, compared with 2.4 % in 2016. Industrial- ized countries are expected to register gross domestic product 1 The information presented in the sections Economic outlook, Insurance industry outlook and Asset management industry outlook is based on our own estimates. Annual Report 2016 Allianz SE 11 B Management Report of Allianz se growth of 1.9 %, while in emerging markets growth could increase to 4.1 % from the 3.6 % seen in 2016. The uncertain global economic and political environment (e.g. rise of populism, high emerging market indebtedness, risk of E.U. dis- integration) is likely to result in higher financial-market volatility this year. As far as monetary policy is concerned, assuming that the labor market remains tight and inflation rates continue to move up, the Federal Reserve is likely to continue to hike interest rates this year. By contrast, we do not see any major change in the European Central Bank’s expansionary monetary policy stance. Modestly rising yields on 10-year U.S. government bonds and higher inflation rates in the Eurozone will exert some upward pressure on European benchmark bond yields in 2017. However, with short- term rates at zero, there are limited prospects of markedly higher yields on longer-term bonds. For 10-year German government bonds, we predict yields to climb modestly towards 1 % in the course of 2017; for 10-year U.S. government bonds, yields may end the year in a range between 2.5 % and 3 %. While the expected Federal Reserve rate hikes will weigh on the Euro, a number of other factors will support it; above all, the expected rise in the U.S. current-account deficit as well as the speculation – which is likely to increase towards year-end – about the timing and manner of the European Central Bank’s exit from its bond purchasing program. We expect the Dollar-to-Euro exchange rate to close the year at about 1.10 (2016: 1.05). Insurance industry outlook In 2017, things are likely to start moving in the right direction for the insurance industry: The global economy is set to shift up a gear, infla- tion will return – which will set the scene for monetary normalization – and last but not least, interest rates are expected to rise. That said, the overall momentum will probably be too weak to finally escape the low-growth, low-yield environment; so, for the time being, we expect premium growth to remain modest and investment income to remain under pressure. Moreover, political risks could easily derail the economy and knock markets from their path to normalization. While the macroeconomic environment, despite all the uncer- tainties, offers some glimpses of hope, the challenges on the micro- economic front remain formidable: As technological progress and the digitization of our life gather speed, established business models get under enormous pressure. The industry has to adapt quickly to defend its franchise against new competitors. In combination with the new regulatory regime (Solvency II), which brings more clarity on capital positions, this restructuring process could act as a possible catalyst for more industry consolidation. To sum up: In 2017, the industry’s top line will continue to grow modestly – though some lines of business such as trade-dependent marine and rate-sensitive savings might struggle – while the bottom line remains under pressure from weak investment income and the need to build new, digital business models. In the property-casualty sector, growth in advanced markets should remain rather stable: The ongoing recovery supports demand, but pricing is still a concern. For advanced markets, political insta- bility could prove to be the biggest challenge in 2017, as growing pro- tectionism and the looming Brexit drive structural changes in the industry. The outlook for emerging markets is much brighter: Asia is expected to roar ahead, Latin America will stabilize, and Eastern Europe will continue its recovery. Overall, we expect global premium revenue growth to range between 4.0 % and 5.0 % in 2017 (in nominal terms, adjusted for foreign currency translation effects). Given the still challenging pricing outlook and weak investment income, overall profitability might not improve but stay more or less flat. In the life sector the overall picture is quite similar. Specifically, we expect advanced markets to maintain their (modest) growth as demand benefits from rising employment and new product offers. Emerging markets, on the other hand, will show stronger perfor- mance. Asia might shift down a little after the extraordinary growth spurt seen in 2016; on a general note, however, rising incomes, urban- ization, and social security reforms should remain strong engines for growing insurance demand. All in all, we expect global premium revenue to increase by 4.0 % to 5.0 % in 2017 (in nominal terms, adjusted for foreign currency translation effects). To safeguard profitability, insurers will continue to review both their product mixes and their investment portfolios. As a result, overall profitability should not deteriorate any further. Business outlook Our outlook assumes no significant deviations from the following underlying assumptions: − Global economic growth is set to continue. − Modest rise in interest rates expected. − No major disruptions of capital markets. − 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 1.11. Allianz SE provides a wide range of reinsurance coverage, primarily to Allianz insurance entities (group-internal business), but also to third-party customers (external business). This includes Property- Casualty as well as Life/Health business on both a proportional and a non-proportional basis. Due to the broad spread of exposures underwritten by types of business and geography, Allianz SE’S port- folio is well diversified. Allianz SE and its subsidiaries (the Allianz Group) use Allianz SE, in particular, as a vehicle for actively managing their overall exposure to natural catastrophes. Within a group-wide risk management framework, each operating entity is responsible for controlling its exposure to individual catastrophes and defining its local reinsu- rance requirements, based on its local risk appetite and capital posi- tion. The respective cover is then provided by Allianz SE or one of its subsidiaries. At the Group level, the Allianz SE Board reviews and approves the risk appetite. The reinsurance division is then respon- sible for designing and implementing Group catastrophe protections within given exposure limits. These covers take various forms and aim to protect the Group against excessive losses from major natural catastrophes. However, there is still the potential for an unexpected frequency and/or severity of catastrophic events in any year that may materially impact the results of Allianz SE. The top five residual risk exposures at the Group level are summarized on page 26. Pricing pressure continued at the January 2017 renewals as the reinsurance sector absorbed ongoing capital inflows together with moderate levels of reinsured loss events. Therefore the renewal results were below the prior year’s level, with prices in the assumed business further softening and only partially compensated by favor- able conditions in the outgoing reinsurance. 12 Annual Report 2016 Allianz SE B Management Report of Allianz se Allianz SE’S technical result depends largely on group-internal cessions resulting from the quota share agreements with European Allianz entities. We expect a slight decrease of net premiums and at the same time an improvement of the net underwriting result in 2017. Based on our estimations we expect a slightly decreased combined ratio for 2017. It should be noted that, in extreme cases, the actual result may vary significantly as the reinsurance business is, by nature, volatile in terms of frequency and severity of losses. For 2017, we predict an increase in net income. Based on our cur- rent planning, this may involve a year-on-year shift in earning contri- butions between the investment result and the other non-technical result. We currently expect a rising investment result. However, as things stand, this increase will partially be offset by an declined other non-technical result. We are not currently planning a specific cur- rency rate result, nor are we able to anticipate any net gains/losses from derivatives. This could impact the net income of Allianz SE con- siderably. Given the susceptibility of our non-technical result to adverse capital market developments, we do not provide a precise outlook for net income. Nevertheless, we are ultimately planning and managing the Allianz SE result in line with the dividend policy of the Allianz Group. To this end, we take advantage of the opportunity to make targeted use of the dividends of our subsidiaries, in particular those of Allianz Europe B.V., in order to generate net earnings for Allianz SE that match the dividend policy of Allianz Group. For more detailed information on the dividend policy, see the Allianz Group’s Annual Report 2016 and www.allianz.com/dividend. Management’s overall assessment of the current economic situation of Allianz SE Overall, at the date of issuance of this Annual Report and given current information regarding natural catastrophes and capital market trends – in particular foreign currency, interest rates, and equities – the Board of Management has no indication that Allianz SE 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, performance, or events may differ materially from those expressed or implied in such forward-looking statements. Such deviations may arise due to, without limitation, (i) changes of the general economic conditions and competitive situation, particularly in the Allianz Group’s core business and core markets, (ii) performance of financial markets (particularly market volatility, liquidity and credit events), (iii) frequency and severity of insured loss events, including 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 acquisitions, including related integration issues and reorganization measures, and (xi) general competitive factors, in each case on a local, regional, national, and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. No duty to update The company assumes no obligation to update any information or forward-looking statement contained herein, save for any information required to be disclosed by law. Annual Report 2016 Allianz SE 13 B Management Report of Allianz se Operations by Reinsurance Lines of Business Gross premiums written increased significantly by 29.9 % to € 10,820 MN (2015: € 8,328 MN). This was mainly due to new quota share agreements with European Allianz entities that contributed gross pre miums written of € 2,897 MN. These quota share agreements had substantial impact on the overall reinsurance portfolio – especially in motor rein- surance, fire reinsurance and household and homeowners reinsur- ance. All in all, 92.6 % (2015: 88.5 %) of premiums written originated from the Allianz Group’s internal business. In addition, Allianz SE continued to write business from selected external partners in order to diversify the internal portfolio. Gross premiums written and net technical result by reinsurance lines of business Gross premiums written Combined ratio Property-Casualty Change in claims equalization and similar reserves Net technical result 2016 € mn 4,062 2,817 839 810 441 83 644 2015 € mn 1,995 2,419 576 506 492 111 734 1,270 1,148 382 357 354 319 237 116 906 402 420 311 427 212 132 862 10,820 8,328 Change % 1 103.6 16.5 45.7 60.0 (10.3) (24.9) (12.3) 10.6 (4.9) (15.1) 14.0 (25.2) 11.6 (12.5) 5.2 29.9 2016 % 104.1 88.2 88.0 78.2 88.7 87.8 98.8 94.6 93.3 94.8 79.3 n/a 98.3 n/a 96.5 96.3 2015 % 103.7 98.5 90.4 116.9 87.3 95.6 103.5 86.2 91.2 111.6 86.2 n/a 91.1 n/a 92.2 96.9 2016 € mn (106) (183) – (183) – – – (45) (43) (27) (1) – (1) – (122) (528) 2015 € mn 12 44 – 44 – – – (120) (26) 20 14 – (18) – (119) (193) 2016 € mn (276) 92 95 (59) 48 10 (2) 16 (17) (9) 68 89 3 1 (95) (128) 2015 € mn (54) 73 54 (13) 49 4 (21) 15 – (22) 49 33 1 (2) (62) 31 Motor Fire and property reinsurance thereof: Household and homeowner Fire Engineering Business interruption Other property reinsurance Liability Credit and bond Marine and aviation Personal accident Life Legal expenses Health Other lines Total 1 For lines of business on the basis of the accurate, non-rounded amount. Premiums written in motor reinsurance more than doubled to € 4,062 MN (2015: € 1,995 MN) due to new quota share agreements with European Allianz entities. The combined ratio rose to 104.1 % (2015: 103.7 %), mainly driven by the increased expense ratio of 28.8 % (2015: 23.9 %) due to the new quota share agreements with European Allianz entities. In particular, the premium increase triggered a strengthening of the equalization reserve of € 106 MN (2015: release of € (12) MN) The household and homeowner reinsurance portfolio increased significantly by 45.7 %, with gross premiums written of € 839 MN (2015: € 576 MN) mainly coming from the business with Allianz IARD S.A., Allianz Versicherungs-AG and AllSecur Deutschland AG. The fire reinsurance portfolio grew to € 810 MN (2015: € 506 MN) in gross premiums written mainly driven by internal business. The combined ratio decreased to 78.2 % (2015: 116.9 %), in particular due to a positive run-off result of € 180 MN (2015: € 34 MN). Engineering reinsurance premiums written decreased to € 441 MN (2015: € 492 MN) mainly coming from the quota share with AGCS Munich. The combined ratio deteriorated to 88.7 % (2015: 87.3 %), mainly driven by a higher accident year claims ratio of 80.6 % (2015: 74.9 %) which was partially compensated by the positive run-off result of € 99 MN (2015: € 77 MN). Other property reinsurance includes extended coverage for fire and business interruption as well as hail, storm, water damage, live- stock, burglary, and glass reinsurance. Premiums written declined by 12.3 % to € 644 MN (2015: € 734 MN) while positive run-off contributed to the improvement of the combined ratio. Premiums written for liability reinsurance went up by 10.6 % to € 1,270 MN (2015: € 1,148 MN), mainly driven by the new quota share agreements with European Allianz entities. The combined ratio dete- riorated to 94.6 % (2015: 86.2 %) mainly influenced by the negative run- off result of € (33) MN (2015: € 112 MN) and by a 2.2 percentage points higher expense ratio of 32.5 % (2015: 30.3 %). The premium increase as well as the positive result triggered a further strengthening of the equalization reserve of € 45 MN (2015: € 120 MN). Gross premiums written in credit and bond reinsurance decreased by € 20 MN to € 382 MN, mainly driven by declined business with Euler Hermes Reinsurance AG. The combined ratio worsened to 93.3 % (2015: 91.2 %), influenced by a higher expense ratio of 40.0 % (2015: 33.9 %). A further strengthening of equalization reserve by € 43 MN (2015: € 26 MN) led to a negative net technical result of € (17) MN (2015: € 0 MN). 14 Annual Report 2016 Allianz SE B Management Report of Allianz se The premium revenue in marine and aviation reinsurance fell by 15.1 % to € 357 MN (2015: € 420 MN) mainly impacted by a decrease of premium revenue with AGCS Munich. The combined ratio improved substantially by 16.8 percentage points to 94.8 %, reflecting a lower accident year loss ratio of 68.8 % (2015: 94.2 %). This development caused a strengthening of € 27 MN in equalization reserve (2015: release of € (20) MN); as a consequence, net technical result stayed negative with € (9) MN (2015: € (22) MN). The personal accident reinsurance gross premium revenue increased to € 354 MN (2015: € 311 MN), mainly driven by higher pre- miums ceded by Allianz Elementar Versicherungs-Aktiengesellschaft and Allianz Compañía de Seguros y Reaseguros S.A. The combined ratio further improved to 79.3 % (2015: 86.2 %), mainly influenced by higher run-off income of € 48 MN (2015: € 17 MN). After a strengthening of € 1 MN in equalization reserve (2015: release of € (14) MN) an increased net technical result of € 68 MN (2015: € 49 MN) was achieved. In life reinsurance, the premium revenue declined to € 319 MN (2015: € 427 MN), primarily due to the recapture of a capital manage- ment transaction in the Asia-Pacific region. The expense ratio dropped by 9.2 percentage points to 17.8 %. The net technical result increased to € 89 MN (2015: € 33 MN). The premium revenue of legal expenses reinsurance rose by 11.6 % to € 237 MN (2015: € 212 MN), largely driven by new quota share agreement with Allianz Elementar Versicherungs-Aktiengesellschaft. The combined ratio deteriorated substantially to 98.3 % (2015: 91.1 %). This was mainly attributable to lower run-off result of € 16 MN (2015: € 30 MN) reflected in a higher calendar year losses ratio of 61.8 % (2015: 53.7 %). After a strengthening of equalization reserve with an amount of € 1 MN (2015: € 18 MN), the net technical result remained positive with € 3 MN (2015: € 1 MN). Other reinsurance lines include: − emergency assistance, − fidelity & political risk, − motor extended warranty, − other property and casualty business. Annual Report 2016 Allianz SE 15 B Management Report of Allianz SE Balance Sheet Review Condensed balance sheet € mn as of 31 December assets Intangible assets Investments Receivables Other assets Deferred charges and prepaid expenses Total assets equity and liabilities Shareholders’ equity Subordinated liabilities Insurance reserves net Other provisions Funds held with reinsurance business ceded Payables on reinsurance business Other financial liabilities Deferred income Total equity and liabilities Investments € mn as of 31 December Real estate Investments in affiliated enterprises and participations Other investments Funds held by others under reinsurance business assumed Total investments 2016 2015 21 113,079 5,473 292 615 19 107,787 5,290 791 423 119,480 114,310 44,650 13,806 14,471 7,369 1,075 411 37,691 7 119,480 2016 250 71,354 33,447 8,028 113,079 44,978 12,340 13,168 7,500 63 231 36,018 12 114,310 2015 254 73,711 27,727 6,095 107,787 The book value of investments in affiliated enterprises and participa- tions decreased by € 2.3 BN to € 71.4 BN as a result of a lower book value of shares in affiliated enterprises (€ 2.3 BN). More details regarding this position are explained in note 4 to our financial statements. Other investments went up from € 27.7 BN to € 33.4 BN, primarily due to higher investments in debt securities (€ 3.7 BN) and loans (€ 1.2 BN). In addition, a rise in investment funds (€ 0.5 BN) and in deposits with banks (€ 0.3 BN) also contributed to the overall increase. At the end of 2016, € 27.4 BN of the total of other investments were invested in fixed-income securities, of which € 9.5 BN were govern- ment bonds. We slightly reduced our overall government bond expo- sure by € 0.1 BN compared to year-end 2015, thereby increasing our sovereign debt exposure in Spain from € 0.5 BN to € 0.7 BN while decreasing our investments in Italian government bonds from € 0.8 BN to € 0.6 BN. Funds held by others under reinsurance business assumed increased to € 8.0 BN (2015: € 6.1 BN) mainly driven by the new quota share agreements with European Allianz entities. As of 31 December 2016, the fair value of investments amounted to € 124.9 BN (2015: € 115.5 BN), compared to a carrying amount of € 113.1 BN (2015: € 107.8 BN). Shareholders’ equity As of 31 December 2016, our shareholders’ equity amounted to € 44.7 BN (2015: € 45.0 BN). The net decrease of € 0.3 BN was primarily due to net income being lower than the dividend paid in 2016. In the fiscal year 2016, as in the previous year, no capital increase from authorized capital was performed for the Employee Stock Pur- chase Plan. Instead, the shares were taken from own shares held. So the issued capital remained unchanged in the fiscal year. The Board of Management proposes to use the net earnings of € 3,856 MN for dividend payments in the amount of € 3,459 MN. The unappropriated earnings of € 397 MN will be carried forward. 16 Annual Report 2016 Allianz se B Management Report of Allianz SE DEvElopmEnt of SharEholDErS’ Equity anD of iSSuED SharES as of 31 December 2015 Own shares Own shares: realized gains Dividend payment for 2015 Unappropriated earnings carried forward Net earnings as of 31 December 2016 Issued shares Issued capital Mathematical value of own shares Additional paid-in capital Number € tHOu € tHOu € tHOu Revenue reserves € tHOu Net earnings 31 December € tHOu € tHOu 457,000,000 1,169,920 (5,570) 27,799,741 11,785,174 4,228,626 44,977,891 – – – – – – – – – – 625 – – – – – 44,923 – – – (1,017) – – – – 457,000,000 1,169,920 (4,945) 27,844,664 11,784,157 – – (392) 44,923 (3,320,374) (3,320,374) (908,252) 3,855,866 3,855,866 (908,252) 3,855,866 44,649,662 Insurance reserves and other provisions For information on insurance reserves and other provisions, please refer to notes 12 and 13 to our financial statements. Financial liabilities Liabilities from bonds issued to Group companies declined to € 2.6 BN (2015: € 3.3 BN), due to the redemption of bonds amounting to € 0.7 BN. Liabilities to banks went down to € 0.4 BN (2015: € 1.3 BN) as short- term funding via repurchase agreements was significantly reduced. Other intra-group financial liabilities rose to € 33.4 BN (2015: € 29.8 BN) and were composed of the following positions: As of 31 December 2016, Allianz SE had the following outstanding financial liabilities: othEr intra-group financial liabilitiES € mn financial liabilitiES € mn as of 31 December Intra-group subordinated liabilities Third-party subordinated liabilities Subordinated liabilities Bonds issued to Group companies Liabilities to banks Other intra-group financial liabilities Other third-party financial liabilities Other financial liabilities Total financial liabilities 2016 4,869 8,937 13,806 2,576 398 33,429 1,288 37,691 51,497 2015 4,869 7,471 12,340 3,258 1,344 29,753 1,663 36,018 48,358 as of 31 December Intra-group loans Cash pool liabilities Miscellaneous Other intra-group financial liabilities 2016 23,317 9,272 840 33,429 2015 20,397 8,345 1,011 29,753 Liabilities from intra-group loans increased by € 2.9 BN to € 23.3 BN and liabilities from intra-group cash pooling by € 0.9 BN to € 9.3 BN. This was partly offset by a decline of miscellaneous intra-group liabilities by € 0.2 BN to € 0.8 BN. In 2016, other third-party financial liabilities decreased by € 0.4 BN to € 1.3 BN because short-term funding through European commercial papers went down by € 0.1 BN to € 1.0 BN and other various third-party financial liabilities declined by € 0.3 BN to € 0.3 BN. Of these financial liabilities, € 40.9 BN (2015: € 37.9 BN) were intra-group liabilities. Subordinated liabilities increased to € 13.8 BN (2015: € 12.3 BN). Details regarding this position are explained in note 11 to our financial statements. Annual Report 2016 Allianz se 17 B Management Report of Allianz se Liquidity and Funding Resources The responsibility for managing the funding needs of the Group, as well as for maximizing access to liquidity sources and minimizing borrowing costs, lies with Allianz SE. Allianz SE has the option to increase its equity capital base according to authorizations provided by the AGM. The following table outlines Allianz SE’S capital authorizations as of 31 December 2016: Liquidity Resources and Uses Allianz SE ensures adequate access to liquidity and capital for our operating subsidiaries. Main sources of liquidity available to Allianz SE are dividends and funds received from subsidiaries, reinsurance pre- miums received as well as funding provided by capital markets. Liquidity resources are defined as readily available assets – specifi- cally cash, money market investments, and highly liquid go vernment bonds. Funds are primarily used for paying interest expenses on our debt funding, claims arising from the reinsurance business, operat- ing costs, internal and external growth investments, and dividends to our shareholders. Funding Sources Allianz SE’s access to external funds depends on various factors such as capital market conditions, access to credit facilities as well as credit ratings and credit capacity. The financial resources available to Allianz SE are both equity and debt funding. Equity can be raised by issuing ordinary shares. The issuance of debt in various maturities as well as group-wide liquidity management are the main sources of our debt funding. EQUITY FUNDING As of 31 December 2016, 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 2016, Allianz SE held 1,931,677 (2015: 2,175,776) own shares. Capital authorizations of allianz se Capital authorization Nominal amount Authorized Capital 2014/I Authorized Capital 2014/II € 550,000,000 (214,843,750 shares) € 13,720,000 (5,359,375 shares) Expiry date of the authorization 6 May 2019 6 May 2019 Authorization to issue bonds carrying conversion and/or option rights € 10,000,000,000 (nominal bond value) 6 May 2019 (issuance of bonds) Conditional Capital 2010/2014 € 250,000,000 (97,656,250 shares) No expiry date for Conditional Capital 2010/2014 (issuance in case option or conversion rights are exercised) For further details on Allianz SE’S capital authorizations, please refer to note 10 to our financial statements. DEBT FUNDING The cost and availability of debt funding may be negatively affected by general market conditions or by matters specific to the financial services industry or to Allianz SE. Our main sources of debt funding are senior and subordinated bonds. Among others, money market securities, letter-of-credit facilities and bank credit lines allow Allianz SE to fine-tune its capital structure. In 2016, we had steady access to debt funding sources, enabling us to actively steer the maturity profile of our funding structure. In September 2016, Allianz SE issued an undated subordinated bond of USD 1.5 BN, increasing our subordinated liabilities to € 13.8 BN (2015: € 12.3 BN) at year-end. Other financial liabilities increased to € 37.7 BN (2015: € 36.0 BN), mainly as a result of higher intra-group liabilities. For further details on Allianz SE’S financial liabilities, please refer to notes 11 and 14 to our financial statements. 18 Annual Report 2016 Allianz SE B Management Report of Allianz SE Risk and Opportunity Report Target and strategy of risk management For the benefit of shareholders and policyholders alike, Allianz SE’s aim is to ensure to be adequately capitalized at all times. This includes meeting the Solvency II regulatory capital requirements resulting from the internal model. Furthermore, risk capital reflec ting our risk profile and cost of capital are important aspects to be taken into account in business decisions. We closely monitor the capital position of Allianz SE and apply regular stress tests (standardized and historical stress test scena rios). This allows us to take appropriate measures to ensure our continued capital and solvency strength. In doing this, the risk management system described in the fol- lowing is applied. decision-making processes. This also keeps risk strategy and busi- ness objectives consistent with each other, and allows us to take opportunities within our risk tolerance. Risk reporting and monitoring: Our comprehensive qualitative and quantitative risk reporting and monitoring framework provides senior management with the transparency and risk indicators to help them decide on our overall risk profile and assess whether it falls within delegated limits and authorities. For example, risk dash- boards as well internal risk allocation and limit consumption reports are regularly prepared, communicated and monitored. Communication and transparency: Finally, transparent and robust risk disclosure provides the basis for communicating this strategy to our internal and external stakeholders, ensuring a sus- tainable and positive impact on valuation and financing. It also streng thens the risk awareness and risk culture throughout Allianz SE. Risk governance RISK GOVERNANCE STRUCTURE RISK MANAGEMENT FRAMEWORK As the holding company of Allianz Group and a global reinsurer, we consider risk management to be one of our core competencies. It is therefore an integral part of our business processes. Our risk manage- ment framework is risk-based and covers all business units of Allianz SE. It encompasses IT, processes and departments within Allianz SE. 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 frame- work across the business units to protect our capital base and support effective capital management. − Integration of risk considerations and capital needs into manage- ment and decision-making processes through the attribution of risk and allocation of capital to the various business units. The comprehensive framework ensures that risks are identified, ana- lyzed, managed, and assessed consistently across Allianz SE. Our risk appetite is defined by a clear limit structure and a risk strategy con- sistent with Allianz SE’s underlying business strategy. Close risk monitoring and reporting allows us to detect potential deviations from our risk tolerance at an early stage. Our risk management system is based on the following four essential elements: 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 and strategic asset allocations. The framework includes risk assessments, risk standards, valuation methods, and clear mini- mum standards for underwriting. Risk strategy and risk appetite: Our risk strategy clearly defines our risk appetite. It ensures that rewards are appropriate considering the risks taken and that the delegated authorities are in line with our overall risk-bearing capacity. The risk-return profile is improved through integrating the risk considerations and capital needs into 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 support them. Supervisory Board The Risk Committee of the Supervisory Board monitors the effective- ness of Allianz SE’s risk management and monitoring framework. Furthermore, it focuses on risk-related developments as well as ge neral risks and specific risk exposures. Board of Management The Board of Management formulates business objectives and a cor- responding, consistent risk strategy. The core elements of the risk framework are set out in the Allianz Group Risk Policy, which is approved by the Board of Management. The Group Finance and Risk Committee (GFRC) ensures over- sight of Allianz SE’s risk management framework, acting as a primary early-warning function by monitoring Allianz SE’s risk profile as well as the availability of capital. The GFRC also ensures that an adequate relationship between return and risk is maintained. Additionally, the GFRC defines risk standards, forms the limit-setting authority within the framework set by the Board of Management, and approves major single financing and reinsurance transactions. Finally, the GFRC sup- ports the Board of Management with recommendations regarding the capital structure, capital allocation and investment strategy, including the strategic asset allocation. The GFRC is supported by the Allianz Re Risk Committee on topics relating to the reinsurance business of Allianz SE. 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. Annual Report 2016 Allianz SE 19 B Management Report of Allianz SE As a general principle, the “first line of defense” rests with busi- ness managers in the business units of Allianz SE. 