Allianz SE
Annual Report 2017

Plain-text annual report

ALLIANZ SE ANNUAL REPORT 2017 COMPETENCECHANGEFUTURE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 A _ To Our Investors 2 Supervisory Board Report 7 Mandates of the Members of the Supervisory Board 8 Mandates of the Members of the Board of Management Pages 1 – 8 B _ Management Report of Allianz SE Pages 9 – 52 10 Executive Summary and Outlook 14 Operations by Reinsurance Lines of Business 16 Balance Sheet Review 18 Liquidity and Funding Resources 19 Risk and Opportunity Report 29 Corporate Governance Report 34 Statement on Corporate Management pursuant to § 289f of the HGB 37 Remuneration Report 48 Other Information C _ Financial Statements of Allianz SE Pages 53 – 82 FINANCIAL STATEMENTS 54 Balance Sheets 56 Income Statement NOTES TO THE FINANCIAL STATEMENTS 57 Nature of Operations and Basis of Preparation 57 Accounting, Valuation and Calculation Methods 60 Supplementary Information on Assets 63 Supplementary Information on Equity and Liabilities 70 Supplementary Information on the Income Statement 73 Other Information 76 List of Participations of Allianz SE, Munich as of 31 December 2017 according to § 285 No. 11 and 11b HGB in conjunction with § 286 (3) No. 1 HGB D _ Further Information 84 Responsibility Statement 85 Independent Auditor’s Report Pages 83 – 88 Disclaimer regarding roundings Due to rounding, numbers presented may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. TO OUR INVESTORS A Annual Report 2017 – Allianz SE 1 Repor t A _ To Our Investors SUPERVISORY BOARD REPORT Ladies and Gentlemen, During the financial year 2017, 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 succession matters related to the Board of Management, and advised the Board of Management regarding the conduct of business. OVERVIEW In the financial year 2017, the Supervisory Board held seven meetings and a conference call. The regular meet- ings took place in February, March, May, August, October, and December. In addition, a constituent meeting took place after the election of the new Supervisory Board by the Annual General Meeting (AGM) 2017. In all of the Supervisory Board’s 2017 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 SE and Allianz Group, including deviations in actual business developments from the planning. The Board of Management reported to the Supervisory Board 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, as well as the strategy in the Asset Management business segment and the global health insurance. In addition, the Supervisory Board was extensively involved in the Board of Management’s planning for both the financial year 2018 and the three-year period from 2018 to 2020. Cyber risk security was discussed regularly. A Technology Committee was established to carry out in-depth re- views of IT issues, the digitalization of the business model, and new technologies. In addition, the Supervisory Board dealt with the implementation of the new recommendations of the German Corporate Governance Code (Code), the legislation regarding the implementation of the EU guideline on corporate social responsibility (CSR), as well as the supervisory authority’s (BaFin’s) new requirements for self-assessments by the Supervisory Board. In November 2017, a conference call was held regarding the Board of Management’s considerations for a potential further share buy-back program. 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 Manage- ment also informed us in writing of important events that occurred between meetings. The chairmen of the Supervisory and Management Boards also had regular discussions about major developments and decisions. The Chairman of the Supervisory Board also had individual discussions with each member of the Board of Man- agement about their respective half-year as well as full-year performance. Details on each member’s participation at meetings of the Supervisory Board and its committees can be found page 29. Members of the Supervisory Board who were in the Corporate Governance Report, starting on unable to attend meetings of the Supervisory Board or its committees were excused and, as a rule, cast their votes in writing. ISSUES DISCUSSED IN THE SUPERVISORY BOARD PLENARY SESSIONS In the meeting of 16 February 2017, the Supervisory Board dealt comprehensively with the preliminary financial figures for the financial year 2016, the Board of Management’s dividend strategy, and the consideration of a share buy-back program. The appointed audit firm, KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG), Munich, reported in detail on the preliminary results of their audit. The Chief Compliance Officer then gave his annual report on the compliance organization and key compliance-related matters. In the further course of the meeting, the Supervisory Board also examined the portfolio strategy in growth markets, discussed the target achievement of the individual members of the Board of Management, and finally set their variable remuneration for the financial year 2016. In the course of the performance assessment, the fitness and propriety of the members of the Board of Management was also confirmed. In the meeting of 9 March 2017, the Supervisory Board discussed the audited annual Allianz SE and consolidat- ed financial statements as well as the recommendation for the appropriation of earnings by the Board of Man- 2 Annual Report 2017 – Allianz SE A _ To Our Investors agement for the financial year 2016. The auditors 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 submitted its report on risk developments in 2016 and the head of internal audit presented his annual review. Furthermore, the Supervisory Board dealt with the agenda and the proposals for resolution for the 2017 AGM of Allianz SE. It also resolved to appoint KPMG as auditor for the individual and consolidated financial statements for the financial year 2017 and for the auditor’s review of the 2017 half-yearly financial report. Given the legally required rotation of the auditors, the Supervisory Board approved the pro- posal of the Audit Committee to select PriceWaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (PwC) to audit the individual and consolidated financial statements of Allianz SE as from financial year 2018. In addi- tion, the Supervisory Board was also informed about the implementation status of the Renewal Agenda as well as the strategy pursued in the Asset Management business segment. The Supervisory Board dealt extensively with personnel matters related to the Board of Management, specifically regarding Dr. Mascher, Dr. Wemmer, and Dr. Zedelius, whose appointments expired at the end of 2017. Dr. Mascher’s appointment was renewed for three years. As successors to Dr. Wemmer and Dr. Zedelius, who had both reached retirement age, the Supervi- sory Board appointed Niran Peiris and Giulio Terzariol to the Board of Management with effect from 1 January 2018. On 3 May 2017, just before the AGM, the Board of Management briefed us on the first quarter 2017 perfor- mance and on the Group’s current situation. In addition, the Board dealt with the results of the BaFin’s review of the system of governance at Allianz SE in November 2016. Due to the elections to the Supervisory Board at the AGM 2017, a constituent meeting was held on 3 May 2017, immediately after the AGM. At this constituent meeting Dr. Perlet was initially elected as Chairman of the Super- visory Board for the brief period until 6 May 2017. Mr. Diekmann was elected to succeed him, effective 7 May 2017. This transitional arrangement was necessary due to the two-year waiting period applicable for Mr. Diekmann under corporate law. Mr. Snabe and Mr. Zimmermann were elected as Deputy Chairmen. In addition, the Supervisory Board elected the members of the committees and approved Dr. Eichiner to be the financial expert as defined in § 100 (5) of the German Stock Corporation Act (AktG). The Supervisory Board also adopted a resolution to establish an additional Board committee: the Technology Committee. In June 2017, the new members of the Supervisory Board attended a separate information session in order to familiarize themselves with the Allianz business model and the structures of the Allianz Group. At the meeting on 3 August 2017, the Board of Management first reported extensively on the half-yearly results. It additionally addressed the upcoming investment in the UK property insurance firm Liverpool Victoria, the sale of the Allianz holding in Oldenburgische Landesbank AG, and the impact of Banco Santander’s acquisition of Banco Popular, a long-standing distribution and joint venture partner in Spain. The Board of Management then reported on the strategic dialog with the Group companies, particularly regarding the progress of the Renewal Agenda. In addition, the Board of Management provided a status report on cyber risk security. The Supervisory Board amended the Rules of Information for Reports by the Board of Management to the Supervisory Board in order to comply with new regulatory requirements. Finally, the Board of Management reported on the percent- age of women in management positions. Thereafter, the Supervisory Board set a new target for the percentage of women in Allianz SE’s Board of Management. This target is also a component of the diversity concept for the Board of Management, which was to be established in accordance with the new CSR regulations. A correspond- ing diversity concept for the Supervisory Board was included into the objectives for the composition of the Su- pervisory Board, as well as a profile of skills and expertise for the Supervisory Board which is required under a new Code recommendation (see page 35). The meeting on 13 October 2017 mainly focused on the strategy of the Allianz Group, in particular the respective external conditions including potentially disruptive developments and the implementation status of the Renewal Agenda, as well as the strategy of Allianz SE (solo). In addition, the Supervisory Board dealt in detail with the global health insurance business. The review of the Board of Management’s report on the development of busi- ness also covered the effects of the recent natural catastrophes in the Caribbean and in Mexico, the implemen- tation of the European Data Protection Regulation in the Allianz Group, and the change of the Chairman of the Board of Management at Allianz Deutschland AG. At the meeting on 14 December 2017, the Board of Management briefed us on the results of the third quarter, further business developments and the situation of the Allianz Group, capital adequacy, and the planned tender offer to the minority shareholders of Euler Hermes S.A. The Supervisory Board additionally dealt with the plan- Annual Report 2017 − Allianz SE 3 Repor t A _ To Our Investors ning for financial year 2018 and the three-year plan 2018 to 2020, as well as the new requirements for non- financial reporting that follow from the implementation of the European CSR Directive. In this regard, we ap- proved the recommendation of the Audit Committee to engage PwC to perform a limited assurance engage- ment of the combined separate non-financial report for the financial year 2017. The Board of Management also provided a status report on the issue of cyber risk security and the efficiency of distribution channels. We then covered the Code’s Declaration of Conformity and the annual report on the succession planning for the Board of Management. The Supervisory Board reviewed the appropriateness of the remuneration of the Board of Man- agement based on a vertical and horizontal comparison, and decided to increase the remuneration of the Chairman of the Board of Management in accordance with the identified need for adjustment. Finally, it set targets for the variable remuneration of the members of the Board of Management for 2018. DECLARATION OF CONFORMITY WITH THE GERMAN CORPORATE GOVERNANCE CODE On 14 December 2017, the Board of Management and the Supervisory Board issued the Declaration of Con- formity in accordance with § 161 of the German Stock Corporation Act (“Aktiengesetz”). The Declaration was posted on the company website, where it is available to shareholders at all times. Allianz SE fully complies and will continue to fully comply with the recommendations of the German Corporate Governance Code in its version of 7 February 2017. Further explanations on corporate governance in the Allianz Group can be found in the Corporate Governance page 29 and the Statement on Corporate Management pursuant to § 289f of the HGB Report starting on page 34. The Allianz website also provides more details on corporate governance: starting on 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 consulting and adoption of resolutions in the plenary sessions; they can also adopt resolutions themselves. The Standing Committee conducted three meetings in 2017. It dealt primarily with issues of corporate govern- ance, particularly the implementation of the Code’s new recommendations, the modification of the Rules of Information for Reports by the Board of Management to the Supervisory Board, the preparations for the Annual General Meeting, the employee stock purchase program, and the Supervisory Board’s self-assessment as well as the resulting development plan. In addition, the Standing Committee dealt with the appropriateness of the remu- neration of the Supervisory Board. The committee also passed resolutions to approve loans to senior executives. The Personnel Committee held four meetings in 2017. It dealt extensively with the issue of succession to Dr. Wemmer and Dr. Zedelius. The committee also looked at other mandate matters for active and former members of the Board of Management and the target achievement among Board of Management members for 2016. Besides setting the targets for variable remuneration in 2018, the committee also prepared the adequacy assessment of the remuneration system. As a result, the committee identified the need to adjust the remuneration of the Chair- man of the Board of Management. Furthermore, the Personnel Committee also dealt with the diversity concept for the Board of Management, including the legally required target for the percentage of women in the Board of Management. The Audit Committee held five regular meetings and adopted two resolutions by written procedure in 2017. 