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 over- Casualty reinsurance business. The latter allows us to identify profit- able lines of business on a sustainable basis, which provide reason- able profits on allocated risk capital. Therefore, it is a key criterion for capital allocation decisions. sight functions such as Risk, Actuarial, Compliance and Legal. Audit forms the “third line of defense”. On a periodic basis, Audit independently reviews Allianz SE’s risk governance implementation and compliance with risk principles, performs quality reviews of risk processes, and tests adherence to business standards, including the internal control framework. For all four functions, Allianz SE is covered by dedicated respon- sibilities at the departments of Allianz SE (including reinsurance). Risk The functions of the Allianz Group’s Chief Risk Officer and of Allianz SE’s Chief Risk Officer are performed by the same person. Independent risk oversight for Allianz SE is conducted by risk control entities within Group Risk and the reinsurance department of Allianz SE. Other functions and bodies In addition to the risk function for Allianz SE, Allianz SE legal and compliance and actuarial functions have been established, constitut- ing additional components of the “second line of defense”. Allianz SE legal and compliance functions seek to mitigate legal risks for Allianz SE with support from other departments. The objec- tives of these legal and compliance functions 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 trans- actions and business processes. In addition, Group Legal and Compli- ance is responsible for integrity management, which aims to protect Allianz SE and employees from regulatory risks. The Allianz SE actuarial function contributes towards assessing and managing risks in line with actuarial regulatory requirements. These risks stem from the risk-taking/mitigating activities involving professional actuarial experience. The range of tasks includes, among others, the calculation and monitoring of technical provi- sions, technical actuarial assistance in business planning, reporting and monitoring of the result, and supporting the effective implemen- tation of the risk management system. Risk based steering and risk management Allianz SE is exposed to a variety of risks through its holding company and reinsurance activities. These include market, credit, underwriting, business, operational, strategic, liquidity and reputational risks. With Solvency II being the binding regulatory regime since 1 Janua ry 2016 and the approval of our internal model, risk is mea- sured and steered based on the risk profile under lying our regulatory capital requirement. By that we allow for a consistent view on risk steering and capitalization under the Solvency II framework. This is supplemented by economic scenarios and sensitivities. Allianz SE steers its portfolio using a comprehensive view of risk and return, i.e. results based on the internal risk model, including scenario-based analysis, are actively used for decision making. On the one hand, economic risk and concentrations are actively restric ted by means of limits as outlined above. On the other hand, return on risk capital (RoRC) is a key input in the underwriting of Property- As we are Allianz Group’s holding company and a global rein- surer, we consider diversification across different business segments and geographic regions as a key element in managing our risks effi- ciently by limiting the economic impact of any single event and by contributing to relatively stable results and risk profile in general. Therefore, our aim is to maintain a balanced risk profile without bearing any disproportionately large risk concentrations and accu- mulations. In addition, central elements of Allianz SE’s dividend policy are linked to the Solvency II capitalization based on our internal model. This shows that the internal model is fully integrated in the business steering of Allianz SE and that its application satisfies the so-called “Use-test” under Solvency II. MARKET RISK Market risk from material M & A transactions of Allianz SE is managed by assessing risk capital implications. With respect to investments, top-down indicators such as strategic asset allocations are defined for several sub-portfolios of Allianz SE and closely monitored to ensure balanced investment portfolios. Furthermore, we have a li mit system in place, which comprises economic limits, in particular financial Value-at-Risk (VaR) and credit VaR as derived from the inter- nal risk capital framework, complemented by stand-alone interest rate and equity sensitivity limits as well as by limits on foreign exchange exposures. In order to further limit the impact of any financial market changes and to ensure that assets adequately back liabilities, we have additional measures in place. One of these is asset/liability manage- ment (ALM), linked to the internal risk capital framework, which incorporates risks as well as return aspects stemming from our rein- surance and pension obligations. In addition, we are using deriva- tives mostly to either hedge our planned dividend income from non- Euro subsidiaries against adverse currency market movements or to reduce our investment and reinvestment risk. CREDIT RISK Allianz SE monitors and manages credit risk exposures and concen- trations to ensure it is able to meet obligations towards our counter- parties when they are due. Credit risks are reflected by the internal credit risk model as well as in the obligor group limit management system. The internal cre dit risk capital model considers the major drivers of credit risk for each instrument, such as exposure at default, ratings, seniority, collateral, and maturity. Additional parameters assigned to obligors are migra- tion probabilities and obligor asset correlations reflecting dependen- cies within the portfolio. Ratings are assigned to single obligors via an internal rating approach, which is based on long-term ratings from rating agencies. It is dynamically adjusted using market-implied rat- ings and the most recently available qualitative information. The loss profile of the Allianz SE portfolio is obtained through a Monte Carlo simulation taking into account interdependencies and exposure concentrations per obligor segment. To ensure effective credit risk management, credit VaR limits are derived from our internal risk capital framework as well as rating bucket benchmarks, which define our risk appetite for exposures in the lower investment grade and non-investment grade areas. 20 Annual Report 2016 Allianz SE B Management Report of Allianz SE The group-wide country and obligor group limit management framework (CRisP1) allows us to manage counterparty concentration risk. It 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 discussions on credit actions. Clearly defined processes ensure that exposure concentrations and limit utilizations are appropriately monitored and ma naged. UNDERWRITING RISK PROPERTY-CASUALTY Our Property-Casualty reinsurance business is exposed to premium risk related to the current year’s new and renewed business, as well as reserve risk related to the business in force. Premium risk is subdivided into natural catastrophe risk, terror risk, and non-catastrophe risk. We calculate premium risk based on actuarial models that are used to derive claims distributions and consider the features of our reinsurance contracts (e.g. shares, limits, reinstatements and commissions). Premium risk is actively mana- ged by Allianz SE. The assessment of risks as part of the underwriting process is a key element of our risk management framework. There are clear underwriting limits and restrictions in place. Excessive risks are mitigated by external retrocession agreements. All these measures contribute to a limitation on risk accumulation. We also monitor concentrations and accumulation of non-mar- ket risks on a stand-alone basis (i.e. before diversification effects) within an Allianz Group global limit framework in order to avoid sub- stantial losses from single events such as natural catastrophes and from man-made catastrophes such as terror or large industrial risk accumulations. Natural disasters, such as earthquakes, storms, and floods, re present 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. For significant exposures where such stochastic models do not exist, we use deterministic, scenario-based approaches to esti- mate potential losses. Similar models and scenario-based ap proaches are used to evaluate risk concentrations and man-made catastrophes including losses from terrorism, and industrial concentrations. We constantly monitor the development of reserves for reinsu- rance claims on a line-of-business level. In addition, Allianz SE con- ducts annual reserve uncertainty analyses based on similar methods used for reserve risk calculations. Where appropriate, expertise and analysis of other Group entities is leveraged. The Allianz Group per- forms regular independent reviews of these analyses. LIFE/HEALTH Underwriting risks in Allianz SE’s reinsurance operations and internal pension obligations (biometric risks) include mortality, disabi lity, morbi dity, and longevity risks. Mortality, disability, and morbi dity risks are associated with the unexpected increase in the occurrence of death, disability, or medical claims on our contracts. Longevity risk is the risk that, due to changing biometric assumptions, the reserves cove ring life annuities and pension contracts might not be sufficient. We measure these risks within our internal risk capital model by distinguishing between the different sub-components, whenever re levant or material: absolute level, trend, volatility around the best estimate assumptions, and pandemic risks. OPERATIONAL RISK Allianz SE’s operational risk management framework focuses on the early recognition and proactive management of operational risks in all “first line of defense” functions. The Allianz SE risk function identifies and evaluates relevant operational risks and control weaknesses via a dialogue with the “first line of defense” functions. Furthermore, operational risk events are collected in a central risk event database. Since 2015, Allianz SE also delivers internal loss data on an anonymized basis to the “Oper- ational Riskdata eXchange Association (ORX)”, a global operational loss data insu rance consortium, to improve our internal control sys- tem and to validate operational risk parameters. 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 Compliance function, which also takes and enforces the risk mitigation measures in close cooperation with the risk function of Allianz SE. With respect to finan- cial statements, our internal control system is designed to mi tigate operational risks.2 Major failures and disasters at our outsourcing providers may represent significant operational risks for Allianz SE, as they could cause a severe disruption to our working environment. Our business continuity and crisis management framework strives to protect cri tical business functions from these events and enables them, for example, to carry out their core tasks on time and at the highest standard also in a crisis event. Allianz works on a cyber and information security program on an ongoing basis, in order to better respond to external develop- ments and to further strengthen the internal control environment for related operational risks. OTHER RISKS There are certain risks that cannot be fully quantified using our inter- nal risk capital model. For these risks we also pursue a systematic approach with respect to identification, analysis, assessment, moni- toring and steering. In general, the risk assessment is based on quali- tative criteria or scenario analyses. The most important of these other risks are strategic, liquidity and reputational risk. STRATEGIC RISK Strategic risks are evaluated and analyzed in the strategic and plan- ning dialogue between the Allianz Group and operative functions at Allianz SE, and controlled by monitoring of the respective business goals. We also monitor market and competitive conditions, capital market requirements, regulatory conditions, etc. to decide whether to make strategic adjustments. 1 Credit Risk Platform. Annual Report 2016 Allianz SE 2 For additional information regarding our internal control system for financial reporting, please refer to Controls over Financial Reporting on page 48. 21 B Management Report of Allianz SE LIQUIDITY RISK The main goal in planning and managing Allianz SE’s liquidity posi- tion is to ensure that we are always able to meet payment obligations. To comply with this objective, the liquidity position of Allianz SE is monitored and forecast on a daily basis. Allianz SE’s short-term liquidity is managed within Allianz SE’s cash pool, which serves as a centralized tool for also investing the excess liquidity of other Group companies. Strategic liquidity planning for Allianz SE over time hori- zons of 12 months and three years is reported to the Board of Manage- ment regularly. The accumulated short-term liquidity forecast is subject to an absolute minimum strategic cushion amount and an absolute mini- mum 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 require- ments and sources of liquidity are taken into account to ensure that Allianz SE is able to meet any future payment obligations even under adverse conditions. Major contingent liquidity requirements include non-availability of external capital markets, combined market and catastrophe risk scenarios for subsidiaries, as well as lower-than- expected profit transfers and dividends from subsidiaries. In order to protect the Allianz Group against the liquidity impact of adverse risk events beyond those covered by the capital and liqui dity buffers at our subsidiaries, Allianz SE is holding a strategic liqui dity reserve. In 2016, Allianz Group rolled out to Allianz SE and other Group companies a newly developed group-wide liquidity risk framework in order to further strengthen the liquidity risk management within Allianz Group and the resilience to stress scenarios. To assess the liquidity, this framework explicitly takes into account stress situations for liquidity sources and needs, and allows for a group-wide consistent view on liquidity risks. REPUTATIONAL RISK Allianz SE’s reputation as a well-respected and socially aware holding and reinsurance company is influenced by our behavior in a range of areas such as corporate governance, quality of reinsurance under- writing, financial performance, customer service, employee relations, intellectual capital, and corporate responsibility. All affected Allianz SE functions cooperate in the identification of reputational risk. Group Communications and Corporate Respon- sibility assesses reputational risk for Allianz SE, based on a group- wide methodology. In 2015, Allianz SE embedded conduct risk triggers for fair contracts and services into the reputational risk ma nagement process. Internal risk capital framework We define internal risk capital as the capital required to protect us against unexpected, extreme economic losses, which forms the basis for determining our Solvency II regulatory capitalization and the associated risk profile. On a quarterly basis, we calculate internal risk capital for Allianz SE in total, as well as for all contributing business units. We also project risk capital requirements on a bi-weekly basis during periods of financial market turbulence. GENERAL APPROACH We utilize an approach for the management of our risk profile and solvency position that reflects the Solvency II rules. INTERNAL RISK CAPITAL MODEL Our internal risk capital model is based on a VaR approach using a Monte Carlo simulation. Following this approach, we determine the maximum loss in the portfolio value of our businesses in the scope of the model within a specified timeframe (“hol ding period”) and probability of occurrence (“confidence level”). We assume a confi- dence 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. Risk capital is defined as the difference between the current port- folio value and the portfolio value under adverse conditions depen- dent on the 99.5 % confidence level. Because we simultaneously con- sider the impact of a negative or positive event on all sources of risks and co vered businesses, diversification effects across products and regions are taken into account. The results of our Monte Carlo simu- lation 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, based on either historically observed market movements or on hypothetical market movement assumptions. This modeling approach, therefore, also enables us to identify scenarios that may have a positive impact on our solvency situation. COVERAGE OF THE RISK CAPITAL CALCULATIONS Allianz SE’s internal risk capital model covers the activities of Allianz SE as the holding company for Allianz Group, as well as a reinsurer. Whereas most subsidiaries are covered through treatment as participations, the model granular covers the very closely linked activities of 27 subsidiaries, which are either financing entities or ser- vice providers. The identification and assessment of reputational risks are part of the yearly Top Risk Assessment, during which senior management also decides on a risk management strategy and related actions. This is supplemented by quarterly updates. In addition, reputational risk is managed on a case-by-case basis. The risk capital model covers all relevant assets (including bonds, loans, bank deposits, investment funds, equities and real estate) and liabilities (including the cash flow run-off profile of all technical reserves as well as issued debt, and other liabilities such as guarantees). For Allianz SE’s internal pension liabilities, guarantees embedded in the contracts are taken into account. 22 Annual Report 2016 Allianz SE ASSUMPTIONS AND LIMITATIONS 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 and discounting future cash flows. We apply the metho- dology provided by the European Insurance and Occupational Pen- sions Authority (EIOPA) within the technical documentation (EIOPA BoS-15/035) for the extension of the risk-free interest rate curves beyond the last liquid tenor.1 In addition, we adjust the risk-free yield curves by a volatility adjustment in most markets where a volatility adjustment is defined by EIOPA and approved by BaFin. This is done to better reflect the underlying economics of our business. The advantage of being a long- term investor, therefore, is the opportunity to invest in bonds yielding spreads over the risk-free return and earning this additional yield component over the duration of the bonds. Therefore, we reflect this mitigation using a volatility adjustment spread risk offset, and view the more relevant risk to be default risk rather than credit spread risk. VALUATION ASSUMPTIONS: REPLICATING PORTFOLIOS Since efficient valuation and complex, timely analysis are required within the context of our internal model; we replicate internal pension obligations. This technique enables us to represent guarantees by means of standard financial instruments. In our risk calculation we use the replicating portfolio to determine and revalue these liabi lities 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 Allianz SE 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 diversi- fication and forms a central element of our risk management frame- work. 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 risk and business experts. In general, we set the correlation para meters to represent the joint movement of risks under adverse conditions. Based on these correlations, we use an industry-standard approach, the Gaussian copula approach, to determine the dependency struc- ture of quantifiable sources of risk within the applied Monte Carlo simulation. B Management Report of Allianz SE ACTUARIAL ASSUMPTIONS Our internal risk capital model also includes assumptions on claims trends, liability inflation, mortality, longevity, morbidity, policyhol der behavior, expense, etc. We use our own internal historical data for actuarial assumptions wherever possible, leverage expertise of other Allianz Group companies in the scope of the internal model, and also consider recommendations from the insurance industry, supervisory authorities, and actuarial associations. The derivation of our actua- rial assumptions is based on generally accepted actuarial methods. Within our internal risk capital and financial reporting framework, comprehensive processes and controls exist for ensuring the reliabi lity of these assumptions. LIMITATIONS Because of the 99.5 % confidence level, there is a low statistical pro- bability of 0.5 % that actual losses could exceed this threshold at Allianz SE 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 difficult to predict. In order to mitigate reliance on historical data, we complement our VaR analysis with stress testing. Furthermore, we validate the model and parameters through sensitivity analyses, independent internal peer reviews, and, where appropriate, independent external reviews, focusing on methods for selecting parameters and control processes. Overall, we believe that our validation efforts are effective – to the extent possible – and that the model adequately assesses the risks to which we are exposed. The construction and application of the replicating portfolios mentioned is subject to the set of replicating instruments available, and might, therefore, be too simple or too restrictive to capture all factors affecting the change in value of obligations. As with other mo del components, the replications are subject to independent vali- dation and to suitability assessments as well as to stringent data and process quality controls. Therefore, we believe that the obligations 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 estimate the market value of each item accurately. For some assets and liabilities it may be difficult, if not impossible – nota- bly 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. For some of our liabilities, the accuracy of their values additionally depends on the quality of the actua rial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed. MODEL CHANGES IN 2016 There were no major model changes in 2016. Allianz SE is affected by two minor Allianz Group model changes. For longevity risk, shock factors have been newly calibrated. In addition, for interest rate risk modelling, the granularity of the reflection of long maturities in the Euro and Swiss Franc yield curves has been increased. 1 Due to late availability of the EIOPA publication, the risk-free interest rate term structure used might slightly differ from the one published by EIOPA. Annual Report 2016 Allianz SE 23 B Management Report of Allianz SE Allianz SE risk profile and management assessment RISK PROFILE AND MARKET ENVIRONMENT The quantitative risk profile of the legal entity Allianz SE is primarily dominated by market risk resulting from its non-traded insurance participations when measured in a manner consistent with the treat- ment of participations under Solvency II (e.g. without looking through to the underlying risks behind the participations). In order to provide greater transparency, the Group risk figures as reflected in the Allianz Group Annual Report can be interpreted as a “look-through” into the consolidated risk profile represented by all of the Group’s participa- tions as well as those risks unique to Allianz SE. The second largest risk for Allianz SE from an internal model perspective is underwriting risk arising from its reinsurance business and internal pensions. The risk profile and relative contributions have changed in 2016, due to changes in the market environment, management actions, and minor model changes. These model changes are described in the section Model changes in 2016. FINANCIAL MARKETS AND OPERATING ENVIRONMENT 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 challenges of implementing long-term struc- tural reforms in key Eurozone countries and the uncertainty about the future path of monetary policy may lead to continued market volatility. This could be accompanied by a flight to quality, combined with falling equity and bond prices due to rising spread levels, even in the face of potentially lower interest rates. Also, possible asset bubbles (as observed in the Chinese equity market) might spill over to other markets, contributing to increasing volatility. Therefore, we continue to closely monitor the political and finan- cial developments in the Eurozone – such as Brexit in the U.K. and the “No” vote to constitutional reforms in Italy – in order to manage our overall risk profile to specific event risks. REGULATORY DEVELOPMENTS Following the approval of our internal model in November 2015, the model has been fully applied since the beginning of 2016, with the Solvency II day one reporting. MANAGEMENT ASSESSMENT Allianz SE’s management feels comfortable with Allianz SE’s overall risk profile and has confidence in the effectiveness of its risk manage- ment framework to meet the challenges of a rapidly changing envi- ronment as well as of day-to-day business needs. This confidence is based on several factors, which are outlined in more detail in the sec- tions that follow and are summarized below: − Due to its effective capital management, Allianz SE is well capita- lized and met its regulatory solvency targets as of 31 December 2016. − Allianz SE’s management also believes that Allianz SE is well posi- tioned to deal with potentially adverse future events, in part due to our strong internal limit framework defined by Allianz SE’s risk appetite and risk management practices including our approved internal model. − Allianz SE has a conservative investment profile and disciplined business practices in the reinsurance business, leading to sustain- able operating earnings with a well-balanced risk-return profile. SOLVENCY II REGULATORY CAPITALIZATION Allianz SE’s own funds and capital requirements are based on the market value balance sheet approach as the major economic principle of Solvency II rules.1 Our capitalization based on these requirements is shown in the following table. AlliAnz SE: SolvEncy ii rEgulAtory cApitAlizAtion as of 31 December Own funds Capital requirement Capitalization ratio € Bn € Bn % 2016 81.3 20.9 389 2015 78.0 20.8 375 As of 31 December 2016, the Solvency II capitalization of the legal entity Allianz SE is at 389 %. The increase by 14 percentage points in 2016 was driven by a significant € 3.3 bn increase in own funds, which was only marginally compensated by a slight € 0.1 bn rise in capital requirements. Quantifiable risks and opportunities by risk category This Risk and Opportunity Report outlines Allianz SE’s risk figures, reflecting its risk profile based on pre-diversified risk figures and Allianz SE-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 do not com- prise the diversification effects across risk categories. Allianz SE’s diversified risk also captures the diversification effect across all risk categories. As of 31 December 2016, the Allianz SE-diversified risk capital of € 20.9 bn (2015: € 20.8 bn) represented a diversification benefit of approximately 14 % (2015: 15 %) across risk categories. AlliAnz SE: AllocAtEd riSk According to tHE riSk profilE € mn as of 31 December Market risk Credit risk Underwriting risk Business risk Operational risk Diversification Capital add-on Total Allianz SE 2016 19,664 633 2,731 46 773 (3,325) 391 20,913 2015 19,588 664 2,962 43 765 (3,584) 357 20,795 1 Own funds and capital requirement are calculated under consideration of volatility adjustment and yield curve extension, as described in Yield curve and volatility adjustment assumptions on page 23. 24 Annual Report 2016 Allianz SE B Management Report of Allianz SE In the following sections we explain the evolution of the risk profile per modeled risk category. All risks are presented on a pre-diversified basis, and concentrations of single sources of risk are discussed accordingly. As of 31 December 2016, Allianz SE’s interest-rate-sensitive investment assets amounting to a market value of € 43.6 bn would have gained € 1.6 bn or lost € 2.3 bn in value, in the event of interest rates chan ging by -100 and +100 basis points, respectively. MARKET RISK Allianz SE is the ultimate holding entity in the Allianz Group. As a result, participation assets represent approximately 69 % of the total investment assets. As an inherent part of our reinsurance operations, we collect premiums from our customers and invest them in a wide variety of assets. The resulting investment portfolio backs the future claims and benefits to our cedents. For our holding activities (i.e. to cover internal pension liabili- ties, invest cash pooled from subsidiaries, and in our capacity as the lender of last resort within Allianz Group), Allianz SE mainly invests in fixed-income assets. In addition we invest shareholders’ capital, which is required to support the risks underwritten and the holding activities. Thereby, Allianz SE holds and uses a broad range of financial instruments. As the fair values of the majority of our assets and liabili- ties depend on financial markets, which may change over time, we are exposed to market risks. For the legal entity Allianz SE, the pre-diversified market risk showed a marginal increase of € 76 Mn, driven by a rise in equity risk. The following table shows the market risk of Allianz SE related to the sources of risk. AlliAnz SE: riSk profilE – MArkEt riSk By SourcE of riSk pre-diversified, € mn as of 31 December Interest rate Inflation Credit spread Equity Real estate Currency Total Allianz SE 2016 232 535 510 2015 260 515 578 18,103 17,976 74 210 66 193 19,664 19,588 INTEREST RATE RISK Given the long duration of parts of our internal pension obligations and reinsurance liabilities, we are specifically exposed to interest rate risk because we have to reinvest maturing assets prior to the matu- rity of the related liabilities. This interaction between our investment strategy and pension obligations as well as reinsurance liabilities forms an integral part of our internal risk capital framework. In addi- tion, our ALM approach is closely linked to the internal risk capital framework, and designed to achieve investment returns over the long term in excess of the obligations. The € 232 Mn interest rate risk capital requirements for Allianz SE mainly arise from fixed-rate bonds and loans on the asset side, as well as from issued Allianz corporate bonds, received loans, reinsu- rance technical provisions and pension benefit obligations on the liability side. In 2016, interest rate risk decreased by € 28 Mn, mainly reflecting changes in Allianz Group financing structures. As described above, 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 obligations. In contrast, oppor- tunities may materialize when interest rates increase. This may result in higher returns from reinvestments than required to match the obligations. INFLATION RISK Since inflation increases both reinsurance claims and costs, as well as internal pension obligations, higher inflation rates will lead to greater liabilities. Thus, primary sources for the € 535 Mn inflation risk of the legal entity Allianz SE in 2016 are reinsurance liabilities and internal pension obligations. The € 20 Mn increase in 2016 mainly reflects higher risk from both sources. Inflation assumptions are already taken into account in our rein- surance underwriting, and the risk of changing inflation rates is incorporated in our internal model. In case future inflation rates lie (sustainably) below assumptions, liabilities would be lower than anticipated. EQUITY RISK Allianz SE is the ultimate holding entity in the Allianz Group. Thus, most of the equity risk of Allianz SE reflects insu rance participations. In 2016, Allianz SE had profit-and-loss transfer agreements with ele ven German subsidiaries in place. These are listed in the appendix on page 68. Risk from these contracts is reflected via the risk capital calculation on participations. In 2016, Allianz SE’s equity risk increased by € 127 Mn, mainly reflecting changes in the value of participations in Allianz Group companies as well as a reduction in investments in traded equities. As of 31 December 2016, our investment assets that are sensitive to changing equity markets would have lost € 374 Mn in value, assum- ing equity markets declined by 30 %. Allianz SE’s equity risk primarily results from the performance of our insurance participations, as well as changes in the value of equity prices. The latter are normally associated with decreasing equitiy prices and increasing equity price volatilities. As the perfor- mance of our participations might exceed expectations, and stock market values also might increase, opportunities arise from partici- pations and other equity investments. CREDIT SPREAD RISK Our internal risk capital framework fully acknowledges the risk of declining market values for our fixed-income assets, such as bonds, due to the widening of credit spreads. However, for our risk manage- ment and appetite, we also take into account the underlying econo- mics of our business model; for example, the application of the vola- tility adjustment in our internal risk capital framework to partially mitigate spread risk, as described in the section on yield curve and volatility adjustment assumptions. Allianz SE’s credit spread risk is € 68 Mn lower than in 2015. This is dominantly explained by changes in Allianz Group financing structures. Annual Report 2016 Allianz SE 25 B Management Report of Allianz SE CURRENCY RISK In addition to risk from Allianz SE’s non-Euro participations, Allianz SE’s currency risk is driven by its non-Euro reinsurance ex posure, as well as by the use of non-Euro bonds as external financ- ing instruments. Allianz SE’s € 210 Mn currency risk at year-end 2016 mainly re flects net open positions in U.S. Dollar, Swiss Franc and Australian Dollar. The moderate increase of € 17 Mn in 2016 is primarily caused by changes in the value of non- Euro participations and changes in the Group financing structures. In 2016, Allianz SE’s natural catastrophe risk increased by € 43 Mn, mainly reflecting changes in risks from intra-group quota shares and effects from changes in insurance risk diversification. The top five scenarios contributing to the natural catastrophe risk of Allianz SE as of December 2016 were: a windstorm in Europe, an earth- quake in Australia, a tropical cyclone in Australia, an earthquake in Italy, as well as a tropical cyclone in Japan. The € 314 Mn decrease in non-catastrophe and terror premium risk of Allianz SE in 2016 can be mainly explained by changes in rein- surance structures within Allianz Group. REAL ESTATE RISK As of 31 December 2016, real estate risk for Allianz SE is minor (€ 74 Mn). The marginal increase in 2016 of € 8 Mn reflects a rise in the market value of properties. CREDIT RISK Credit risk is measured as the potential economic loss in the value of our portfolio that is due to either changes in the credit quality of our counterparts (“migration risk”) or the inability or unwillingness of the counterparty to fulfill contractual obligations (“default risk”). Allianz SE’s credit risk arises from our fixed-income investments, cash positions, derivatives, receivables from debtors, as well as from reinsurance recoverables. Throughout 2016, the credit environment was mostly stable. Annual updates based on extended time series were performed for credit risk parameters like the transition matrix and asset correla- tions, which also had a slightly positive effect on credit risk. These effects were partially offset by declining interest rates, which gene- rally increased credit risk exposures and correspondingly credit risk. Credit risk of the legal entity Allianz SE decreased by € 31 Mn in 2016, resulting from changes in the Group financing structures. UNDERWRITING RISK Allianz SE’s underwriting risk consists of premium and reserve risks from the Property-Casualty reinsurance business, as well as of bio- metric risks from both internal pension liabilities and the Life/Health reinsurance business. Reserve risk We estimate and hold reserves for reinsurance claims resulting from past events that have not yet been settled. If the reserves are not suf- ficient to cover claims to be settled in the future, due to unexpected changes, we would experience losses. Conversely, in case our reserves would turn out to be too conservative, there is the chance for positive returns. The volatility of past claims measured over a one-year time horizon defines our reserve risk. Allianz SE’s € 119 Mn increase in reserve risk in 2016 mainly reflects new reinsurance quota shares with European Allianz entities, together with effects from changes in insurance risk diversification. LIFE/HEALTH Life/Health underwriting risk arises from profitability being lower than expected due to changes in actuarial parameters. As profitabi lity cal- culations are based on several parameters – such as historical loss information, assumptions on inflation or on mortality and morbidity – the realized parameters may differ from the ones used for calculation. For example, inflation which is higher than what we incorporated in the calculations may lead to a loss. However, deviations can also occur in the opposite direction and be beneficial and lead to additional profit. For example, a lower-than-expected morbi dity rate will most likely result in lower claims. Allianz SE’s life and health underwriting risk is do minated by longevity risk from internal pensions. In 2016, the biometric risk of Allianz SE is € 79 Mn lower than in 2015, which is dominantly reflecting changes in the modelling of lon- gevity risk. AlliAnz SE: riSk profilE – undErwriting riSk By SourcE of riSk pre-diversified, € mn as of 31 December Premium natural catastrophe Premium non-catastrophe and terror Reserve Biometric Total Allianz SE 2016 315 1,429 949 38 2,731 2015 272 1,743 830 117 2,962 BUSINESS RISK Allianz SE’s business risk consists of cost risk from Property-Casualty reinsurance business and of policy-holder behavior risk from both Life/Health and Property-Casualty reinsurance. Reflecting the business model of Allianz SE as primarily a group-internal reinsurer, business risk is minor. As for underwriting risks, a positive deviation from the under- lying parameters will lead to additional returns. PROPERTY-CASUALTY Our Property-Casualty reinsurance business is exposed to premium risk related to the current year’s new and renewed business as well as to reserve risks related to the business in force. Both premium risk and reserve risk also include exposures from the reinsurance contract on the Euler-Hermes trade credit insurance and bonding business. Premium risk As part of our Property-Casualty reinsurance business, we receive premiums from our cedents and provide reinsurance protection in return. OPERATIONAL RISK Operational risks represent losses resulting from inadequate or failed internal processes, from personnel and systems, or from external events – including legal and compliance risk, but excluding losses from strategic and reputational risk. Reflecting Allianz SE’s tasks as holding company for Allianz Group and reinsurer, the most important operational risk capital scenarios are in the areas of tax, legal and compliance. Allianz SE’s operational risk capital marginally increased in 2016 caused by an annual parameter update. 