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, and the half-yearly financial report. The Audit Committee saw no reason to raise any objections. In addition, the Board of Man- agement submitted its report on the results of the first and third quarter. The committee also dealt with the auditor’s engagement and established audit areas of focus for the 2017 financial year. It further discussed assignments to the auditors for non-audit services and approved an appropriate positive list for audit and non- audit services authorized in advance. In addition, it dealt extensively with the compliance system, the internal audit system, and the financial reporting process as well as the respective internal controls. The committee was also updated on the procedures and programs for complaints concerning matters in accounting, internal con- trols, and auditing. The committee received regular reports on legal and compliance issues and on the work of the Internal Audit department. In addition, the Audit Committee dealt with the preparations for the auditor rotation starting from the financial year 2018, including the process of transitioning to the new auditing company, as well as the 2017 audit plan of the Internal Audit function. The committee’s work focused on several issues 4 Annual Report 2017 – Allianz SE   A _ To Our Investors regarding Solvency II, including Solvency II governance and Solvency II reporting. In this respect it also initiated a follow-up review of the group-wide implementation of governance requirements. The committee also addressed the findings of a BaFin review as well as the new legal requirements for non-financial reporting (CSR) and the Supervisory Board’s role in this regard. In addition, the head of the Group Actuarial function presented its annual report. The committee adopted two written resolutions approving the engagement of the current and future auditors to perform non-audit services at foreign Group companies. The Risk Committee held two meetings in 2017, during which it discussed the current risk situation of the Allianz Group and Allianz SE with the Board of Management. The risk report and other risk-related statements contained in the annual financial statements – both of Allianz SE and consolidated – were reviewed with the auditor, as were the respective management reports, 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 committee took a detailed look at the risk strategy and capital management, as well as the effectiveness of the risk management system, in particular the limit system for the Allianz Group and Allianz SE. It also dealt extensively with the interest rate sensitivity in the life insurance business, discussed possible measures to reduce it, and addressed the investment risk currently associated with equity investments and credit spreads. Other matters considered included the risk strategy of Allianz SE and the Allianz Group, the changes planned in 2017 to the internal Solvency II model, and the report on the own risk and solvency assessment (ORSA). In addition, the Risk Committee dealt with the designation of Allianz as a systemically relevant insurer (G-SII). The Technology Committee held two meetings in 2017. In the first meeting it dealt with the major focus and organization of the committee’s work as well as the current IT-Systems and the IT-Architecture within the Allianz Group. In both meetings the committee dealt with the status of the project to assess the future readiness of the Allianz Group's IT. In addition, the committee discussed IT Governance and IT Security. The Nomination Committee had no reason to convene a meeting in financial year 2017. The Supervisory Board was informed regularly and comprehensively of the committees’ work. CHAIR AND COMMITTEES OF THE SUPERVISORY BOARD – AS OF 31 DECEMBER 2017 Chairman: Michael Diekmann Vice Chairmen: Jim Hagemann Snabe, Rolf Zimmermann Standing Committee: Michael Diekmann (Chairman), Gabriele Burkhardt-Berg, Herbert Hainer, Jürgen Lawrenz, Jim Hagemann Snabe Personnel Committee: Michael Diekmann (Chairman), Herbert Hainer, Rolf Zimmermann Audit Committee: Dr. Friedrich Eichiner (Chairman), Sophie Boissard, Jean-Jacques Cette, Michael Diekmann, Martina Grundler Risk Committee: Michael Diekmann (Chairman), Christine Bosse, Dr. Friedrich Eichiner, Godfrey Hayward, Jürgen Lawrenz Technology Committee: Jim Hagemann Snabe (Chairman), Gabriele Burkhardt-Berg, Michael Diekmann, Dr. Friedrich Eichiner, Rolf Zimmermann Nomination Committee: Michael Diekmann (Chairman), Christine Bosse, 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 by the AGM. The Supervisory Board appointed KPMG as statutory auditor for the annual Allianz SE and consolidated financial statements, as well as for the review of the half-yearly financial report of the financial year 2017. KPMG audited the financial statements of Allianz SE and the Allianz Group as well as the respec- tive management reports. They issued an auditor’s report without any reservations. The consolidated fina n- cial 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. In addition, KPMG was also mandated to perform an audit of the market value balance sheet according to Solvency II as of 31 December 2017, for Allianz SE and the Allianz Group. All Supervisory Board members received the documentation relating to the annual financial statements and the auditor’s reports from KPMG on schedule. The preliminary financial statements and KPMG’s preliminary Annual Report 2017 − Allianz SE 5 Repor t A _ To Our Investors audit results were discussed in the Audit Committee on 14 February 2018 as well as in the plenary session of the Supervisory Board on 15 February 2018. The final financial statements and KPMG’s audit reports (dated 28 February 2018) were reviewed on 8 March 2018, both by the Audit Committee and in the Supervisory Board plenary session. The auditors participated in these discussions and presented the key results from their audit. Particular focus was given to the key audit matters described in the auditor’s report and the audit procedures performed. No material weaknesses in the internal financial reporting control process were discovered. There were no circumstances that might give cause for concern about the auditor’s independence. In addition, the market value balance sheets for Allianz SE and the Allianz Group as of 31 December 2017 as well as the respec- tive KPMG reports 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 manage- ment 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 finan- cial statements prepared by the Board of Management. The financial statements are thus adopted. We agree with the Board of Management’s proposal on the appropriation of earnings. The Supervisory Board would like to thank all Allianz Group employees for their great personal commitment over the past year. LIMITED ASSURANCE ENGAGEMENT OF THE COMBINED SEPARATE NON-FINANCIAL REPORT The financial year 2017 was the first year for which the company was required to issue a separate non-financial report. This report was combined for Allianz SE and the Allianz Group. The Supervisory Board commissioned PwC to perform a limited assurance engagement of this report. All Supervisory Board members received the combined separate non-financial report and the independent practitioner´s limited assurance report from PwC in due time. The report and PwC’s assurance report were discussed in the plenary session of the Supervisory Board on 8 March 2018. The auditors from PwC participated in these discussions and presented the results of their assurance engagement. Based on its own review of the combined separate non-financial report, the Su- pervisory Board did not raise any objections and approved by acknowledgement the results of the PwC limited assurance engagement. MEMBERS OF THE SUPERVISORY BOARD AND BOARD OF MANAGEMENT The term of the Supervisory Board expired with the conclusion of the AGM on 3 May 2017. The new employee representatives had been appointed by the SE Works Council pursuant to the Agreement concerning the Partic- ipation of Employees in Allianz SE, effective from the conclusion of the Annual General Meeting on 3 May 2017. The Annual General Meeting 2017 elected the new shareholder representatives. The Supervisory Board man- dates of Prof. Dr. Renate Köcher, Dante Barban, and Dr. Wulf H. Bernotat ended with the conclusion of the Annu- al General Meeting on 3 May 2017. Dr. Helmut Perlet resigned from the Supervisory Board with effect from the end of 6 May 2017. The Supervisory Board thanked all retired members for their many years of support for the Allianz Group as well as for the valuable and trusting collaboration in this board. As mentioned earlier, the 2017 financial year also saw personnel changes within Allianz SE’s Board of Man- agement. Dr. Dieter Wemmer and Dr. Werner Zedelius stepped down from the Board of Management with effect from 31 December 2017. Mr. Niran Peiris and Giulio Terzariol were appointed as successors, effective 1 January 2018. Munich, 8 March 2018 For the Supervisory Board: Michael Diekmann Chairman 6 Annual Report 2017 – Allianz SE A _ To Our Investors MANDATES OF THE MEMBERS OF THE SUPERVISORY BOARD DR. HELMUT PERLET until 6 May 2017 Chairman Member of various Supervisory Boards Membership in other statutory supervisory boards and SE administrative boards in Germany Commerzbank AG GEA Group AG (Chairman) MICHAEL DIEKMANN since 7 May 2017 Chairman Member of various Supervisory Boards Membership in other statutory supervisory boards and SE administrative boards in Germany BASF SE Fresenius Management SE Fresenius SE & Co. KGaA Linde AG until 10 May 2017 Siemens AG DR. WULF H. BERNOTAT until 3 May 2017 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) JIM HAGEMANN SNABE Vice Chairman since 3 May 2017 Member of various Supervisory Boards Membership in other statutory supervisory boards and SE administrative boards in Germany SAP SE until 30 June 2017 Siemens AG (Chairman since 31 January 2018) Membership in comparable1 supervisory bodies A.P. Møller-Mærsk A/S (Chairman since 28 March 2017) Bang & Olufsen A/S until 13 September 2017 ROLF ZIMMERMANN Vice Chairman Chairman of the (European) SE Works Council of Allianz SE MARTINA GRUNDLER National Representative Insurances, ver.di Berlin HERBERT HAINER since 3 May 2017 Member of various Supervisory Boards Membership in other statutory supervisory boards and SE administrative boards in Germany Deutsche Lufthansa AG FC Bayern München AG Membership in comparable1 supervisory bodies Accenture Plc Sportradar AG (Chairman) GODFREY ROBERT HAYWARD since 3 May 2017 Employee of Allianz Insurance plc PROF. DR. RENATE KÖCHER until 3 May 2017 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 JÜRGEN LAWRENZ Employee of Allianz Technology SE (formerly named Allianz Managed Operations & Sevices SE) Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Technology SE (formerly named Allianz Managed Operations & Services SE) DANTE BARBAN until 3 May 2017 Employee of Allianz S.p.A. SOPHIE BOISSARD since 3 May 2017 Chairwoman of the Board of Management of Korian S.A. Membership in other statutory supervisory boards and SE administrative boards in Germany Curanum AG (Korian Group company, Chairwoman) Membership in comparable1 supervisory bodies Groupe Société des Autoroutes du Nord et de l‘Est de la France (Sanef) until 30 June 2017 Segesta SpA (Korian Group company, Chairwoman) Senior Living Group NV (Korian Group company) 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 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 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 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 2017 – Allianz SE 7 DR. DIETER WEMMER until 31 December 2017 Finance, Controlling, Risk Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Asset Management AG until 11 April 2017 Allianz Investment Management SE Membership in comparable1 supervisory bodies UBS Group AG DR. WERNER ZEDELIUS until 31 December 2017 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 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 SERGIO BALBINOT Insurance Western & Southern Europe, Asia Pacific Insurance Middle East, Africa until 31 December 2017 Membership in comparable1 supervisory bodies Bajaj Allianz General Insurance Co. Ltd. Bajaj Allianz Life Insurance Co. Ltd. UniCredit S.p.A. Membership in Group bodies Allianz France S.A. Allianz Sigorta A.S. Allianz Yasam ve Emeklilik A.S. JACQUELINE HUNT Asset Management, US Life Insurance Membership in comparable1 supervisory bodies Membership in Group bodies Allianz Life Insurance Company of North America (Chairwoman) 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 Membership in Group bodies Allianz Asset Management AG (Chairwoman) until 11 April 2017 Allianz Deutschland AG Allianz Global Corporate & Specialty SE Membership in comparable1 supervisory bodies Membership in Group bodies Allianz Compañía de Seguros y Reaseguros S.A. Companhia de Seguros Allianz Portugal S.A. DR. CHRISTOF MASCHER Operations, Allianz Partners Membership in other statutory supervisory boards and SE administrative boards in Germany Volkswagen Autoversicherung AG Membership in Group bodies Allianz Technology SE (formerly named Allianz Managed Operations & Services SE), Chairman Membership in comparable1 supervisory bodies Membership in Group bodies Allianz Partners S.A.S. (formerly named Allianz Worldwide Partners S.A.S.) NIRAN PEIRIS since 1 January 2018 Global Insurance Lines & Anglo Markets, Reinsurance, Middle East, Africa Membership in comparable1 supervisory bodies Membership in Group bodies Allianz Australia Ltd. since 1 January 2018 Allianz p.l.c. since 10 January 2018 GIULIO TERZARIOL since 1 January 2018 Finance, Controlling, Risk DR. GÜNTHER THALLINGER Investment Management Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Asset Management AG until 11 April 2017 Allianz Investment Management SE (Chairman) Allianz Lebensversicherungs-AG since 1 July 2017 Membership in comparable1 supervisory bodies Membership in Group bodies Allianz S.p.A DR. AXEL THEIS Global Insurance Lines & Anglo Markets until 31 December 2017 Insurance German Speaking Countries and Central & Eastern Europe since 1 January 2018 Membership in other statutory supervisory boards and SE administrative boards in Germany ProCurand GmbH & KGaA (Chairman) Membership in Group bodies Allianz Deutschland AG (Chairman) since 1 January 2018 Allianz Investment Management SE since 1 January 2018 Allianz Global Corporate & Specialty SE (Chairman) Membership in comparable1 supervisory bodies Membership in Group bodies Allianz Australia Ltd. until 31 December 2017 Allianz Insurance plc (Chairman) until 31 December 2017 Allianz Irish Life Holdings plc until 31 December 2017 Allianz Elementar Lebensversicherungs-AG (Chairman) since 1 January 2018 Allianz Elementar Versicherungs-AG (Chairman) since 1 January 2018 Allianz Investmentbank AG since 28 November 2017 Allianz Suisse Lebensversicherungs-Gesellschaft AG since 30 November 2017 Allianz Suisse Versicherungs-Gesellschaft AG since 30 November 2017 Euler Hermes Group S.A. (Chairman) 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 2017 – Allianz SE MANAGEMENT REPORT OF ALLIANZ SE B Annual Report 2017 – Allianz SE 9 Repor t 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 2017 2016 10,265 10,820 9,433 (6,262) (2,884) 52 339 (226) 113 3,713 (22) (267) 3,423 3,537 135 3,671 9,625 (6,344) (2,946) 65 400 (528) (128) 3,290 (22) (459) 2,809 2,681 267 2,948 Change (555) (191) 82 62 (14) (61) 302 241 423 - 192 616 856 (133) 724 NET UNDERWRITING RESULT Gross premiums written decreased to € 10,265 mn, mainly due to a one-off effect in 2016 coming from the premium portfolio entries performed for the new quota share agreements with European Allianz entities. In total, € 9,858 mn (2016: € 10,385 mn) of gross premiums came from Property-Casualty reinsurance and € 407 mn (2016: € 435 mn) from Life/Health reinsurance. The net retention ratio decreased slightly to 92.4 % (2016: 92.7 %). Premiums earned (net) declined by € 191 mn to € 9,433 mn (2016: € 9,625 mn), mainly driven by the development of gross premiums written and higher retrocessions. The accident year loss ratio (net) in Property-Casualty reinsur- ance dropped to 69.6 % (2016: 69.9 %). Natural catastrophe losses amounted to € 153 mn for the accident year 2017 (2016: € 216 mn)1. The decrease was mainly driven by the received retro compensation for several natural catastrophe events with an amount of € 172 mn (2016: € 0 mn) in 2017. Natural catastrophes before retrocessions € mn Losses for Allianz SE Major Events in 2017 Hurricane Maria, Caribbean Storm Xavier, Germany Storm Paul, Germany Hurricane Irma, USA and Caribbean Storm Herwart, Germany and Poland Storm Kolle, Germany Hailstorm in Australia Wildfires in Portugal Cyclone Debbie, Australia Storm Rasmund, Germany Hurricane Harvey, USA Hailstorm in Germany Storm Thomas, Germany Other Total Major Events in 2016 Storms Lea, Marine and Neele, Germany Earthquake in New Zealand Storm Elvira, Germany Storm Friederike, Germany Hailstorm in the Netherlands Floods in France Other Total 46 36 33 32 26 20 20 18 17 15 14 12 11 25 325 Losses for Allianz SE 47 39 37 27 18 12 36 216 The positive run-off result decreased from € 427 mn to € 343 mn and was mainly influenced by the development of fire reinsurance (€ 122 mn), engineering reinsurance (€ 103 mn), personal accident reinsurance (€ 49 mn) and credit and bond reinsurance (€ 48 mn). In total, there was an increase of the loss ratio (net) in Property-Casualty reinsurance to 65.8 % (2016: 65.3 %). The expense ratio (net) in Property-Casualty reinsurance de- creased slightly to 30.7 % (2016: 31.0 %). This was largely driven by an decrease of 0.3 percentage points in the commission ratio to 29.8 % (2016: 30.1 %). The administrative expense ratio remains stable at prior-year level of 0.9 % (2016: 0.9 %). The net underwriting result reduced by 15.2 % from € 400 mn to € 339 mn, mainly because of the negative development of calendar year claims ratio in 2017 and the overall portfolio decline. 1_Based on Group definition for large losses. 10 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE NET TECHNICAL RESULT In 2017, a change in claims equalization and similar reserves of € 226 mn (2016: € 528 mn) resulted from the positive underwriting result as well as the overall portfolio growth of the last years. The strengthening was mainly driven by other lines (€ 111 mn), credit and bond reinsurance (€ 53 mn), liability reinsur- ance (€ 47 mn) and legal expenses reinsurance (€ 20 mn). On the other hand, there is a withdrawal due to exaggeration of loss for motor reinsurance with an amount of € 26 mn. reinsurance Despite the further increase of equalization and similar reserves, the net technical result turned positive with € 113 mn (2016: € (128) mn). 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 2017 2016 Change 3,026 1,099 860 653 10 5,648 1,943 1,727 945 365 105 5,085 (1,093) (1,106) (267) (131) (445) (1,935) 3,713 (183) (198) (308) (1,795) 3,290 1,082 (628) (85) 288 (95) 563 13 (84) 68 (137) (139) 423 The investment result increased by € 423 mn to € 3,713 mn. Income from profit transfer agreements rose by € 1,082 mn to € 3,026 mn, primarily due to a higher profit transfer from Allianz Deutschland AG, which went up by € 574 mn to € 1,423 mn, and a € 900 mn profit transfer from Allianz Argos 14 GmbH which reflects a dividend payment received from Allianz Holding France SAS. This was partly offset by lower profit transfers from Allianz Global Corporate & Specialty SE and from Allianz Asset Management GmbH, which decreased by € 369 mn to € 331 mn and by € 24 mn to € 356 mn. Income from affiliated enterprises and participations declined by € 628 mn to € 1,099 mn, mainly because the dividend payment received from our subsidiary Allianz Europe B.V. was reduced by € 750 mn to € 600 mn in 2017. Income from other investments went down by € 85 mn to € 860 mn. It largely consits of interest income from intra-group loans (€ 387 mn) and bonds (€ 315 mn). Realized gains increased by € 288 mn to € 653 mn, mainly due to the termination of intra-group loans in 2017 (€ 389 mn). Further realized gains primarily resulted from the sale of bonds, which de- creased by € 116 mn to € 210 mn. Income from reversal of impairments fell by € 95 mn to € 10 mn, mainly stemming from write-ups related to our bond portfolio. Expenses for the management of investments, interest and oth- er investment-related expenses were further reduced by € 13 mn to € 1,093 mn. Despite an overall increase of financial liabilities, interest expenses went down as a result of lower refinancing rates for the rollover of matured debt instruments. Depreciation and impairments of investments rose by € 84 mn to € 267 mn. Much of the impairments in 2017 was attributable to our bond portfolio (€ 239 mn). Realized losses went down by € 68 mn to € 131 mn, mainly re- sulting from the sale of bonds (€ 72 mn) and the redemption of intra- group debt at fair value prior to maturity (€ 31 mn). Expenses for losses taken over grew by € 137 mn to € 445 mn. This was primarily due to higher losses taken over from our service provider Allianz Technology SE, which increased by € 158 mn to € 442 mn. OTHER NON-TECHNICAL RESULT The other non-technical result improved by € 192 mn to € (267) mn. This was primarily driven by the foreign currency translation result, which improved by € 640 mn. The increase of interest expenses on pensions by € 397 mn negatively influenced the result. For further information regarding other income and expenses, please refer to note 25. TAXES AND NET INCOME As far as legally permissible, Allianz SE acts as the controlling com- pany (“Organträger”) of the German tax group most German subsid- iaries 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 € 393 mn (2016: € 257 mn). Moreover, Allianz SE received a tax allocation of € 515 mn (2016: € 523 mn) by Allianz SE tax group companies that recorded taxable income. Taking into account other taxes, the income from taxes amounted to € 135 mn (2016: € 267 mn). The increase of net income by € 724 mn to € 3,671 mn (2016: € 2,948 mn) is supported by all result components. The investment result rose significantly by € 423 mn to € 3,713 mn, the net technical result contributed with an upswing of € 241 mn to € 113 mn and the other non-technical result improved by € 192 mn to € (267) mn. Economic outlook12 Although political uncertainties linger, the global economic outlook for 2018 is favorable. The U.S. economy is expected to grow by 2.6 %. The recently adopted tax reform package should contribute to higher growth. The net tax reductions will underpin companies' propensity to invest and support solid consumption growth. In the Eurozone, growth is likely to exceed 2 % again in 2018. In particular, apart from the favorable global backdrop, the fact that the loose European Central 1_The information presented in the sections Economic outlook and Insurance industry outlook is based on our own estimates. Annual Report 2017 – Allianz SE 11 B _ Management Report of Allianz SE Bank monetary policy continues to provide support, coupled with broadly neutral fiscal policy, points to an ongoing recovery. As in 2017, the emerging market economies are expected to grow by close to 5 %. Asian emerging markets continue to benefit from the revival of world trade and stable growth in China. The Eastern European coun- tries capitalize on the continuing upturn in the Eurozone. We are currently faced with a rather high degree of synchronization, and for the world economy it is the strongest expansion period since 2011. Global output is expected to increase by 3.2 % in 2018. The uncertain global political environment bears the potential for higher financial market volatility. Monetary policy also contributes to this. As the U.S. economy is expected to expand solidly and infla- tion rates continue to move up, the Federal Reserve will carry on normalizing its monetary policy stance. Three further rate hikes in the course of 2018 look realistic. In addition, the Federal Reserve will rein in its balance sheet moderately. In the Eurozone, the European Cen- tral Bank is expected to terminate its monthly bond purchasing pro- gram in October, having halved the monthly volume to € 30 bn as of January 2018. No key interest rate hikes are expected before 2019. Modestly rising yields on 10-year U.S. government bonds, the good economic situation in the Eurozone, and gradually rising inflation rates are likely to influence investors´ interest rate expectations and exert upward pressure on European benchmark bond yields. For 10- year German government bonds, we see yields climbing modestly to about 1 % in the course of 2018; yields on 10-year U.S. government bonds may end the year at close to 3 %. While the ongoing Federal Reserve rate-hiking cycle will weigh on the Euro, a number of other factors will support it, among them the solid recovery in the Eurozone. We expect the Dollar-to-Euro exchange rate to close the year at about 1.15 (2017: 1.20). Insurance industry outlook The insurance industry can look towards 2018 with some optimism, mainly for three reasons: Firstly, premium growth is set to increase as the stronger economic momentum bolsters demand for insurance. Secondly, the expected gradual rise in interest rates and yields can be seen as the harbinger of the end of the long and cold “yield winter”, although it will still take some time until higher yields are reflected in higher investment incomes. Finally, after the increase in financial regu- lation in recent years, the insurance industry might enjoy a sort of respite in 2018, a breathing space for better coping with the new rules. However, even if the macroeconomic and regulatory environ- ment looks more favorable in 2018, it is by no means plain sailing for the insurance industry. New technologies, from digitalization to Artifi- cial Intelligence, continue to change the industry profoundly: Business models need to be transformed, new skills to be learned, new part- nerships to be built and new competition to be fended off. Further- more, the ongoing digitalization of our lives will usher in a new era of regulation, governing the use of data – the oil of the 21st century. On the other hand, the upsides of the new technologies, in particular in terms of simplicity and accessibility, should become more visible in 2018, too. In the property-casualty sector, premium growth is expected to accelerate in 2018, reflecting higher inflation and the ongoing broad- based recovery of the global economy. As in previous years, emerging markets are the main driver of growth: All regions, from Latin America over Africa to Asia, should continue their recovery; in Emerging Asia, premium growth could top 10 %. In contrast, growth in advanced markets will be much slower, at around 3 %. Overall, we expect global premium growth of about 5 % in 2018 (in nominal terms and adjusted for foreign currency translation effects). Assuming average losses from natural catastrophes and more positive rate dynamics – particu- larly in business lines affected by last year’s losses – overall profitabil- ity is likely to increase, although investment income might remain a drag. In the life sector, the overall picture is quite similar – with one ex- ception: The growth lead of Emerging Asia over the rest of the world is even more pronounced. While the advanced markets’ recovery proceeds at a snail’s pace and other emerging markets show robust but more or less stable growth, many of Asia’s emerging markets are expected to clock growth rates of 15 % or more. A rising middle class, urbanization, aging societies, and last but not least a favorable policy environment underpin the continued growth story. Overall, we expect global premium growth to increase by about 6 % in 2018 (in nominal terms and adjusted for foreign currency translation effects) compared to 2017. Global industry profitability could also improve in 2018, albeit only modestly. This change for the better has not so much to do with the slight rise in interest rates; it is mainly a result of recent man- agement actions which steered insurance portfolios towards less capital intensive business lines (such as protection) and investment portfolios towards riskier but higher-yielding asset classes (such as infrastructure). 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 1.22. 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 un- derwritten by types of business and geography, Allianz SE’s portfolio 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 reinsurance requirements, based on its local risk appetite and capital position. The respective cover is then provided by Allianz SE or one of its sub- sidiaries. At the Group level, the Allianz SE Board reviews and ap- proves the risk appetite. The reinsurance division is then responsible for designing and implementing Group catastrophe protections 12 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE 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 28. After five years of falling rates the softening reinsurance cycle has come to an end for the January 2018 renewals, mainly a result of claims burden due to Natural Catastrophes in 2017. As there is still plenty of capacity in the reinsurance market it remains to be seen if this development will continue in 2018. Allianz SE’s technical result largely depends on group-internal cessions resulting from the quota share agreements with European Allianz entities. We expect an increase of net premiums as well as an improvement of the net underwriting result before equalization re- serve in 2018. Based on our estimates we expect an improved com- bined ratio for the property and casualty reinsurance in 2018. 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 2018, we predict an almost stable net income and, together with the unappropriated earnings carried forward, an increase in net earnings. Based on our current planning, this may involve a year-on- year shift in earning contributions between the investment result and the other non-technical result. We currently expect a rising investment result. However, as things stand, this increase is set to be more than offset by an declined other non-technical result. On the other hand, we estimate a better tax income. We are not currently planning a specific currency rate result, nor are we able to anticipate any net gains/losses from derivatives. This could impact the net income of Allianz SE considerably. 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 net earnings in line with the Allianz Group’s dividend policy. 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 the dividend policy of that match earnings Allianz Group. For more detailed information on our dividend policy, and see for Allianz SE Annual Report 2017 the Allianz Group’s 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 mar- ket 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 catas­trophes, and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates, including the Euro/U.S. Dollar exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions, including related integration issues and reorganization measures, and (xi) general competitive factors, in each case on a local, regional, national, and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. No duty to update The company assumes no obligation to update any information or forward-looking statement contained herein, save for any information required to be disclosed by law. Annual Report 2017 – Allianz SE 13 B _ Management Report of Allianz SE OPERATIONS BY REINSURANCE LINES OF BUSINESS Gross premiums written decreased by 5.1 % to € 10,265 mn (2016: € 10,820 mn). All in all, 91.9 % (2016: 92.6 %) 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-Casuality Change in claims equalization and similar reserves Net technical result 2017 € mn 3,780 2,687 865 680 412 160 569 2016 € mn 4,062 2,817 839 810 441 83 644 1,206 1,270 445 365 302 297 245 105 832 382 354 319 357 237 116 906 10,265 10,820 Change %1 (6.9) (4.6) 3.2 (16.1) (6.6) 91.2 (11.6) (5.0) 16.4 3.1 (5.3) (16.7) 3.6 (8.9) (8.2) (5.1) 2017 % 104.4 89.7 96.1 94.2 63.7 99.0 92.7 93.5 96.7 77.7 n/a 94.1 91.4 n/a 96.4 2016 % 104.1 88.2 88.0 78.2 88.7 87.8 98.8 94.6 93.3 79.3 n/a 94.8 98.3 n/a 96.5 96.6 96.3 2017 € mn 26 (11) - (11) - - - (48) (53) (1) - (8) (20) - 2016 € mn (106) (183) - (183) - - - (45) (43) (1) - (27) (1) - (111) (226) (122) (528) 2017 € mn (151) 243 33 22 145 1 42 33 (43) 77 31 7 1 (1) (84) 113 2016 € mn (276) 92 95 (59) 48 10 (2) 16 (17) 68 89 (9) 3 1 (95) (128) Motor Fire and property reinsurance thereof: Household and homeowner Fire Engineering Business interruption Other property reinsurance Liability Credit and bond Personal accident Life Marine and aviation 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 fell by 6.9 % to € 3,780 mn (2016: € 4,062 mn), mainly impacted by the decrease of premium volume from Allianz S.p.A. The combined ratio rose to 104.4 % (2016: 104.1 %), mainly driven by the increased calendar year loss ratio of 78.1 % (2016: 75.4 %), with offsetting effects coming from the reduced expense ratio of 26.3 % (2016: 28.8 %). In particular, the claims devel- opment caused a release of equalization reserve in the amount of € (26) mn (2016: strengthening € 106 mn). The household and homeowner reinsurance portfolio increased slightly by 3.2 %, with gross premiums written of € 865 mn (2016: € 839 mn), mainly coming from the business with Allianz Versicher- ungs-AG. Driven by a deteriorated accident year claims ratio of 65.2 % (2016: 57.8 %) and a negative run-off result of € (5) mn (2016: € 9 mn), the combined ratio worsened to 96.1 % (2016: 88.0 %). The net tech- nical result decreased to € 33 mn (2016: € 95 mn). The fire reinsurance portfolio declined by 16.1 % to € 680 mn (2016: € 810 mn) in gross premiums written, driven by internal busi- ness. The increase of accident year claims ratio to 89.2 % (2016: 81.8 %) and the decrease of run-off result to € 122 mn (2016: € 180 mn) caused a significant increase of the calendar year claims ratio to 67.1 % (2016: 50.3 %). The combined ratio deteriorated to 94.2 % (2016: 78.2 %). After a further strengthening of the equalization reserve of € 11 mn (2016: € 183 mn), a positve net technical result of € 22 mn (2016: € (59) mn) was achieved. Engineering reinsurance premiums written decreased to € 412 mn (2016: € 441 mn), mainly resulting from the shift to more non-proportional reinsurance covers for several business partners. The combined ratio improved significantly to 63.7 % (2016: 88.7 %), much of which was driven by the positive development of the acci- dent year claims ratio of 58.5 % (2016: 80.6 %). The net technical result increased by € 97 mn to € 145 mn (2016: € 48 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 11.6 % to € 569 mn (2016: € 644 mn) due to reduced external business volume. The net technical result improved significantly to € 42 mn (2016: € (2) mn), mainly driven by the positive development of acci- dent year loss ratio 65.3 % (2016: 71.5 %). Premiums written for liability reinsurance declined by 5.0 % to € 1,206 mn (2016: € 1,270 mn), much of which resulted from a de- crease of premium revenue with Allianz Global Corporate & Specialty SE. The combined ratio improved to 93.5 % (2016: 94.6 %), mainly influenced by the positive development of accident year loss ratio 57.0 % (2016: 59.3 %) which was partially offset by the negative run- off result of € (44) mn (2016: € (33) mn). The net technical result amounted to € 33 mn (2016: € 16 mn), after a further strengthening of the equalization reserve of € 48 mn (2016: € 45 mn). Gross premiums written in credit and bond reinsurance in- creased by € 63 mn to € 445 mn. The calendar year loss ratio im- proved by 3,6 % to 49.7 % which was mainly influenced by the in- creased run-off result of € 48 mn (2016: € 20 mn). However, the combined ratio worsened to 96.7 % (2016: 93.3 %), influenced by a higher expense ratio of 47.0 % (2016: 40.0 %). A further strengthening 14 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE The premium revenue of legal expenses reinsurance rose by 3.6 % to € 245 mn (2016: € 237 mn), largely driven by business with Allianz Versicherungs-AG. The combined ratio improved substantially to 91.4 % (2016: 98.3 %). This positive development was mainly attribut- able to higher run-off result of € 24 mn (2016: € 16 mn) reflected in an improved calendar year losses ratio of 54.4 % (2016: 61.8 %). After a strengthening of equalization reserve with an amount of € 20 mn (2016: € 1 mn), the net technical result remained positive with € 1 mn (2016: € 3 mn). Other reinsurance lines include: − emergency assistance, − fidelity & political risk, − motor extended warranty, − other property and casualty business. of the equalization reserve of € 53 mn (2016: € 43 mn) led to a nega- tive net technical result of € (43) mn (2016: € (17) mn). The gross premium written in marine and aviation reinsurance fell by 16.7 % to € 297 mn (2016: € 357 mn), mainly impacted by a decrease of premium revenue with Allianz Global Corporate & Specialty SE. The combined ratio improved slightly by 0.7 percentage points to 94.1 %, mainly due to the increased run-off result of € 33 mn (2016: € 10 mn). This development caused a strengthening of € 8 mn (2016: € 27 mn) in equalization reserve. As a consequence of the decreased allocation to the equalization reserve, the net technical result turned positive with € 7 mn (2016: € (9) mn). The personal accident reinsurance gross premium revenue in- creased to € 365 mn (2016: € 354 mn), mainly driven by higher pre- miums ceded by Allianz Versicherungs-AG. The combined ratio fur- ther improved to 77.7 % (2016: 79.3 %), mainly influenced by a lower accident year claims ratio of 57.3 % (2016: 58.9 %). After a strengthen- ing of € 1 mn in equalization reserve (2016: € 1 mn), an increased net technical result of € 77 mn (2016: € 68 mn) was achieved. In life reinsurance, the premium revenue declined to € 302 mn (2016: € 319 mn), primarily due to the recapture of several reinsur- ance contracts in the Asia-Pacific region. The expense ratio increased by 10.8 percentage points, compared to the previous year, reaching 28.6 %, much of the difference being due to one-off effects in 2016. The net technical result dropped to € 31 mn (2016: € 89 mn). Annual Report 2017 – 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 Excess of plan assets over pension and similar obligations 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 2017 2016 30 116,061 5,398 272 307 11 21 113,079 5,473 292 615 - 122,080 119,480 42,014 13,689 14,980 7,950 983 363 42,090 11 44,650 13,806 14,471 7,369 1,075 411 37,691 7 Total equity and liabilities 122,080 119,480 Investments € mn as of 31 December Real estate Investments in affiliated enterprises and participations Other investments Funds held by others under reinsurance business assumed 2017 245 74,176 33,329 8,310 2016 250 71,354 33,447 8,028 Total investments 116,061 113,079 The book value of investments in affiliated enterprises and partici- pations increased by € 2.8 bn to € 74.2 bn, driven by a higher book value of shares in affiliated enterprises (€ 5.6 bn). A reduction of loans to affiliated enterprises (€ 2.8 bn) partly offset this increase. More details regarding this position are explained in note 5 to our financial statements. Other investments slightly decreased to € 33.3 bn, reflecting declines in investment funds (€ 0.7 bn), loans (€ 0.2 bn), and deposits with banks (€ 0.2 bn), which mostly were compensated by higher investments in debt securities (€ 1.0 bn). from € 33.4 bn At the end of 2017, € 28.4 bn of other investments were invested in debt securities, of which € 9.6 bn were government bonds. We slightly raised our overall government bond exposure by € 0.1 bn compared to year-end 2016, reducing our sovereign debt exposure in Spain from € 0.7 bn to € 0.6 bn while increasing our investments in Italian government bonds from € 0.6 bn to € 0.8 bn. Funds held by others under reinsurance business assumed in- creased to € 8.3 bn (2016: € 8.0 bn). This increase reflects the devel- opment of reserves for loss and loss adjustment expenses. As of 31 December 2017, the fair value of investments amounted to € 127.1 bn (2016: € 124.9 bn), compared to a carrying amount of € 116.1 bn (2016: € 113.1 bn). Shareholders’ equity As of 31 December 2017, our shareholders’ equity amounted to € 42.0 bn (2016: € 44.7 bn), a decrease of € 2.7 bn in the financial year. The reduction is caused by a buy-back of own shares at acquisi- tion costs of € 3.0 bn. The shares were cancelled without reducting the issued capital. This decrease was partly offset by a slight rise of € 0.3 bn, due to net income being higher than the dividend paid and due to the sale of own shares for the Employee Stock Purchase Plan. The Board of Management proposes to use the net earnings of € 4,117 mn for dividend payments in the amount of € 3,511 mn.1 The unappropriated earnings of € 606 mn will be carried forward. Development of shareholders’ equity and of issued shares as of 31 December 2016 Own shares: cancellation Own shares Own shares: realized gains Dividend payment for 2016 Unappropriated earnings carried forward Net earnings Issued shares Issued capital Number 457,000,000 (16,750,354) - - - - - € thou 1,169,920 - - - - - - Mathematical value of own shares € thou (4,945) - 1,307 - - - - Additional paid-in capital € thou 27,844,664 - - 60,592 - - - Revenue reserves Net earnings 31 December € thou 11,784,157 (2,997,705) 38,566 - - - - € thou 3,855,866 - - - (3,409,946) (445,920) 4,117,339 € thou 44,649,662 (2,997,705) 39,873 60,592 (3,409,946) (445,920) 4,117,339 as of 31 December 2017 440,249,646 1,169,920 (3,638) 27,905,256 8,825,017 4,117,339 42,013,894 16 Annual Report 2017 – Allianz SE 1_The proposal reflects the number of shares entitled to the dividend as of 31 December 2017. B _ Management Report of Allianz SE Insurance reserves and other provisions For information on insurance reserves and other provisions, please refer to notes 14 and 15 to our financial statements. Financial liabilities Liabilities from bonds issued to Group companies declined to € 2.4 bn (2016: € 2.6 bn), due to the redemption of bonds in the amount of € 0.2 bn. Liabilities to banks went down to € 0.0 bn (2016: € 0.4 bn) fol- termination of short-term repurchase agreements lowing the amounting to € 0.4 bn. Other intra-group financial liabilities rose to € 38.4 bn (2016: € 33.4 bn) and were composed of the following positions: As of 31 December 2017, 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 2017 3,412 10,277 13,689 2,354 - 38,397 1,338 42,090 2016 4,869 8,937 13,806 2,576 398 33,429 1,288 37,691 55,779 51,497 Of these financial liabilities, € 44.2 bn (2016: € 40.9 bn) were intra- group liabilities. as of 31 December Intra-group loans Cash pool liabilities Miscellaneous 2017 23,292 13,981 1,124 2016 23,317 9,272 840 Other intra-group financial liabilities 38,397 33,429 While liabilities from intra-group loans remained stable at € 23.3 bn, liabilities from intra-group cash pooling significantly increased by € 4.7 bn to € 14.0 bn and miscellaneous liabilities climbed by € 0.3 bn to € 1.1 bn. intra-group In 2017, other third-party financial liabilities amounted to € 1.3 bn (2016: € 1.3 bn). The decline of short-term funding through European commercial papers by € 0.1 bn to € 0.9 bn was offset by an increase of various other third-party financial liabilities by € 0.1 bn to € 0.4 bn. Subordinated (2016: € 13.8 bn). Details regarding this position are explained in note 13 to our financial statements. liabilities decreased to € 13.7 bn Annual Report 2017 – 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 ac- cording to authorizations provided by the AGM. The following table outlines Allianz SE’s capital authorizations as of 31 December 2017: Liquidity Resources and Uses Capital authorizations of Allianz SE Capital authorization Nominal amount Allianz SE ensures adequate access to liquidity and capital for our liquidity available to operating subsidiaries. Main sources of Allianz SE are dividends and funds received from subsidiaries, reinsurance premiums received, and funding provided by capital markets. Liquidity resources are defined as readily available assets – specifically cash, money market investments, and highly liquid government bonds. Funds are primarily used for paying interest expenses on our debt funding, claims arising from the reinsurance business, operating costs, internal and external growth investments, and dividends to our shareholders. Authorized Capital 2014/I Authorized Capital 2014/II Authorization to issue bonds carrying conversion and/or option rights Conditional Capital 2010/2014 € 550,000,000 Expiry date of the authorization 6 May 2019 € 13,720,000 6 May 2019 € 10,000,000,000 (nominal bond value) 6 May 2019 (issuance of bonds) € 250,000,000 No expiry date for Conditional Capital 2010/2014 (issuance in case option or conversion rights are exercised) Funding Sources For further details on Allianz SE’s capital authorizations, please refer to note 12 to our financial statements. 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. 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, lines allow letter-of-credit facilities and bank credit Allianz SE to fine-tune its capital structure. EQUITY FUNDING As of 31 December 2017, the issued capital registered at the Com- mercial Register was € 1,169,920,000. This was divided into 440,249,646 registered shares with restricted transferability. As of 31 December 2017, Allianz SE held 1,369,131 (2016: 1,931,677) own shares. In 2017, we had steady access to debt funding sources, enabling us to actively steer the maturity profile of our funding structure. In January 2017, Allianz SE issued two dated subordinated bonds of € 1.0 bn and USD 0.6 bn and redeemed a subordinated bond of € 1.4 bn in February 2017. Overall, our subordinated liabilities de- creased slightly to € 13.7 bn (2016: € 13.8 bn) at year-end. liabilities (2016: € 37.7 bn), mainly as a result of higher intra-group liabilities. For further details on Allianz SE’s financial liabilities, please refer to notes 13 and 16 to our financial statements. to € 42.1 bn increased financial Other 18 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE RISK AND OPPORTUNITY REPORT Target and strategy of risk management Allianz SE aims to ensure adequate capitalization at all times for the benefit of both shareholders and policyholders. This includes meeting the Solvency II regulatory capital requirements resulting from the internal model. Furthermore, risk and the cost of capital – reflecting that risk – are important aspects to be taken into account in business decisions. We closely monitor the capital position and risk concentrations of Allianz SE and apply regular stress tests (standardized and histori- cal stress test scenarios). This allows us to take appropriate measures to ensure our continued capital and solvency strength. Risk governance RISK MANAGEMENT FRAMEWORK As the holding company of Allianz Group and a global reinsurer, we consider risk management to be a core competency and an integral part of our business. Our risk management framework covers all operations and business units of Allianz SE, proportional to the inherent risks of the activities, ensuring that risks across the legal entity are consistently identified, analyzed, assessed and managed. The primary goals of our risk management framework are: − Promotion of a strong risk culture, supported by a robust risk governance structure. − Consistent application of an integrated risk capital framework to protect our capital base and to support effective capital man- agement. Integration of risk considerations and capital needs into man- agement and decisions by attributing risk and allocating capital to the business units. − Our risk management system is based on the following four pillars: Risk identification and underwriting: Risk identification and un- derwriting forms the foundation for adequate risk and management decisions. Supporting activities include standards for underwriting, individual transaction approvals, emerging- valuation methods, /operational-/top-risk assessments, and scenario analyses. Risk strategy and risk appetite: Our risk strategy defines our risk appetite consistent with our business strategy. It ensures that rewards are appropriate based on the risks taken and capital required, and that the delegated authorities are in line with our overall risk-bearing capacity and strategy. Risk reporting and monitoring: Our comprehensive qualitative and quantitative risk monitoring framework provides management with the transparency needed to assess whether our risk profile falls within delegated limits and to identify emerging issues quickly. For example, risk dashboards and limit consumption reports as well as scenario analyses and stress tests are regularly prepared and com- municated. Communication and transparency: Transparent risk disclosure provides the basis for communicating our strategy and performance to internal and external stakeholders, ensuring a sustainable and positive impact on valuation and financing. It also strengthens the risk awareness and risk culture throughout Allianz SE. MANAGEMENT STRUCTURE SUPERVISORY BOARD RISK COMMITTEE AND GROUP FINANCE AND RISK COMMITTEE Allianz SE’s risk governance ensures that our risk profile remains consistent with both our risk strategy and our capacity to bear risks. Within our risk governance system, the Supervisory Board and the Board of Management of Allianz SE have both Allianz SE and Group- wide responsibilities. The Board of Management formulates business objectives and a corresponding risk strategy; the core elements of the risk framework are set out in the Allianz Group Risk Policy approved by the Board of Management, which also serves as the master risk policy for Allianz SE. The Supervisory Board advises, challenges, and supervises the Board of Management in the performance of its man- agement activities. The following committees support the Board and the Supervisory Board on risk issues. Supervisory Board Risk Committee The Risk Committee of the Supervisory Board monitors the effective- ness of Allianz SE’s risk management framework. It also keeps track of risk-related developments as well as of general risks and specific risk exposures. Group Finance and Risk Committee The Group Finance and Risk Committee (GFRC) provides oversight of the Group’s and Allianz SE’s risk management framework, acting as a primary early-warning function in that it monitors the Group’s and Allianz SE’s risk profiles as well as the availability of capital. The GFRC also ensures that an adequate relationship between return and risk is maintained. Additionally, the GFRC defines risk standards, forms the limit-setting authority within the framework set by the Board of Management, and approves major financing and reinsur- ance transactions. Finally, the GFRC supports the Board of Manage- ment with recommendations regarding capital structure, capital allocation and investment strategy, including the strategic asset allocation. The GFRC is supported by the Allianz Re Risk Committee on top- ics 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 the organizational structure, the risk strategy and appetite, limit systems, documentation, and reporting. These standards ensure the accurate and timely flow of information and a disciplined approach towards decision-making and execution. As a general principle, the “first line of defense” rests with busi- ness managers in the business units of Allianz SE. They are responsi- ble for both the risks and returns from their decisions. Our “second line of defense” is made up of independent oversight functions including risk, actuarial, compliance, and legal, which support the Board in defining the risk framework within which the business can operate. Annual Report 2017 – Allianz SE 19 B _ Management Report of Allianz SE Audit forms the “third line of defense”, independently reviewing Allianz