26 Annual Report 2016 Allianz SE Corporate Governance Report B Management Report of Allianz se BOARD OF MANAGEMENT AND GROUP COMMITTEES In the financial year 2016, there were the following Board of Manage- ment committees: Board Committees Board CoMMITTEEs rEsPoNsIBILITIEs GrouP CaPITaL CoMMITTEE (dissolved effective as of 1 July 2016) Oliver Bäte (Chairman), Dr. Dieter Wemmer, Dr. Maximilian Zimmerer. GrouP FINaNCE aNd rIsk CoMMITTEE Dr. Dieter Wemmer (Chairman), Sergio Balbinot, Dr. Helga Jung until 6 July 2016, Jay Ralph until 30 June 2016, Dr. Axel Theis, Dr. Maximilian Zimmerer. GrouP IT CoMMITTEE Dr. Christof Mascher (Chairman), Jay Ralph until 30 June 2016, Jacqueline Hunt from 1 July 2016, Dr. Axel Theis, Dr. Dieter Wemmer, Dr. Werner Zedelius. GrouP MErGErs aNd aCquIsITIoNs CoMMITTEE Dr. Helga Jung (Chairwoman), Oliver Bäte from 7 July 2016, Dr. Dieter Wemmer, Dr. Maximilian Zimmerer until 6 July 2016. as of 31 December 2016 Proposals to the Board of Management concerning risk capital management, including group-wide capital and liquidity planning, as well as investment strategy. Preparation of the capital and liquidity planning for the Group and Allianz sE, implementing and overseeing the principles of group-wide capital and liquidity planning, as well as invest ment 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 information within the Group. 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 15 December 2016, and the company’s position regarding the Code’s suggestions can be found in the State- ment on Corporate Management pursuant to § 289a of the HGB start- ing on page 32. 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-Ausfüh- rungsgesetz”) in addition to the German stock corporation Act. How- ever, 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 of Allianz SE comprises nine members. It is responsible for setting business objectives and the strategic direc- tion, coordinating and supervising the operating entities, as well as implementing and overseeing an efficient risk management system. The Board of Management also prepares the Group’s consolidated financial statements and the annual financial statements of Allianz SE, including the market value balance sheet, as well as interim reports. The members of the Board of Management are jointly responsi- ble for management and for complying with legal requirements. Not- withstanding this overall responsibility, the individual members head the departments they have been assigned independently. There are divisional responsibilities for business segments as well as func- tional responsibilities. The latter include the Finance-, Risk Manage- ment- and Controlling-Function, Investments, Operations – includ- ing IT –, Human Resources, Legal and Compliance, Internal Audit and Mergers & Acquisitions. Business division responsibilities focus on geographical regions or Global Lines, such as Asset Management. Rules of procedure specify in more detail the structure and depart- mental responsibilities of the Board of Management. 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. Annual Report 2016 Allianz sE 27 B Management Report of Allianz se In the financial year 2016, there were the following Group commit- tees: group Committees GrouP CoMMITTEEs rEsPoNsIBILITIEs GrouP CoMPENsaTIoN CoMMITTEE Board members of Allianz sE and executives below Allianz sE Board level GrouP uNdErwrITING CoMMITTEE (continued as a functional committee within Dr. Theis’ area of responsibility effective as of 1 July 2016) Members of the Board of Management, executives below Allianz sE Board level and Chief Underwriting Officers of Group companies GrouP INvEsTMENT CoMMITTEE Members of the Board of Management and executives below Allianz sE Board level Designing, monitoring and improving group-wide compensation systems in line with regulatory requirements and sub - mitting an annual report on the results of its monitoring, along with proposals for improvement. Monitoring of the underwriting business, of the related risk management and strategy as well as developing an under- writing policy. Implementing Group investment strategy, including monitoring group-wide invest - ment activities as well as approving invest- ment-related frameworks and guidelines and individual investments within certain thresholds. The Allianz Group runs its operating entities and business segments via an integrated management and control process. The Holding and the operating entities first define the business strategies and goals. On this basis, joint plans are then prepared for the Supervisory Board’s consideration when setting targets for the performance- based remuneration of the members of the Board of Management. For details, see the Remuneration Report starting on page 34. 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. Details on the Board of Manage- ment’s reporting to the Supervisory Board are laid down in the report- ing rules issued by the Supervisory Board. Important decisions of the Board of Management require approval by the Supervisory Board. These requirements are stipu- lated by law, by the Statutes, or in individual cases by decisions of the Annual General Meeting (AGM). Supervisory Board approval is required, for example, for certain capital transactions, intercompany agreements and the launch of new business segments or the closure of existing ones. Approval is also required for acquisitions of compa- nies and holdings in companies, as well as for divestments of Group companies which exceed certain threshold levels. The Agreement concerning the Participation of Employees in Allianz SE, in the version dated 3 July 2014 (hereinafter “SE Agreement”), requires the approval of the Supervisory Board for the appointment of the member of the Board of Management responsible for employment and social welfare. Principles and function of the Supervisory Board The German Co-Determination Act (“Mitbestimmungsgesetz”) does not apply to Allianz SE because it has the legal form of a European Company (SE). Instead, the size and composition of the Supervisory Board are determined by general European SE regulations. These regulations are implemented in the Statutes and by the SE Agree- ment. The Supervisory Board comprises twelve members, including six shareholder representatives appointed by the AGM. The six employee representatives are appointed by the SE works council. The specific procedure for their appointment is laid down in the SE Agreement. This agreement stipulates that the six employee representatives must be allocated in proportion to the number of Allianz employees in the different countries. The Supervisory Board currently in office comprises four employee representatives from Germany and one each from France and Italy. The last regular election of the Super- visory Board took place in May 2012 for a term lasting until the end of the ordinary AGM in 2017. According to § 17 (2) of the German SE Imple mentation Act (“SE-Ausführungsgesetz”), the Supervisory Board of Allianz SE shall be composed of at least 30 % women and at least 30 % men as of 1 January 2016. The Supervisory Board oversees and advises the Board of Ma nagement on managing the business. It is also responsible for appointing the members of the Board of Management, determining their overall remuneration and reviewing Allianz SE’s and the Allianz Group’s annual financial statements. The Supervisory Board’s activi- ties in the 2016 financial year are described in the Supervisory Board Report starting on page 2. The Supervisory Board takes all decisions based on a simple majority. The special requirements for appointing members to the Board of Management, as stipulated in the German Co-Determina- tion Act, and the requirement to have a Conciliation Committee do not apply to an SE. In the event of a tie, the casting vote lies with the Chairman of the Supervisory Board, who at Allianz SE must be a shareholder representative. If the Chairman is not present in the event of a tie, the casting vote lies with the vice chairperson from the shareholder side. A second vice chairperson is elected on the pro- posal 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 re commendations from the Standing Committee. The efficiency review also includes an evaluation of the fitness and propriety of the individual members. 28 Annual Report 2016 Allianz sE B Management Report of Allianz se SUPERVISORY BOARD COMMITTEES Part of the Supervisory Board’s work is carried out by its committees. The Supervisory Board receives regular reports on the activities of its committees. The composition of committees and the tasks assigned to them are regulated by the Supervisory Board’s Rules of Procedure. 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 rEsPoNsIBILITIEs − Approval of certain transactions which require the approval of the Supervisory Board, e.g. capital measures, acquisitions and disposals of participations PLENary sEssIoNs oF THE suPErvIsory Board Dr. Helmut Perlet (Chairman) Dr. Wulf H. Bernotat (Vice Chairman) − Preparation of the Declaration of Conformity Rolf Zimmermann (Vice Chairman) 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 representatives (in addition to Dr. Wulf H. Bernotat: Dr. Helmut Perlet, Jim Hagemann Snabe) − Two employee represen tatives (Jean-Jacques Cette, Ira Gloe-Semler until 31 March 2016, Martina Grundler from 4 May 2016) rIsk CoMMITTEE 5 members − Chairman: appointed by the Supervisory Board (Dr. Helmut Perlet) − Three shareholder representatives (in addition to Dr. Helmut Perlet: Christine Bosse, Peter Denis Sutherland until 4 May 2016, Dr. Friedrich Eichiner from 4 May 2016) − Two employee represen tatives (Dante Barban, Jürgen Lawrenz) PErsoNNEL CoMMITTEE 3 members − Chairman: Chairman of the Supervisory Board (Dr. Helmut Perlet) − One further shareholder representative (Christine Bosse) − One employee represen tative 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 consoli- dated financial statements, management reports (incl. Risk Report) and the dividend proposal, review of half-yearly reports or, where applicable, quarterly financial reports or statements − Monitoring of the financial reporting process, the effectiveness of the internal control and audit system and legal and compliance issues − Monitoring of the audit procedures, including the independence of the auditor and the services additionally rendered, awarding of the audit contract and 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 compen- sation 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 (Rolf Zimmermann) 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 − Selection of suitable candidates for election to the Supervisory Board as shareholder representatives NoMINaTIoN CoMMITTEE 3 members − Chairman: Chairman of the Supervisory Board (Dr. Helmut Perlet) − Two further shareholder representatives (Prof. Dr. Renate Köcher, Peter Denis Sutherland until 4 May 2016, Jim Hagemann Snabe from 4 May 2016) Annual Report 2016 Allianz sE Dante Barban Christine Bosse Gabriele Burkhardt-Berg Jean-Jacques Cette Dr. Friedrich Eichiner Ira Gloe-Semler Martina Grundler Prof. Dr. Renate Köcher Jürgen Lawrenz 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 Martina Grundler Jim Hagemann Snabe Dr. Helmut Perlet rIsk CoMMITTEE Dr. Helmut Perlet (Chairman) Dante Barban Christine Bosse Dr. Friedrich Eichiner Jürgen Lawrenz Peter Denis Sutherland NoMINaTIoN CoMMITTEE Dr. Helmut Perlet (Chairman) Prof. Dr. Renate Köcher Peter Denis Sutherland Jim Hagemann Snabe 1 2 3 4 5 Dr. Eichiner joined the Supervisory Board on 4 May 2016. Ms. Gloe-Semler left the Supervisory Board on 31 March 2016. Ms. Grundler joined the Supervisory Board on 1 April 2016. Mr. Sutherland left the Supervisory Board on 4 May 2016. Mr. Snabe joined the Nomination Committee on 4 May 2016. PrEsENCE IN % 6/6 6/6 6/6 6/6 4/6 6/6 6/6 3/3 1 2/2 2 4/4 3 5/6 6/6 5/6 2/3 4 2/2 2/2 2/2 1/2 2/2 3/3 3/3 3/3 7/7 5/7 2/2 2 4/5 3 6/7 7/7 2/2 2/2 2/2 1/1 1 2/2 0/1 4 4/4 4/4 1/2 4 2/2 5 100 100 100 100 66 100 100 100 100 100 83 100 83 66 100 100 100 50 100 100 100 100 100 71 100 80 86 100 100 100 100 100 100 – 100 100 50 100 29 B Management Report of Allianz se OBJECTIVES OF THE SUPERVISORY BOARD REGARDING ITS COMPOSITION The objectives for the composition of the Supervisory Board (in the version from August 2016) to implement a recommendation by the Code, are as follows: oBjeCtives of allianz se’s supervisory Board regarding its Composition “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 occupa- tional backgrounds, professional expertise and experience. Employee representation within Allianz sE, as provided for by the sE Agreement con- cerning the Participation of Employees dated 3 July 2014, 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 1. General selection criteria – Managerial or operational experience – General knowledge of the insurance and financial services business – Willingness and ability to make sufficient commitments on substance – Fulfillment of the regulatory requirements, in particular1: – Reliability – Knowledge of the field of corporate governance and supervisory law – Knowledge of the main features of accounting and risk management Compliance with the limitation on the number of mandates as recommended by the German Corporate Governance Code and required by § 24 (4) of the German Insurance Supervision Act 2016 (“Versicherungsaufsichtsgesetz – vaG”). – 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 repre- sentation and the existence of a working relationship with the company shall not itself affect independence. 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. Time of availability Each member of the Supervisory Board must ensure that it has sufficient time to dedicate to the proper fulfilment of the Supervisory Board mandate. It has to be taken into account that – there at least four, but usually six ordinary Supervisory Board meetings per year, each of which requires adequate preparation; sufficient time has to be dedicated for the audit of the annual and consolidated financial statements; attendance of the General Meeting is required; – – – – depending on possible memberships in one or more of the currently five Supervisory Board committees, extra time planning to participate in the committee meetings and to prepare for such meetings is required; this applies in particular to the Audit and Risk Committees; extraordinary meetings of the Supervisory Board or of a committee may be necessary to deal with special matters. 4. Retirement age Members of the Supervisory Board may not, in general, be older than 70 years of age. 5. Term of membership The continuous period of membership for any member of the Supervisory Board should, as a rule, not exceed 15 years. II. Requirements relating to the composition of the Board as a whole 1. Specialist knowledge – Make certain that the members in their entirety are familiar with the insurance and financial-services industry as defined under Article 100 (5) of the German Stock Corporation Act (AktG). 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. – – – 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. At Allianz sE as a Societas Europaea (European Company), Allianz employees from different Member States of the E.u. 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 3 July 2014. 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 Supervisory Board shall be composed of at least 30 % women and at least 30 % men. The representation of women is generally considered to be the joint responsibility of the shareholder and employee representatives.“ 1 For further details, please see BaFin Guidance Notice on Vetting Members of Administrative and Super- visory Bodies in accordance with the German Banking Act and the German Insurance Supervision Act in its respective effective version. 30 Annual Report 2016 Allianz sE B Management Report of Allianz se Accounting and auditing The Allianz Group prepares its accounts according to § 315a of the German Commercial Code (“Handelsgesetzbuch – HGB”) on the basis of International Financial Reporting Standards (IFRS) as adopted within the European Union. The annual financial statements of Allianz SE are prepared in accordance with German law, in particular the HGB. In compliance with special legal provisions that apply to insu- rance 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 co vers the individual financial statements of Allianz SE and also the consolidated financial statements of the Allianz Group. To ensure maximum transparency, we inform our shareholders, financial analysts, the media and the general public about the com- pany’s situation on a regular basis and in a timely manner. The annu- al financial statements of Allianz SE, the Allianz Group’s consolidated financial statements and the respective management reports are published within 90 days of the end of each financial year. Additional information is provided in the Allianz Group’s half-yearly financial reports and quarterly statements. Information is also made available at the AGM, at press and analysts’ conferences, as well as on the Allianz Group’s website. Our website also provides a financial calendar list- ing the dates of major publications and events, such as an nual reports, quarterly statements and half-yearly financial reports, AGMs as well as analyst conference calls and Financial press conferences. You can find the 2017 financial calendar on our website at www.allianz.com/financialcalendar. Regulatory requirements The regulatory requirements for corporate governance as set out in Solvency II are additionally important. These requirements, which became effective as of 1 January 2016, include, in particular, the estab- lishment and further design of significant control functions (risk management, actuarial function, compliance and internal audit) as well as general principles for a sound business organization. The regulatory requirements are applicable throughout the Group and have been implemented using written guidelines issued by the Board of Management of Allianz SE. For the financial year 2016 it was required to prepare for the first time a market value balance sheet at the individual and Group level, for this to be audited by the auditor and separately reported on. 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 current legislation for equal participation of women and men in leadership positions (statutory gender quota of 30 %) is being met. The current composition of the Supervisory Board and its page 5. committees is described on 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 2016. Directors’ dealings Members of the Board of Management and the Supervisory Board are obliged by the E.U. Market Abuse Directive to disclose to both Allianz SE and the German Federal Financial Supervisory Authority any trans- actions involving shares or debt securities of Allianz SE or financial derivatives or other instruments based on them as soon as the value of the securities acquired or divested by the member amounts to five thousand Euros or more within a calendar year. These disclosures are published on our website at www.allianz.com/directorsdealings. Annual General Meeting Shareholders exercise their rights at the Annual General Meeting. When adopting resolutions, each share carries one vote. Sharehol- ders can follow the AGM’s proceedings on the internet and be repre- sented by proxies. These proxies exercise voting rights exclusively on the basis of instructions given by the shareholder. Shareholders are also able to cast their votes via the internet in the form of online voting. Allianz SE regularly promotes the use of internet services. 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, 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 majo- rity 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. Annual Report 2016 Allianz sE 31 B Management Report of Allianz Se 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 Management Report. According to § 317 (2), sentence 4 of the HGB, this Statement does not have to be included within the scope of the audit. Declaration of Conformity with the German Corporate Governance Code On 15 December 2016, the Board of Management and the Supervisory Board issued the following Declaration of Conformity of Allianz SE with the German Corporate Governance Code (hereinafter the “Code”): Declaration of conformity in accorDance with § 161 of the German Stock corporation act “Declaration of Conformity by the Management Board and the Supervisory Board of Allianz SE with the recommendations of the German Corporate Governance Code Commission in accordance with § 161 of the German Stock Corporation Act (AktG) Since the last Declaration of Conformity as of December 10, 2015, Allianz SE has complied with all recommendations of the German Corporate Governance Code in the version of May 5, 2015 and will comply with them in the future. Munich, December 15, 2016 Allianz SE For the Board of Management: Signed Oliver Bäte Signed Dr. Helga Jung For the Supervisory Board: Signed Dr. Helmut Perlet” In addition, Allianz SE follows all the suggestions of the Code in its 5 May 2015 version. The Declaration of Conformity and further information on cor­ www. porate governance at Allianz can be found on our website at allianz.com/corporate-governance. Corporate governance practices INTERNAL CONTROL SYSTEMS Allianz SE as member of the Allianz Group has an effective internal control system for verifying and monitoring its operating activities and business processes, in particular the control of financial report­ ing. The requirements placed on the internal control systems are essential not only for the survival of the company, but also to main­ tain the confidence of the capital market, our customers and the pub­ lic. A comprehensive risk management system regularly assesses the appropriateness of the internal control system, taking into account not only qualitative and quantitative guidelines, but also specific controls for individual business activities. For further information on page 19 the risk organization and risk principles, please refer to and 20. Information on the internal Controls over Financial Reporting you will find on page 48. In addition, the quality of the internal control system is assessed by the internal audit staff. Internal Audit conducts independent audit procedures, analyzing the structure and efficacy of the internal con­ trol systems as a whole. In addition, it also examines the potential for additional value and improvement of our organization’s operations. Fully compliant with all international auditing principles and stan­ dards, Internal Audit contributes to the evaluation and improvement of the effectiveness of the risk management, control and governance processes. Therefore, internal audit activities are geared towards helping the company to mitigate risks and further assist in strengthe­ ning its governance processes and structures. COMPLIANCE PROGRAM The sustained success of Allianz SE and the Allianz Group is based on the responsible behavior of all employees, who embody trust, respect and integrity. The compliance program of Allianz SE is part of the cen­ tral compliance program of Allianz Group. The central compliance function of Allianz SE coordinates the global compliance programs to ensure that nationally and internationally recognized guidelines and standards for rules­compliant and value­based corporate gover­ nance are supported and followed. These include the principles of the United Nations (UN Global Compact), the Guidelines of the Organiza­ tion for Economic Co­operation and Development for Multinational Enterprises (OECD guidelines), and European and international stan­ dards on data and consumer protection, economic and financial sanctions and combating corruption, bribery, money laundering and terrorism financing. Through its support for and acceptance of these standards, Allianz aims to avoid the risks that might arise from non­ compliance. The central compliance function of Allianz SE is respon­ sible – in close cooperation with regional, divisional and local com­ pliance functions – for ensuring the effective implementation and monitoring of the compliance program as well as for investigating potential compliance infringements. The standards of conduct established by the Code of Conduct for Business Ethics and Compliance are obligatory for all employees. The www.allianz.com/ Code of Conduct is available on our website at corporate-governance. 32 Annual Report 2016 Allianz SE B Management Report of Allianz Se German Act on Equal Participation of Women and Men in Executive Positions in the Private and the Public Sector To implement the German Act on Equal Participation of Women and Men in Executive Positions in the Private and the Public Sector, Allianz SE has set the following objectives for the proportion of wo men on the Board of Management and the two management levels below the Board of Management, which are to be achieved by 30 June 2017: For the proportion of women on Allianz SE’s Board of Manage­ ment, the Supervisory Board in August 2015 set a target of 11 %. In addition, the Supervisory Board declared its intention to increase the proportion of women on the Board of Management to at least 20 % by the end of 2018. With the appointment of Jacqueline Hunt effective 1 July 2016, the proportion of women on the Board of Management currently accounts for 22 %, therefore even fulfilling this additional objective. As regards the proportion of women on the first and the second management level below the Board of Management of Allianz SE, the Board of Management has set a target quota of at least 20 %. Over the longer term, Allianz is aiming for at least 30 % of positions on these two management levels to be held by women. § 17 (2) of the SE Implementation Act (“SE­Ausführungsgesetz”) states that the Supervisory Board of Allianz SE must be composed of at least 30 % of both women and men as of 1 January 2016. With its four female members, this requirement is met by the current Supervisory Board in office (33 %). In case the Annual General Meeting 2017 elects the Supervisory Board in accordance with the election nominations of the Supervisory Board, this requirement will also be met in the future. 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, the compliance function of Allianz SE, together with regional, divisional and local compliance functions has imple­ mented interactive training programs around the world. These pro­ vide practical guidelines which enable employees to come to their own decisions. The Code of Conduct also forms the basis for guide­ lines and controls to ensure fair dealings with Allianz Group custo­ mers (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 anti­corruption con­ trols. More information on the Anti­Corruption Program can be found www.allianz.com/ in the Sustainability Report on our website at sustainability. A major component of the compliance program is a whistle­ blower system that allows employees to alert the compliance depart­ ment confidentially about irregularities. No employee voicing con­ cerns about irregularities in good faith needs to fear retribution, even if the concerns turn out to be unfounded at a later date. 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 page 5 and 7 of the Annual Report. A committees can be found on description of the composition of the Board of Management can be page 8, while the composition of the Committees of the found on Board of Management is described in the Corporate Governance page 27. This information is also available on Report starting on our website at www.allianz.com/corporate-governance. A general description of the functions of the Board of Manage­ ment, the Supervisory Board and their committees can be found in page 27, and on our the Corporate Governance Report starting on website at www.allianz.com/corporate-governance. Annual Report 2016 Allianz SE 33 B Management Report of Allianz SE Remuneration Report This report covers the remuneration arrangements for the Board of Management and the Supervisory Board of Allianz SE. 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 Personnel Committee. If required, outside advice is sought from independent external consultants. The Personnel Committee and the Supervisory Board consult with the Chairman of the Board of Management, as appropriate, in assessing the performance and remuneration of members of the Board of Management. The Chair- man of the Board of Management is not present when his own remu- neration is discussed. Regarding the activities and decisions taken by the Personnel Committee and the Supervisory Board, please refer to the Supervisory Board Report starting on page 2. 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 performance-based, variable component forms a significant portion of the overall remuneration. − Variable remuneration focused on sustainability and aligned with shareholder interests: Two thirds of the variable remuneration reflect longer-term performance. One third is a deferred payout after three years, based on a sustainability assessment covering the three-year period. The other third rewards the sustained per- formance of the share price with a deferred payout four years after grant. The structure, weighting and level of the Allianz SE Board of Manage- ment remuneration is decided upon by the Supervisory Board. Remu- neration survey data of DAX 30 companies and international insu- rance peers is provided by external consultants. Compensation levels are around the third quartile of this group, which we deem appropriate given the relative size, complexity and sustained performance of Allianz within that peer group. The structure of the remuneration is more strongly weighted towards variable, longer-term components than it is in most DAX 30 companies. Remuneration and benefit arrangements are also periodically compared with best practices. In addition, the Supervisory Board takes into account remuneration levels within the Allianz Group when reviewing the adequateness and appropriateness of the Board of Management’s remuneration. 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 mid-term bonus (MTB), and equity-related remu- neration. The target compensation of each variable component does not exceed the base salary, with the total target variable compensation not exceeding three times the base salary. In addition, Allianz offers pensions and similar benefits and perquisites. BASE SALARY The base salary is the fixed remuneration component, expressed as an annual cash sum and paid in twelve monthly installments. VARIABLE REMUNERATION Variable remuneration is designed to balance short-term perfor- mance, longer-term success and sustained value creation. Each year, the Supervisory Board agrees with members of the Board of Manage- ment on performance targets for the variable remuneration com- ponent. These are documented for the upcoming financial year. Every three years, the MTB sustainability criteria, as described on page 35, are set for the following mid-term period. All variable awards are made under the rules and conditions of the “Allianz Sus- tained Performance Plan” (ASPP). The grant of variable remuneration components is related to performance and can vary between 0 % and 150 % of the respective target values. If performance was rated at 0 % no variable component would be granted. Consequently, the mini- mum total direct compensation for a regular member of the Board of Management equals the base salary of € 750 Thou (excluding perqui- sites and pension contributions). The maximum total direct com- pensation (excluding perquisites and pension contributions) is € 4,125 Thou: base salary € 750 Thou plus € 3,375 Thou (150 % of the sum of all three variable compensation components at target). Details on the variable compensation components: − Annual bonus (short-term): A cash payment which rewards the achievement of quantitative and qualitative targets for the respective financial year and is paid in the year following the per- formance year. Under the “Inclusive Meritocracy” approach, the cultural change element of the Renewal Agenda, Group-related targets account for 50 % (equally divided between annual operat- ing profit and annual net income). The other 50 % are linked to individual performance, which consists of quantitative and qua- litative criteria. For members of the Board of Management with business division responsibilities, respective quantitative targets comprise operating profit, net income, Property-Casualty reve- nues and Life New Business Value. For members of the Board of Management with a functional focus, the divisional quantitative targets are determined based on their key responsibilities. The Chairman of the Allianz SE Board of Management does not have divisional quantitative targets. In all cases, the personal contribu- tion to the Renewal Agenda is assessed alongside behavioral 34 Annual Report 2016 Allianz SE aspects. The latter is framed in a common standard (“People Let- ter”) designed to drive cultural change across the Group, namely: − Customer and Market Excellence, − Collaborative Leadership, − Entrepreneurship, − Trust. To support the assessment of People Letter behaviors, a so-called “multi-rater” process has been introduced. Each member of the Board of Management collects feedback from the Chairman of the Allianz SE Board of Management, the other Board members and direct reports. The resulting analysis supports the assess- ment of the behavioral part of performance and additionally provides a sound basis for feedback and personal development discussions. Based on the 2016 target achievement for the Group, the business division/corporate functions, and the qualitative performance, the total annual bonus awards ranged between 100 % and 131 % of the target, with an average bonus award of 123 % of the target. − MTB (mid-term): 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 MTB 2016 – 2018 comprises sustainability (performance and health) indicators, which are aligned with the Group’s external targets: Performance indicators: − Sustainable improvement/stabilization of Return on Equity (Return on Equity excluding unrealized gains/losses on bonds net of shadow accounting), − Compliance with economic capitalization guidance (capi- talization level and volatility limit); Health indicators (aligned with the Renewal Agenda): − True Customer Centricity, − Digital by Default, − Technical Excellence, − Growth Engines, − Inclusive Meritocracy (including gender diversity – women in leadership). − Equity-related remuneration (long-term): 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 ten-day average Xetra closing price of the Allianz stock following the financial press conference on the annual results. As RSus are vir- tual 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 divi- dend stream is discounted with the respective swap rates as of B Management Report of Allianz SE the valuation day. Following the end of the four-year vesting period, the company makes a cash payment based on the number of RSus granted and the ten-day 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. Out- standing 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 Con- duct, risk limits, or compliance requirements. Additionally, a reduc- tion or cancellation of variable remuneration may occur if the super- visory authority (BaFin) requires this in accordance with its statutory powers. PENSIONS AND SIMILAR BENEFITS To provide competitive and cost-effective retirement and disability benefits, company contributions to the current pension plan “My Allianz Pension” are invested in a fund with a guarantee for the con- tributions paid, but no further interest guarantee. On retirement, the accumulated capital is paid out as lump sum or can be converted into a lifetime annuity. Each year the Supervisory Board decides whether and to what extent a budget is provided, also taking into account the targeted pension level. This budget includes a risk premium paid to cover death and disability. The earliest age a pension can be drawn is 62, except for cases of occupational or general disability for medical reasons. In these cases, it may become payable earlier and an increase by projection may apply. In the case of death, a lump sum, which can be converted into an annuity, will be paid to dependents. Should Board membership cease before retirement age for other reasons, the accrued pension rights are maintained if vesting require- ments are met. For members of the Allianz SE Board of Management who were born before 1 January 1958, and for the rights accrued before 2015, the guaranteed minimum interest rate remains at 2.75 % and the retire- ment age is still 60. From 1 January 2005 until 31 December 2014, most Board of Man- age ment members have participated in a contribution-based system which was frozen as of 31 December 2014 and is now only co vering disability and death. Before 2005 a defined benefit plan provided fixed benefits which were not linked to base salary increases. Benefits gen- erated under this plan were frozen at the end of 2004. Additionally, most Board members participated in the Allianz Ver sorgungskasse VVaG, a contribution-based pension plan, and the Allianz Pensions- verein e.V. which were closed for new entries as of 1 January 2015. PERQUISITES Perquisites mainly consist of contributions to accident and liability insurances and the provision of a company car. Perquisites are not linked to performance. Each member of the Board of Management is responsible for the income tax on these perquisites. The Supervisory Board regularly reviews the level of perquisites. 1 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 pricing formula. 2 The relevant share price used to determine the final number of RSUs granted and the 200 % cap is available only after sign-off by the external auditors. Annual Report 2016 Allianz SE 35 B Management Report of Allianz SE REMUNERATION FOR 2016 The following remuneration disclosure is based on and compliant with the German Corporate Governance Code and shows the indi- vidual Board members’ remuneration for 2015 and 2016, including fixed and variable remuneration and pension service cost. The “Grant” column below shows the remuneration at target and mini- mum and maximum levels. The “Payout” column discloses the 2015 and 2016 payments. The base salary, annual bonus and perquisites are linked to the reported performance years 2015 and 2016, whereas the Group Equity Incentive (GEI) and Allianz Equity Incentive (AEI) payouts result from grants related to the performance years 2008 – 2011. To enhance transparency remuneration related to the performance year 2016, the additional column “Actual grant” includes the 2016 fixed compensation, the annual bonus paid for 2016, the MTB 2016 – 2018 tranche accrued for the performance year 2016, and the fair value of the RSu grant in 2017 for the performance year 2016. IndIvIdual rEmunEratIon: 2016 and 2015 € Thou (total might not sum up due to rounding) Base Salary Perquisites Total fixed compensation Annual Variable Compensation Annual Bonus Deferred Compensation MTB (2016 – 2018)2 MTB (2013 – 2015)3 AEI 2017/RSu4 AEI 2016/RSu4 AEI 2012/RSu4 AEI 2011/RSu4 GEI 2010/RSu4 GEI 2010/SAR5 GEI 2008/SAR5 Total Pensions Service Cost6 Total Oliver Bäte7 (Appointed: 01/2008; CEo since 05/2015) Sergio Balbinot8 (Appointed: 01/2015) Jacqueline Hunt9 (Appointed: 07/2016) 2015 Target 994 15 1,009 Grant Target 1,125 30 1,155 2016 Min 1,125 30 1,155 Max 1,125 30 1,155 Actual Grant 2016 1,125 30 1,155 Payout1 2015 2016 994 15 1,009 1,125 30 1,155 Grant 2016 Target 750 32 782 Min 750 32 782 2015 Target 750 33 783 996 1,125 1,688 1,474 1,260 1,474 750 750 1,125 983 999 983 566 456 – – – – – – – – – – 1,688 – 1,688 1,474 – 1,474 – – – – – – – – – – – – 4,530 625 5,155 1,155 625 1,780 6,219 625 6,844 5,576 625 6,201 1,125 – 1,125 – – – – – – – 996 – 996 – – – – – 3,997 483 4,480 – 3,516 – – – 1,704 916 – 263 8,668 483 9,151 – – – – 1,334 – – – – 3,963 625 4,588 1 2 3 4 5 In accordance with the German Corporate Governance Code, the annual bonus disclosed for perfor- mance year 2016 is paid in 2017 and for performance year 2015 in 2016. The payments for equity related deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment was made. The MTB figure included in the “Actual Grant” column shows the annual accrual. The payout 2015 figure includes the 2015 allocation and the accruals from the performance years 2013 and 2014, as adjusted by the sustainability assessment. The MTB 2013 – 2015 was paid out in spring 2016. Payout is capped at 200 % above grant price. The relevant share price used to determine the fair market value, and hence the final number of RSUs granted, and the 200 % cap are only available after sign-off by the external auditors. The equity-related remuneration that applied before 2010 consisted of two vehicles, virtual stock awards known as RSUs and virtual stock options known as “Stock Appreciation Rights” (SAR). Only RSUs have been awarded as of 1 January 2010. 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. 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. 6 36 Annual Report 2016 Allianz SE Actual Grant 2016 Payout1 2015 2016 Max 750 32 782 1,125 1,125 – – – – – – – – – – – – – – – – – 750 32 782 983 983 – – – – – – – 750 33 783 999 – – – – – – – – 750 32 782 – – – – – – – – – Grant 20 16 2015 Target Target 375 136 10 511 Min 375 136 10 511 Max 375 136 10 511 Actual Grant 2016 375 136 10 511 377 377 377 – – – – – – – – – – – – – – – – – 566 566 – – – – – – – 456 456 – – – – – – – – – – – – – – – – – – – – – – – Payout1 2015 2016 – – – – – – – – – – – – – – – – 375 136 10 511 456 – – – – – – – – – 967 159 1,126 3,033 222 3,255 3,032 365 3,397 782 365 1,147 4,157 365 4,522 3,730 365 4,095 2,781 222 3,003 1,765 365 2,130 1,642 159 1,801 511 159 670 2,209 159 2,368 1,880 159 2,039  7 For performance year 2015, Oliver Bäte’s base salary and his target for the annual bonus, the MTB tranche,  9 Jacqueline Hunt joined Allianz on 1 July 2016. She received a pro-rated base salary, annual bonus, MTB and equity-related compensation are disclosed based on his pro-rated base salary of € 750 ThOU until tranche, and equity-related compensation. The different pro-rated amounts for base salary and target 6 May 2015 and his pro-rated base salary of € 1,125 ThOU from 7 May 2015. The different pro-rated amounts result from different pro-rating methodologies, which are generally applied. In addition to the amounts for base salary and target amounts result from different pro-rating methodologies, which are amounts disclosed in the table, Jacqueline Hunt received a buyout award of € 170 ThOU to compensate generally applied. for forfeited grants from her previous employer.  8 In addition to the amounts disclosed in the table, Sergio Balbinot received a buyout award of € 6 Mn to 10 Jacqueline Hunt received an off-cycle one time payment of € 120 ThOU to reimburse her for relocation compensate for forfeited grants from his previous employer: € 3 Mn in cash and € 3 Mn in RSUs. 50 % of cost. the cash amount was paid in February 2015 and 50 % was paid in 2016 and are subject to clawback. 750 750 – – – – – – – 750 750 – – – – – – – B Management Report of Allianz SE IndIvIdual rEmunEratIon: 2016 and 2015 € Thou (total might not sum up due to rounding) Base Salary Perquisites Total fixed compensation Annual Variable Compensation Annual Bonus Deferred Compensation MTB (2016 – 2018)2 MTB (2013 – 2015)3 AEI 2017/RSu4 AEI 2016/RSu4 AEI 2012/RSu4 AEI 2011/RSu4 GEI 2010/RSu4 GEI 2010/SAR5 GEI 2008/SAR5 Total Total Pensions Service Cost6 Target 1,125 30 1,155 1,125 1,125 – – – – – – – 2015 Target 994 15 1,009 996 996 – – – – – – – 3,997 483 4,480 – – – – – – – – – – 1,688 1,474 1,688 1,474 – – – – – – – – – – – – – – 4,530 625 5,155 1,155 625 1,780 6,219 625 6,844 5,576 625 6,201 – – – – – 3,516 1,704 916 263 8,668 483 9,151 – – – – – – – – 1,334 3,963 625 4,588 Oliver Bäte7 (Appointed: 01/2008; CEo since 05/2015) Sergio Balbinot8 (Appointed: 01/2015) Jacqueline Hunt9 (Appointed: 07/2016) Grant 2016 Min 1,125 30 1,155 Max 1,125 30 1,155 Actual Grant 2016 1,125 30 1,155 Payout1 2015 2016 994 15 1,009 1,125 30 1,155 Grant 2016 Target 750 32 782 Min 750 32 782 Max 750 32 782 2015 Target 750 33 783 Actual Grant 2016 750 32 782 Payout1 2015 2016 750 33 783 750 32 782 996 1,125 1,688 1,474 1,260 1,474 750 750 – 750 – 750 – – – – – 750 – 750 – – – – – – – – – – – – – – – – 1,125 983 999 983 1,125 – 1,125 – – – – – – 983 – 983 – – – – – – – 999 – – – – – – – – – – – – – – – – was made. 2 3 1 In accordance with the German Corporate Governance Code, the annual bonus disclosed for perfor- Annual Report 2009 (starting on page 17). Whereas the GEI/RSU grants are automatically exercised at the mance year 2016 is paid in 2017 and for performance year 2015 in 2016. The payments for equity related vesting date, the GEI/SAR grants are exercised by the Board member within the exercise period following deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment 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 The MTB figure included in the “Actual Grant” column shows the annual accrual. exercise hurdles are met. For SARs granted until and including 2008, the vesting period was two years and The payout 2015 figure includes the 2015 allocation and the accruals from the performance years 2013 the exercise period five years. SARs can be exercised on the condition that the price of the Allianz SE stock and 2014, as adjusted by the sustainability assessment. The MTB 2013 – 2015 was paid out in spring 2016. is at least 20 % above the strike price at the time of grant. During the term of the plan, at least once on five 4 Payout is capped at 200 % above grant price. The relevant share price used to determine the fair market consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points value, and hence the final number of RSUs granted, and the 200 % cap are only available after sign-off by ahead of the appreciation of the Dow Jones EURO STOXX Price Index (600). the external auditors. 6 Pension Service Cost in accordance with IAS 19: represents the company cost not the actual entitlement 5 The equity-related remuneration that applied before 2010 consisted of two vehicles, virtual stock awards nor a payment, however, according to the German Corporate Governance Code the Pension Service Cost known as RSUs and virtual stock options known as “Stock Appreciation Rights” (SAR). Only RSUs have been is to be included in all columns. awarded as of 1 January 2010. The remuneration system valid until December 2009 is disclosed in the 3,033 222 3,255 3,032 365 3,397 782 365 1,147 4,157 365 4,522 3,730 365 4,095 2,781 222 3,003 1,765 365 2,130  7  8 For performance year 2015, Oliver Bäte’s base salary and his target for the annual bonus, the MTB tranche, and equity-related compensation are disclosed based on his pro-rated base salary of € 750 ThOU until 6 May 2015 and his pro-rated base salary of € 1,125 ThOU from 7 May 2015. The different pro-rated amounts for base salary and target amounts result from different pro-rating methodologies, which are generally applied. In addition to the amounts disclosed in the table, Sergio Balbinot received a buyout award of € 6 Mn to compensate for forfeited grants from his previous employer: € 3 Mn in cash and € 3 Mn in RSUs. 50 % of the cash amount was paid in February 2015 and 50 % was paid in 2016 and are subject to clawback. Grant 20 16 Target 375 136 10 511 Min 375 136 10 511 Max 375 136 10 511 Actual Grant 2016 375 136 10 511 377 377 – 377 – – – – – – – – – – – – – – – – 566 456 566 – 566 – – – – – – 456 – 456 – – – – – – 1,642 159 1,801 511 159 670 2,209 159 2,368 1,880 159 2,039 2015 Target – – – – – – – – – – – – – – – – Payout1 2015 2016 – – – – – – – – – – – – – – – – 375 136 10 511 456 – – – – – – – – – 967 159 1,126  9 10 Jacqueline Hunt joined Allianz on 1 July 2016. She received a pro-rated base salary, annual bonus, MTB tranche, and equity-related compensation. The different pro-rated amounts for base salary and target amounts result from different pro-rating methodologies, which are generally applied. In addition to the amounts disclosed in the table, Jacqueline Hunt received a buyout award of € 170 ThOU to compensate for forfeited grants from her previous employer. Jacqueline Hunt received an off-cycle one time payment of € 120 ThOU to reimburse her for relocation cost. Annual Report 2016 Allianz SE 37 B Management Report of Allianz SE IndIvIdual rEmunEratIon: 2016 and 2015 € Thou (total might not sum up due to rounding) Base Salary Perquisites Total fixed compensation Annual Variable Compensation Annual Bonus Deferred Compensation MTB (2016 – 2018)2 MTB (2013 – 2015)3 AEI 2017/RSu4 AEI 2016/RSu4 AEI 2012/RSu4 AEI 2011/RSu4 GEI 2010/RSu4 GEI 2010/SAR5 GEI 2008/SAR5 Total Pensions Service Cost6 Total Base Salary Perquisites Total fixed compensation Annual Variable Compensation Annual Bonus Deferred Compensation MTB (2016 – 2018)2 MTB (2013 – 2015)3 AEI 2017/RSu4 AEI 2016/RSu4 AEI 2012/RSu4 AEI 2011/RSu4 GEI 2010/RSu4 GEI 2010/SAR5 GEI 2008/SAR5 Total Pensions Service Cost6 Total Dr. Helga Jung (Appointed: 01/2012) Dr. Christof Mascher (Appointed: 09/2009) Jay Ralph7 (Appointed: 01/2010; End of service: 06/2016) 2015 Target 750 14 764 Grant 2016 Target 750 14 764 Min 750 14 764 Max 750 14 764 Actual Grant 2016 750 14 764 Payout1 2015 2016 750 14 764 750 14 764 Grant 2016 Target 750 2 752 Min 750 2 752 2015 Target 750 2 752 Payout1 2015 2016 750 2 752 750 2 752 Grant 20 16 Target 375 11 386 Min 375 11 386 2015 Target 750 19 769 Actual Grant 2016 Payout1 2015 2016 750 19 769 375 11 386 750 750 1,125 889 758 889 750 750 1,125 870 859 870 750 375 563 375 870 375 7 750 – 750 – – – – – – 3,014 420 3,434 1,125 – 1,125 – – – – – – 889 – 889 – – – – – – 3,430 420 3,850 – 2,534 – – – – – – – – – – – – – – – – 750 750 – – – – – – – 750 750 – – – – – – – 4,056 274 4,330 1,653 420 2,073 3,002 348 3,350 3,002 418 3,420 752 418 1,170 4,127 418 4,545 3,362 418 3,780 3,019 283 3,302 1,511 368 1,879 386 368 754 2,075 368 2,443 1,511 368 1,879 764 420 1,184 4,139 420 4,559 Actual Grant 2016 750 2 752 870 870 – – – – – – – 750 15 765 954 954 – – – – – – – Actual Grant 2016 Max 750 2 752 1,125 1,125 Max 750 15 765 1,125 1,125 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 2,885 – – – – – – 1,584 593 6,673 348 7,021 3,156 – – – – – – – – 1,155 2,777 418 3,195 – – – – – – – – – – – – – – – – – 750 750 – – – – – – – 375 375 – – – – – – – 750 750 – – – – – – – 750 750 – – – – – – – Max 375 11 386 563 563 – – – – – – – Max 750 18 768 1,125 1,125 – – – – – – – 375 11 386 375 375 – – – – – – – 750 18 768 954 954 – – – – – – – Actual Grant 2016 – – – – – – – – – – – – – – – – – – – – 2,784 – – – – 1,520 876 719 – 7,538 283 7,821 375 7 375 7 1,018 – – – – – – 2,529 368 2,897 Payout1 2015 2016 750 19 769 750 18 768 3,066 – – – – 1,505 1,225 591 328 8,443 646 9,089 – – – – – – – – 1,083 2,805 661 3,466 3,016 282 3,298 3,015 479 3,494 765 479 1,244 4,140 479 4,619 3,628 479 4,107 4,883 282 5,165 1,719 479 2,198 3,019 646 3,665 3,018 661 3,679 768 661 1,429 4,143 661 4,804 3,631 661 4,292 7 Jay Ralph left Allianz on 30 June 2016. He received a pro-rated base salary and an amount of € 1,125 ThOU in lieu of his pro-rated 2016 annual bonus, MTB tranche and equity-related compensation (€ 375 ThOU each) which was paid in August 2016. According to his separation agreement, he received an amount of € 1,000 ThOU in return, specifically, for a non-poaching and non-competition agreement. Dr. Axel Theis (Appointed: 01/2015) Dr. Dieter Wemmer (Appointed: 01/2012) Dr. Werner Zedelius (Appointed: 01/2002) Grant 2016 Target 750 28 778 Min 750 28 778 Max 750 28 778 Actual Grant 2016 750 28 778 Payout1 2015 2016 750 27 777 750 28 778 Grant 2016 Target 750 15 765 Min 750 15 765 2015 Target 750 16 766 Payout1 2015 2016 750 16 766 750 15 765 Grant 20 16 Target 750 18 768 Min 750 18 768 2015 Target 750 19 769 1,125 973 956 973 750 750 1,125 954 961 954 750 750 1,125 954 959 954 – – – – – – – – – – – – – – – – – – – – – 750 – 750 – – – – – 3,014 274 3,288 2015 Target 750 27 777 750 750 – 750 – 750 – – – – – 3,027 397 3,424 750 – 750 – – – – – – 3,028 482 3,510 1,125 – 1,125 – – – – – – 973 – 973 – – – – – – 3,697 482 4,179 – 956 – – – – – – – 2,689 397 3,086 – – – – – – – – – 1,751 482 2,233 750 750 – – – – – – – 750 750 – – – – – – – 778 482 1,260 4,153 482 4,635 1 2 3 4 5 In accordance with the German Corporate Governance Code, the annual bonus disclosed for perfor- mance year 2016 is paid in 2017 and for performance year 2015 in 2016. The payments for equity related deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment was made. The MTB figure included in the “Actual Grant” column shows the annual accrual. The payout 2015 figure includes the 2015 allocation and the accruals from the performance years 2013 and 2014, as adjusted by the sustainability assessment. The MTB 2013 – 2015 was paid out in spring 2016. Payout is capped at 200 % above grant price. The relevant share price used to determine the fair market value, and hence the final number of RSUs granted, and the 200 % cap are only available after sign-off by the external auditors. The equity-related remuneration that applied before 2010 consisted of two vehicles, virtual stock awards known as RSUs and virtual stock options known as “Stock Appreciation Rights” (SAR). Only RSUs have been awarded as of 1 January 2010. 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. 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. 6 38 Annual Report 2016 Allianz SE Dr. Helga Jung (Appointed: 01/2012) Dr. Christof Mascher (Appointed: 09/2009) Jay Ralph7 (Appointed: 01/2010; End of service: 06/2016) Grant 2016 Min 750 14 764 Actual Grant 2016 Payout1 2015 2016 750 14 764 750 14 764 Grant 2016 Target 750 2 752 Min 750 2 752 Max 750 2 752 2015 Target 750 2 752 Actual Grant 2016 750 2 752 Payout1 2015 2016 750 2 752 750 2 752 Grant 20 16 Target 375 11 386 Min 375 11 386 Max 375 11 386 2015 Target 750 19 769 Actual Grant 2016 375 11 386 Payout1 2015 2016 750 19 769 375 11 386 B Management Report of Allianz SE 750 750 1,125 889 758 889 750 750 – 750 – 750 – – – – – 750 – 750 – – – – – – – – – – – – – – – – 1,125 – 1,125 – – – – – – 870 – 870 – – – – – – 1,125 870 859 870 750 375 563 375 870 375 7 – 2,885 – – – 1,584 593 – – 6,673 348 7,021 – – – – 1,155 – – – – 2,777 418 3,195 – 750 – 750 – – – – – 375 – 375 – – – – – – – – – – – – – – – – 563 – 563 – – – – – – 375 – 375 – – – – – – – 2,784 – – – 1,520 876 719 – 7,538 283 7,821 375 7 – 375 7 – 1,018 – – – – 2,529 368 2,897 764 420 1,184 4,139 420 4,559 3,430 420 3,850 4,056 274 4,330 1,653 420 2,073 3,002 348 3,350 3,002 418 3,420 752 418 1,170 4,127 418 4,545 3,362 418 3,780 3,019 283 3,302 1,511 368 1,879 386 368 754 2,075 368 2,443 1,511 368 1,879 Dr. Axel Theis (Appointed: 01/2015) Dr. Dieter Wemmer (Appointed: 01/2012) Dr. Werner Zedelius (Appointed: 01/2002) Actual Grant 2016 Payout1 2015 2016 Grant 2016 Min 750 28 778 Grant 2016 Target 750 15 765 Min 750 15 765 Max 750 15 765 2015 Target 750 16 766 Actual Grant 2016 750 15 765 Payout1 2015 2016 750 16 766 750 15 765 Grant 20 16 Target 750 18 768 Min 750 18 768 Max 750 18 768 2015 Target 750 19 769 Actual Grant 2016 750 18 768 Payout1 2015 2016 750 19 769 750 18 768 IndIvIdual rEmunEratIon: 2016 and 2015 € Thou (total might not sum up due to rounding) Base Salary Perquisites Total fixed compensation Annual Variable Compensation Annual Bonus Deferred Compensation MTB (2016 – 2018)2 MTB (2013 – 2015)3 AEI 2017/RSu4 AEI 2016/RSu4 AEI 2012/RSu4 AEI 2011/RSu4 GEI 2010/RSu4 GEI 2010/SAR5 GEI 2008/SAR5 Total Total Pensions Service Cost6 Base Salary Perquisites Total fixed compensation Annual Variable Compensation Annual Bonus Deferred Compensation MTB (2016 – 2018)2 MTB (2013 – 2015)3 AEI 2017/RSu4 AEI 2016/RSu4 AEI 2012/RSu4 AEI 2011/RSu4 GEI 2010/RSu4 GEI 2010/SAR5 GEI 2008/SAR5 Total Total Pensions Service Cost6 2015 Target 750 14 764 750 750 – – – – – – – 3,014 274 3,288 2015 Target 750 27 777 750 750 – – – – – – – 3,027 397 3,424 Target 750 14 764 750 750 – – – – – – – 3,014 420 3,434 Target 750 28 778 750 750 – – – – – – – 3,028 482 3,510 Max 750 14 764 1,125 1,125 Max 750 28 778 1,125 1,125 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 750 14 764 889 889 – – – – – – – 750 28 778 973 973 – – – – – – – 2,534 – – – – – – – – 750 27 777 956 – – – – – – – – – – – – – – – – – – – – – – – – – – 750 28 778 750 750 1,125 973 956 973 750 750 – 750 – 750 – – – – – 750 – 750 – – – – – – – – – – – – – – – – 1,125 954 961 954 750 750 1,125 – 1,125 – – – – – – 954 – 954 – – – – – – – 3,156 – – – – – – – – – – – – – – – – – 750 – 750 – – – – – 750 – 750 – – – – – – – – – – – – – – – – 1,125 – 1,125 – – – – – – 954 – 954 – – – – – – 1,125 954 959 954 was made. 2 3 1 In accordance with the German Corporate Governance Code, the annual bonus disclosed for perfor- Annual Report 2009 (starting on page 17). Whereas the GEI/RSU grants are automatically exercised at the mance year 2016 is paid in 2017 and for performance year 2015 in 2016. The payments for equity related vesting date, the GEI/SAR grants are exercised by the Board member within the exercise period following deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment 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 The MTB figure included in the “Actual Grant” column shows the annual accrual. exercise hurdles are met. For SARs granted until and including 2008, the vesting period was two years and The payout 2015 figure includes the 2015 allocation and the accruals from the performance years 2013 the exercise period five years. SARs can be exercised on the condition that the price of the Allianz SE stock and 2014, as adjusted by the sustainability assessment. The MTB 2013 – 2015 was paid out in spring 2016. is at least 20 % above the strike price at the time of grant. During the term of the plan, at least once on five 4 Payout is capped at 200 % above grant price. The relevant share price used to determine the fair market consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points value, and hence the final number of RSUs granted, and the 200 % cap are only available after sign-off by ahead of the appreciation of the Dow Jones EURO STOXX Price Index (600). the external auditors. 6 Pension Service Cost in accordance with IAS 19: represents the company cost not the actual entitlement 5 The equity-related remuneration that applied before 2010 consisted of two vehicles, virtual stock awards nor a payment, however, according to the German Corporate Governance Code the Pension Service Cost known as RSUs and virtual stock options known as “Stock Appreciation Rights” (SAR). Only RSUs have been is to be included in all columns. awarded as of 1 January 2010. The remuneration system valid until December 2009 is disclosed in the 778 482 1,260 4,153 482 4,635 3,697 482 4,179 2,689 397 3,086 1,751 482 2,233 3,016 282 3,298 3,015 479 3,494 765 479 1,244 4,140 479 4,619 3,628 479 4,107 4,883 282 5,165 1,719 479 2,198 3,019 646 3,665 3,018 661 3,679 768 661 1,429 4,143 661 4,804 3,631 661 4,292 7 Jay Ralph left Allianz on 30 June 2016. He received a pro-rated base salary and an amount of € 1,125 ThOU in lieu of his pro-rated 2016 annual bonus, MTB tranche and equity-related compensation (€ 375 ThOU each) which was paid in August 2016. According to his separation agreement, he received an amount of € 1,000 ThOU in return, specifically, for a non-poaching and non-competition agreement. – 3,066 – – – 1,505 1,225 591 328 8,443 646 9,089 – – – – 1,083 – – – – 2,805 661 3,466 Annual Report 2016 Allianz SE 39 B Management Report of Allianz SE IndIvIdual rEmunEratIon: 2016 and 2015 € Thou (total might not sum up due to rounding) Base Salary Perquisites Total fixed compensation Annual Variable Compensation Annual Bonus Deferred Compensation MTB (2016 – 2018)2 MTB (2013 – 2015)3 AEI 2017/RSu4 AEI 2016/RSu4 AEI 2012/RSu4 AEI 2011/RSu4 GEI 2010/RSu4 GEI 2010/SAR5 GEI 2008/SAR5 Total Pensions Service Cost6 Total Dr. Maximilian Zimmerer7 (Appointed: 06/12; End of service: 12/2016) 2015 Target 750 16 766 Grant 2016 Target 750 16 766 Min 750 16 766 Max 750 16 766 Actual Grant 2016 750 16 766 Payout1 2015 2016 750 16 766 750 16 766 1,125 983 940 983 750 750 – 750 – 750 – – – – – 3,016 386 3,402 750 – 750 – – – – – – 3,016 786 3,802 – – – – – – – – – – 1,125 – 1,125 – – – – – – 766 786 1,552 4,141 786 4,927 983 – 983 – – – – – – 3,714 786 4,500 – 2,993 – – – – – – – – – – – – – – – – 4,699 386 5,085 1,749 786 2,535 1 2 3 4 5 In accordance with the German Corporate Governance Code, the annual bonus disclosed for perfor- mance year 2016 is paid in 2017 and for performance year 2015 in 2016. The payments for equity related deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment was made. The MTB figure included in the “Actual Grant” column shows the annual accrual. The payout 2015 figure includes the 2015 allocation and the accruals from the performance years 2013 and 2014, as adjusted by the sustainability assessment. The MTB 2013 – 2015 was paid out in spring 2016. Payout is capped at 200 % above grant price. The relevant share price used to determine the fair market value, and hence the final number of RSUs granted, and the 200 % cap are only available after sign-off by the external auditors. The equity-related remuneration that applied before 2010 consisted of two vehicles, virtual stock awards known as RSUs and virtual stock options known as “Stock Appreciation Rights” (SAR). Only RSUs have been awarded as of 1 January 2010. 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. 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 left the Allianz SE Board of Management upon his retirement effective 31 Decem- ber 2016. According to his contract, he receives a transition payment of € 937.5 ThOU. The payment is calculated based on the latest base salary, which is paid for a further six months starting 1 July 2017, and a final lump-sum payment of 25 % of the target variable remuneration. The payable pension takes into account the monthly payments over the six-month period. The lump-sum payment will be paid in spring 2018. 6 7 40 Annual Report 2016 Allianz SE B Management Report of Allianz SE The sum of the total remuneration of the Board of Management for 2016, excluding the notional accruals of the MTB 2016 – 2018 and excluding the pension service cost, amounts to € 26 MN1 (2015, includ- ing the payout of the MTB 2013 – 2015: € 57 MN). The corresponding amount, including pension service cost, equals € 30 MN (2015, includ- ing the payout of the MTB 2013 – 2015: € 61 MN). EQUITY-RELATED REMUNERATION In accordance with the approach described earlier, a number of RSus were granted to each member of the Board of Management in March 2017, which will vest and be settled in 2021. GERMAN ACCOUNTING STANDARD 17 DISCLOSURE The total remuneration to be disclosed for 2016 in accordance with German Accounting Standard 17 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 2016 – 2018. The figures for 2015 (in parentheses) include the payout of the MTB 2013 – 2015. Both figures exclude the pension service cost: Oliver Bäte € 4,103 (7,046) Thou, Sergio Balbinot € 2,747 (3,780) Thou, Jacqueline Hunt € 1,423 (–) Thou, Dr. Helga Jung € 2,542 (4,813) Thou, Dr. Christof Mascher € 2,492 (5,356) Thou, Jay Ralph € 1,5111 (5,293) Thou, Dr. Axel Theis € 2,724 (3,644) Thou, Dr. Dieter Wemmer € 2,674 (5,844) Thou, Dr. Werner Zedelius € 2,677 (5,753) Thou, Dr. Maximilian Zimmerer € 2,731 (5,638) Thou. GrantS and outStandInG holdInGS undEr thE allIanz EquIty proGram Board members Oliver Bäte Sergio Balbinot Jacqueline Hunt Dr. Helga Jung Dr. Christof Mascher Jay Ralph Dr. Axel Theis Dr. Dieter Wemmer Dr. Werner Zedelius Dr. Maximilian Zimmerer Total RSu Number of RSu granted on 3 March 20171 11,515 7,677 3,565 6,944 6,798 – 7,604 7,457 7,457 7,677 Number of RSu held at 31 December 20161 Number of SAR held at 31 December 2016 SAR 40,671 34,120 – 31,997 33,885 35,681 24,366 37,688 36,582 33,420 – – – 3,167 7,892 – – – – – 66,694 308,410 11,059 Strike Price € – – – 87.36 87.36 – – – – – – 1 The relevant share price used to determine the fair market value, and hence 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 2015, the equity-related grant in 2016 was made to participants as part of their 2015 remuneration. The disclosure in the Annual Report 2015 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 4 March 2016 under the Allianz Equity Incen- tive are as follows: Oliver Bäte: 11,733, Sergio Balbinot: 9,300, Dr. Helga Jung: 7,053, Dr. Christof Mascher: 7,999, Jay Ralph: 8,098, Dr. Axel Theis: 8,896, Dr. Dieter Wemmer: 8,948, Dr. Werner Zedelius: 8,926, Dr. Maximilian Zimmerer: 8,746. 