SE’s risk governance implementation and compliance with risk principles. It performs quality reviews of risk processes, and tests adherence to business standards, including the internal control framework .For the first and the second line of defense, Allianz SE has established dedicated responsibilities at its departments (including reinsurance). Risk Function The functions of Chief Risk Officer for the Allianz Group and for Allianz SE are performed by the same person. Independent risk oversight for Allianz SE is performed 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’s legal, com- pliance and actuarial functions constitute additional components of the “second line of defense”. Allianz SE’s legal and compliance functions seek to mitigate le- gal risks for Allianz SE with support from other departments. The objectives of these 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 litiga- tion, and to provide legally appropriate solutions for transactions and business processes. In addition, compliance 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 regulatory requirements, in particular for those risks whose management requires actuarial expertise. The range of tasks includes, among others, the calculation and monitor- ing of technical provisions, technical actuarial assistance in business planning, reporting and monitoring of the results, and supporting the effective implementation of the risk management system. Risk based steering and risk management Allianz SE is exposed to a variety of risks through its holding company and reinsurance activities, including market, credit, underwriting, business, operational, strategic, liquidity, and reputational risks. Allianz SE considers diversification across different lines of busi- ness and geographic regions to be a key element in managing our risks efficiently, limiting the economic impact of any single event and contributing to relatively stable results. Our aim is to maintain a bal- anced risk profile without any disproportionately large risk concentra- tions and accumulations. With Solvency II being the binding regulatory regime for Allianz SE since 1 January 2016, our risk profile is measured and steered based on our approved Solvency II internal model. We have introduced a target Solvency II ratio for Allianz SE based on prede- fined shock-scenarios, which is supplemented by sensitivity analysis. In addition, central elements of Allianz SE’s dividend policy are linked to the Solvency II capitalization based on our internal model. By that we allow for a consistent view on risk steering and capitaliza- tion under the Solvency II framework. Allianz SE steers its portfolio using a comprehensive view of risk and return based on the internal risk model which includes scenario analysis: Risk and concentrations are actively restricted by limits based on our model, and there is a comprehensive analysis of the return on risk capital (RoRC) in the underwriting of property and casualty reinsurance business. The RoRC allows us to identify profita- ble lines of business on a sustainable basis, and thus is a key criterion for capital allocation decisions. As a consequence, the internal model is fully integrated in busi- ness steering, and the application of the internal model satisfies the so-called “use-test” under Solvency II. MARKET RISK As the holding company of Allianz Group and a global reinsurer, Allianz SE holds and uses a broad range of financial instruments, which are reflected on our balance sheet as both assets and liabili- ties. For our holding activities (i.e. to hold participations, provide fi- nancing for Group companies, cover internal pension liabilities, invest cash pooled from subsidiaries, and as the lender of last resort within Allianz Group), Allianz SE predominantly invests in participations and fixed-income assets. As an inherent part of our reinsurance opera- tions, we collect premiums from our customers and invest them in a wide variety of assets. The resulting reinsurance investment portfolio backs the future claims of and benefits to our cedents. In addition, we invest shareholders’ capital, which is required to support the under- written risks and the holding activities. Our market risk from liabilities primarily relates to fixed-income instruments held for financing, as well as to internal pensions and reinsurance liabilities. Finally, we use derivatives for various purposes, especially to hedge our planned dividend income from non-Euro subsidiaries against adverse currency market movements. Financial market asset/liability management decisions are taken based on the internal model, balancing risks against returns. As the fair values of our assets and liabilities depend on financial markets, which may change over time, we are exposed to the risk of adverse financial market developments. Allianz SE’s most important market risk results from changes in the value of its participations in Group companies. The long-dated internal pension liabilities of Ger- man Group companies on Allianz SE’s balance sheet contribute to interest rate risk, in particular as they cannot be fully matched by available investments due to long maturities. In addition, we are also exposed to adverse changes in equity and real estate prices, credit spread levels, inflation, implied volatilities, and currency values, which might impact the value of our assets and liabilities. To measure these market risks, real world stochastic models for the relevant risk factors, calibrated using historical time series, are used to generate possible future market developments. After the scenarios for all risk factors are generated, the asset and liability positions are revalued under each scenario. The worst-case outcome of the portfolio profit and loss distribution at a certain confidence level (99.5 %) defines the market Value at Risk (VaR). Market risk from material M&A transactions of Allianz SE is managed by assessing risk capital implications. Strategic asset allo- cation benchmarks are defined for several sub-portfolios of the in- vestment portfolio of Allianz SE. Furthermore, we have risk limits in place, including financial VaR, stand-alone interest rate and equity sensitivity limits, and foreign-exchange exposure limits. Limits are closely monitored and, if a breach occurs, countermeasures are im- plemented. These may include the escalation and/or closing of posi- 20 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE tions. Finally, guidelines are in place regarding certain investments, new investment products, and the use of derivatives. An additional important source of currency risk is the planned divi- dend income from non-Euro subsidiaries. EQUITY RISK Allianz SE’s equity risk predominantly results from the performance of our insurance participations. Other material risk exposures reflect listed and unlisted equities, equity derivatives, own shares, and man- agement incentive plans. Risks from changes in equity prices are normally associated with decreasing share prices and increasing equity price volatilities. As the performance of our participations might exceed expectations, and stock values also might increase, opportunities may arise from partic- ipations and other equity investments. In 2017, Allianz SE had in place profit-and-loss transfer agree- ments with twelve German subsidiaries. These are listed in the ap- pendix on page 73. Risk from these contracts is reflected via the risk capital calculation on participations. INTEREST RATE RISK If the duration of our assets is shorter than that of our liabilities, we may suffer an economic loss in a falling-rate environment as we reinvest maturing assets at lower rates prior to the maturity of liability contracts. In contrast, opportunities may arise when interest rates increase. Interest rate risk is managed within our asset / liability management process and controlled via interest rate sensitivity limits. CREDIT SPREAD RISK Fixed-income assets such as bonds may lose value if credit spreads widen. However, our risk appetite for credit spread risk takes into account the underlying economics of our reinsurance business model. As a liability-driven investor, we typically hold fixed-income assets covering reinsurance liabilities until maturity. This implies that short- term changes in market prices affect us to a lesser extent. INFLATION RISK As a holding and reinsurance company, we are exposed to changing inflation rates. Since inflation increases reinsurance claims and costs as well as internal pension obligations, higher inflation rates will lead to greater liabilities. Inflation assumptions are already taken into account in our rein- surance underwriting. That said, unexpected inflation can increase future claims and expenses, leading to greater liabilities; conversely, if future inflation rates turn out lower than assumed, liabilities will be less than anticipated. The risk of changing inflation rates is incorpo- rated in our internal model. CURRENCY RISK The major part of Allianz SE’s foreign-currency risk comes from our non-Euro participations. In addition to this risk, Allianz SE’s currency risk is driven by its non-Euro reinsurance exposure, as well as by the use of non-Euro bonds as external financing instruments. If the Euro strengthens, the Euro-equivalent net asset value of our foreign subsidiaries and the value of our financing instruments will decline from the perspective of Allianz SE; at the same time, however, the capital requirements in Euro will decrease, partially mitigating the total impact on the capitalization of Allianz SE. Allianz SE’s currency risk is managed based on our foreign- exchange management limit framework. CREDIT RISK Credit risk is measured as the potential economic loss in the value of our portfolio that is due to changes in the credit quality of our coun- terparties (“migration risk”) or the inability or unwillingness of a coun- terparty to fulfil contractual obligations (“default risk”). Allianz SE’s credit risk profile comes from three sources: our in- vestment portfolio, guarantees and retrocession. Investment portfolio: Credit risk results from our investments in fixed-income bonds, loans, derivatives, cash positions, and receiva- bles, whose values may decrease depending on the credit quality of the obligors. Guarantees: Credit risk is caused by the potential default of Group companies on commitments from contracts with external stakeholders, which are backed with guarantees from Allianz SE. Retrocession: Credit risk to external reinsurers arises when insur- ance risk exposure from Allianz SE’s reinsurance business is retroced- ed to external reinsurance companies to mitigate insurance risks. Credit risk arises from potential losses resulting from a non- recoverability of reinsurance receivables, or from defaults on benefits under in-force reinsurance treaties. Our reinsurance partners are carefully selected by a dedicated team. Besides focusing on compa- nies with a strong credit profile, we may further require letters of credit, cash deposits, or other financial measures to further mitigate our exposure to credit risk. The internal credit risk capital model takes into account the ma- jor drivers of credit risk for each instrument, including exposure at default, rating, seniority, collateral, and maturity. Additional parame- ters assigned to obligors are migration probabilities and obligor asset correlations reflecting dependencies within the portfolio. Ratings are assigned to single obligors via an internal rating approach, which is based on long-term ratings from rating agencies, dynamically adjust- ed using market-implied ratings and the most recently available qualitative information. The loss profile of the portfolio is obtained through 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, and rating bucket benchmarks are used to define our risk appetite for exposures in the lower investment grade and non-investment grade area. Our group-wide country and obligor group limit management framework (CrisP1) allows us to manage counterparty concentration risk, covering both credit and equity exposures at the Group and Allianz SE 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 managed. 11_Credit Risk Platform Annual Report 2017 – Allianz SE 21 B _ Management Report of Allianz SE UNDERWRITING RISK Allianz SE’s underwriting risk consists of premium risk and reserve risk in the Property-Casualty reinsurance business, as well as of biometric risk from internal pensions and the Life/Health reinsurance business. PROPERTY-CASUALTY Our property-casualty reinsurance business is exposed to premium risk related to adverse developments to the current year’s new and renewed business, as well as reserve risk related to the business in force. As part of our property-casualty reinsurance operations, we re- ceive premiums from our customers and provide insurance protection in return. Premium risk is the risk that actual claims for the current year business develop adversely relative to expected claims ratios. Premium risk is subdivided into three categories: Natural catastrophe risk, man-made risk, and non-catastrophe risk. Premium risk is actively managed 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 retro- cession agreements. All these measures contribute to a limitation of risk accumulation. We also monitor concentrations and accumulation of non-market risks on a stand-alone basis (i.e. before diversification effects) within an Allianz Group global limit framework in order to avoid substantial losses from single events such as natural catastro- phes and from man-made catastrophes such as terror or large indus- trial risk accumulations. Premium risk is estimated 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 commis- sions). Non-catastrophe risk is modelled using attritional loss models for frequency losses, as well as frequency & severity models for large losses. Natural disasters, such as earthquakes, storms, and floods, represent a significant challenge for risk management due to their accumulation potential and volatility of occurrence. For natural ca- tastrophe risk, we use special modelling techniques which combine portfolio data (geographic location, characteristics of insured objects and their values) with simulated natural disaster scenarios to esti- mate the magnitude and frequency of potential losses. For significant exposures where such stochastic models do not exist, we use deter- ministic, scenario-based approaches to estimate potential losses. Similar approaches are used to evaluate risk concentrations for man- made catastrophes including losses from terrorism and industrial concentrations. These loss distributions are then used within the inter- nal model to calculate potential losses with a predefined confidence level of 99.5 %. Reserve risk represents the risk of adverse developments in the best estimate reserves over a one-year time horizon, resulting from fluctuations in the timing and/or amount of claims settlement. Allianz SE estimates and holds reserves for claims resulting from past events that have not yet been settled. The company experiences a reserve loss if the reserves are not sufficient due to unexpected developments; in contrast, there is the chance for positive returns if our reserves prove to be too conservative. Reserve risk can be mitigated by retrocession. We constantly monitor the development of reserves for reinsurance claims on a line- of-business level. In addition, Allianz SE conducts annual reserve uncertainty analyses based on similar methods used for reserve risk calculations. Where appropriate, the expertise and analysis of other Group entities is leveraged. The Allianz Group performs regular inde- pendent reviews of these analyses. Similar to premium risk, reserve risk is calculated based on actu- arial models. The reserve distributions derived are then used within the internal model to calculate potential losses based on a prede- fined confidence level of 99.5 %. LIFE/HEALTH Underwriting risks in Allianz SE’s Life/Health reinsurance operations and from our internal pension obligations (biometric risks) include mortality, disability, morbidity, and longevity risks. Mortality, disability, and morbidity risks are associated with the unexpected increase in the occurrence of death, disability, or medical claims. Longevity risk is the risk that the reserves covering life annuities and pension contracts might not be sufficient due to longer life expectancies of the insured. Life/Health underwriting risk arises from profitability being lower than expected. As profitability calculations are based on several parameters – such as historical loss