1 Including the payout of Jay Ralph’s MTB tranche for 2016 of € 375 ThOU. Annual Report 2016 Allianz SE 41 B Management Report of Allianz SE PENSIONS Company contributions for the current pension plan are set at 50 % of the base salary reduced by the cover for disability and death. They are invested in a fund and have a guarantee for the contributions paid, but no further interest guarantee (for members of the Board of Manage- ment who were born before 1 January 1958, the guaranteed minimum interest rate remains at 2.75 % p.a.). For members with pension rights in the frozen defined benefit plan, the above contribution rates are reduced by 19 % of the expected annual pension from that frozen plan. The Allianz Group paid € 5 MN (2015: € 4 MN) to increase reserves for pensions and similar benefits for active members of the Board of Management. As of 31 December 2016, reserves for pensions and similar benefits for active members of the Board of Management amounted to € 44 MN (2015: € 38 MN). IndIvIdual pEnSIonS: 2016 and 2015 € Thou Defined benefit pension plan (frozen) Contribution- based pension plan (frozen)1 Current pension plan AVK/APV2 Transition payment3 Total Board of Management Oliver Bäte (Chairman since 7 May 2015) Sergio Balbinot Jacqueline Hunt Dr. Helga Jung Dr. Christof Mascher Jay Ralph7 Dr. Axel Theis Dr. Dieter Wemmer Dr. Werner Zedelius Dr. Maximilian Zimmerer 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Annual pension payment4 – – – – – – 62 62 – – – – 120 120 – – 225 225 141 161 SC 5 DBo 6 SC 5 DBo 6 SC 5 DBo 6 SC 5 DBo 6 SC 5 DBo 6 SC 5 DBo 6 – – – – – – 54 56 – – – – 107 110 – – 207 213 146 150 – – – – – – 1,347 1,187 – – – – 3,422 3,085 – – 6,385 5,751 4,078 3,897 33 283 5 219 – – 12 210 12 280 8 278 6 199 477 278 431 398 5 191 3,063 2,916 39 243 – – 1,813 1,800 3,115 3,016 – 1,860 2,528 2,450 1,832 1,181 5,090 4,151 2,783 2,672 536 – 357 – 159 – 345 – 357 – 357 – 334 – – – – – 818 – 582 – 159 – 558 – 637 – – – 535 – – – – – 327 – 519 – 5 6 2 2 – – 8 8 5 5 3 5 9 10 2 4 9 9 9 9 36 31 4 2 – – 159 147 42 37 – 23 233 214 10 8 222 203 214 196 51 194 594 495 – 1 – – – – 43 63 – – 25 78 – – 14 26 300 36 1 1 – – – – 583 508 – 1 774 722 – 1 678 641 938 656 625 483 365 222 159 – 420 274 418 348 368 283 482 397 479 282 661 646 786 386 4,511 3,442 626 246 159 – 3,878 3,134 4,377 3,562 – 1,884 7,493 6,471 1,842 1,190 12,375 10,746 8,532 7,422 1 2 3 The service cost of the frozen contribution-based pension plan reflects the continued death and disability cover. 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. 4 5 6 7 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. As Jay Ralph left Allianz on 1 July 2016, his employer-financed DBO of € 2,437 ThOU (thereof € 1,755 ThOU for the frozen DB-Pension-Plan, € 636 ThOU for the contribution based pension plan and € 25 ThOU for the Current Pension Plan, AVK/APV) is covered under former Board members. In 2016, remuneration and other benefits totaling € 7 MN (2015: € 7 MN)1 were paid to former members of the Board of Management and dependents, while reserves for current pension obligations and accrued pension rights totaled € 119 MN (2015: € 116 MN). LOANS TO MEMBERS OF THE BOARD OF MANAGEMENT As of 31 December 2016, 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. 1 The 2015 amount includes bonus payments made to Clement Booth in 2015 which were already shown as variable compensation for 2014. The amount shown for 2016 excludes compensation that was paid for active Board membership and disclosed as compensation of the respective performance year. Arrangements for termination of service including retirement are as follows: 1. Board members who were appointed before 1 January 2010 – and who have served a term of at least five years – are eligible for a six- month transition payment after leaving the Board of Management. 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. Contracts do not contain provisions for any other cases of early ter- mination from the Board of Management. 42 Annual Report 2016 Allianz SE B Management Report of Allianz SE Board members who were appointed before 1 January 2011 are eligible to use a company car for a period of one year after their retire- ment. OUTLOOK FOR 2017 The remuneration of the new regular member of the Board of Manage ment, Dr. Günther Thallinger, has been set at the same level as for the other regular members of the Board of Management. 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- month non-compete clause. The payment is calculated based on the last base salary (paid for a period of six months) and 25 % of the target variable remuneration at the date when notice is given. A Board member with a base salary of € 750 Thou would receive a maximum of € 937.5 Thou. Where an Allianz pension is immediately payable, transition payment amounts are set off accordingly. 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. Whereby the annual compensation: 1. is calculated on the basis of the previous year’s annual base sala- ry plus 50 % of the target variable remuneration (annual bonus, accrued MTB and equity-related remuneration: For a Board mem- ber with a fixed base salary of € 750 Thou, the annual compensa- tion 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. If the remaining term of contract is less than two years, the payment is pro-rated 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). MISCELLANEOUS 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 non-executive supervisory roles in appropriate external organizations. In these cases, 50 % of the remuneration received is paid to Allianz SE. A Board member retains the full remu- neration only when the Supervisory Board qualifies the appointment as a personal one. Remuneration paid by external organizations is shown in the annual reports of the companies concerned. The remu- neration relating to the external appointment is set by the governing body of the relevant organization. Remuneration of the Supervisory Board 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 com- pany’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, vice chair or committee mandates. − Set a remuneration structure to allow for proper oversight of busi- ness 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 2015, a regular Supervisory Board member receives a fixed remuneration of € 100 Thou per year. Each Vice Chairperson receives € 150 Thou and the Chairperson € 200 Thou. COMMITTEE-RELATED REMUNERATION The Chairperson and members of the Supervisory Board committees receive additional committee-related remuneration. The committee- related remuneration is as follows: CommIttEE-rElatEd rEmunEratIon € Thou Committee Personnel Committee, Standing Committee, Risk Committee Audit Committee Chair Member 40 80 20 40 ATTENDANCE FEES AND EXPENSES In addition to the fixed and committee-related 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 out-of-pocket expenses and the VAT payable on their Supervisory Board activity. For the performance of Annual Report 2016 Allianz SE 43 B Management Report of Allianz SE his duties, the Chairman of the Supervisory Board is furthermore entitled to an office with secretarial support and use of the Allianz carpool service. In the financial year 2016, Allianz SE reimbursed expenses totaling € 51,935. REMUNERATION FOR 2016 The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2,025 Thou in 2016 (2015: € 2,021 Thou). The following table shows the individual remuneration for 2016 and 2015: IndIvIdual rEmunEratIon: 2016 and 2015 € Thou (total might not sum up due to rounding) Members 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 Dr. Friedrich Eichiner2 Ira Gloe-Semler3 Martina Grundler4 Prof. Dr. Renate Köcher Jürgen Lawrenz5 Jim Hagemann Snabe Peter Denis Sutherland6 Total7 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 M A M M C C M M M M M M M N C C M 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 66.6 – 25.0 100.0 75.0 – 100.0 100.0 100.0 41.7 100.0 100.0 41.6 100.0 160.0 160.0 100.0 100.0 40.0 40.0 20.0 20.0 40.0 40.0 20.0 20.0 40.0 40.0 13.3 – 10.0 40.0 26.6 – 20.0 20.0 20.0 8.3 40.0 40.0 8.3 20.0 6.7 6.7 4.5 4.5 4.5 5.2 4.5 4.5 4.5 5.2 4.5 4.5 6.0 6.0 2.2 – 1.5 6.0 4.5 – 3.7 4.5 4.5 2.2 5.2 5.2 1.5 3.7 366.7 366.7 254.5 254.5 194.5 195.2 124.5 124.5 144.5 145.2 124.5 124.5 146.0 146.0 82.1 – 36.5 146.0 106.1 – 123.7 124.5 124.5 52.2 145.2 145.2 51.4 123.7 1,408.2 1,400.0 558.2 560.0 58.5 60.7 2,025.2 2,020.7 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Legend: C = Chairperson of the respective committee, M = Member of the respective committee 1 2 3 4 Abbreviations: A – Audit, N – Nomination, P – Personnel, R – Risk, S – Standing. Since 4 May 2016. Until 31 March 2016. Since 1 April 2016. 5 6 7 Since 1 August 2015. Until 4 May 2016. The total reflects the remuneration of the full Supervisory Board in the respective year. REMUNERATION FOR MANDATES IN OTHER ALLIANZ COMPANIES AND FOR OTHER FUNCTIONS As remuneration for her membership in the Supervisory Board of Allianz Deutschland AG Ms. Gabriele Burkhardt-Berg received € 20.9 Thou for the financial year 2016. Mr. Jürgen Lawrenz did not receive a separate remuneration for his membership in the Super- visory Board of Allianz Managed Operations & Services SE. All current employee representatives of the Supervisory Board except for Ms. Martina Grundler (until 31 March 2016 Ms. Ira Gloe-Semler) are employed by Allianz Group companies and receive a market-aligned remuneration for their services. LOANS TO MEMBERS OF THE SUPERVISORY BOARD As of 31 December 2016, 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. 44 Annual Report 2016 Allianz SE B Management Report of Allianz SE Other Information Our steering Our Corporate Responsibility approach BOARD OF MANAGEMENT AND ORGANIZATIONAL STRUCTURE Allianz SE has a divisional Board structure based on functional and business responsibilities. Business-related divisions reflect our busi- ness segments Property-Casualty, Life/Health, Asset Management, and Corporate and Other, and in 2016 were overseen by five Board members. The remaining four divisions (i.e. Chairman of the Board of Management, Finance, Investments, and Operations) focus on Group functions, along with business-related responsibilities. For further information on Board of Management members and their responsibilities, please refer to Mandates of the Members of the Board of Management on page 8. As an international financial services company, we find it vital to ensure that our growth is both sustainable and profitable. We want to create long-term value by strategically embedding sustainability in our core business and by enabling our customers to address tomorrow’s challenges. This requires us to continually adapt our business strategy in response to our stakeholders’ and working part- ners’ needs, to the most pressing sustainability issues, and to the activities of national and international sustainability bodies and ini- tiatives, in order to deliver on global commitments such as the United Nations Sustainable Development Goals. Our Corporate Responsibility Strategy contributes to our Renewal Agenda and focuses on our most material sustainability issues: Low-carbon economy: supporting renewable energy and decarbon- ization through our investments; providing green insurance solutions; reducing our environmental footprint. Social inclusion: supporting the social inclusion of children and youth through our Future Generations program; developing solutions for customers in emerging markets; promoting diversity and wellbeing among our employees. Business integrity: integrating environmental, social and governance (ESG) issues across our investment and insurance businesses; building trust through transparency, responsible sales, and data privacy. In 2016, we surveyed over 6,000 stakeholders to identify our most material issues as well as the relative importance of the solutions we provide. The results show that the most important megatrends and risks Allianz faces across those target groups and countries surveyed are climate change & environment, personal customer safety, digita- lization, societal change, and fiscal crisis. We will continue to integrate our stakeholders’ views in both our sustainability strategy and our reporting approach. For reporting purposes, we organize our approach around Allianz’s five key roles as sustainable insurer, responsible investor, trusted company, attractive employer, and committed corporate citizen. Please refer to our 2016 Group Sustainability Report (to be published on 5 April 2017) for full details of our corporate responsi- www.allianz.com/ bility strategy, approach and performance: sustainability. TARGET SETTING AND MONITORING The Allianz Group steers its operating entities and business seg- ments via an integrated management and control process. It begins with the definition of a business-specific strategy and goals, which are discussed and agreed upon between the Holding and operating entities. Based on this strategy, our operating entities prepare three- year plans which are then aggregated to form the financial plans for the business divisions and for the Allianz Group as a whole. This plan also forms the basis for our capital management. The Supervisory Board approves the plan and sets corresponding targets for the Board of Management. The performance-based remuneration of the Board of Management is linked to short-term, mid-term, and long-term tar- gets to ensure effectiveness and emphasize sustainability. For further details about our remuneration structure, including target setting and performance assessment, please refer to the Remuneration Report starting on page 34. We continuously monitor our business performance against these targets through monthly reviews – which cover key operational and financial metrics – to ensure we can move quickly and take appropriate measures in the event of negative developments. The Allianz Group uses operating profit and net income as key financial performance indicators across all its business segments. Other indi- cators include segment-specific figures, such as the combined ratio for Property-Casualty, return on equity1 for Life/Health, and the cost- income ratio for Asset Management. To steer and control new busi- ness in our business segments Property-Casualty and Life/Health, we use Return on Risk Capital (RoRC). Besides performance steering, we also have a risk steering process in place, which is described in the Risk and Opportunity Report starting on page 19. Non-financial key performance indicators (KPIs) are mainly used for the sustainability assessment that we conduct when determining mid-term bonus levels. In line with our Renewal Agenda, KPIs mainly represent three key levers: True Customer Centricity, Digital by Default, and Inclusive Meritocracy. Examples include the Allianz Engagement Survey and Net Promoter Score (NPS2) results, diversity development, and the share of digital retail products/digital client communication. 1 2 Excluding unrealized gains/losses on bonds net of shadow accounting. NPS is a measurement of customers’ willingness to recommend Allianz. Top-down NPS is measured regularly according to global cross industry standards and allows benchmarking against competitors in the respective markets. Annual Report 2016 Allianz SE 45 B Management Report of Allianz SE Branches In 2016, Allianz SE operated its reinsurance business from Munich and from branch offices in Singapore, Labuan (Malaysia), Wallisellen (Suisse) and Dublin (Ireland). Takeover-related statements and explanations The following information is given pursuant to § 289 (4) of the German Commercial Code (“Handelsgesetzbuch – HGB”) and § 176 (1) of the German Stock Company Act (“Aktiengesetz – AktG”). COMPOSITION OF SHARE CAPITAL As of 31 December 2016, 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. An approval duly applied for may only be withheld if it is deemed neces- sary in the company’s interest on exceptional grounds. The applicant will be informed of the reasons. Shares acquired by employees of the Allianz Group as part of the Employee Stock Purchase Plan are, in principle, subject to a one-year lock-up period. Outside Germany, the lock-up period may in some cases be up to five years. In some countries, in order to ensure that the lock-up period is observed, the employee shares are held throughout that period by a bank, another natural person or a legal entity acting as a trustee. Nevertheless, employees may instruct the trustee to exer- cise voting rights, or have power of attorney granted to them to exer- cise such voting rights. Lock-up periods contribute to the Employee Stock Purchase Plan’s aims of committing employees to the company and letting them benefit from the performance of the share price. INTERESTS IN THE SHARE CAPITAL EXCEEDING 10 % OF THE VOTING RIGHTS We are not aware of any direct or indirect interests in the share capital of Allianz SE that exceed 10 % of the voting rights. 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 (Articles 9 (1), 39 (2) and 46 of the SE Regulation, §§ 84, 85 AktG and § 5 (3) of the Statutes). Reappointments, for a maximum of five years each, are permitted. A simple majority of the votes cast in the Supervisory Board is required to appoint members of the Board of Management. In the case of a tie vote, the Chairperson of the Supervisory Board, who pursuant to Article 42 of the SE Regulation must be a shareholder representative, shall have the casting vote (§ 8 (3) of the Statutes). If the Chairperson does not participate in the vote the Vice Chairperson shall have the casting vote, provided he or she is a shareholder representative. A Vice Chairperson who is an employee representative has no casting vote (§ 8 (3) of the Statutes). If a required member of the Board of Man- agement is missing, in urgent cases the courts must appoint such member upon the application of an interested party (§ 85 AktG). The Supervisory Board may dismiss members of the Board of Manage- ment if there is an important reason (§ 84 (3) AktG). According to § 5 (1) of the Statutes, the Board of Management shall consist of at least two persons. Apart from that, the Supervisory Board determines the number of members. The Supervisory Board has appointed a Chairman of the Board of Management pursuant to § 84 (2) AktG. German insurance supervisory law requires that members of the Board of Management have the reliability and professional compe- tence 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 (§ 24 (3) of the German Insurance Supervision Act (“Versicherungsaufsichts gesetz – VAG”)). The Federal Financial Services Supervisory Authority (“Bundes anstalt für Finanz dienst leistungsaufsicht – BaFin”) must be notified about the intention of appointing a Board of Management member pursuant to § 47 No. 1 VAG. Amendments to the Statutes must be adopted by the General Meeting. § 13 (4) of the Statutes of Allianz SE stipulates that, unless this conflicts with mandatory law, changes to the Statutes require a 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 Sta- tutes thereby make use of the option set out in § 51 of the SE Imple- mentation Act (“SE-Ausführungsgesetz – SEAG”), which is based upon Article 59 (1) and (2) of the SE Regulation. A larger majority is required, inter alia, for a change in the corporate object or the relocation of the registered office to another E.U. member state (§ 51 SEAG). The Super- visory Board may alter the wording of the Statutes (§ 179 (1) AktG 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 Man- agement may exclude the shareholders’ subscription rights for these shares with the consent of the Supervisory Board, (i) for fractional amounts, (ii) in order to safeguard the rights pertaining to holders of convertible bonds or bonds with warrants, including mandatory convertible bonds, and (iii) in the event of a capital increase of up to 10 %, if the issue price of the new shares is not significantly below the stock market price. The Board of Manage- ment may furthermore exclude the shareholders’ subscription 46 Annual Report 2016 Allianz SE B Management Report of Allianz SE rights with the consent of the Supervisory Board, in the event of a capital increase against contributions in kind. venture or the target company, if there is a change of control of the other party. − Up to a total of € 13,720,000 (Authorized Capital 2014/II). The share- holders’ subscription rights can be excluded in order to issue the new shares to employees of Allianz SE and its Group companies as well as for fractional amounts. − The framework agreements between Allianz SE and the subsi- diaries of various car manufacturers relating to the distribution of car insurance by the respective car manufacturers each include a clause under which each party has an extraordinary termina- tion right in case there is a change of control of the other party. 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 are exercised (or conversion obligations fulfilled) resulting from bonds that have been issued by Allianz SE or its sub- sidiaries based on the authorizations granted by the General Meeting on 5 May 2010 and 7 May 2014. 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 AktG). Together with other treasury shares that are held by Allianz SE, or which are attribut- able to it under §§ 71a et seq. AktG, 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’ sub- scription rights, for any legally admissible purposes, and in particular 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 purchases 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) AktG) 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. AktG, 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 termina- tion right if and when the counterparty 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. − Allianz SE is also party to various bancassurance distribution agreements for insurance products in various regions. These dis- tribution agreements normally include a clause under which the parties have an extraordinary termination right in case there is a change of control of the other party’s ultimate holding company. − Shareholder agreements and joint ventures to which Allianz SE is a party often contain change-of-control clauses that provide, as the case may be, for the termination of the agreement, or for put or call rights that one party can exercise with regard to the joint − 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 certain 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 Management Board member resigns because his or her responsibi- lities as a Board member are significantly reduced through no fault of the Board member, he or she shall receive his or her contractual remuneration for the remaining term of the service contract, but lim- ited, 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 comes to an end and is not extended; the one-off payment will then be granted for the period between the end of the mandate and the end of the three-year period after the change of control. For further details, please refer to the Remuneration Report starting on page 34. 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 who do not belong to the Allianz Group and which provide for an exception from the usual vesting and exercise periods. The RSU will be released, in line with their general conditions, by the company for the relevant plan participants on the day of the change of control without observing any vesting period that would otherwise apply. The cash amount payable per RSU must equal the average market value of the Allianz share and be equal to or above the price offered per Allianz share in a preceding tender offer. In case of a change of control Annual Report 2016 Allianz SE 47 B Management Report of Allianz SE as described above, SAR will be exercised, in line with their general conditions, by the company for the relevant plan participants on the day of the change of control, without observing any vesting period. By providing for the non-application of the vesting period in the event of a change of control, the terms take into account the fact that the con- ditions under which the share price moves are very different when there is a change of control. Controls over Financial Reporting The following information is given pursuant to § 289 (5) of the German Commercial Code. 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 financial state- ments (this also includes market value balance sheet and risk capital controls). Our internal control system over financial reporting (ICOFR) is based on the revised framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013, and is regularly reviewed and updated. Our approach 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 compliance programs, or a committee governance structure. In the ITGC framework we have implemented, for example, controls for access-rights management and for project and change manage- ment. ACCOUNTING PROCESSES The accounting processes we use to produce our financial statement are based on a group-wide IT solution and a local general ledger. Access rights to the accounting system are managed according to strict authorization procedures. Internal controls are embedded in the accounting processes to safeguard the accuracy, completeness, and consistency of the infor- mation provided in our financial statements. INTERNAL CONTROL SYSTEM APPROACH Our approach can be summarized as follows: − We use a top-down, risk based approach to determine the accounts that should fall under the scope of our internal control system over financial reporting. The methodology is described in the group-wide applicable ICOFR manual. During the scoping process, both materiality and susceptibility to a misstatement are considered simulta neously. The final results are documented in the list of significant accounts. In addition to the quantitative ICOFR calculation, we also consider qualitative criteria. − Then, we identify risks that could lead to material financial misstatements, including all relevant root causes (i.e. human processing errors, fraud, system shortcomings, external factors, etc.). After identifying and analyzing the risks, their potential impacts and probabilities of occurrence are evaluated. − Preventive and detective key controls over the financial reporting process have been put in place to reduce the likelihood and impact of financial misstatements. If a potential risk materia- lizes, actions are taken to reduce the impact of the financial mis- statement. Given the strong dependence of financial reporting processes on 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. Allianz Group set consistent documentation requirements for elements such as processes, related key controls, and execution. We conduct an annual assessment of our control system to maintain and con- tinuously enhance its effectiveness. Audit ensures that the over- all quality of our control system is subjected to regular control- testing, to assure reasonable design and operating effectiveness. 48 Annual Report 2016 Allianz SE Annual Report 2016 Allianz SE 49 FINANCIAL STATEMENTS OF ALLIANZ SECC Financial Statements of Allianz SE Financial Statements Balance Sheet € thou as of 31 December ASSEtS A. Intangible assets I. Self-produced industrial property rights and similar rights and assets II. Licenses acquired against payment, industrial property rights and similar rights and assets as well as licenses for such rights and assets III. Advance payments made B. Investments I. Real estate II. Investments in affiliated enterprises and participations III. Other investments IV. Funds held by others under reinsurance business assumed C. Receivables I. Accounts receivable on reinsurance business thereof from affiliated enterprises: € 217,820 thou (2015: € 295,293 thou) thereof from participations1: € 1,756 thou (2015: € 5,630 thou) Note 2016 2016 2015 1, 2 1, 3 – 5 17,623 2,928 – 250,343 71,354,121 33,446,657 8,028,086 20,551 5,842 7,038 5,800 18,680 254,389 73,711,243 27,726,413 6,094,716 113,079,207 107,786,761 450,606 495,670 II. Other receivables 6 5,022,127 4,794,374 thereof from affiliated enterprises: € 4,325,105 thou (2015: € 4,206,194 thou) thereof from participations1: € 2,807 thou (2015: € 584 thou) D. Other assets I. Tangible fixed assets and inventories II. Cash with banks, checks and cash on hand III. Miscellaneous assets E. Deferred charges and prepaid expenses I. Accrued interests and rent II. Other deferred charges and prepaid expenses Total assets 1 Companies in which we hold a participating interest. 7 8 15,632 49,528 227,014 474,724 140,532 5,472,733 5,290,044 12,438 350,371 427,924 790,733 289,692 133,756 423,448 292,174 615,256 119,479,921 114,309,666 50 Annual Report 2016 Allianz SE C Financial Statements of Allianz SE Note 2016 2016 2016 2015 10 1,169,920 4,945 1,164,975 27,844,664 11,784,157 3,855,866 1,560,400 787,511 9,741,721 33,947 2,315,370 32,260 1,229 11,782,928 1,642,350 81,950 814,245 26,734 11,683,973 1,942,252 33,968 21 32,260 – 1,169,920 5,570 1,164,350 27,799,741 1,229 11,783,945 11,785,174 4,228,626 44,649,662 44,977,891 13,806,280 12,339,743 1,226,423 65,920 1,160,503 1,746,057 32,723 1,713,334 9,420,326 970,320 8,450,006 20,916 26 20,890 1,787,813 34,958 (95) 35,053 14,471,209 13,167,599 7,369,141 1,075,022 7,500,216 63,416 410,563 231,551 2,575,931 3,257,608 397,574 34,717,195 1,344,406 31,415,685 38,101,263 36,249,250 7,344 11,551 119,479,921 114,309,666 11, 14 12 13 14 14 14 € thou as of 31 December Equity And LiAbiLitiES A. Shareholders’ equity I. Issued capital Less: mathematical value of own shares II. Additional paid-in capital III. Revenue reserves 1. Statutory reserves 2. Other revenue reserves IV. Net earnings B. Subordinated liabilities C. Insurance reserves I. Unearned premiums 1. Gross 2. Less: amounts ceded II. Aggregate policy reserves 1. Gross 2. Less: amounts ceded III. Reserves for loss and loss adjustment expenses 1. Gross 2. Less: amounts ceded IV. Reserves for premium refunds 1. Gross 2. Less: amounts ceded V. Claims equalization and similar reserves VI. Other insurance reserves 1. Gross 2. Less: amounts ceded D. Other provisions E. Funds held with reinsurance business ceded F. Other liabilities I. Accounts payable on reinsurance business thereof to affiliated enterprises: € 269,609 thou (2015: € 135,928 thou) thereof to participations1: € 11,968 thou (2015: € 9,180 thou) II. Bonds thereof to affiliated enterprises: € 2,575,931 thou (2015: € 3,257,608 thou) III. Liabilities to banks IV. Miscellaneous liabilities including taxes of: € 21,626 thou (2015: € 10,956 thou) thereof to affiliated enterprises: € 33,429,044 thou (2015: € 29,752,397 thou) thereof to participations1: € 3 thou (2015: € 2 thou) G. Deferred income Total equity and liabilities 1 Companies in which we hold a participating interest. Annual Report 2016 Allianz SE 51 C Financial Statements of Allianz SE Income Statement € thou I. Technical account 1. Premiums earned (net) a) Gross premiums written b) Ceded premiums written c) Change in gross unearned premiums d) Change in ceded unearned premiums Premiums earned (net) 2. Allocated interest return (net) 3. Other underwriting income (net) 4. Loss and loss adjustment expenses (net) a) Claims paid aa) Gross bb) Amounts ceded in reinsurance b) Change in reserve for loss and loss adjustment expenses (net) aa) Gross bb) Amounts ceded in reinsurance Loss and loss adjustment expenses (net) 5. Change in other insurance reserves (net) 6. Expenses for premium refunds (net) 7. Underwriting expenses (net) 8. Other underwriting expenses (net) 9. Subtotal (Net underwriting result) 10. Change in claims equalization and similar reserves 11. Net technical result II. Non-technical account 1. Investment income 2. Investment expenses 3. Investment result 4. Allocated interest return 5. Other income 6. Other expenses 7. Other non-technical result 8. Non-technical result 9. Net operating income 10. Income taxes Amounts charged to other Group companies 11. Other taxes 12. Taxes 13. Net income 14. Unappropriated earnings carried forward 15. Net earnings 25 Note 2016 2016 2016 2015 16 10,820,290 (787,517) (425,198) 17,098 10,032,773 (408,100) 17 18 19 20 (4,504,389) (571,225) (2,164,929) 896,657 (5,075,614) (1,268,272) 21 22 5,084,886 (1,795,458) 3,289,428 (22,131) 2,718,536 (3,177,927) 9,624,673 21,025 72,789 8,328,023 (807,561) 7,520,462 (325,174) (11,991) (337,165) 7,183,297 58,631 434 (2,564,120) 305,455 (2,258,665) (2,628,164) (20,274) (2,648,438) (6,343,886) (4,907,103) 6,725 (13,244) (38,829) (4,584) (2,946,248) (2,064,964) (21,864) 399,970 (527,557) (127,587) 3,267,297 (3,021) 223,861 (192,720) 31,141 8,130,158 (2,121,314) 6,008,844 (59,706) 5,949,138 2,507,577 (5,289,676) 23 (459,391) (2,782,099) 24 (256,718) 522,931 266,213 1,082 2,807,906 2,680,319 267,295 3,167,039 3,198,180 (305,987) 663,974 357,987 (2,534) 355,453 2,947,614 3,553,633 908,252 674,993 3,855,866 4,228,626 52 Annual Report 2016 Allianz SE C Financial Statements of Allianz SE Notes to the Financial Statements Nature of operatioNs aNd Basis of preparatioN INVESTMENTS IN AFFILIATED ENTERPRISES AND PARTICIPATIONS NATURE OF OPERATIONS Allianz SE, as the holding and reinsurance company of the Allianz Group, is located at Königinstraße 28, 80802 Munich, and registered in the Commercial Register of the municipal court in Munich under HRB 164232. BASIS OF PREPARATION Our Financial Statements and the Management Report have been prepared in accordance with the regulations in the German Com- mercial Code (HGB), the German Stock Corporation Act (AktG), the Law on the Supervision of Insurance Enterprises (VAG) and the Go vernment Order on the External Accounting Requirements of Insurance Enterprises (RechVersV). All amounts in the financial statements are in thousands of Euros (€ THOU), unless otherwise stated. accouNtiNg, ValuatioN aNd calculatioN Methods INTANGIBLE ASSETS Intangible assets are recorded at acquisition or construction cost less depreciation. Internally generated intangible assets are capitalized and depreciated on a straight-line basis. In case of a permanent impairment, an unscheduled write-down is recognized. REAL ESTATE, REAL ESTATE RIGHTS AND BUILDINGS, IN- CLUDING BUILDINGS ON LAND NOT OWNED BY ALLIANZ SE These items are recorded at acquisition or construction cost less depreciation. Depreciation is measured according to ordinary useful life. In case of a permanent impairment, the values of these items are adjusted through unscheduled write-downs. SHARES IN AFFILIATED ENTERPRISES AND PARTICIPATIONS These are recorded at cost less impairments, in accordance with § 341b (1) of the German Commercial Code in conjunction with § 253 (3) sentence 5 of the German Commercial Code. Impairments are measured either as the difference between acquisition cost and the respective value, in accordance with IDW RS HFA 10 in conjunction with IDW S1, or as the difference between acqui- sition cost and the lower share price