information, assumptions on infla- tion or on mortality, and morbidity – realized parameters may differ from the ones used for the calculation of pension liabilities and for the underwriting. For example, higher-than-expected inflation may lead to higher medical claims in the future. However, beneficial devia- tions can also occur; for example, a lower morbidity rate than ex- pected will most likely result in lower claims. We measure risks within our internal risk capital model, distin- guishing, where appropriate, between risks affecting the absolute level and trend development of actuarial parameter assumptions as well as pandemic risk scenarios. OPERATIONAL RISK Operational risks represent losses resulting from inadequate or failed internal processes, or from external events. They can stem from a wide variety of sources, for example: − − “Execution, Delivery and Process Management” losses arising from transaction or process management failures. Examples in- clude interest from non-payment or underpayment of taxes. These losses tend to occur with a low financial impact (although single large loss events can occur). “Clients, Products & Business Practices” losses due to a failure to meet a professional obligation, or from the design of a transac- tion. Examples include anti-trust behavior, data protection, sanc- tions and embargoes. These losses can have a high financial im- pact. − Other operational risks, including external fraud, financial mis- statement risk, and a breach of cyber security causing business disruption or fines, or a potential failure at an outsourcing partner causing a disruption to our working environment. Reflecting Allianz SE’s tasks as holding company for Allianz Group and reinsurer, the operational risk capital of Allianz SE is dominated by the risk of potential losses within the areas of “Execution, Delivery and Process Management” and “Clients, Products & Business Practices”. Operational risk capital is calculated using a scenario-based ap- proach calling upon expert judgement as well as internal and exter- nal operational loss data. Estimates of frequency and severity of 22 Annual Report 2017 – Allianz SE potential loss events for each material operational risk category are calculated and used as the basis for our internal model calibration. Allianz SE has implemented the Group-wide operational risk management framework that focuses on the early recognition and proactive management of material operational risks. The framework defines roles and responsibilities as well as management processes and methods: Risk managers in the Allianz SE risk management function, in their capacity as the “second line of defense”, identify and evaluate relevant operational risks and control weaknesses via a dialog with the “first line of defense”, and report operational risk events in a central database. This framework specifies controls for risk mitigation. For example, compliance risks are addressed via written policies. The risk of financial misstatement is mitigated by a system of internal controls covering financial reporting. Outsourcing risks are covered by an Outsourcing Policy, by Service Level Agreements, and by Business Continuity and Crisis Management programs. Cyber risks are mitigated through in- vestments in cyber security and a variety of ongoing control activities. BUSINESS RISK Allianz SE’s business risk consists of cost risk from property-casualty reinsurance business and of policyholder behavior risk from both life/health and property-casualty reinsurance. Cost risks are associated with the risk that expenses incurred in administering policies are higher than expected, or that the new business volume decreases to a level that does not allow Allianz SE to absorb its fixed costs efficiently. Assumptions on policyholder behavior are set in line with ac- cepted actuarial methods and are based on our own historical data, if and as available. If there is no historical data, assumptions are based on industry data or expert judgment. Reflecting the business model of Allianz SE as primarily a group- internal reinsurer, business risk is minor. OTHER RISKS (NOT MODELLED IN THE INTERNAL MODEL) Certain risks are not adequately addressed or mitigated by addition- al capital and are therefore excluded from the internal risk capital model. For these risks we also use a systematic approach with respect to identification, analysis, assessment, monitoring, and management, with the risk assessment generally based on qualitative criteria or scenario analyses. The most important of these other risks are strate- gic, liquidity and reputational risk. STRATEGIC RISK Strategic risk is the risk of a decrease in the company’s value that arises from adverse management decisions on business strategies and their implementation. Strategic risks are identified and evaluated as part of Allianz Group’s and Allianz SE’s Top Risk Assessment processes and discussed in various Board of Management-level committees (e.g. the Group Finance and Risk Committee). We also monitor market and competitive conditions, capital market requirements, regulatory conditions, etc., to decide if strategic adjustments are necessary. The most important strategic risks are directly addressed through Allianz’s Renewal Agenda, which focuses on five themes: True Cus- tomer Centricity, Digital by Default, Technical Excellence, Growth Engines and Inclusive Meritocracy. Progress on mitigating strategic B _ Management Report of Allianz SE risks and towards meeting the Renewal Agenda objectives are moni- tored and evaluated in the strategic and planning dialogue between Allianz Group and the operative functions of Allianz SE. LIQUIDITY RISK Liquidity risk is defined as the risk that current or future payment obligations cannot be met or can only be met on the basis of ad- versely altered conditions. Liquidity risk arises primarily if there are mismatches in the timing of cash in- and out-flows. The investment strategy of Allianz SE particularly focuses on the quality of investments and ensures a significant portion of liquid assets in the portfolio (e.g. high-rated government or corporate bonds). We employ actuarial methods for estimating our liabilities arising from reinsurance and internal pension contracts. In the course of standard liquidity planning, we reconcile liquidity sources (e.g. cash from investments and premiums) and liquidity needs (e.g. payments due to reinsurance claims, expenses) under a best-estimate plan as well as idiosyncratic and systemic adverse liquidity scenarios. The main goal of planning and managing Allianz SE’s liquidity position is to ensure that we are always in a position 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 also for investing the excess liquidity of other Group companies. Strategic liquidity planning for Allianz SE over time horizons of 12 months and three years is reported to the Board of Management regularly. The accumulated short-term liquidity forecast is updated daily and is subject to an absolute minimum strategic cushion amount and an absolute minimum liquidity target. Both are defined for the Allianz SE cash pool in order to be protected against short-term liquidity crises. As part of our strategic planning, contingent liquidity requirements and sources of liquidity are taken into account to ensure that Allianz SE is able to meet any future payment obligations even under adverse conditions. Major contingent liquidity requirements include non- availability of external capital markets, combined market and catas- trophe 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 li- quidity buffers at our subsidiaries, Allianz SE holds a strategic liquidity reserve. REPUTATIONAL RISK Allianz SE’s reputation as a well-respected and socially aware hold- ing and reinsurance company is influenced by our behavior in a range of areas, such as financial performance, quality of reinsurance underwriting and customer service, corporate governance, employee relations, intellectual capital, and corporate responsibility. Reputational risk is the risk of an unexpected drop in the value of the Allianz SE share price, the value of the in-force business, or the value of the future business caused by a decline in our reputation assessed by stakeholders. All affected Allianz SE functions cooperate in the identification of reputational risk. Group Communications and Corporate Responsibil- ity assesses reputational risk for Allianz SE based on a group-wide methodology. Since 2015, Allianz SE has embedded conduct risk Annual Report 2017 – Allianz SE 23 B _ Management Report of Allianz SE triggers for fair contracts and services into the reputational risk man- agement process. The identification and assessment of reputational risks is part of our yearly Top Risk Assessment process, in course of which senior management also decides on a risk management strategy and relat- ed actions. This is supplemented by quarterly updates. In addition, reputational risk is managed on a case-by-case basis. 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. On a quar- terly 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 For the management of our risk profile and solvency position, we utilize an approach that reflects the Solvency II rules. INTERNAL MODEL Our internal risk capital model is based on a Value at Risk approach using a Monte Carlo simulation. Following this approach, we deter- mine the maximum loss in portfolio value in scope of the model within a specified timeframe (“holding period”, set at one year) and probability of occurrence (“confidence level”, set at 99.5 %). We simu- late risk events from all risk categories modelled (“sources of risk”) and calculate the portfolio value based on the net fair value of assets minus including risk mitigating liabilities under each scenario, measures like retrocession or derivatives. Risk capital is defined as the difference between the current portfolio value and the portfolio value under adverse conditions at the 99.5 % confidence level. As we consider the impact of a negative or positive event on all covered businesses at the same time, diversifi- cation effects across products and regions are taken into account. The results of our Monte Carlo simulation allow us to analyze our exposure to each source of risk, both separately and in aggregate. We also analyze several pre-defined stress scenarios, representing historical events and adverse scenarios relevant for our portfolio. 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 its activities as a reinsurer. Whereas most subsidiaries are covered through treatment as participations, the model covers, on a granular level, the very closely linked activities of 19 subsidiaries which reflect either financing enti- ties or other service providers. The risk capital model covers all relevant assets (including fixed- income instruments, equities, real estate, and derivatives) and liabili- ties (including the run-off of all technical provisions, as well as depos- its, issued debt and other liabilities such as guarantees). Therefore, Allianz SE’s risk capital framework covers all material and quantifiable risks. Risks specifically not covered by our internal model include reputational, liquidity and strategic risk. ASSUMPTIONS AND LIMITATIONS RISK FREE RATE 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 meth- odology provided by the European Insurance and Occupational Pensions 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 ad- justment in most markets where a volatility adjustment is defined by EIOPA and approved by BaFin. This is done to better reflect the un- derlying 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. DIVERSIFICATION AND CORRELATION ASSUMPTIONS Our internal risk capital model considers concentration, accumula- tion, and correlation effects for risks when aggregating results for Allianz SE. This reflects the fact that not all potential worst-case losses are likely to materialize at the same time. This effect, which is known as diversification, forms a central element of our risk man- agement framework. Diversification typically occurs when looking at combined risks that are not, or only partly, interdependent. Important diversification factors include regions (e.g. windstorm in Australia vs. windstorm in Germany), risk categories (e.g. market risk vs. underwriting risk), and subcategories within the same risk category (e.g. equity risk vs. inter- est rate risk). Ultimately, diversification is driven by the specific fea- tures of the investments or reinsurance transactions in question and their respective risk exposures. For example, an operational risk event in the Allianz SE branch in Singapore may be considered to be highly independent of a change in the credit spread for a French govern- ment bond held in Allianz SE’s reinsurance investment portfolio in Munich. Where possible, Allianz Group derives correlation parameters for each pair of market risks through statistical analysis of historical market data, considering quarterly observations over more than a decade. If historical market data or other portfolio-specific obser- vations are insufficient or not available, correlations are set by the Allianz Group Correlation Setting Committee, which combines the expertise of risk and business experts, according to a well-defined and controlled process. In general, when using expert judgement we set the correlation parameters to represent the joint movement of risks under adverse conditions. Based on these correlations, the Allianz Group uses an industry-standard approach, the Gaussian copula, to determine the dependency structure of quantifiable sources of risk within the applied Monte Carlo simulation. 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. 24 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE ACTUARIAL ASSUMPTIONS Our internal risk capital model also includes assumptions on claims trends, liability inflation, mortality, longevity, morbidity, policyholder behavior, expenses, 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 actuarial assumptions is based on generally accepted actuarial methods. Within our internal risk capital and financial reporting framework, comprehensive processes and controls exist for ensuring the reliability of these assumptions. MODEL LIMITATIONS The internal model is based on a 99.5 % confidence level. Therefore, there is a low statistical probability of 0.5 % that experienced 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 con- servative 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 and that the model adequately assesses the risks to which we are exposed. The construction and application of replicating portfolios is sub- ject to the set of replicating instruments available, and might, there- fore, be too simple or too restrictive to capture all factors affecting the change in value of obligations. We believe that the obligations are adequately represented by the replicating instruments. 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 either obtain 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 liabili- ties, the accuracy of their values additionally depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed. MODEL CHANGES IN 2017 In 2017, our internal model has been adjusted based on regulatory developments and feedback received in the course of the ongoing consultations with regulators. For the sake of clarity, all model changes and the resulting impacts on our risk profile are presented jointly within this section, based on data as of 31 December 2016. Most of the model changes causing a significant increase in risk capital were related to pensions, especially the Group’s IAS 19 pen- sions model change, a change in the tool to estimate the best- estimate cash flows for German pension liabilities, as well as the modelling of risk from future service costs from the VVW pension scheme. In addition, risk capital increased as the result of a central model change for credit spread risk. The impact of these model changes on risk capital was € 863 mn. This increase was partially offset especially by the change of our interest rate model to also consider negative interest rates, and the elimination of weaknesses in the modelling of the insurance risk from a Whole-Account Stop-Loss reinsurance contract with Allianz Re Dublin d.a.c., which allowed removing Allianz SE’s capital add-on. In aggregate, the total impact of model changes implemented in 2017 was an increase in risk capital of € 162 mn. We also updated the methodology for risk capital allocation, moving from a matrix approach to directly retrieving the risk contribu- tions from the scenarios of the Monte Carlo simulation. This ensures an economically more correct allocation of Allianz SE’s risk capital to the risk sub-categories. In the subsequent sections, the risk figures for 2016 after model changes will form the basis for the analysis of the changes in our risk profile in 2017. Allianz SE: Impact of model changes; 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 20161 20,193 593 3,129 45 771 (3,656) - 21,075 20162 19,664 633 2,731 46 773 (3,325) 391 20,913 1_2016 risk profile figures recalculated based on model changes in 2017. 2_2016 risk profile figures as reported previously. The changes to our internal model affected the risk categories as follows: MARKET RISK Market risk was most strongly affected by negative interest rates, the IAS 19 pensions and the pension cash flows model changes. The combined impact of all model changes on total market risk was an (Reported previously: to € 20,193 mn increase of € 529 mn € 19,664 mn). CREDIT RISK In 2017, no new model changes were implemented to the internal model for credit risk. We only introduced annual updates of rating transition matrices and asset correlations based on extended time series. Nevertheless, the change of the credit spread risk model also had an impact on credit risk. As a result, credit risk decreased by € 40 mn to € 593 mn. UNDERWRITING RISK AND CAPITAL ADD-ON The increase in underwriting risk is mainly due to a change in the reflection of the risk from the Whole-Account Stop-Loss agreement with Allianz Re Dublin d.a.c. A better reflection of this risk in the un- derwriting risk modelling allowed removing the € 391 mn capital add-on. From the perspective of the total risk for Allianz SE, this relief Annual Report 2017 – Allianz SE 25 B _ Management Report of Allianz SE was higher that the additional burden from the rise in underwriting risk capital. Together with minor model changes, the combined impact of all model changes on the total underwriting risk was an increase of € 398 mn to € 3,129 mn (Reported previously: € 2,731 mn). BUSINESS RISK AND OPERATIONAL RISK No material model changes have been applied for business risk and operational risk in 2017. Nonetheless, business risk marginally de- creased and operational risk slightly increased, reflecting an indirect impact from model changes in other risk categories. Allianz SE risk profile and management assessment RISK PROFILE AND MARKET ENVIRONMENT The quantitative risk profile of Allianz SE is primarily dominated by market risk that results from its non-traded insurance participations when measured in a manner consistent with the treatment 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 the Group’s participations 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 from internal pensions. represented by all of risk profile The risk profile and relative contributions have changed in 2017, predominantly due to changes in the market environment and man- agement actions. FINANCIAL MARKETS AND OPERATING ENVIRONMENT Financial markets are characterized by historically low interest rates and risk premiums, prompting investors to look for investments with higher returns – which potentially implies higher risk. In addition to sustained low interest rates, the challenges of implementing long- term structural 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, possi- ble asset bubbles (as observed in the Chinese equity market) might spill over to other markets, or rising geopolitical tensions – e.g. caused by the North Korean missile program – might trigger market sell-offs, which contribute to increasing volatility. Therefore, we continue to closely monitor political and financial developments – such as the Brexit in the United Kingdom, the European migrant crisis, and the rise of Euroscepticism, or the situation on the Korean peninsula – 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. Due to the review of the Solvency II framework by EIOPA, future Solvency II capital requirements might change depending on the outcome. MANAGEMENT ASSESSMENT Allianz SE’s management feels comfortable with Allianz SE’s overall risk profile and has confidence in the effectiveness of its risk management framework to meet the challenges of a rapidly changing environment as well as of day-to-day business needs. This confidence is based on several factors: − Due to its effective capital management, Allianz SE is well capi- talized. We have met our internal and regulatory solvency targets as of 31 December 2017. − Allianz SE’s management also believes that Allianz SE is well positioned to withstand 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 ap- proved 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 princi- ple of Solvency II rules.1 Our regulatory capitalization is shown in the following table: Allianz SE: Solvency II regulatory capitalization as of 31 December Own funds Capital requirement Capitalization ratio 1_2016 risk profile figures as reported previously. € bn € bn % 2017 84.2 23.7 355 20161 81.3 20.9 389 As of 31 December 2017, the Solvency II capitalization of the legal entity Allianz SE is at 355 %. The decrease by 34 percentage points in 2017 was driven by a € 2.8 bn increase risk capital, which was only partially compensated by the rise in eligible own funds. 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. We measure and steer risk based on an approved internal mod- el, under which we derive our risk capital from potential adverse developments of Own Funds. The resulting risk profile provides an overview of how risks are distributed over different risk categories, 1_Own funds and capital requirement are calculated taking into account volatility adjustment and yield curve extension, as described in Risk free rate and volatility adjustment assumptions on page 24. 26 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE and determines the regulatory capital requirements in accordance with Solvency II. The pre-diversified risk figures reflect the diversification effects within each risk category modeled (i.e. within market, credit, under- writing, business, and operational risk) but do not include the diversi- fication effects across risk categories. The Allianz SE diversified risk also captures the diversification effects across all risk categories. The Allianz SE diversified risk is broken down as follows: 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 Total Allianz SE 2017 22,898 568 3,216 37 847 (3,870) 23,696 2016 20,193 593 3,129 45 771 (3,656) 21,075 As of 31 December 2017, Allianz SE’s diversified risk capital of € 23.7 bn (2016: € 21.1 bn) represented a diversification benefit of approximately 14 % (2016: 15 %) across risk categories. The following sections outline 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 ac- cordingly. MARKET RISK RESULTS The following table presents the market risk of Allianz SE related to the source 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 2017 123 (186) 359 2016 (223) (108) 1,001 22,450 19,259 79 74 72 193 22,898 20,193 For the legal entity Allianz SE, the pre-diversified market risk showed a strong increase of € 2,704 mn driven equity risk. INTEREST RATE RISK In 2017, our interest rate risk increased by € 346 mn, mainly reflecting a reduction in loans provided to subsidiaries. As of 31 December 2017, Allianz SE’s interest-rate-sensitive in- vestment assets amounting to a market value of € 48.5 bn would have gained € 2.2 bn or lost € 2.0 bn in value, in the event of interest rates changing by -100 and + 100 basis points, respectively. INFLATION RISK The € 78 mn increase in the relief for total risk from inflation in 2017 mainly reflects a change in the sharing of costs for pensions between Allianz SE and several German subsidiaries. EQUITY RISK In 2017, Allianz SE’s equity risk strongly increased by € 3,191 mn, mainly reflecting a change in the value of participations in Allianz Group companies. As of 31 December 2017, our investment assets that are sensitive to changing equity markets would have lost € 320 mn in value, as- suming equity markets declined by 30 %. CREDIT SPREAD RISK Allianz SE’s credit spread risk is € 642 mn lower than in 2016. This is especially explained by a reduction in loans provided to subsidiaries. REAL ESTATE RISK As of 31 December 2017, real estate risk for Allianz SE is minor (€ 79 mn). The marginal increase in 2017 of € 7 mn reflects an in- crease in real estate prices. CURRENCY RISK Allianz SE’s € 74 mn currency risk at year-end 2017 reflects net open positions in several currencies, dominated by the U.S. Dollar. The € 119 mn reduction is mainly caused by a stronger Euro, together with various changes in positions such as a reduction in USD loans provid- ed to subsidiaries. CREDIT RISK Throughout 2017, the credit environment was stable. Annual updates based on extended time series were performed for credit risk param- eters like the transition matrix and asset correlations, which had only a slightly positive effect on credit risk. Credit risk of the legal entity Allianz SE decreased by € 25 mn in 2017, dominantly resulting from a decrease in the credit risk exposure of assets. UNDERWRITING RISK The following table presents the pre-diversified risk calculated for underwriting risks stemming from our reinsurance business and inter- nal pensions. 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 2017 289 1,758 1,074 95 2016 402 1,697 980 50 3,216 3,129 As of 31 December 2017, the total Allianz SE pre-diversified under- writing risk was € 3.2 bn, with premium risk amounting to € 2.0 bn, reserve risk to € 1.1 bn, and biometric risk to € 0.1 bn. The total figure does not materially deviate from end 2016. Annual Report 2017 – Allianz SE 27 B _ Management Report of Allianz SE PROPERTY-CASUALTY Premium risk In 2017, Allianz SE’s natural catastrophe risk decreased by € 113 mn, mainly reflecting an increase in retrocession. The top five scenarios contributing to the natural catastrophe risk of Allianz SE as of December 2017 were: a windstorm in Europe, an earthquake in Turkey, an earthquake in Italy, an earthquake in Aus- tralia, and a tropical cyclone in Australia. With an increase by 3.6 %, non-catastrophe and terror premium risk of Allianz SE only marginally changed in 2017. Reserve risk The € 94 mn increase in Allianz SE’s reserve risk in 2017 mainly re- flects the building up of reserves in Group-internal quota shares. LIFE/HEALTH In 2017, the biometric risk of Allianz SE is € 45 mn higher than in 2016, which is dominantly reflecting a rise in exposures from internal pensions, caused by a change in the cost sharing between Allianz SE and several German subsidiaries. BUSINESS RISK The € 8 mn decrease in business risk is immaterial. OPERATIONAL RISK The increase of € 76 mn shown in the operational risk is driven by the annual update of local parameters, mainly reflecting a reassessment of cyber and other IT-related risks. 28 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE CORPORATE GOVERNANCE REPORT Good corporate governance is essential for sustainable business performance. The Board of Management and the Supervisory Board of Allianz SE thus attach great importance to complying with the recommendations of the German Corporate Governance Code (re- ferred to hereinafter as the “Code”). The Declaration of Conformity with the recommendations of the Code, issued by the Board of Man- agement and the Supervisory Board on 14 December 2017, and the company’s position regarding the Code’s suggestions can be found in the Statement on Corporate Management pursuant to § 289f of the HGB starting on page 34. Corporate Constitution of the European Company (SE) As a European Company, Allianz SE is subject to special European SE regulations and (“SE- Ausführungsgesetz”) in addition to the German SE Employee In- volvement Act (“SE-Beteiligungsgesetz”). However, the main features of a German stock corporation – in particular the two-tier board system (Board of Management and Supervisory Board) and the principle of equal employee representation on the Supervisory Board – have been maintained by Allianz SE. Implementation Act the German 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, for coordinating and supervising the operating entities, and for implementing and overseeing an efficient risk management system. The Board of Management also prepares the annual financial statements of Allianz SE, the Allianz Group’s consolidated financial statements, the market value balance sheet, and the interim report. The members of the Board of Management are jointly responsi- ble for management and for complying with legal requirements. Notwithstanding this overall responsibility, the individual members head the departments they have been assigned independently. There are divisional responsibilities for business segments as well as functional responsibilities. The latter include the Finance, Risk Man- agement and Controlling Functions, Investments, Operations – in- cluding IT –, Human Resources, Legal, 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. Board of Management meetings are led by the Chairman. Each member of the Board may request a meeting, providing notification of the proposed subject. The Board takes decisions by a simple ma- jority of participating members. In the event of a tie, the Chairman casts the deciding vote. The Chairman can also veto decisions, but he cannot impose any decisions against the majority vote. BOARD OF MANAGEMENT AND GROUP COMMITTEES In the financial year 2017, the following Board of Management committees were in place: Board Committees Board committees Responsibilities GROUP FINANCE AND RISK COMMITTEE Dr. Dieter Wemmer (Chairman), Sergio Balbinot, Dr. Günther Thallinger, Dr. Axel Theis. GROUP IT COMMITTEE Dr. Christof Mascher (Chairman), Jacqueline Hunt, Dr. Axel Theis, Dr. Dieter Wemmer, Dr. Werner Zedelius. GROUP MERGERS AND ACQUISITIONS COMMITTEE Dr. Helga Jung (Chairwoman), Oliver Bäte, Dr. Dieter Wemmer. As of 31 December 2017 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 investment strategy and preparing risk strategy. This includes, in particular, significant individual investments and guidelines for currency management, Group financing and internal Group capital management, as well as establishing and overseeing a group-wide risk management and monitoring system including dynamic stress tests. Developing, proposing, implementing and monitoring a group-wide IT strategy, approving relevant IT investments. Managing and overseeing Group M&A transactions, including approval of individual transactions within certain thresholds. In addition to Board committees, there are also Group committees. They are responsible for preparing decisions for the Board of Man- agement of Allianz SE, submitting proposals for resolutions, and ensuring a smooth flow of information within the Group. In the financial year 2017, the following Group committees were in place: Group committees Group committees Responsibilities GROUP COMPENSATION COMMITTEE Board members of Allianz SE and executives below Allianz SE Board level 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. Implementing the 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 37. Annual Report 2017 – Allianz SE 29 B _ Management Report of Allianz SE The Board of Management reports regularly and comprehen- sively to the Supervisory Board on business development, the com- pany’s financial position and earnings, planning and achievement of objectives, business strategy, and risk exposure. Details on the Board of Management’s reporting to the Supervisory Board are laid down in the information rules issued by the Supervisory Board. The Supervisory Board regularly reviews the efficiency of its ac- tivities. The Supervisory Board discusses recommendations for im- provements and adopts appropriate measures on the basis of recom- mendations from the Standing Committee. The self-assessment also includes an evaluation of the fitness and propriety of the individual members. Important decisions of the Board of Management require ap- proval by the Supervisory Board. These requirements are stipulated by law, by the Statutes, or in individual cases by decisions of the An- nual General Meeting (AGM). Supervisory Board approval is required, for example, for certain capital transactions, intercompany agree- ments, and the launch of new business segments or the closure of existing ones. Approval is also required for acquisitions of companies and holdings in companies, as well as for divestments of Group com- panies that exceed certain threshold levels. The Agreement concern- ing 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 is determined by general European SE regulations. These regu- lations are implemented in the Statutes and by the SE Agreement. 