as of 31 December 2016. Where the market value at the balance sheet date was higher than the previous year’s valuation, the value is written up to no more than the historical acquisition cost. LOANS IN AFFILIATED ENTERPRISES AND PARTICIPATIONS These items are normally recorded at cost less impairments in accor- dance with § 253 (3) sentence 5 of the German Commercial Code. How- ever, when converting foreign currency loans into Euro at the report- ing date the strict lower of cost or market value principle is applied. OTHER INVESTMENTS STOCKS, INTERESTS IN FUNDS, DEBT SECURITIES AND OTHER FIXED AND VARIABLE INCOME SECURITIES, MISCELLANEOUS INVESTMENTS Generally, these items are valued in accordance with § 341b (2) of the German Commercial Code in conjunction with § 253 (1), (4) and (5) of the German Commercial Code using the acquisition cost or the lower stock exchange or market value on the balance sheet date. We calculate an average acquisition cost for securities of the same type acquired at different cost. Long-term investments in mutual funds are valued according to the regulations that apply to investments pursuant to § 341b (2) of the German Commercial Code in conjunction with § 253 (1) and (3) of the code using the moderate lower of cost or market value principle. REGISTERED BONDS, DEBENTURES AND LOANS These items are recorded at cost less impairments in accordance with § 253 (3) sentence 5 of the German Commercial Code. In accor- dance with § 341c of the code, amortized cost accounting is applied and the difference between acquisition cost and the redemption amount is amortized over the remaining period, based on the effective interest method. Annual Report 2016 Allianz SE 53 C Financial Statements of Allianz SE SECURITIES TO MEET LIABILITIES RESULTING FROM RETIREMENT PROVISION COMMITMENTS These securities are valued at fair value in accordance with § 253 (1) of the German Commercial Code, and offset against the liabilities in accordance with § 246 (2) of the code. Pension plan reinsurance con- tracts are recorded at asset value. TANGIBLE FIXED ASSETS, INVENTORIES AND MISCELLANEOUS ASSETS These items are recorded at acquisition cost less depreciation. Low- value assets costing up to € 150 are written off immediately. A com- pound item for tax purposes formed in accordance with § 6 (2a) of the German Income Tax Act (EStG) for assets from € 150 to € 1,000 is depre- ciated by one fifth each year. DEFERRED TAX ASSETS When calculating deferred taxes, deferred tax assets and liabilities are offset. Based on the capitalization option in accordance with § 274 (1) sentence 2 of the German Commercial Code, the surplus of deferred tax assets over deferred tax liabilities is not recognized. REMAINING ASSETS These consist of the following: − funds held by others under reinsurance business assumed, − bank deposits, − accounts receivables on reinsurance business, − other receivables, − cash with banks and cash on hand. These items are recorded at face value less repayments and impair- ments. INSURANCE RESERVES These consist of the following: − unearned premiums, − aggregate policy reserves, − reserves for loss and loss adjustment expenses, − reserves for premium refunds, − claims equalization and similar reserves, − other insurance reserves. Insurance reserves are set up according to the German Commercial Code and RechVersV requirements. The primary goal is to ensure our ongoing ability to satisfy reinsurance contract liabilities in all cases. Generally, the reinsurance reserves are booked according to the cedent’s statements. For claims incurred but not yet reported, or not sufficiently reported, additional reserves are calculated using actua- rial techniques. Insurance reserves in the ceded reinsurance business are calcu- lated according to the terms of the retrocession contracts. Written premiums for future periods are accrued in unearned premiums. Aggregate policy reserves for Life/Health reinsurance are gene- rally recorded according to the amounts in the cedent’s statements. Reserves for loss and loss adjustment expenses are established for the payment of losses and loss adjustment expenses on claims that 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 yet reported, or not sufficiently reported, losses. For Property-Casualty reinsurance, the equalization reserve, the reserve for nuclear plants, the product liability reserve for major pharmaceutical risks, and reserves for risks relating to terrorist attacks are calculated according to § 341h of the German Commercial Code in conjunction with § 29 and § 30 RechVersV. The reserves are set up to moderate substantial fluctuations in the claims of individual lines of business. In cases where above-average or below-average claims occur, changes in the reserves mitigate the technical result for the individual lines of business. OTHER PROVISIONS Pension provisions are calculated on the basis of actuarial principles. In 2016, a new law (“Gesetz zur Umsetzung der Wohnimmobilien- kreditrichtlinie und zur Änderung handelsrechtlicher Vorschriften”) became effective, which included inter alia an amendment of § 253 of the German Commercial Code, affecting the evaluation of pension obligations. According to the new law, the discount rate used for cal- culating the pension obligations has to be derived from a 10-year- average, while it was derived from a 7-year-average before. A positive difference resulting from the change of the valuation method is ear- marked for profit distribution (§ 253 (6) sentence 2 of the German Commercial Code). The aforementioned changes only apply for pen- sion obligations, not for other provisions such as phased-in early retirement benefits, long-term credit accounts, or jubilee payments. 54 Annual Report 2016 Allianz SE C Financial Statements of Allianz SE Apart from that, with respect to the discount rate, the simplifica- tion option set out in § 253 (2) sentence 2 of the German Commercial Code has still been applied (duration of fifteen years). The effect resulting from the change in the discount rate is reported under other non-technical result. The provisions for jubilee payments, birthday payments and phased-in early retirement benefits are also calculated on the basis of actuarial principles. For further information regarding the accounting for pensions and similar obligations, please refer to note 13 to our financial statements. Remaining other provisions are recognized at the settlement amount. Long-term provisions are discounted applying the net approach in accordance with IDW RS HFA 34. REMAINING LIABILITIES These consist of the following: − subordinated liabilities, − funds held with reinsurance business ceded, − other liabilities. These items are valued at the settlement amount. Annuities are recorded at present value. PREPAID EXPENSES AND DEFERRED INCOME Accrued interest and rent are valued at nominal amounts. Premiums and discounts carried forward as prepaid income and expenses are amortized over the remaining life of the related financial instruments. CURRENCY TRANSLATION Transactions are generally recorded in the original currency and con- verted into Euro at the relevant daily rate (middle forex spot rate). Loans to affiliated enterprises denominated in foreign curren- cies are converted into Euro with the middle forex spot rate as of the reporting date and applying the strict lower of cost or market value principle. The valuation of foreign currency shares in affiliated enterprises and participations, stocks, interests in funds, and other variable and fixed-income securities is based on converting the value in the origi- nal currency into Euros using the middle forex spot rate as of the reporting date. Comparing the acquisition cost in Euros with the value in Euro as described above, the moderate lower-value principle is applied for affiliated enterprises and participations. For other investments, the strict lower of cost or market value principle is applied. As a result of this valuation method, currency gains and losses are not separately determined and shown as foreign exchange gains/ losses in the other non-technical result. Instead, the net effect of both changes in currency exchange rates and value in original currency is reflected in the impairments/reversals of impairments and realized gains/losses calculated for these asset classes and is disclosed in the investment result. Issued debt securities and borrowings denominated in foreign currencies are converted into Euro at the middle forex spot rate as of the reporting date. Unrealized losses are recognized immediately in the income statement, while unrealized gains are not. All other monetary assets and liabilities recorded in foreign cur- rency are valued at the middle forex spot rate as of the reporting date. Exchange rate differences resulting from this valuation of foreign currency positions are reflected in the other non-technical result. VALUATION UNITS In 2016, Allianz SE made use of the option of forming valuation units as defined in § 254 of the German Commercial Code. This option is used for derivative contracts in which Allianz SE acts as an intra- group clearing agency. In this function, Allianz SE enters into deriva- tive transactions with other Group companies and hedges the expo- sure resulting from these transactions by entering into positions with the same term and structure that are exact mirror images but entered into with different business partners. Contrary positions whose per- formance completely offset each other have been combined into valuation units and form a perfect micro hedge. When accounting for valuation units, the “freezing” method is applied, in which the offsetting changes in value of the single posi- tions which form a valuation unit are not recorded in the income statement (see also note 15). Annual Report 2016 Allianz SE 55 Values stated as of 1 January 2016 € thou 5,842 7,038 5,800 18,680 254,389 66,733,105 6,470,912 507,226 – 73,711,243 1,270,904 23,671,056 1,588,389 124,388 1,071,676 27,726,413 101,692,045 101,710,725 % 0.2 65.6 6.4 0.5 – 72.5 1.2 23.3 1.6 0.1 1.1 27.3 100.0 Additions (+) € thou 11,098 20 – 11,118 5,359 615,920 – 634 1,100 617,654 770,168 30,532,337 1,656,519 162,799 312,440 33,434,263 34,057,276 34,068,394 Transfers € thou 5,800 (5,800) – – – – – – – – – – – – – – – – Disposals (-) € thou Revaluation (+) € thou Depreciation (-) € thou Net additions (Net disposals) Values stated as of 31 December 2016 486 2,880 – 2 – 2 2,892,776 23,900 5,261 – 2,921,937 291,271 26,760,446 638,221 8,172 – 27,698,110 30,620,533 30,620,535 – – – – – – – – – – – – 5,117 4,128 – 9,245 11,799 51,234 166 1,439 – – – – – 3,993 98,333 118,235 102,326 105,206 105,206 118,235 182,873 192,118 € thou 11,781 (4,110) (5,800) 1,871 (4,046) (2,328,090) (24,066) (6,066) 1,100 482,890 3,751,989 1,018,298 154,627 312,440 5,720,244 3,359,076 3,360,947 € thou 17,623 2,928 – 20,551 250,343 64,405,015 6,446,846 501,160 1,100 1,753,794 27,423,045 2,606,687 279,015 1,384,116 33,446,657 105,051,121 105,071,672 52,839 (2,357,122) 71,354,121 % 0.2 61.3 6.1 0.5 – 67.9 1.7 26.1 2.5 0.3 1.3 31.9 100.0 C Financial Statements of Allianz SE Supplementary InformatIon on aSSetS 1 – Change of assets a., B.I. through B.III. A. Intangible assets 1. Self-produced industrial property rights and similar rights and assets 2. Licenses acquired against payment, industrial property rights and similar rights and assets as well as licenses for such rights and assets 3. Advance payments made Subtotal A. B.I. Real estate, real estate rights and buildings, including buildings on land not owned by Allianz SE B.II. Investments in affiliated enterprises and participations 1. Shares in affiliated enterprises 2. Loans to affiliated enterprises 3. Participations 4. Loans to participations Subtotal B.II. B.III. Other investments 1. Stocks, interests in funds and other variable-income securities 2. Debt securities and other fixed-income securities 3. Other loans a) Registered bonds b) Loans and promissory notes 4. Bank deposits Subtotal B.III. Subtotal B.I. - B.III. Total 2 – Intangible assets The book value of intangible assets totaled € 21 MN (2015: € 19 MN) and mainly consists of internally generated software. In 2016 the research and development costs of Allianz SE amounted to € 11 MN and represent in total the development costs for the internally generated software. 3 – Market value of investments Fair value and carrying amount of the investments, subdivided into individual asset categories, were as follows: Book VAluES And MArkEt VAluES of InVEStMEntS € Bn Book value Market value Valuation reserve as of 31 December Real estate Equity securities Debt securities Loans Bank deposits Funds held by others under reinsurance business assumed 2016 0.3 66.7 27.4 9.3 1.4 8.0 2015 0.3 68.5 23.6 8.2 1.1 6.1 2016 0.7 76.1 28.1 10.6 1.4 8.0 2015 0.5 74.5 24.1 9.2 1.1 6.1 113.1 107.8 124.9 115.5 11.8 2016 2015 0.4 9.4 0.7 1.3 – – 0.2 6.0 0.5 1.0 – – 7.7 Annual Report 2016 Allianz SE Total 56 Supplementary InformatIon on aSSetS 1 – Change of assets a., B.I. through B.III. A. Intangible assets 1. Self-produced industrial property rights and similar rights and assets 2. Licenses acquired against payment, industrial property rights and similar rights and assets as well as licenses for such rights and assets 3. Advance payments made Subtotal A. B.I. Real estate, real estate rights and buildings, including buildings on land not owned by Allianz SE B.II. Investments in affiliated enterprises and participations 1. Stocks, interests in funds and other variable-income securities 2. Debt securities and other fixed-income securities 1. Shares in affiliated enterprises 2. Loans to affiliated enterprises 3. Participations 4. Loans to participations Subtotal B.II. B.III. Other investments 3. Other loans a) Registered bonds b) Loans and promissory notes 4. Bank deposits Subtotal B.III. Subtotal B.I. - B.III. Total Values stated as of 1 January 2016 € thou 5,842 7,038 5,800 18,680 254,389 66,733,105 6,470,912 507,226 – 73,711,243 1,270,904 23,671,056 1,588,389 124,388 1,071,676 27,726,413 101,692,045 101,710,725 % 0.2 65.6 6.4 0.5 – 72.5 1.2 23.3 1.6 0.1 1.1 27.3 100.0 Additions (+) € thou 11,098 20 – 11,118 5,359 615,920 – 634 1,100 617,654 770,168 30,532,337 1,656,519 162,799 312,440 33,434,263 34,057,276 34,068,394 C Financial Statements of Allianz SE Transfers € thou 5,800 – (5,800) – – – – – – – – – – – – – – – Disposals (-) € thou Revaluation (+) € thou Depreciation (-) € thou – 2 – 2 – – – – 486 2,880 2,892,776 23,900 5,261 – 2,921,937 291,271 26,760,446 638,221 8,172 – 27,698,110 30,620,533 30,620,535 – – – – – 3,993 98,333 – – – 102,326 105,206 105,206 5,117 4,128 – 9,245 11,799 51,234 166 1,439 – 52,839 – 118,235 – – – 118,235 182,873 192,118 Net additions (Net disposals) Values stated as of 31 December 2016 € thou 11,781 (4,110) (5,800) 1,871 (4,046) (2,328,090) (24,066) (6,066) 1,100 € thou 17,623 2,928 – 20,551 250,343 64,405,015 6,446,846 501,160 1,100 (2,357,122) 71,354,121 482,890 3,751,989 1,018,298 154,627 312,440 5,720,244 3,359,076 3,360,947 1,753,794 27,423,045 2,606,687 279,015 1,384,116 33,446,657 105,051,121 105,071,672 % 0.2 61.3 6.1 0.5 – 67.9 1.7 26.1 2.5 0.3 1.3 31.9 100.0 VALUATION METHODS USED TO DETERMINE THE MARKET VALUE REAL ESTATE Land and buildings are valued using the discounted cash flow me thod or, for new buildings, at cost. The fair value was determined during the fiscal year. EQUITY SECURITIES Investments in companies quoted on the stock exchange are gene­ rally measured by the stock exchange price quoted on the last trading day of 2016. Non­quoted companies are valued at their net asset value calculated by the German Association for Financial Analysis and Asset Management’s (DVFA) method. For recent transactions the transaction prices were used. DEBT SECURITIES These items are measured at the stock exchange value quoted on the last trading day of 2016 or, if there is no active market, at the prices obtained from brokers or pricing services. LOANS Loans are valued using the discounted cash flow method. The rele­ vant discount rates are derived from observable market parameters and reflect the remaining life and credit risk of the instruments. BANK DEPOSITS AND FUNDS HELD BY OTHERS UNDER REINSURANCE BUSINESS ASSUMED There are no differences between the book value and the fair value of those items. Annual Report 2016 Allianz SE 57 C Financial Statements of Allianz SE 4 – Investments in affiliated enterprises and participations Allianz SE holds more than 10.0 % of the respective shares of these investment funds. The fund shares can be redeemed each trading day. € Bn as of 31 December Shares in affiliated enterprises Loans to affiliated enterprises Participations Total 2016 64.4 6.5 0.5 71.4 2015 66.7 6.5 0.5 73.7 Change (2.3) – – (2.3) 6 – Other receivables The slight increase of € 228 MN in this position consists of a marginal rise of intra­group (€ 119 MN) and tax receivables (€ 127 MN). The book value of shares in affiliated enterprises went down by € 2.3 BN to € 64.4 BN (2015: € 66.7 BN). This decrease consists of the following: 7 – Miscellaneous assets At the end of the fiscal year, this position mainly included variation margins paid in connection with financial derivative transactions (€ 223 MN). 8 – Deferred charges and prepaid expenses This item includes accrued interests in the amount of € 475 MN (2015: € 290 MN), which mainly result from our investments in debt securities and loans, as well as other deferred charges and prepaid expen ses amounting to € 140 MN (2015: € 134 MN). The latter comprise upfront payments for swap contracts and the discount on borrowings from affiliated enterprises, issued bonds and subordinated liabilities. 9 – Collateral Assets amounting to € 1.0 BN (2015: € 0.8 BN), of which € 0.6 BN (2015: € 0.6 BN) were in favor of affiliated enterprises, were pledged as col­ lateral for liabilities. − € 2.3 BN capital reduction of our subsidiary AZ­Arges Vermögens­ verwaltungsgesellschaft mbH following the transfer of intra­ group debt to another Group company, − further capital decreases amounting to overall € 0.6 BN, thereof € 0.4 BN at Allianz Deutschland AG and € 0.2 BN at Allianz Asset Management AG, − book value increase by € 0.3 BN due to the acquisition of the two Moroccan campanies Allianz Maroc S.A. and Marofinac S.à.r.l. from Zurich Insurance Company Ltd., − further various purchases and capital increases of Group compa­ nies raising the book value once more by overall € 0.3 BN. 5 – Interests in investment funds Details on interests in investment funds in accordance with § 285 (26) of the German Commercial Code: € thou Equity funds Allianz Discovery Asia Strategy Fund Allianz Global Emerging Markets Equity Dividend Fund Subtotal equity funds Bond funds Book value Fair value Valuation reserve Dividend distribution 3,910 4,346 3,000 6,910 3,396 7,742 436 396 832 – 97 97 Allianz RE Asia Fund 1,033,241 1,131,161 97,920 18,364 PIMCo Covered Bond Source uCItS EtF Allianz Emerging Markets Local Currency Bond Fund Allianz Emerging Markets Flexible Bond Fund PIMCo Select Funds u.S. High Yield BB-B Bond 99,199 105,806 6,607 4,021 4,021 3,922 4,531 – 609 779 212 218 98,902 98,902 – 4,868 AZRE AZD P & C Master Fund 490,692 533,909 43,217 Allianz SE – PD Fund Subtotal bond funds Mixed funds Allianz Global Dynamic Multi Assets Income 12,330 12,855 525 1,742,307 1,891,185 148,878 24,441 3,890 4,186 296 69 – – Total 1,753,107 1,903,113 150,006 24,607 58 Annual Report 2016 Allianz SE C Financial Statements of Allianz se Supplementary InformatIon on equIty and lIabIlItIeS 10 – Shareholders’ equity secured by the Conditional Capital 2010/2014. On or before 31 Decem- ber 2016, there was no conversion of any such notes into new shares. ISSUED CAPITAL Issued capital as of 31 December 2016 amounted to € 1,169,920.0 THOU 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 propor- tion of the issued capital. CHANGES IN THE NUMBER OF ISSUED SHARES OUTSTANDING number of issued shares outstanding AUTHORIZED CAPITAL As of 31 December 2016, Allianz SE had authorized capital for the issuan ce of 214,843,750 shares until 6 May 2019, with a notional amount of € 550,000.0 THOU (Authorized Capital 2014/I). The share- holders’ subscription rights can be excluded for capital increases against contribution in kind. For a capital increase against contribu- tions in cash, the shareholders’ subscription rights can be excluded: (i) for fractional amounts, (ii) if the issue price is not significantly below the market price and the shares issued under exclusion of the subscription rights pursuant to § 186 (3) sentence 4 of the German Stock Corporation Act (Aktiengesetz) do not exceed 10 % of the share capital, and (iii) to the extent necessary to grant a subscription right for new shares to the holders of bonds that carry conversion or option rights or provide for mandatory conversion. The subscription rights for new shares from the Authorized Capital 2014/I and the Condi- tional Capital 2010/2014 may only be excluded for the proportionate amount of the share capital of up to € 233,728.0 THOU (corresponding to 20 % of the share capital at year-end 2013). 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 2016, the Authorized Capital 2014/II amounted to € 13,720.0 THOU (5,359,375 shares). CONDITIONAL CAPITAL As of 31 December 2016, Allianz SE had conditional capital totaling € 250,000.0 THOU (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 com- panies have issued against cash payments according to the resolu- tions of the AGM on 5 May 2010 or 7 May 2014 are exercised or the con- version obligations under such bonds are fulfilled, and only to the extent that the conversion or option rights or conversion obligations are not serviced through treasury shares or through shares from authorized capital. Convertible subordinated notes totaling € 500,000.0 THOU, which may be converted into Allianz shares, were issued against cash in July 2011. Within 10 years after the issuance a mandatory conversion of the notes into Allianz shares at the then prevailing share price may apply if certain events occur, subject to a floor price of at least € 74.90 per share. Within the same period, the investors have the right to convert the notes into Allianz shares at a price of € 187.26 per share. Both conversion prices are subject to anti-dilution provisions. The subscription rights of shareholders for these convertible notes have been excluded with the consent of the Supervisory Board and pur- suant to the authorization of the AGM on 5 May 2010. The granting of new shares to persons entitled under such convertible notes is Number of issued shares outstanding as of 1 January Changes in number of treasury shares Number of issued shares outstanding as of 31 December Treasury shares1 Total number of issued shares 2016 2015 454,823,638 454,248,039 244,099 575,599 455,067,737 454,823,638 1,932,263 2,176,362 457,000,000 457,000,000 1 Thereof 1,931,677 (2015: 2,175,776) own shares held by Allianz Se. PROPOSAL FOR APPROPRIATION OF NET EARNINGS The Board of Management and the Supervisory Board propose that the net earnings (“Bilanzgewinn”) of Allianz SE of € 3,855,866,165.01 for the 2016 fiscal year shall be appropriated as follows: − Distribution of a dividend of € 7.60 per no-par share entitled to a dividend: € 3,458,515,257.20 − Unappropriated earnings carried forward: € 397,350,907.81 The proposal for appropriation of net earnings reflects the 1,932,203 treasury shares held directly and indirectly by the company at the time of the preparation (“Aufstellung”) of the annual financial state- ments by the Board of Management on 14 February 2017. Such trea- sury shares are not entitled to the dividend pursuant to § 71b of the German Stock Corporation Act (AktG). Should there be any change in the number of shares en titled to the dividend by the date of the An nual General Meeting, the above proposal will be amended accor dingly and presented for resolution on the appropriation of net ear nings at the Annual General Meeting, with an unchanged dividend of € 7.60 per each share entitled to dividend. TREASURY SHARES As of 31 December 2016, Allianz SE held 1,931,677 (2015: 2,175,776) trea- sury shares. Of these, 905,648 (2015: 1,522,732) were held for covering future subscriptions by employees in Germany and abroad in the context of Employee Stock Purchase Plans, whereas 1,026,029 (2015: 653,044) were held as a hedge for obligations from the Allianz Equity Incentive Program (former Group Equity Incentive Program). In the year ending 31 December 2016, 617,084 (2015: 575,584) shares were sold to employees of Allianz SE, as well its subsidiaries in Germany and abroad, in the context of the Employee Stock Purchase Plan. These shares were taken from the stock of treasury shares de dicated to this purpose. In 2016, as in the previous year, no capital increase for the purpose of Employee Stock Purchase Plans was undertaken. Employees of the Allianz Group purchased shares at prices ranging from € 94.54 (2015: € 98.42) to € 121.84 (2015: € 125.84) per share. As of 31 December 2016, the remaining treasury shares of Allianz SE held for covering subscriptions by employees in the context of the Employee Stock Purchase Plan of Allianz SE and its subsidiaries in Germany and abroad amounted to 905,648 shares. Annual Report 2016 Allianz SE 59 C Financial Statements of Allianz se In July 2016, Allianz SE purchased 1,189,514 treasury shares at an average price of € 122.08 for the purpose of hedging obligations from the Allianz Equity Incentive Program. For reasons of hedge accoun- ting, Allianz SE reduced this position of treasury shares in August 2016 by 816,529 shares at an average price of € 129.78 and, at the same time, entered into corresponding forward transactions on Allianz shares at an identical reference price. As of 31 December 2016, the remaining treasury shares of Allianz SE held as a hedge for obligations from the Allianz Equity Incentive Program amounted to 1,026,029 shares. In the year ending 31 December 2016, the total number of treasury shares of Allianz SE decreased by 244,099 (2015: decrease of 575,584) shares, which corresponds to € 624,893 (2015: € 1,473,495) or 0.05 % (2015: 0.126 %) of issued capital. The treasury shares of Allianz SE and its subsidiaries represent € 4,945 THOU (2015: € 5,571 THOU) or 0.42 % (2015: 0.48 %) of the issued capital. BAR ON DIVIDEND DISTRIBUTION The unappropriated reserves plus the unappropriated earnings car- ried forward are not fully available for the distribution of a dividend due to legal restrictions. The unappropriated reserves of Allianz SE correspond to the other revenue reserves. The unappropriated reserves plus the unappropriated earnings carried forward are barred from dividend distribution totaling the amount of € 772,254 THOU (2015: € 11,412 THOU). Of this amount € 749,686 THOU (2015: € 0 THOU) are due to the new legal provision for discounting pension obligations according to § 253 (2) sentence 1 in conection with § 253 (6) of the German Commercial Code. Another, € 4,945 THOU (2015: € 5,570 THOU) relate to the mathematical value of own shares deducted from issued capital according to § 272 (1a) of the German Commercial Code. Furthermore, € 17,623 THOU (2015: € 5,842 THOU) account for internally generated intangible assets according to § 268 (8) of the German Commercial Code. additional paid-in capital € thou as of 31 December 2015 Own shares: realized gains as of 31 December 2016 revenue reserves € thou as of 31 December 1. Statutory reserves 2. Other revenue reserves1 Total 27,799,741 44,923 27,844,664 Own shares exceeding mathematical value – 2015 1,229 2016 1,229 11,783,945 11 785 174 (1,017) 11,782,928 (1,017) 11 784 157 1 Thereof reserves for own shares € 4,945 tHou (2015: € 5,570 tHou). 11 – Subordinated liabilities Subordinated liabilities increased to € 13.8 BN in 2016 (2015: € 12.3 BN).1 € 8.9 BN (2015: € 7.5 BN) were external subordinated liabilities resul ting from bonds issued by Allianz SE directly. In 2016, Allianz SE placed a new subordinated bond with a volume of USD 1.5 BN (equals € 1.4 BN). In addition, intra-group subordinated liabilities amounting to € 4.9 BN (2015: € 4.9 BN) were attributable to subordinated bonds issued by Allianz Finance II B.V., an affiliated enterprise that usually transfers the proceeds from these issues to Allianz SE via intra-group loans. Allianz SE provides a financial guarantee for the total amount of bonds issued by Allianz Finance II B.V. 12 – Insurance reserves € mn as of 31 December Motor Fire and property reinsurance Liability Life Marine and aviation Credit and bond Personal accident Legal expenses Health Other lines Total Unearned premiums Aggregate policy reserves Reserves for loss and loss adjustment expenses Reserves for premium refunds Claims equalization and similar reserves Other insurance reserves 433 482 217 38 26 – 37 46 3 278 1,560 – – – 748 – – 38 – 2 – 788 2,438 2,119 3,062 93 530 409 466 256 11 358 9,742 – 9 4 – – 21 – – – – 34 327 601 393 – 66 440 2 19 – 467 2,315 7 8 4 6 – 1 2 2 – 2 32 Total 3,205 3,219 3,680 885 622 871 545 323 16 1,105 14,471 The development of the insurance reserves was mainly influenced by the new quota share agreements with European entities. 1 Due to roundings of the single amounts for external and intra-group subordinated liabilities explained below, the 2015 amounts do not exactly sum up to the total value. 60 Annual Report 2016 Allianz SE C Financial Statements of Allianz se AGGREGATE POLICY RESERVES Aggregate policy reserves declined by € 926 MN to € 788 MN due to the Life/Health reinsurance. RESERVES FOR LOSS AND LOSS ADJUSTMENT EXPENSES Reserves for loss and loss adjustment expenses increased by 15.3 % to € 9,742 MN, mainly driven by the growth of the portfolio. CLAIMS EQUALIZATION AND SIMILAR RESERVES In 2016, claims equalization and similar reserves rose by € 528 MN to € 2,315 MN, mainly driven by the substantial premium growth as well as the positive underwriting result. The increase resulted mainly from fire reinsurance (€ 183 MN), other reinsurance lines (€ 122 MN), motor reinsurance (€ 106 MN) and liability reinsurance (€ 45 MN). 13 – Other provisions development of other provisions € thou Provisions for pensions and similar liabilities Tax provisions Miscellaneous 1. Anticipated losses 2. Remaining provisions Total 1 Including currency translation effects. Provision 1 January 2016 6,306,863 410,928 421,533 360,892 7,500,216 Use (-) 259,370 4,843 260,890 213,182 738,285 Release1 Additions1 (-) 159,036 239 48,261 18,474 226,010 (+) 41,508 135,384 222,618 292,332 691,842 Reversal of Discounting Provision (+) 31 December 2016 136,837 – 1,896 2,645 141,378 6,066,802 541,230 336,896 424,213 7,369,141 The total of other provisions declined by € 131 MN. This decrease resulted mainly from a net reduction of the pension liability of € 240 MN which was partially offset by an increase of the tax provisions by € 130 MN. The miscellaneous provisions slimmed down by € 21 MN. In this connection, the provisions for anticipated losses dropped by € 85 MN, whereas the remaining provisions grew by € 63 MN. Allianz SE has made pension promises for which pension provi- sions are recognized. Part of these pension obligations are secured by a “Contractual Trust Arrangement” (Methusalem Trust e.V.). These trust assets constitute offsettable plan assets, with the asset value/ market value being used as the fair value. In 1985, the pension obligations of the German subsidiaries were centralized by transferring the corresponding assets to Allianz SE. As a result, Allianz SE has a joint liability for a large part of these old pension promises. The German subsidiaries reimburse the costs, whereas Allianz SE has assumed responsibility for settlement. Conse- quently, these pension obligations are reported by Allianz SE. In 2015, the cost allocation contract was renegotiated with the result that, besides covering the interest cost, Allianz SE will also carry the interest rate risk for future years. In addition to that, Allianz SE completely assumed the obligations resulting from the agents pension fund (“Vertreterversorgungswerk” – VVW) from Allianz Beratungs- und Vertriebs-AG as of 1 January 2015. The following table shows a breakdown of pension liabilities: settlement amount of the offset liabilities € thou as of 31 December 2016 2015 Old pension promises of the German subsidiaries 1,808,224 1,885,919 Pension promises of Allianz SE Vertreterversorgungswerk old pension promises given to employees contribution based pension plans deferred compensation Total 4,285,330 4,427,543 194,941 184,826 87,006 201,115 162,443 74,879 6,560,327 6,751,899 The settlement amount is calculated on the basis of the projected unit credit method and/or reported as the present value of the entitle- ments acquired. In case of security linked pension plans the fair value of the offset assets is shown. Due to the fact that there is no employment relationship between the tied agents and Allianz SE and as Allianz Beratungs- und Ver- triebs-AG does no longer reimburse any costs, pension obligations resulting from the VVW equals the full present value. Annual Report 2016 Allianz SE 61 C Financial Statements of Allianz se actuarial parameters % as of 31 December Applied discount rate (10-year-average)1 Applied discount rate (7-year-average)1 Rate of assumed pension trend Rate of assumed salary increase (incl. average career trend) 2016 4.01 3.23 1.50 3.25 2015 – 3.89 1.70 3.25 1 The discount rate as of 31 December 2015 was derived based on the up to 31 December 2015 effective German regulation on the discounting of provisions (“Rückstellungsabzinsungsverordnung”) from a 7-year-average. Due to an amendment of German Commercial code, the discount rate as of 31 December 2016 was derived from a 10-year-average for pensions, while the derivation for other provisions remained unchanged and is still based on a 7-year-average. As opposed to the above rates, part of the pension promises are cal- culated with the guaranteed interest rate of 2.75 % p. a. and the guar- anteed pension increase rate of 1 % p. a. of these pension promises. The mortality tables used are the current RT2005G-tables of Heu- beck, which have been adjusted with respect to mortality, disability, and labor turnover to reflect company-specific circumstances. The retirement age applied is the contractual or legal retirement age. supplementary information € thou as of 31 December Historical costs of the offset assets 14 – Maturity of financial liabilities The residual terms of subordinated liabilities, issued bonds and mis- cellaneous liabilities are as follows: maturity table as of 31 december 2016 € thou Total Term < 1 year Term 1 – 5 years Term > 5 years Subordinated liabilities (b.) Intra-group transmission of proceeds from third-party financing Subordinated bonds issued by Allianz SE Subtotal subordinated liabilities (B.) 4,868,974 168,974 8,937,306 100,658 13,806,280 269,632 – – – 4,700,000 8,836,648 13,536,648 Bonds (intra-group – F.II.) 2,575,931 379,931 1,800,000 396,000 Liabilities to banks (F.III.) 397,574 397,574 – – Miscellaneous liabilities (f.iv.) Intra-group transmission of proceeds from third-party financing 5,177,377 173,745 2,625,000 2,378,632 Other intra-group liabilities1 28,251,667 27,059,263 1,092,404 100,000 Subtotal intra-group miscellaneous liabilities 33,429,044 27,233,008 3,717,404 2,478,632 Liabilities to third parties 1,288,151 1,288,151 – – 2016 2015 Subtotal miscellaneous liabilities 488,562 443,067 Total 34,717,195 28,521,159 3,717,404 2,478,632 51,496,980 29,568,296 5,517,404 16,411,280 Settlement amount of the offset liabilities 6,560,327 6,751,899 (-) Fair value of the offset assets 493,525 445,036 Provisions for pensions and similar liabilities 6,066,802 6,306,863 1 As of 31 December 2016, other intra-group liabilities due within one year amounted to € 27.1 bn. Thereof, cash pool and intra-group loans accounted for € 9.3 bn and € 17.0 bn, respectively. Upon maturity, intra- group loans are rolled forward by Allianz Se on a regular basis. Allianz SE has obligations resulting from jubilee payments, a long- term credit account, birthday payments, and phased-in early retire- ment, which are reported under remaining provisions. These obligations are basically calculated in the same way as the pension obligations, using the same actuarial assumptions (except for the discount rate). Offsettable plan assets are held at Methusalem Trust e.V. to secure the phased-in early retirement and long-term credit account obligations. The asset value/market value is used as the fair value. The following table shows a breakdown of the offset assets and liabilities resulting from the phased-in early retirement and long- term credit account obligations. information on the offset assets and liabilities € thou as of 31 December Historical costs of the offset assets Settlement amount of the offset liabilities Fair value of the offset assets 2016 19,513 19,691 20,530 2015 14,168 15,115 14,311 maturity table as of 31 december 2015 € thou Total Term < 1 year Term 1 – 5 years Term > 5 years Subordinated liabilities (b.) Intra-group transmission of proceeds from third-party financing Subordinated bonds issued by Allianz SE Subtotal subordinated liabilities (B.) 4,868,645 168,645 7,471,098 90,730 12,339,743 259,375 – – – 4,700,000 7,380,368 12,080,368 Bonds (intra-group – F.II.) 3,257,608 841,608 2,020,000 396,000 Liabilities to banks (F.III.) 1,344,406 1,344,406 – – Miscellaneous liabilities (f.iv.) Intra-group transmission of proceeds from third-party financing 4,831,235 438,665 1,875,000 2,517,570 Other intra-group liabilities1 24,921,162 22,668,032 1,253,130 1,000,000 Subtotal intra-group miscellaneous liabilities 29,752,397 23,106,697 3,128,130 3,517,570 Liabilities to third parties 1,663,288 1,663,288 – – Subtotal miscellaneous liabilities 31,415,685 24,769,985 3,128,130 3,517,570 Total 48,357,442 27,215,374 5,148,130 15,993,938 1 As of 31 December 2015, other intra-group liabilities due within one year amounted to € 22.7 bn. Thereof, cash pool liabilities and intra-group loans accounted for € 8.3 bn and € 13.5 bn, respectively. Upon maturity, intra-group loans are rolled forward by Allianz Se on a regular basis. As of 31 December 2016, € 0.6 BN (2015: € 0.5 BN) of the total financial liabilities were secured by assets pledged as collateral. 62 Annual Report 2016 Allianz SE C Financial Statements of Allianz se 15 – Information about derivative financial instruments options dealing in shares and share indices as of 31 december 2016 Class Long call Short call Short call Long put Short put Nominal € thou 25,155 25,155 13,984 37,923 37,923 Fair value € thou 2,661 (2,661) (11,147) 290 (290) Book value Underlying Balance sheet position € thou 2,507 2,507 Share index Share index Assets D.III. Liabilities F.IV. 11,147 Allianz SE share Liabilities F.IV. 321 304 17 Share index Assets D.III. Share index Liabilities F.IV. Liabilities D. The options on Allianz SE shares are held in the context of hedging the Allianz Equity Incentive Plans. The options on stock indices are held in the context of hedging activities of other entities of the Allianz Group. Allianz SE hedged intra-group positions by entering into countertrades at the market. Both intra-group and group-external positions were combined to valuation units (“Bewertungseinheiten”) representing perfect micro hedges. The completely offsetting changes in value of the single posi- tions are recorded neither in the income statement nor on the ba lance sheet. European-type options are valued using the Black Scholes mo del and American-type options using the binomial model based on the closing price on the valuation date. Yield curves are derived from the swap rates prevailing on the valuation date. The future dividend yield is estimated on the basis of market information on the valuation date. Volatility is calculated based on currently traded implicit vola- tility, taking into account the residual term and the ratio between the strike price and the prevailing share price. forward contracts in shares, share indices and hedge rsu as of 31 december 2016 Class Long forward Long forward Long future Short forward Hedge RSu Nominal € thou 466,926 183,415 78,448 183,415 298,941 Fair value Book value Underlying Balance sheet position € thou 71,674 (10,573) – 10,573 (412,531) € thou – – – – Allianz SE share UniCredit S.p.A. share Allianz SE share UniCredit S.p.A. share – – – – 412,531 Allianz SE share Liabilities F.IV. The positions in long forwards and futures on Allianz SE shares and in hedge RSU are held in the context of hedging the Allianz Equity Incentive Plans. For the purpose of hedging the share price risk of UniCredit S.p.A. shares, our subsidiary Allianz Finance II Louxembourg S.à.r.l. entered into short forwards on UniCredit S.p.A. shares with Allianz SE. Allianz SE hedged these positions by entering into countertrades at the market. Both intra-group and group-external positions were com- bined to form valuation units (“Bewertungseinheiten”) representing perfect micro hedges. The completely offsetting changes in value of the single positions are recorded neither in the income statement nor on the balance sheet. The fair value of a forward contract is determined as the diffe- rence between the underlying closing price on the valuation date and the discounted forward price. The net present value of dividend pay- ments due before maturity of the forward contract is also taken into account, unless dividends are subject to a pass-through agreement. Liabilities from hedge RSU, which the Group companies acquire from Allianz SE to hedge their liabilities from the Group Equity Incentive programs, are valued on the basis of the Allianz closing price on the valuation date minus the net present value of estimated future divi- dends due before maturity of the respective hedge RSU. Applicable discount rates are derived from inter polated swap rates. Annual Report 2016 Allianz SE 63 C Financial Statements of Allianz se forward currency contracts as of 31 december 2016 Class Long forward Short forward Nominal € thou Fair value Book value € thou € thou Underlying Balance sheet position 6,912,301 50,915 27,673 8,972,705 (175,084) 185,212 AED, AUD, BRL, CAD, CHF, CNY, COP, CZK, DKK, GBP, HKD, HUF, JPY, KRW, MYR, NOK, NZD, PLN, QAR, SAR, SEK, SGD, THB, TRY, TWD, USD AED, AUD, BRL, CAD, CHF, COP, CZK, DKK, GBP, HKD, INR, JPY, MYR, NOK, NZD, QAR, SAR, SEK, SGD, THB, TRY, USD, ZAR Liabilities D. Liabilities D. Allianz SE holds long and short positions in various currencies in order to manage foreign exchange risk within Allianz SE and other entities of the Allianz Group. The fair value of a forward currency contract is the difference between the discounted forward price and the spot rate in Euros. The discounted forward price is calculated by applying the Euro interest rate as a discount rate and the foreign currency interest rate as a compound interest rate. Long forwards and short forwards with a nominal value of € 1.7 BN and a fair value of € 11.3 MN, respectively, were aggregated to form valuation units (“Bewertungseinheiten”) and accounted for with a book value of zero. In each case, diametrical positions with identical terms and conditions closed with intra-group and group- external counterparts, respectively, form a perfect micro hedge because the fair value changes of the diametric positions completely compensate each other. swap contracts as of 31 december 2016 Class Receiver swap EuR Receiver swap GBP Nominal € thou 1,500,000 269,447 Fair value € thou 11,273 95,572 Book value Underlying € thou Long-term interst rate positions – 71,608 Long-term interst rate positions Balance sheet position – Assets E.II. Allianz SE holds receiver swaps in various currencies in order to hedge interest rate risk arising from interest rate positions of Allianz SE or other entities of the Allianz Group. The fair value of an interest rate swap is the aggregate net pre- sent value of all expected incoming and outgoing cash flows of the respective swap transaction. Within the financial participations, there are put and call options on company shares which are linked to certain conditions. Due to the lack of quoted prices on active markets for these financial participa- tions and the uncertainty regarding the occurrence of the option conditions, it is not possible to reliably determine the fair value of such options. Wherever feasible, contractual arrangements inclu- ding the option agreements were taken into account when determin- ing the fair value of the financial participation. However, no stand- alone valuation of the options as derivative financial instruments was performed. 64 Annual Report 2016 Allianz SE C Financial Statements of Allianz SE Supplementary InformatIon on the Income Statement 16 – Gross premiums written 20 – Underwriting expenses (net) € thou Property-Casualty reinsurance Life/Health reinsurance Total 2016 2015 10,385,480 7,769,191 434,810 558,832 € thou Gross Ceded 10,820,290 8,328,023 Net 2016 2015 (3,063,930) (2,296,970) 117,682 232,006 (2,946,248) (2,064,964) Gross premiums written increased by 29.9 % to € 10,820 MN. This was mainly due to new quota share agreements with European Allianz entities that contributed gross premiums written of € 2,897 MN. The rise in underwriting expenses (net) was mainly due to the new quota share agreements with European Allianz entities. In addition, lower internal and external retrocessions led to a decrease of com- missions received. 17 – Allocated interest return (net) 21 – Investment income The amount of interest income transferred under this heading from the non-technical section to the technical section was calculated in accordance with § 38 RechVersV and decreased by € 38 MN to € 21 MN. € thou 18 – Run-off result In 2016, the positive run-off result in Property-Casualty amounted to € 427 MN (2015: € 324 MN) and was mainly influenced by the develop- ment of fire reinsurance (€ 180 MN), engineering reinsurance (€ 99 MN), personal accident reinsurance (€ 48 MN) and business interruption reinsurance (€ 36 MN). 19 – Change in other insurance reserves (net) € thou Change in aggregate policy reserves (net) Other insurance reserves (net) Total 2016 3,931 2,794 6,725 2015 (41,473) 2,644 (38,829) The change in aggregate policy reserves (net) was driven by decreased business volume due to a recapture of a capital management trans- action in Life/Health reinsurance. The other insurance reserves (net) mostly include reserves for credit and bond reinsurance and motor reinsurance. a) Income from affiliated enterprises and participations thereof from affiliated enterprises: € 1,722,849 thou (2015: € 3,794,403 thou) b) Income from other investments thereof from affiliated enterprises: € 473,296 thou (2015: € 445,516 thou) ba) Income from real estate, real estate rights and buildings including buildings on land not owned by Allianz SE bb) Income from other investments (see below) c) Income from reversal of impairments d) Realized gains e) Income from profit transfer agreements Total bb) Income from other investments Loans to affiliated enterprises Debt securities Funds held by others under reinsurance business assumed Interests in funds Loans to third parties Receivables from intra-group cash pooling Bank deposits Other Total 2016 2015 1,726,629 3,820,340 27,532 916,897 105,206 365,486 1,943,136 5,084,886 27,474 917,092 3,020 360,899 3,001,333 8,130,158 2016 2015 416,928 385,837 413,731 368,402 72,124 24,935 6,282 7,450 2,686 655 87,145 24,622 12,708 5,183 4,643 658 916,897 917,092 Annual Report 2016 Allianz SE 65 C Financial Statements of Allianz SE 22 – Investment expenses 23 – Other non-technical result € thou a) Expenses for the management of investments, interest and other investment-related expenses aa) Interest expenses (see below) (1,021,215) (1,045,224) 2016 2015 € thou Other income Gains on derivatives Currency gains ab) Other b) Depreciation and impairments of investments c) Realized losses d) Expenses from losses taken over Total (84,983) (182,873) (198,564) (307,823) (76,699) (594,135) (183,763) (221,493) Other service revenues to group companies Income from the release of other provisions Income due to adjustment of cost allocation contract (1,795,458) (2,121,314) Intercompany income Service revenues from pensions charged to group companies 2016 2015 Other aa) Interest expenses Subordinated bonds issued by Allianz SE Liabilities from intra-group loans Intra-group subordinated liabilities (intra-group transmission of proceeds from third-party financing) Liabilities from intra-group bonds Liabilities from intra-group cash pooling Liabilities from commercial paper issues Other Total (323,824) (270,917) (299,544) (298,906) (267,960) (111,109) (29,860) (8,647) (8,898) (269,591) (126,320) (40,653) (5,573) (4,637) (1,021,215) (1,045,224) The depreciation and impairments of investments include unsche- duled write-downs of € 51 MN (2015: € 360 MN) on holdings in affiliated enterprises and € 7 MN (2015: € 1 MN) on real estate. Total other income Other expenses Expenses on derivatives Currency losses Other human related expenses Anticipated losses on derivatives Other service expenses to group companies Interest and similar expense Expenses for financial guarantees Service expenses from pensions charged to group companies Pension expenses Expenses due to adjustment of cost allocation contract Other Total other expenses Other non-technical result 2016 2015 1,135,670 1,018,676 179,192 158,528 147,827 39,798 32,912 5,933 1,157,962 730,466 106,487 33,572 406,050 38,005 29,551 5,484 2,718,536 2,507,577 (998,915) (1,267,327) (994,231) (1,306,285) (285,837) (189,683) (179,192) (163,233) (42,586) (32,912) (28,675) – (262,663) (295,946) (283,612) (106,487) (969,557) – (29,551) (119,959) (634,166) (276,786) (3,177,927) (5,289,676) (459,391) (2,782,099) Allianz SE has a joint liability for a large part of the pension provisions of its German subsidiaries (see note 13 for more details). Costs incurred in this context are recognized as service expenses from pension plans charged to group companies, as they are reimbursed by the German subsidiaries according to the cost allocation contract and result in corresponding service revenues. Compared to the previous year, the income from the release of other provisions increased mainly due to the reduction of the assumed pension trend from 1.7 % to 1.5 %, leading to an income from the release of pension provisions of € 143 MN. The change of the cost allocation contract in 2015 also led to an income of € 148 MN in the fiscal year, which was lower than in the previous year (2015: € 406 MN). The decrease in the expenses due to the adjustment of the cost allocation contract resulted from the fact that in 2015 Allianz SE fully assumed the obligations resulting from agents pension fund (“VVW”) (2015: € 634 MN). The significant decline in interest expenses of € 806 MN was pre- dominantly caused by a lower addition of the pension provisions of € 654 MN, due to a higher discount rate, and by lower interest expen ses on long-term provisions to the amount of € 166 MN. As a result of a legal change, the interest rate used for calculating the pension obli- gations has to be determined as a 10-year-average instead of a 7-year- average from 2016 onwards. The significant decrease in pension expenses is basically due to the fact that after Allianz SE had taken over the obligations resulting from VVW in 2015, part of the tied agents accepted the offer to waive their pension annuity in exchange for a lump sum payment at retire- ment age. 66 Annual Report 2016 Allianz SE C Financial Statements of Allianz SE Furthermore, the items other income and other expenses include the following offset income and expenses: € thou 2016 Pensions and similar obligations Other obligations Actual return of the offset assets (14,367) (325) Imputed interest cost for the settlement amount of the offset liabilities Effect resulting from the change in the discount rate for the settlement amount Net amount of the offset income and expenses 257,785 (106,582) 136,836 403 25 103 FEES TO THE AUDITOR Details of the fees to the auditor pursuant to § 285 No. 17 HGB for ser- vices to Allianz SE can be found in the notes to the consolidated financial statements of Allianz Group. 24 – Income taxes In 2016, the tax income, which mostly relates to the net operating income, increased to € 266 MN (2015: € 358 MN). As the controlling company (“Organträger”) of the tax group, Allianz SE files a consolidated tax return with most of its German affiliated enterprises. As long as the corporate income tax loss carried forward is not fully utilized, the tax compensation payments as of € 523 MN (2015: € 664 MN) received from members of the tax group result presumably in a tax income. The main differences between accounting and tax-based valua- tion arise from the balance sheet items reserves for loss and loss adjustment expenses, pension accruals and liabilities resulting in deferred tax assets. In addition, the existing corporate tax loss increases the surplus of deferred tax assets. The valuation of the domestic deferred taxes is based on the following tax rates: − 31.0 % differences in balance sheet items, − 15.8 % corporate tax losses, − 15.2 % trade tax losses. 25 – Net earnings € thou Net income Unappropriated earnings carried forward Net earnings 2016 2015 2,947,614 3,553,633 908,252 674,993 3,855,866 4,228,626 Annual Report 2016 Allianz SE 67 C Financial Statements of Allianz SE Other InfOrmatIOn Contingent liabilities, other financial commitments and legal proceedings CONTINGENT LIABILITIES GUARANTEES RELATING TO ALLIANZ GROUP COMPANIES The following guarantees are provided by Allianz SE to Allianz Group companies as well as to third parties with regard to the liabilities of certain Allianz Group companies: − bonds issued by Allianz Finance II B.V. and Allianz Finance III B.V. for € 11.8 BN, of which € 4.7 BN were on a subordinated basis, − commercial papers issued by Allianz Finance Corporation. As of 31 December 2016, USD 0.1 BN in commercial papers were issued as part of the program, − letters of credit issued to various Allianz Group companies amounting to € 0.6 BN. The guarantees are related to the occurrence of possible future events that could lead to an obligation. As of today, and to the best of our knowledge, we assess the probability of a loss resulting from out- standing guarantees to be extremely remote. Guarantee declarations totaling € 1.2 BN have also been made for life policies signed by Allianz Companía de Seguros y Reaseguros S.A. Allianz SE provides a € 1.0 BN guarantee for the obligations of Allianz Vie S.A. under a unit-linked pension insurance contract. Contingent liabilities exist because of indirect pension promises organized via pension funds ( Allianz Versorgungs kasse VVaG) and support funds ( Allianz Pensionsverein e.V.). Allianz SE has a joint liability of € 408 MN for a part of the German pension promises and plan assets for phased-in early retirement obligations of its German subsidiaries. In the context of the transfer of a promissory note of AFF Finan- cing Limited, Allianz SE provided a guarantee to Allianz Lebensversi- cherungs-AG of up to € 80 MN. There are financial commitments in connection with the pro- mise of compensation to holders of rights under stock option pro- grams of Allianz France S.A. In the context of the sale of investments, guarantees were given in individual cases covering counterparty exposures or the various bases used to determine purchase prices. Allianz SE has also provided several subsidiaries and associates with either a standard indemnity guarantee or such guarantees as required by the supervisory authorities, which cannot be quantified. These include, in particular, a deed of general release as against the Federal Association of German Banks (“Bundesverband deutscher Banken e.V.”) for Oldenburgische Landesbank AG and Münster- ländische Bank Thie & Co. KG, in accordance with § 5 (10) of the Stat- ute of Deposit Security Arrangement Fund. With respect to Münster- ländische Bank Thie & Co. KG, the declaration has been withdrawn in January 2016. In addition, Allianz SE has issued guarantees to various Allianz Group companies totaling € 475 MN. OTHER GUARANTEES TO THIRD PARTIES A contingent indemnity agreement has been entered into with respect to securities issued by HT1 Funding GmbH in case HT1 Funding GmbH cannot serve the agreed coupon of the bond in part or in total. The expected obligations for Allianz SE for the foreseeable future have been recognized in provisions. However, it is not possible for Allianz SE to predict the ultimate payment obligations at this point in time. As of 31 December 2016, other guarantee commitments given by Allianz SE amounted to € 16 MN. As of today and to the best of our knowledge, we assess the probability of a loss resulting from other guarantees to be extremely remote. LEGAL OBLIGATIONS Legal obligations to assume any losses arise on account of manage- ment control agreements and/or profit transfer agreements with the following companies: − Allianz Argos 14 GmbH, − Allianz Asset Management AG, − Allianz Capital Partners GmbH, − Allianz Deutschland AG, − Allianz Finanzbeteiligungs GmbH, − Allianz Global Corporate & Specialty SE, − Allianz Investment Management SE, − Allianz Managed Operations & Services SE, − Allianz Real Estate GmbH, − AZ-Arges Vermögensverwaltungsgesellschaft mbH, − IDS GmbH-Analysis and Reporting Services. OTHER FINANCIAL COMMITMENTS Advertising agreements led to financial obligations of € 64 MN. Security deposits for rental contracts amounted to € 0.1 MN in financial commitments. LITIGATION Allianz SE is involved in legal, regulatory, and arbitration procee- dings. Such proceedings arise in the ordinary course of business, including, amongst others, Allianz SE’S activities as a reinsurance company, employer, investor and taxpayer. 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 the one discussed below, will have a material adverse effect on the financial position and the results of Allianz SE, after consideration of any applicable provisions. 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 the principal share- holder, in return for payment of a cash settlement amounting to € 51.50 per share. Allianz established the amount of the cash settle- ment on the basis of an expert opinion and its adequacy was con- firmed by a court-appointed auditor. Some of the former minority shareholders applied for a court review of the appropriate amount of the cash settlement in a mediation procedure (“Spruchverfahren”). In September 2013 the district court (“Landgericht”) of Frankfurt dis- missed the minority shareholders’ claims in their entirety. This deci- sion has been appealed to the higher regional court (“Oberlandes- 68 Annual Report 2016 Allianz SE C Financial Statements of Allianz SE gericht”) of Frankfurt. In the event that a final decision were to determine a higher amount as an appropriate cash settlement, this would affect all of the approximately 16 MN shares that were trans- ferred to Allianz. Board Members BENEFITS TO RETIRED MEMBERS OF THE BOARD OF MANAGEMENT In 2016, remuneration and other benefits of € 7 MN (2015: € 7 MN5) were paid to retired members of the Board of Management and surviving dependents. The pension obligations for former members of the Board of Management and their surviving dependents are as follows: All supervisory board members, current or having resigned during the year, and all board members, current or having resigned during page 7 and 8. Their memberships in the year, are denoted on supervisory boards or similar committees of other enterprises are also mentioned on these pages. € thou as of 31 December Historical costs of the offset assets Fair value of the offset assets Settlement amount of the offset liabilities Pension provisions 2016 94,006 94,006 96,826 2,820 2015 87,493 87,493 97,975 10,482 Board of Management remuneration1 As of 31 December 2016, the Board of Management was comprised of nine members. The following expenses reflect the full Board of Man- agement active in the respective year. The remuneration of the Board of Management includes fixed and variable components. The variable remuneration consists of the annual bonus (short- term), the mid-term bonus (MTB) and the equity-related remunera- tion (long-term). In 2016, the equity-related remuneration was com- prised of 66,6942 (2015: 79,6993) Restricted Stock Units (RSU). Board of managEmEnt rEmunEration € thou Base salary Annual bonus Perquisites Base salary, annual bonus and perquisites total Fair value of RSu at grant date Equity-related remuneration Total 2016 (7,125) (8,911) (302) (16,338) (8,911) (8,911) 2015 (8,004) (9,725) (341) (18,070) (9,725) (9,725) (25,249) (27,795) The asset value of the pension plan reinsurance contracts is taken as a basis for the fair value of the offset assets. Supervisory Board remuneration6 Fixed remuneration Committee-related remuneration Attendance fees Total 2016 2015 € thou (1,408) (558) (59) % € thou 69.5 (1,400) 27.5 3.0 (560) (61) (2,025) 100.0 (2,021) % 69.3 27.7 3.0 100.0 Average number of employees Excluding members of the Board of Management, trainees, interns, employees in the passive phase of early retirement and employees on maternity leave or voluntary military/federal voluntary service. Total remuneration of the Board of Management of Allianz SE for 2016 (excluding the relevant MTB 2016 – 2018 tranche) amounted to € 25,624 THoU4 (2015, including the MTB 2013 – 2015 payout: € 56,970 THoU). Full-time staff Part-time staff Total EQUITY-RELATED REMUNERATION The remuneration system as of 1 January 2010 only awards RSU. For 2016 the fair value of the RSU at the date of grant was € 8,911 THoU (2015: € 9,725 THoU). 2016 1,389 226 1,615 2015 1,359 224 1,583 1 2 3 4 For detailed information regarding the Board of Management remuneration, please refer to the Remu- neration Report starting on page 34. The relevant share price to determine the final number of rSU granted is only available after the sign-off by the external auditors, thus numbers are based on a best estimate. The disclosure in the Annual Report 2015 was based on a best estimate of the rSU grants. The figure shown here for 2015 now includes the actual fair value as of the grant date (4 March 2016). The value therefore differs from the value disclosed last year. Including the payment of the mtB tranch for Jay Ralph of € 375 thOU. 5 6 The 2015 amount includes bonus payments made to Clement Booth in 2015, which were already shown as variable compensation for 2014. The amount shown for 2016 excludes compensation that paid for active Board membership and disclosed as compensation of the respective performance year. For detailed information regarding the Supervisory Board remuneration, please refer to the chapter Re- muneration of the Supervisory Board starting on page 43. Annual Report 2016 Allianz SE 69 C Financial Statements of Allianz SE Staff expenses Including members of the Board of Management, trainees, interns, employees in the passive phase of early retirement, and employees on maternity leave or voluntary military/federal voluntary service. € thou Wages and salaries Statutory welfare contributions and expenses for optional support payments Expenses for pensions and other post-retirement benefits Total expenses 2016 2015 (318,337) (326,549) (22,305) (20,816) (23,313) (21,889) (363,955) (369,254) Events after the balance sheet date CHANGES IN SUBORDINATED BONDS In January 2017, our subsidiary Allianz Finance II B.V. called for redemption a subordinated bond with a coupon of 4.375 % p.a. in the amount of € 1.4 BN. The bond has been redeemed on 17 February 2017 in accordance with the terms and conditions of the bond. Furthermore, in January 2017, Allianz SE issued a subordinated bond in the amount of € 1.0 BN with a scheduled maturity in July 2047, but with ordinary call rights of Allianz beginning in July 2027. The coupon of 3.099 % p.a. is fixed until July 2027. Also in January 2017, Allianz SE issued a subordinated bond in the amount of USD 0.6 BN with a scheduled maturity in January 2049, but with ordinary call rights of Allianz beginning in January 2029. The coupon of 5.1 % p.a. is fixed until January 2029. SHARE BUY-BACK PROGRAM AND CAPITAL MANAGEMENT On 16 February 2017, Allianz SE has decided to launch a share buy- back program with a volume of up to € 3 BN and to simplify capital management to make it more flexible. For further details, please refer to the section “Expected dividend development” of the chapter Out- look 2017 within the Group Management Report. Mandates of the Members of the Super- visory Board and Board of Management The disclosures required in accordance with § 285 No. 10 HGB for the Supervisory Board and Board of Management can be found on page 7 and 8. Information pursuant to § 160 (1) No. 8 AktG The following major shareholdings were reported pursuant to § 20 (1) or (4) AktG or pursuant to § 21 WpHG: By way of letter dated 27 December 2016, BlackRock Inc., Wil- mington, Delaware, United Stated, notified in the course of a volun- tary group notification with triggered threshold on subsidiary level its voting rights pursuant to § 21 (1) WpHG as of 21 December 2016 amounting to 5.88 % (representing 26,880,708 shares), its holdings in instruments pursuant to § 25 (1) No. 1 WpHG as of 21 December 2016, amounting to 0.23 % (representing 1,071,257 voting rights absolute), and its holdings in instruments pursuant to § 25 (1) No. 2 WpHG as of 21 December 2016, amounting to 0.03 % (representing 158,489 voting rights absolute). The total position notified on 27 December 2016 amounted to 6.15 %. Declaration of Conformity with the German Corporate Governance Code On 15 December 2016, the Board of Management and the Supervisory Board of Allianz SE issued the Declaration of Conformity with the Ger- man Corporate Governance Code required by § 161 AktG and made it www.allianz. permanently available on the company’s website at com/corporate-governance. 70 Annual Report 2016 Allianz SE  List of ParticiPations of aLLianz sE, Munich as of 31 DEcEMbEr 2016 accorDing to § 285 no. 11 anD 11b hgb in conjunction with § 286 (3) no. 1 hgb C Financial Statements of Allianz SE German entities Affiliates ACP Vermögensverwaltung GmbH & Co. KG Nr. 4a, Munich ACP Vermögensverwaltung GmbH & Co. KG Nr. 4c, Munich ACP Vermögensverwaltung GmbH & Co. KG Nr. 4d, Munich ADEUS Aktienregister-Service-GmbH, Munich AGCS Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich Alida Grundstücksgesellschaft mbH & Co. KG, Hamburg Allianz Asset Management AG, Munich Allianz AZL Vermögensverwaltung GmbH & Co. KG, Munich Allianz Beratungs- und Vertriebs-AG, Munich Allianz Capital Partners Verwaltungs GmbH, Munich Allianz Deutschland AG, Munich Allianz Finanzbeteiligungs GmbH, Munich Allianz Global Corporate & Specialty SE, Munich Allianz Global Investors GmbH, Frankfurt am Main Allianz Handwerker Services GmbH, Aschheim Allianz Investment Management SE, Munich Allianz Leben Direkt Infrastruktur GmbH, Munich Allianz Leben Infrastrukturfonds GmbH, Munich 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 Lebensversicherungs-Aktiengesellschaft, Stuttgart Allianz Managed Operations & Services SE, Munich Allianz of Asia-Pacific and Africa GmbH, Munich Allianz Pension Direkt Infrastruktur GmbH, Munich Allianz Pensionsfonds Aktiengesellschaft, Stuttgart Allianz Pensionskasse Aktiengesellschaft, Stuttgart Allianz Private Equity GmbH, Munich Allianz Private Krankenversicherungs-Aktiengesellschaft, Munich Allianz Renewable Energy Subholding GmbH & Co. KG, Sehestedt Allianz Taunusanlage GbR, Stuttgart Allianz Versicherungs-Aktiengesellschaft, Munich AllSecur Deutschland AG, Munich APKV Direkt Infrastruktur GmbH, Munich APKV Infrastrukturfonds GmbH, Munich APKV Private Equity Fonds GmbH, Munich ARE Brep Acht Vermögensbeteiligungsgesellschaft mbH & Co. KG, Munich AWP Service Deutschland GmbH, Aschheim AZ-Arges 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 64 Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich AZ-Argos 70 Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich AZ-GARI Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich AZL AI Nr. 1 GmbH, Munich AZ-SGD Direkt Infrastruktur GmbH, Munich AZ-SGD Infrastrukturfonds GmbH, Munich AZ-SGD Private Equity Fonds 2 GmbH, Munich AZ-SGD Private Equity Fonds GmbH, Munich BrahmsQ Objekt GmbH & Co. KG, Stuttgart Deutsche Lebensversicherungs-Aktiengesellschaft, Berlin Euler Hermes Aktiengesellschaft, Hamburg manroland AG, Offenbach am Main manroland Vertrieb und Service GmbH, Mühlheim am Main Münchener und Magdeburger Agrarversicherung Aktiengesellschaft, Munich Annual Report 2016 Allianz se Owned1 % Equity € thou Net Earnings € thou 5,715 (60) 31,769 17,927 387,731 – 100.0 100.0 100.0 79.6 5,007 8,208 100.0 94.8 3 100.0 2 6,551 414,041 3,308,258 409,218 100.0 100.0 2 8,605 10,950 100.0 100.0 2 8,174,341 100.0 2 824,570 100.0 3,2 1,144,236 100.0 2 395,847 28,776 100.0 100.0 2 5,882 100.0 2 182,185 100.0 2 86,456 100.0 2 192,364 100.0 2 2,007,235 100.0 2 40,321 100.0 2 100.0 3,2 100.0 100.0 2 100.0 100.0 100.0 2 1,598,344 211,296 81,663 5,656 54,085 263,321 31,323 100.0 2 100.0 3 99.5 3 100.0 2 100.0 2 100.0 2 100.0 2 100.0 2 100.0 100.0 19,493 181,320 1,487,699 44,831 50,477 12,610 306,026 83,886 7,101 (5,610) 668 576 10,612 – (62) (878) 3,425 – – – – 1,763 – – – – – – – – – – 1,901 18,839 – (14) 5,792 (28) – – – – 291 1,296 – 100.0 2 164,583 100.0 54,824 12,948 100.0 175,907 19,293 100.0 192,547 34,870 100.0 100.0 100.0 79,343 18,089 40,048 2,888 7,648 76 100.0 163,613 100.0 2 10,251,128 100.0 2 47,786 100.0 2 14,248 100.0 2 56,038 100.0 2 449,976 94.8 3 88,532 14,534 – – – – – 2,672 100.0 2 100.0 3 100.0 4,5 100.0 4,5 100.0 2 44,991 91,936 148,289 – 31,397 (179,129) 5,155 7,686 – 17 Oldenburgische Landesbank Aktiengesellschaft, Oldenburg PIMCO Deutschland GmbH, Munich REC Frankfurt Objekt GmbH & Co. KG, Hamburg Spherion Objekt GmbH & Co. KG, Stuttgart Volkswagen Autoversicherung AG, Braunschweig Volkswagen Autoversicherung Holding GmbH, Braunschweig 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 Freyenstein-Halenbeck GmbH & Co. KG, Sehestedt Windpark Kesfeld-Heckhuscheid GmbH & Co. KG, Sehestedt Windpark Kirf GmbH & Co. KG, Sehestedt Windpark Kittlitz GmbH & Co. KG, Sehestedt Windpark Pröttlin GmbH & Co. KG, Sehestedt Windpark Quitzow GmbH & Co. KG, Sehestedt Windpark Redekin-Genthin GmbH & Co. KG, Sehestedt Windpark Schönwalde GmbH & Co. KG, Sehestedt Windpark Waltersdorf GmbH & Co. KG Renditefonds, Sehestedt Windpark Werder Zinndorf GmbH & Co. KG, Sehestedt Owned1 % 90.2 100.0 2 80.0 100.0 3 100.0 2 49.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 Equity € thou 649,349 35,030 309,334 79,354 108,517 113,402 24,021 12,378 27,372 50,719 16,652 39,055 42,599 Net Earnings € thou 35,219 – 8,997 2,647 – (2,888) 1,226 2,200 3,170 3,390 2,223 6,910 2,646 24,133 2,996 25,822 5,902 9,543 18,066 17,953 29,126 20,105 11,464 30,250 2,504 718 994 2,510 2,079 2,403 1,621 1,024 3,191 Joint ventures Dealis Fund Operations GmbH, Frankfurt am Main 50.0 18,587 943 Associates AV Packaging GmbH, Munich T&R Investment GmbH & Co. KG, Bonn T&R Real Estate GmbH, Bonn Other participations below 20 % of voting rights APEP Dachfonds GmbH & Co. KG, Munich Asia Property Fund II GmbH & Co. KG, Munich EXTREMUS Versicherungs-Aktiengesellschaft, Cologne FC Bayern München AG, Munich Mittelständische Beteiligungsgesellschaft Niedersachsen (MBG) mbH, Hanover MLP AG, Wiesloch Objekt Burchardplatz GmbH & Co. KG, Stuttgart Protektor Lebensversicherungs-AG, Berlin Sana Kliniken AG, Ismaning ForeiGn entities Affiliates 114 Venture LP, Wilmington, DE 490 Lower Unit LP, Wilmington, DE 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 Service Company Corp., Richmond, VA AGCS Marine Insurance Company, Chicago, IL AGCS Resseguros Brasil S.A., São Paulo AGF Holdings (UK) Limited, Guildford AGF Inversiones S.A., Buenos Aires Allianz (UK) Limited, Guildford Allianz Africa S.A., Paris la Défense Allianz Alapkezelõ Zrt., Budapest Allianz Argentina Compañía de Seguros Generales S.A., Buenos Aires Allianz Argentina RE S.A., Buenos Aires 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 Insurance Limited, Sydney Allianz Australia Life Insurance Limited, Sydney Allianz Australia Limited, Sydney 51.0 25.0 3 25.0 3 12.1 3 11.8 3 16.0 3 8.3 3 5.5 3 8.8 3 5.1 3 10.0 3 14.3 3 99.0 3 100.0 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 3 100.0 3 100.0 100.0 3 100.0 100.0 3 100.0 100.0 3 100.0 3 100.0 100.0 100.0 100.0 3 100.0 3 100.0 3 17,699 350,120 140,867 445,421 167,080 50,000 411,494 12,235 387,573 93,507 92,900 400,605 166,962 146,524 11,411 13,081 9,362 15,013 17,837 8,850 120,921 44,420 95,781 21,359 481,131 32,530 7,223 3,755 (102) – (128,052) 12,183 500 15,122 759 15,569 1,894 1,824 390,644 (33) 4,001 3,143 1,559 965 1,460 12,707 12,031 505 3,335 23,904 4,940 34 4,575 3,336 55,448 19,174 706,470 6,611,376 259,577 1,544,721 48,810 1,569,089 11,182 11,399 1,267,291 1,542,252 59,710 179,040 6,370 176,118 71 C Financial Statements of Allianz SE Allianz Ayudhya Assurance Public Company Limited, Bangkok Allianz Bank Bulgaria AD, Sofia Allianz Bank Financial Advisors S.p.A., Milan Allianz Banque S.A., Puteaux Allianz Benelux S.A., Brussels Allianz Bulgaria Holding AD, Sofia Allianz Burkina Assurances SA, Ouagadougou Allianz C.P. General Insurance Co. Ltd., Bangkok Allianz Cameroun Assurances SA, Douala Allianz Carbon Investments B.V., Amsterdam Allianz Cash SAS, Paris la Défense Allianz Chicago Private Reit LP, Wilmington, DE Allianz China General Insurance Company Ltd., Guangzhou Allianz China Life Insurance Co. Ltd., Shanghai Allianz Colombia S.A., Bogotá D.C. Allianz Compañía de Seguros y Reaseguros S.A., Barcelona Allianz Cornhill Information Services Private Ltd., Trivandrum Allianz Côte d'Ivoire Assurances SA, Abidjan Allianz Côte d'Ivoire Assurances Vie SA, Abidjan Allianz Digital Corporate Ventures S.à r.l., Luxembourg Allianz do Brasil Participações Ltda., São Paulo Allianz Elementar Lebensversicherungs-Aktiengesell- schaft, Vienna Allianz Elementar Versicherungs-Aktiengesellschaft, Vienna Allianz Engineering Inspection Services Limited, Guildford Allianz Equity Investments Ltd., Guildford Allianz Europe B.V., Amsterdam Allianz Europe Ltd., Amsterdam Allianz Finance II B.V., Amsterdam Allianz Finance II Luxembourg S.à r.l., Luxembourg Allianz Finance VII Luxembourg S.A., Luxembourg Allianz Finance VIII Luxembourg S.A., Luxembourg Allianz Fire and Marine Insurance Japan Ltd., Tokyo Allianz France Investissement OPCI, Paris la Défense Allianz France Real Estate Invest SPPICAV, Paris la Défense Allianz France Richelieu 1 S.A.S., Paris la Défense Allianz France S.A., Paris la Défense Allianz France US REIT LP, Wilmington, DE Allianz Fund Investments Inc., Wilmington, DE Allianz General Insurance Company (Malaysia) Berhad p.l.c., Kuala Lumpur Allianz Global Corporate & Specialty do Brasil Participações Ltda., Rio de Janeiro Allianz Global Corporate & Specialty of Africa (Proprietary) Ltd., Johannesburg Allianz Global Corporate & Specialty South Africa Ltd., Johannesburg Allianz Global Investors Asia Pacific Ltd., Hong Kong Allianz Global Investors Distributors LLC, Dover, DE Allianz Global Investors Japan Co. Ltd., Tokyo 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 dac, Dublin Allianz Global Risks US Insurance Company Corp., Chicago, IL 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 la Défense Allianz Holdings plc, Guildford Allianz Hungária Biztosító Zrt., Budapest Allianz IARD S.A., Paris la Défense Allianz Individual Insurance Group LLC, Minneapolis, MN 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., Luxembourg Allianz Infrastructure Norway Holdco I S.à r.l., Luxembourg Allianz Infrastructure Spain Holdco I S.à r.l., Luxembourg Allianz Infrastructure Spain Holdco II S.à r.l., Luxembourg Allianz Insurance Company of Kenya Limited, Nairobi Allianz Insurance Company-Egypt S.A.E., New Cairo Owned1 % Equity € thou Net Earnings € thou 62.6 3 99.9 3 100.0 3 100.0 100.0 3 66.2 3 60.3 3 100.0 3 75.4 3 100.0 3 100.0 100.0 100.0 3 51.0 3 100.0 3 360,709 100,455 250,516 118,459 841,159 53,409 5,306 24,357 14,460 13,049 5,230 197,944 44,618 35,701 100,312 45,123 5,199 20,362 5,289 519 17,240 1,117 457 3,055 (5,120) (33) 5 (1,260) 1,358 1,805 99.9 956,836 146,485 100.0 74.1 3 71.0 3 100.0 3 100.0 3 32,431 8,778 7,350 5,387 288,096 4,402 2,080 1,991 (53) (102,014) 100.0 201,045 3,696 100.0 457,342 119,544 100.0 100.0 100.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 3 100.0 100.0 100.0 100.0 3 8,134 162,495 45,713,477 9,558,311 15,556 3,673,532 783,534 240,448 24,263 137,520 1,624,428 468,131 6,175,772 125,355 256,312 2,446 3,786 1,297,755 (84,294) 2,846 (27,128) (8,153) 53 6,909 5,415 31,503 9,146 1,018,076 197 (285) 100.0 374,745 53,150 100.0 3 100.0 3 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 3 100.0 3 89.0 100.0 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 3 100.0 3 100.0 3 48,887 3,316 7,705 290 7,865 27,604 34,291 6,836 11,970 28,400 114,723 75,807 107,852 1,538,915 18,033 139,765 349,943 2,392,360 7,863,619 1,093,722 1,018,443 2,026,284 203,651 293 857 (1,769) 1,193 (1,412) 9,736 106,867 114,618 (8,560) 24,716 (3,603) 3,653 5,604 356,655 1,892,768 614 39,162 343,892 (5,285) 8,654 44,794 8,615 44,830 100.0 3 1,048,522 13 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 95.0 3 218,895 1,436,338 (13) 30,286 61,002 54,433 80,139 9,459 23,397 175 (7) 699 311 3,938 Allianz Insurance Lanka Limited, Colombo Allianz Insurance plc, Guildford Allianz Invest Kapitalanlagegesellschaft mbH, Vienna Allianz Investment Management LLC, Minneapolis, MN Allianz Investmentbank Aktiengesellschaft, Vienna Allianz Irish Life Holdings p.l.c., Dublin Allianz Leasing Bulgaria AD, Sofia Allianz Life & Annuity Company, Minneapolis, MN Allianz Life (Bermuda) Ltd., Hamilton Allianz Life Assurance Company-Egypt S.A.E., New Cairo Allianz Life Financial Services LLC, Minneapolis, MN 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 Malaysia Berhad p.l.c., Kuala Lumpur Allianz Life Luxembourg S.A., Luxembourg Allianz Malaysia Berhad p.l.c., Kuala Lumpur Allianz Marine (UK) Ltd., Ipswich Allianz Maroc S.A., Casablanca Allianz Mena Holding Bermuda Ltd., Beirut Allianz México S.A. Compañía de Seguros, Mexico City Allianz Nederland Asset Management B.V., Rotterdam Allianz Nederland Groep N.V., Rotterdam Allianz Nederland Levensverzekering N.V., Rotterdam Allianz New Europe Holding GmbH, Vienna Allianz New Zealand Limited, Auckland Allianz of America Inc., Wilmington, DE Allianz p.l.c., Dublin Allianz Pensionskasse Aktiengesellschaft, Vienna Allianz penzijní spolecnost a.s., Prague Allianz PNB Life Insurance Inc., Makati City 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 Reaseguros S.A., Madrid Allianz Presse US REIT LP, Wilmington, DE Allianz Private Equity UK Holdings Limited, London Allianz Properties Limited, Guildford Allianz Re Dublin dac, Dublin 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 of America LLC, Wilmington, DE Allianz Renewable Energy Partners V plc., London Allianz Renewable Energy Partners VI Limited, London Allianz Renewable Energy Partners VIII Limited, London Allianz Risk Transfer (Bermuda) Ltd., Hamilton Allianz Risk Transfer AG, Schaan Allianz Risk Transfer Inc., New York, NY Allianz Risk Transfer N.V., Amsterdam Allianz S.p.A., Trieste Allianz Saúde S.A., São Paulo Allianz Seguros de Vida S.A., Bogotá D.C. Allianz Seguros S.A., São Paulo Allianz Seguros S.A., Bogotá D.C. Allianz Sénégal Assurances SA, Dakar Allianz Services (UK) Limited, London Allianz Sigorta A.S., Istanbul Allianz SNA s.a.l., Beirut Allianz Société Financière S.à r.l., Luxembourg Allianz South America Holding B.V., Amsterdam Allianz Specialised Investments Limited, London Allianz Subalpina Holding S.p.A., Turin Allianz Suisse Lebensversicherungs-Gesellschaft AG, Wallisellen Allianz Suisse Versicherungs-Gesellschaft AG, Wallisellen Allianz Taiwan Life Insurance Co. Ltd., Taipei Allianz Tiriac Asigurari SA, Bucharest Allianz Tiriac Pensii Private Societate de administrare a fondurilor de pensii private S.A., Bucharest Allianz Underwriters Insurance Company Corp., Burbank, CA Allianz US Investment LP, Wilmington, DE Allianz US Private REIT LP, Wilmington, DE Owned1 % 100.0 3 100.0 100.0 3 100.0 3 100.0 66.5 3 51.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 3 100.0 3 75.0 3 100.0 3 98.9 3 99.9 3 100.0 100.0 100.0 100.0 100.0 100.0 3 100.0 100.0 3 100.0 100.0 3 51.0 100.0 3 100.0 3 100.0 100.0 60.0 100.0 100.0 100.0 100.0 100.0 3 100.0 100.0 98.8 98.8 100.0 100.0 100.0 100.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 3 100.0 83.2 3 100.0 3 96.2 100.0 3 100.0 3 100.0 3 100.0 98.1 3 100.0 100.0 99.7 3 52.2 3 100.0 3 100.0 3 100.0 100.0 Equity € thou 6,309 1,348,928 5,549 5,098 34,682 61,516 5,471 7,603 7,077 52,471 31,244 31,276 252,738 122,713 5,765,942 9,061 114,497 67,498 53,514 12,175 74,850 22,283 90,513 30,351 313,832 260,395 842,169 34,100 9,004,192 352,480 11,223 28,881 15,118 166,521 13,272 8,147 21,933 1,018,469 120,628 33,488 18,806 201,435 537,326 207,439 83,491 167,485 774,203 483,816 749,521 370,411 141,118 53,201 639,485 52,197 31,871 3,399,299 62,963 60,374 285,044 49,341 5,137 6,709 442,536 47,561 1,401,280 279,158 7,069 355,050 962,260 618,261 168,776 168,117 Net Earnings € thou 908 87,133 1,661 43,623 5,169 10,025 891 151 1,254 15,922 (38) 42,753 (11,906) (950) 451,927 (1,542) 15,976 5,727 4,038 72 4,162 (216) 27,492 1,422 32,388 15,443 170,505 1,708 572,600 8,866 357 1,523 1,934 29,395 1,977 23,582 22,980 210,274 59,415 (270) 268 32 204,597 8,886 (11,239) 5,790 9,612 11,130 17,707 (2,016) (47) 5,005 89,491 (67) 207 661,127 (57,014) 8,877 (104,984) 3,392 443 102 112,477 5,405 21,944 (231,763) (4) 325,048 69,591 263,051 (35,974) 18,399 13,526 5,381 56,482 1,098,891 1,130,388 1,167 (5,802) (6,598) 72 Annual Report 2016 Allianz se Owned1 % 100.0 100.0 100.0 80.0 83.2 3 51.0 100.0 99.6 100.0 3 100.0 3 100.0 100.0 3 100.0 3 100.0 3 100.0 100.0 3 100.0 100.0 3 100.0 100.0 100.0 100.0 3 100.0 3 100.0 3 100.0 100.0 3 95.0 100.0 100.0 100.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 55.0 100.0 3 100.0 100.0 3 100.0 100.0 3 100.0 3 100.0 100.0 100.0 100.0 100.0 93.2 100.0 100.0 3 100.0 100.0 3 100.0 3 64.8 100.0 100.0 3 50.0 3 50.0 3 100.0 3 50.1 100.0 3 100.0 3 100.0 3 100.0 3 55.0 3 100.0 3 100.0 3 100.0 3 63.9 3 100.0 3 100.0 3 100.0 3 Equity € thou 2,639,215 21,949 369,015 108,028 110,017 Net Earnings € thou 333,545 5,415 3,772 48,551 13,638 21,358 45,863 412,324 144,294 30,694 18,786 40,469 80,952 35,522 10,339 15,801 16,838 13,212 52,315 207,673 13,523 55,188 51,467 30,490 5,780 71,979 26,376 410,088 308,014 15,088 270,036 3,218,713 106,530 24,899 2,643,749 303,529 81,922 20,984 506,154 12,942 9,482 5,275 88,771 14,759 486 687 307 – (28) 3,462 8 (1,085) 1,487 (227) (219) 3,955 793 937 1,995 5,126 1,931 42,405 37,842 23,596 13,332 6,208 21,507 (3,831) 132 75 (19,908) (2,014) 5,967 – 2,423 84,478 3,078 140,497 46,048 5,005 35,489 11,526 156,267 69,523 21,460 196,540 60,813 8,213 36,511 50,563 29,991 184,509 14,453 33,907 75,578 474,781 232,117 92,425 9,559 10,727 558,798 5,701 9,627 5,504 6,639 157,780 1,313,188 14,798 100,632 8,898 3,221 (274) (24) 514 6,602 (25,295) 746 2,482 (13,554) (2,746) 496 3,158 4,706 10,084 (885) 22,418 5,075 23,801 72,868 11,062 (874) 597 7,936 801 2,860 2,036 4,319 7,213 204,026 1,341 (28) 164,357 13,319 Euler Hermes North America Insurance Company Inc., Owings Mills, MD Euler Hermes Patrimonia SA, Brussels Euler Hermes Ré SA, Luxembourg Euler Hermes Real Estate SPPICAV, Paris la Défense Euler Hermes Recouvrement France S.A.S., Paris la Défense Euler Hermes Reinsurance AG, Wallisellen Euler Hermes S.A., Brussels Euler Hermes Seguros de Crédito S.A., São Paulo Euler Hermes Service AB, Stockholm Euler Hermes Services Italia S.r.l, Rome Euler Hermes Services Sp. z o.o., Warsaw Euler Hermes Sigorta A.S., Istanbul Euler Hermes South Express S.A., Brussels Euler Hermes World Agency SASU, Paris la Défense Eurl 20/22 Le Peletier, Paris la Défense Eurosol Invest S.r.l., Udine Fénix Directo Compañía de Seguros y Reaseguros S.A., Madrid Fireman's Fund Indemnity Corporation, Liberty Corner, NJ Fireman's Fund Insurance Company Corp., Los Angeles, CA Fireman's Fund Insurance Company of Hawaii Inc., Honolulu, HI Fireman's Fund Insurance Company of Ohio Corp., Cincinnati, OH Fragonard Assurance S.A., Paris Fu An Management Consulting Co. Ltd., Beijing GamePlan Financial Marketing LLC, Woodstock, GA Generation Vie S.A., Courbevoie Genialloyd S.p.A., Milan Havelaar & van Stolk B.V., Rotterdam Home & Legacy Insurance Services Limited, London Immovalor Gestion S.A., Paris la Défense Insurance CJSC "Medexpress", Saint Petersburg Interstate Fire & Casualty Company, Chicago, IL Investitori SGR S.p.A., Milan Järvsö Sörby Vindkraft AB, Danderyd Jefferson Insurance Company Corp., New York, NY JSC Insurance Company Allianz, Moscow Kiinteistö OY Eteläesplanadi 2, Helsinki Lloyd Adriatico Holding S.p.A., Trieste Mondial Assistance Australia Holding Pty Ltd., Toowong Mondial Assistance United Kingdom Ltd., Croydon Surrey Mondial Serviços Ltda., São Bernardo do Campo National Surety Corporation, Chicago, IL NEXtCARE Holding WLL, Manama NFJ Investment Group LLC, Dover, DE OJSC "My Clinic", Moscow OPCI Allianz France Angel, Paris la Défense Orione PV S.r.l., Milan Orsa Maggiore PV S.r.l., Milan Pacific Investment Management Company LLC, Dover, DE Personalized Brokerage Service LLC, Topeka, KS Pet Plan Ltd., Guildford PFP Holdings Inc., Dover, DE PGA Global Services LLC, Dover, DE PIMCO (Schweiz) GmbH, Zurich PIMCO Asia Ltd., Hong Kong PIMCO Asia Pte Ltd., Singapore PIMCO Australia Management Limited, Sydney PIMCO Australia Pty Ltd., Sydney PIMCO Canada Corp., Toronto, ON PIMCO Europe Ltd., London PIMCO Global Advisors (Ireland) Ltd., Dublin PIMCO Global Advisors (Resources) LLC, Dover, DE PIMCO Global Advisors LLC, Dover, DE PIMCO Global Holdings LLC, Dover, DE PIMCO Investments LLC, Dover, DE PIMCO Japan Ltd., Road Town POD Allianz Bulgaria AD, Sofia Protexia France S.A., Paris la Défense PT Asuransi Allianz Life Indonesia p.l.c., Jakarta PTE Allianz Polska S.A., Warsaw Q207 S.C.S., Luxembourg Questar Capital Corporation, Minneapolis, MN Real Faubourg Haussmann SAS, Paris la Défense Real FR Haussmann SAS, Paris la Défense Redoma S.à r.l., Luxembourg Rogge Global Partners Ltd., London SA Carène Assurance, Paris San Francisco Reinsurance Company, Los Angeles, CA Allianz Vie S.A., Paris la Défense Allianz Vorsorgekasse AG, Vienna Allianz Worldwide Partners S.A.S., Saint-Ouen Allianz Yasam ve Emeklilik A.S., Istanbul Allianz Zagreb d.d., Zagreb Allianz ZB d.o.o. Company for the Management of Obligatory Pension Funds, Zagreb Allianz-Slovenská DSS a.s., Bratislava Allianz-Slovenská poist'ovna a.s., Bratislava American Automobile Insurance Company Corp., Earth City, MO American Financial Marketing Inc., Minneapolis, MN AMOS Austria GmbH, Vienna AMOS European Services SAS, Paris AMOS IberoLatAm S.L., Barcelona AMOS International B.V., Amsterdam AMOS IT Suisse AG, Wallisellen AMOS Italy S.p.c.A., Milan AMOS of America Inc., Wilmington, DE Ann Arbor Annuity Exchange Inc., Ann Arbor, MI APK US Investment LP, Wilmington, DE APKV US Private REIT LP, Wilmington, DE Arab Gulf Health Services LLC, Dubai Arges Investments I N.V., Amsterdam Arges Investments II N.V., Amsterdam Asit Services S.R.L., Bucharest Assistance Courtage d'Assurance et de Réassurance S.A., Courbevoie Associated Indemnity Corporation, Los Angeles, CA AWP France SAS, Saint-Ouen AWP Health & Life S.A., Paris la Défense AWP P&C S.A., Saint-Ouen AWP USA Inc., Richmond, VA AZ Euro Investments II S.à r.l., Luxembourg AZ Euro Investments S.à r.l., Luxembourg AZ Jupiter 10 B.V., Amsterdam AZ Jupiter 4 B.V., Amsterdam AZ Jupiter 8 B.V., Amsterdam AZ Jupiter 9 B.V., Amsterdam AZ Vers US Private REIT LP, Wilmington, DE AZGA Service Canada Inc., Kitchener, ON AZL PF Investments Inc., Minneapolis, MN AZOA Services Corporation, New York, NY Beleggingsmaatschappij Willemsbruggen B.V., Rotterdam Beykoz Gayrimenkul Yatirim Insaat Turizm Sanayi ve Ticaret A.S., Ankara Botanic Building SPRL, Brussels Brasil de Imóveis e Participações Ltda., São Paulo Bright Mission Berhad Ltd., Kuala Lumpur British Reserve Insurance Co. Ltd., Guildford Calobra Investments Sp. z o.o., Warsaw Calypso S.A., Paris la Défense CAP Rechtsschutz-Versicherungsgesellschaft AG, Wallisellen Caroline Berlin S.C.S., Luxembourg Central Shopping Center a.s., Bratislava CEPE de la Forterre S.à r.l., Versailles Château Larose Trintaudon S.A., Saint Laurent Médoc Chicago Insurance Company Corp., Chicago, IL CIC Allianz Insurance Ltd., Sydney Companhia de Seguros Allianz Portugal S.A., Lisbon Corn Investment Ltd., London CPRN Thailand Ltd., Bangkok 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 Eolica Erchie S.r.l., Lecce Euler Hermes Acmar SA, Casablanca Euler Hermes Collections North America Company, Owings Mills, MD Euler Hermes Collections Sp. z o.o., Warsaw Euler Hermes Crédit France S.A.S., Paris la Défense Euler Hermes Group SA, Paris la Défense Euler Hermes Hellas Credit Insurance SA, Athens Euler Hermes Luxembourg Holding S.à r.l., Luxembourg Euler Hermes North America Holding Inc., Owings Mills, MD Annual Report 2016 Allianz se C Financial Statements of Allianz SE Owned1 % Equity € thou Net Earnings € thou 100.0 3 100.0 3 100.0 3 60.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 3 100.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 1.0 100.0 3 52.5 100.0 3 100.0 100.0 100.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 3 100.0 3 99.9 3 100.0 100.0 100.0 100.0 3 75.0 100.0 100.0 3 100.0 100.0 3 100.0 3 95.7 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 65.9 3 100.0 99.8 100.0 3 94.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 100.0 151,253 244,124 61,055 170,291 70,614 767,342 693,293 7,876 7,544 9,158 8,452 7,586 39,215 7,351 52,312 9,310 41,342 12,380 1,071,295 15,788 16,680 – (2,848) 9,429 60,129 188,484 (4,575) 7,449 8,658 2,231 (3,343) 1,184 572 1,906 689 (1,494) 253 219,956 7,517 45 41,294 84,425 6,568 53,656 74,042 243,154 5,856 22,960 6,739 5,669 137,963 21,895 10,810 67,732 73,158 33,736 634,474 7,552 9,911 36,552 115,780 15,612 14,310 13,392 122,855 8,331 17,886 525,942 6,850 113,531 265,181 12,971 8,201 21,874 16,034 5,353 25,938 32,345 240,818 21,773 5,605 424,947 41,489 95,304 36,600 23,390 31,936 378,652 49,534 89,229 13,036 72,147 63,028 29,530 19,722 12,838 582,001 726 26,738 (49) 2,362 3,498 52,215 (634) 2,954 2,807 (148) 8,486 – (4,920) 7,643 (11,063) (393) 539,394 5,841 5,928 36 9,027 (2,226) 8,306 (140) 3,440 225 1,378 1,572,237 608 31 7,225 1,470 2,675 688 1,312 (137) 13,749 14,723 155,110 6,957 19 164,597 15,353 197,539 19,241 9,342 7,985 61,110 4,566 8,580 (2,309) 56,466 3,507 (17) (5,518) 464 (19,924) 73 C Financial Statements of Allianz SE SAS 20 pompidou, Paris la Défense SAS Allianz Etoile, Paris la Défense SAS Allianz Forum Seine, Paris la Défense SAS Allianz Logistique, Paris la Défense SAS Allianz Platine, Paris la Défense SAS Allianz Rivoli, Paris la Défense SAS Allianz Serbie, Paris la Défense SAS Angel Shopping Centre, Paris la Défense SAS Madeleine Opéra, Paris la Défense SAS Passage des princes, Paris la Défense Sättravallen Wind Power AB, Strömstad SC Tour Michelet, Paris la Défense SCI 46 Desmoulins, Paris la Défense SCI Allianz ARC de Seine, Paris la Défense SCI Allianz Chateaudun, Paris la Défense SCI Allianz Invest Pierre, Paris la Défense SCI Allianz Messine, Paris la Défense SCI AVIP SCPI Selection, Courbevoie SCI ESQ, Paris la Défense SCI Via Pierre 1, Paris la Défense SCI Volnay, Paris la Défense SDIII Energy GmbH & Co. KG, Pottenbrunn Silex Gas Norway AS, Oslo Sirius S.A., Luxembourg Società Agricola San Felice S.p.A., Milan Société Foncière Européenne B.V., Amsterdam Société Nationale Foncière S.A.L., Beirut Sofiholding S.A., Brussels South City Office Broodthaers SA, Brussels StocksPLUS Management Inc., Dover, DE TFI Allianz Polska S.A., Warsaw The American Insurance Company Corp., Cincinnati, OH The Annuity Store Financial & Insurance Services LLC, Sacramento, CA Three Pillars Business Solutions Limited, Guildford Top Immo A GmbH & Co. KG, Vienna Top Immo Besitzgesellschaft B GmbH & Co. KG, Vienna Top Versicherungsservice 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 VertBois S.à r.l., Luxembourg Vordere Zollamtsstraße 13 GmbH, Vienna WFC Investments Sp. z o.o., Warsaw Windpark Zistersdorf GmbH, Pottenbrunn Yorktown Financial Companies Inc., Minneapolis, MN ZAD Allianz Bulgaria, Sofia ZAD Allianz Bulgaria Zhivot, Sofia ZAD Energia, Sofia ZiOst Energy GmbH & Co. KG, Pottenbrunn Joint ventures A&A Centri Commerciali S.r.l., Milan Allee-Center Kft., Budapest AMLI-Allianz Investment LP, Wilmington, DE AZ/JH Co-Investment Venture (DC) LP, Wilmington, DE AZ/JH Co-Investment Venture (IL) LP, Wilmington, DE Companhia de Seguro de Créditos S.A., Lisbon Euromarkt Center d.o.o., Ljubljana 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 Italian Shopping Centre Investment S.r.l., Milan NRF (Finland) AB, Västeras Porterbrook Holdings I Limited, London Queenspoint S.L., Madrid SC Holding SAS, Paris SES Shopping Center AT1 GmbH, Salzburg Solunion Compañía Internacional de Seguros y Reaseguros SA, Madrid TopTorony Ingatlanhasznosító Zrt., Budapest Waterford Blue Lagoon LP, Wilmington, DE Owned1 % 100.0 100.0 100.0 100.0 100.0 100.0 100.0 90.0 100.0 100.0 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 75.0 100.0 100.0 100.0 3 100.0 3 94.8 100.0 3 100.0 3 66.0 3 100.0 3 100.0 3 100.0 100.0 3 100.0 3 100.0 3 100.0 100.0 100.0 100.0 100.0 3 100.0 100.0 100.0 100.0 3 100.0 87.5 100.0 3 100.0 3 87.4 3 99.0 3 51.0 3 100.0 3 50.0 3 50.0 3 75.0 80.0 3 80.0 3 50.0 3 50.0 3 50.1 3 49.0 3 50.0 3 50.0 3 50.0 50.0 3 30.0 3 50.0 3 50.0 3 50.0 3 50.0 3 50.0 3 49.0 3 Equity € thou 116,896 112,676 247,976 541,251 270,791 102,417 344,603 305,976 643,152 118,416 47,420 55,638 119,362 222,599 120,483 111,864 232,728 38,119 105,967 265,836 177,235 5,996 77,514 314,003 31,410 1,205,821 12,010 14,347 51,723 5,561 5,179 183,668 19,283 5,494 5,882 8,865 17,801 19,215 49,038 199,509 91,007 20,376 74,967 228,055 8,548 129,082 28,895 18,467 27,132 9,765 158,476 99,253 191,281 238,151 214,631 48,050 110,375 172,397 Net Earnings € thou 4,495 4,380 8,618 3,085 12,869 3,495 15,613 3,529 25,198 2,955 (4,344) 964 4,162 6,998 5,413 2,041 2,420 3,795 2,702 11,290 6,400 721 (2,283) 6,888 700 2,760 217 291 2,092 (30) 1,622 26,701 (820) (17) 585 1,008 (5,089) 1,592 1,279 18,947 8,043 954 1,830 17,467 (252) – 5,343 4,496 8,949 15 6,180 10,421 (2,647) (3,356) 515 8,033 6,927 11,021 74,997 26,606 192,721 34,745 21,198 103,519 1,600,198 107,561 9,636 163,358 99,030 12,111 314,410 135,381 7,421 (3,925) 29,354 93,878 (1,294) (5) 3,790 6,235 (1,544) (279) Associates Allianz Saudi Fransi Cooperative Insurance Company, Riyadh Archstone Multifamily Partners AC JV LP, Wilmington, DE Archstone Multifamily Partners AC LP, Wilmington, DE Areim Fastigheter 2 AB, Stockholm Bajaj Allianz General Insurance Company Ltd., Pune Bajaj Allianz Life Insurance Company Ltd., Pune Bazalgette Equity Ltd., London Brunei National Insurance Company Berhad Ltd., Bandar Seri Begawan Chicago Parking Meters LLC, Wilmington, DE CPIC Allianz Health Insurance Co. Ltd., Shanghai Douglas Emmett Partnership X LP, Wilmington, DE Four Oaks Place LP, Wilmington, DE Helios Silesia Holding B.V., Amsterdam Henderson UK Outlet Mall Partnership LP, Edinburgh OeKB EH Beteiligungs- und Management AG, Vienna 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 Solveig Gas Holdco AS, Oslo Other participations below 20 % of voting rights Advent International GPE VI LP, George Town Advent International GPE VII LP, Wilmington, DE Al Nisr Al Arabi, Amman Altor Fund III (No.2) LP, Saint Helier Apax Europe VII - A (Feeder) LP, Edinburgh Bain Capital Fund XI LP, George Town Banco BPI S.A., Porto Baring Asia Private Equity Fund V LP, George Town Beacon Capital Strategic Partners VII LP, Wilmington, DE Berkshire Fund VIII-A LP, Wilmington, DE Boyu Capital Fund II LP, George Town Bridgepoint Europe IV 'F' LP, London Burza cennych paperov v, Bratislava Carlyle Europe Partners IV LP, George Town CDH Fund V LP, George Town Comisariado Español Marítimo, S.A., Madrid Commercial Bank of Cameroon, LC, Douala CVC Capital Partners Asia Pacific IV LP, George Town CVC Capital Partners VI LP, Saint Helier CVC European Equity Partners V A LP, Saint Helier EQT VI LP, St Peter Port EQT VII (No. 1) LP, London Hellman & Friedman Capital Partners VII LP, George Town IDI, Paris Investindustrial V LP, Saint Helier IPUT plc, Dublin Kelso Investment Associates VIII, L.P., Wilmington, DE LBA Reality Fund V L.P., Dover, DE Nordic Capital VII Alpha, L.P., St Helier Onex Partners III LP, George Town Onex Partners IV LP, George Town Permira V LP, St Peter Port Resolute Fund III LP, New York, NY SG Cameroun, LC, Douala SG Cote d'Ivoire, LC, Abidjan Sri Ayudhya Capital Public Company Limited, Bangkok TDR Capital III 'B' L.P., London TPG Asia VI LP, George Town TPG Partners VI, L.P., George Town Trident V, L.P., George Town Zagrebacka banka d.d., Zagreb Owned1 % Equity € thou Net Earnings € thou 32.5 40.0 28.6 23.3 3 26.0 3 26.0 3 34.3 25.0 3 49.9 3 22.9 3 28.6 3 49.0 3 45.0 3 19.5 49.0 3 33.3 3 49.0 49.0 25.8 3 49.0 49.0 49.0 30.0 3 2.2 1.2 18.0 3 4.9 9.7 2.5 8.5 3 2.5 19.7 3 5.1 3.3 10.7 5.1 3 4.7 3.1 6.2 3 10.0 3 3.9 1.3 2.1 9.6 2.8 0.9 5.4 3 3.5 14.2 3 1.7 16.1 3 3.0 3.3 2.7 2.7 3.1 16.3 3 7.3 3 16.8 3 7.0 3.0 0.5 3.7 11.7 3 57,138 85,977 165,272 166,188 338,016 1,014,313 162,020 9,639 218,094 124,072 71,711 445,165 80,314 445,589 121,757 120,058 277,751 44,901 13,240 32,827 21,599 14,180 311,715 2,327,605 8,765,260 24,855 514,754 252,202 2,946,148 2,407,000 2,369,978 182,313 988,831 1,160,150 288,518 476,652 1,577,936 1,554,159 496,582 18,294 955,027 5,737,729 2,203,252 978,613 2,009,247 8,356,752 277,132 1,083,769 1,766,090 3,115,495 404,225 2,099,579 2,835,749 2,859,524 4,851,652 1,627,147 77,215 25,916 176,577 595,485 1,783,237 11,123,052 1,960,296 2,225,430 652 (619) (57,235) (2,410) 61,777 102,080 – 1,550 24,308 (9,180) (74) 11,304 (6,113) 174,271 10,167 871 2,233 7,922 835 1,797 (1,175) 2,770 58,144 – – 2,593 – – – 236,400 – 28,167 – – – 173,023 – – 266,337 – – – – – – – 32,539 – 333,199 – 39,923 – – – – – 13,161 41,204 15,686 – – – – 19,388 1 2 3 4 5 Percentage includes equity participations held by dependent entities in full, even if the Allianz Group’s share in the dependent entity is below 100 %. Profit and loss transfer agreement. As per annual financial statement 2015. Insolvent. Dependent entities are shown in a way, which reflects the state as of the date of filing for insolvency. As per annual financial statement 2010. This is only applicable for manroland ag and their subsidiaries. 74 Annual Report 2016 Allianz se C Financial Statements of Allianz SE Further Information Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles, the financial statements of Allianz SE give a true and fair view of the assets, liabilities, financial position and profit or loss of the company, and the management report includes a fair review of the development and performance of the business and the position of the company, together with a description of the principal opportunities and risks associated with the expected development of the company. Munich, 14 February 2017 Allianz SE The Board of Management Annual Report 2016 Allianz SE 75 C Financial Statements of Allianz SE Auditor’s report We have audited the annual financial statements, comprising the balance sheet, the income statement and the notes to the financial statements, together with the bookkeeping system, and the manage- ment report of the Allianz SE, Munich, for the business year from 1 January to 31 December 2016. The maintenance of the books and records and the preparation of the annual financial statements and management report in accordance with German commercial law and supplementary provisions of the articles of incorporation are the responsibility of the Company’s management. Our responsibility is to express an opinion on the annual financial statements, together with the bookkeeping system, and the management report based on our audit. We conducted our audit of the annual financial statements in accordance with § 317 HGB [“Handelsgesetzbuch“: “German Com- mercial Code“] and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the annual financial statements in accordance with German principles of pro per accounting and in the management report are detected with reason- able assurance. Knowledge of the business activities and the eco- nomic and legal environment of the Company 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 supporting the disclosures in the books and records, the annual financial statements and the management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accoun- ting principles used and significant estimates made by management, as well as evaluating the overall presentation of the annual financial statements and management report. We believe that our audit pro- vides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the annual financial statements comply with the legal requirements and supple- mentary provisions of the articles of incorporation and give a true and fair view of the net assets, financial position and results of ope- rations of the Company in accordance with German principles of proper accounting. The management report is consistent with the annual financial statements, complies with the German statutory requirements, and as a whole provides a suitable view of the Com- pany’s position and suitably presents the opportunities and risks of future development. Munich, 1 March 2017 KPMG AG Wirtschaftsprüfungsgesellschaft Becker Wirtschaftsprüfer (Independent Auditor) Dr. Pfaffenzeller Wirtschaftsprüfer (Independent Auditor) 76 Annual Report 2016 Allianz SE This page intentionally left blank 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 – Date of publication: 10 March 2017 This is a translation of the German Annual Report of Allianz SE. In case of any divergences, the German original is legally binding. 

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