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 repre- sentatives 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 the United Kingdom. According to § 17 (2) of the German SE Implementation Act (“SE-Ausführungsgesetz”), the Supervisory Board of Allianz SE shall be composed of at least 30 % women and at least 30 % men. The Supervisory Board oversees and advises the Board of Management on managing the business. It is also responsible for appointing the members of the Board of Management, determin- ing their overall remuneration, and reviewing Allianz SE’s and the Allianz Group’s annual financial statements. The Supervisory Board’s activities in the 2017 financial year are described in the Supervisory Board Report starting on page 2. The Supervisory Board takes all decisions based on a simple ma- jority. The special requirements for appointing members to the Board of Management, as stipulated in the German Co-Determination 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 proposal of the employee representatives. 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. Supervisory board committees Supervisory board committees Responsibilities STANDING COMMITTEE 5 members – Chairman: Chairman of the Supervisory Board (Michael Diekmann) – Two further shareholder representatives (Herbert Hainer, Jim Hagemann Snabe) – Two employee representatives (Gabriele Burkhardt-Berg, Jürgen Lawrenz) AUDIT COMMITTEE 5 members – Chairman: appointed by the Supervisory Board (Dr. Friedrich Eichiner) – Three shareholder representatives (in addition to Dr. Friedrich Eichiner: Sophie Boissard, Michael Diekmann) – Two employee representatives (Jean-Jacques Cette, Martina Grundler) RISK COMMITTEE 5 members – Chairman: appointed by the Supervisory Board (Michael Diekmann) – Three shareholder representatives (in addition to Michael Diekmann: Christine Bosse, Dr. Friedrich Eichiner) – Two employee representatives (Godfrey Hayward, Jürgen Lawrenz) PERSONNEL COMMITTEE 3 members – Chairman: Chairman of the Supervisory Board (Michael Diekmann) – One further shareholder representative (Herbert Hainer) – One employee representative (Rolf Zimmermann) NOMINATION COMMITTEE 3 members – Chairman: Chairman of the Supervisory Board (Michael Diekmann) – Two further shareholder representatives (Christine Bosse, Jim Hagemann Snabe) TECHNOLOGY COMMITTEE 5 members – Chairman: appointed by the Supervisory Board (Jim Hagemann Snabe) – Three shareholder representatives (in addition to Jim Hagemann Snabe: Michael Diekmann, Dr. Friedrich Eichiner) – Two employee representatives (Gabriele Burkhardt-Berg, Rolf Zimmermann) As of 31 December 2017 – Approval of certain transactions which require the approval of the Supervisory Board, e.g. capital measures, acquisitions, and disposals of participations – Preparation of the Declaration of Conformity pursuant to § 161 “Aktiengesetz” (German Stock Corporation Act) and checks on corporate governance – Preparation of the efficiency review of the Supervisory Board – Initial review of the annual Allianz SE and 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 compensation of Board of Management members – Conclusion, amendment, and termination of service contracts of Board of Management members unless reserved for the plenary session – Long-term succession planning for the Board of Management – Approval of the assumption of other mandates by Board of Management members – Setting of concrete objectives for the composition of the Supervisory Board – Establishment of selection criteria for shareholder representatives on the Supervisory Board in compliance with the Code’s recommendations on the composition of the Supervisory Board – Selection of suitable candidates for election to the Supervisory Board as shareholder representatives – Regular exchange regarding technological developments – In-depth monitoring of the Board of Management’s technology and innovation strategy – Support of the Supervisory Board in monitoring the implementation of the Board of Management’s technology and innovation strategy. 30 Annual Report 2017 – Allianz SE 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: Publication of details of members’ participation in meetings RISK COMMITTEE Michael Diekmann (Chairman and member from 7 May 2017) Dr. Helmut Perlet (Chairman and member until 3 May 2017) Dante Barban (Member until 3 May 2017) Christine Bosse Dr. Friedrich Eichiner Presence in % Godfrey Hayward (Member from 3 May 2017) Jürgen Lawrenz B _ Management Report of Allianz SE Presence in % 1/1 1/1 1/1 2/2 2/2 1/1 2/2 2/2 2/2 2/2 2/2 2/2 100 100 100 100 100 100 100 100 100 100 100 100 TECHNOLOGY COMMITTEE (FROM 3 MAY 2017) Jim Hagemann Snabe (Chairman) Gabriele Burkhardt-Berg Michael Diekmann (Member from 7 May 2017) Dr. Friedrich Eichiner Rolf Zimmermann The Nomination Committee did not convene any meetings in the 2017 financial year. PLENARY SESSIONS OF THE SUPERVISORY BOARD Michael Diekmann (Chairman and member from 7 May 2017) Dr. Helmut Perlet (Chairman and member until 6 May 2017) Dr. Wulf H. Bernotat (Vice Chairman and member until 3 May 2017) Jim Hagemann Snabe (Vice Chairman from 3 May 2017) Rolf Zimmermann (Vice Chairman) Dante Barban (Member until 3 May 2017) Sophie Boissard (Member from 3 May 2017) Christine Bosse Gabriele Burkhardt-Berg Jean-Jacques Cette Dr. Friedrich Eichiner Martina Grundler Herbert Hainer (Member from 3 May 2017) Godfrey Hayward (Member from 3 May 2017) Prof. Dr. Renate Köcher (Member until 3 May 2017) Jürgen Lawrenz STANDING COMMITTEE Michael Diekmann (Chairman and member from 7 May 2017) Dr. Helmut Perlet (Chairman and member until 6 May 2017) Dr. Wulf H. Bernotat (Member until 3 May 2017) Gabriele Burkhardt-Berg Herbert Hainer (Member from 3 May 2017) Prof. Dr. Renate Köcher (Member until 3 May 2017) Jürgen Lawrenz (Member from 3 May 2017) Jim Hagemann Snabe (Member from 3 May 2017) Rolf Zimmermann (Member until 3 May 2017) PERSONNEL COMMITTEE Michael Diekmann (Chairman and member from 7 May 2017) Dr. Helmut Perlet (Chairman and member until 6 May 2017) Christine Bosse (Member until 3 May 2017) Herbert Hainer (Member from 3 May 2017) Rolf Zimmermann AUDIT COMMITTEE Dr. Friedrich Eichiner (Chairman and member from 3 May 2017) Dr. Wulf H. Bernotat (Chairman and member until 3 May 2017) Sophie Boissard (Member from 3 May 2017) Jean-Jacques Cette Michael Diekmann (Member from 7 May 2017) Martina Grundler Dr. Helmut Perlet (Member until 3 May 2017) Jim Hagemann Snabe (Member until 3 May 2017) 3/3 4/4 3/3 7/7 7/7 3/3 4/4 6/7 6/7 7/7 7/7 5/7 4/4 4/4 2/3 7/7 2/2 1/1 1/1 3/3 2/2 0/1 2/2 2/2 1/1 3/3 1/1 1/1 3/3 4/4 3/3 2/2 2/3 5/5 3/3 4/5 2/2 2/2 100 100 100 100 100 100 100 86 86 100 100 71 100 100 67 100 100 100 100 100 100 0 100 100 100 100 100 100 100 100 100 100 67 100 100 80 100 100 Annual Report 2017 – Allianz SE 31 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 of August 2017, as specified to implement a recommendation by the Code, are as follows. In addition to the skills profile for the overall Supervisory Board, also to be established due to a new rec- ommendation of the Code, the diversity concept in accordance with the legislation regarding the implementation of the E.U. guideline as regards the disclosure of non-financial and diversity information (CSR Directive) is also included: Objectives of Allianz SE’s Supervisory Board regarding its composition “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. These objectives take into account the regulatory requirements for the composition of the Supervisory Board as well as the relevant recommendations of the German Corporate Governance Code (“GCGC”). In addition to the requirements for each individual member, a profile of skills and expertise (“Kompetenzprofil”) as well as a diversity concept is provided for the entire Supervisory Board. I. Requirements relating to the individual members of the Supervisory Board 1. Propriety The members of the Supervisory Board must be proper as defined by the regulatory provisions. A person is assumed to be proper as long as no facts are to be known which may cause impropriety. Therefore, no personal circumstances shall exist which – according to general experience – lead to the assumption that the diligent and orderly exercise of the mandate may be affected (in particular administrative offenses or violation of criminal law, esp. in connection with commercial activity). 2. Fitness The members of the Supervisory Board must have the expertise and experience necessary for a diligent and autonomous exercise of the Allianz SE Supervisory Board mandate, in particular for exercising control of and giving advice to the Board of Management as well as for the active support of the development of the company. This comprises in particular: – adequate expertise in all business areas; – adequate expertise in the insurance and finance sector or comparable relevant experience and expertise in other sectors; – adequate expertise in the regulatory provisions material for Allianz SE (supervisory law, including Solvency II regulation, corporate and capital markets law, corporate governance); – ability to assess the business risks; – knowledge of accounting and risk management basics. 3. Independence The GCGC defines a person as independent, who, in particular, does 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 interest. To further specify the definition of independence, the Supervisory Board of Allianz SE states the following: – Former members of the Allianz SE Board of Management shall not be deemed independent during the mandatory corporate law cooling-off period. – Members of the Supervisory Board of Allianz SE in office for more than 15 years shall not be deemed independent. – Regarding employee representatives, the mere fact of employee representation and the existence of a working relationship with the company shall not in itself affect the independence of the employee representatives. Applying such definition, at least eight members of the Supervisory Board shall be independent. In case shareholder representatives and employee representatives are viewed separately, at least four members respectively should be independent. It has to be considered that the possible emergence of conflicts of interests in individual cases cannot generally be excluded. Potential conflicts of interest must be disclosed to the Chairman of the Supervisory Board and will be resolved by appropriate measures. 4. Time of availability Each member of the Supervisory Board must ensure that they have sufficient time to dedicate to the proper fulfilment of the mandate of this Supervisory Board position. In addition to the mandatory mandate limitations and the GCGC recommendation for active Management Board members of listed companies (max. three mandates) the common capital markets requirements shall be considered. With respect to the Allianz SE mandate, the members shall ensure that – they can attend at least four, usually six ordinary Supervisory Board meetings per year, each of which requires adequate preparation; – they have sufficient time for the audit of the annual and consolidated financial statements; – they can attend the General Meeting; Employee representation within Allianz SE according to the Agreement concerning the Participation of Employees in Allianz SE contributes to diversity of work experience and cultural background. Pursuant to the provisions of the German SE Participation Act (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: – depending on possible membership in one or more of the current six Supervisory Board special committees, this involves extra time planning to participate in these Committee meetings and do the necessary preparation for these meetings; this applies in particular for the Audit and risk Committees; – they can attend extraordinary meetings of the Supervisory Board or of a special committee to deal with special matters as and when required. 5. Retirement age The members of the Supervisory Board shall, as a rule, not be older than 70 years of age. 6. Term of membership The continuous period of membership for any member of the Supervisory Board should, as a rule, not exceed 15 years. 7. Former Allianz SE Management Board members Former Allianz SE Management Board members are subject to the mandatory corporate law cooling- off period of two years. According to regulatory provisions, no more than two former Allianz SE Management Board members shall be members of the Supervisory Board. II. Requirements for the entire Supervisory Board 1. Profile of skills and expertise for the entire Supervisory Board In addition to the expertise-related requirements for the individual members, the following shall apply with respect to expertise and experience of the entire Supervisory Board: – familiarity of members in their entirety with the insurance and financial services sector; – adequate expertise of the entire board with respect to investment management, insurance actuarial practice, and accounting; – at least one member with considerable experience in the insurance and financial services fields; – at least one member with comprehensive expertise in the fields of accounting or auditing; – specialist expertise or experience in other economic sectors; – managerial or operational experience. 2. Diversity concept To promote an integrative cooperation among the Supervisory Board members, the Supervisory Board aims at an adequate diversity with respect to gender, internationality, different occupational backgrounds, professional expertise, and experience: – 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. – At least four of the members must, on the basis of their origin or function, represent regions or cultural areas in which Allianz SE conducts significant business. For Allianz SE as a Societas Europaea, the agreement concerning the participation of employees in Allianz SE provides the following: Allianz employees from different EU member states be considered in the allocation of employee representatives’ Supervisory Board seats. – In order to provide the Board with the most diverse sources of experience and specialist knowledge possible, the members of the Supervisory Board shall complement each other with respect to their background, professional experience, and specialist knowledge.” 32 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE The composition of the Supervisory Board of Allianz SE reflects these objectives. According to the assessment by the Supervisory Board, all shareholder representatives, i.e. Ms. Boissard, Ms. Bosse as well as Mr. Diekmann, Dr. Eichiner, Mr. Hainer and Mr. Snabe, are independent within the meaning of the objectives (see No. I.3.). With four female Supervisory Board members, the current legislation for equal partici- pation of women and men in leadership positions (statutory gender quota of 30 %) is being met. In addition, the Supervisory Board has five members with international backgrounds. The skills profile is also met by all current members of the Supervisory Board. The current composition of the Supervisory Board and its committees is described on page 5. 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 transac- tions involving shares or debt securities of Allianz SE or financial deriva- tives 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. Sharehold- ers 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 Supervi- sory Board and approves the actions taken by the Board of Man- agement and the Supervisory Board. It decides on the use of profits, capital transactions, the approval of intercompany agreements, the remuneration of the Supervisory Board, and changes to the compa- ny’s Statutes. In accordance with European regulations and the Stat- utes, changes to the Statutes require a two-thirds majority of votes cast in case less than half of the share capital is represented in the AGM. Each year, an ordinary AGM takes place at which the Board of Management and Supervisory Board give an account of the preced- ing financial year. For special decisions, the German Stock Corpora- tion Act provides for the convening of an extraordinary AGM. Accounting and auditing The Allianz Group prepares its accounts according to § 315e 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 par- ticular the HGB. In compliance with special legal provisions that apply to insur- ance companies, the auditor of the annual financial statements and of the half-yearly financial report is appointed by the Supervisory Board, not by the AGM. The audit of the financial statements covers the individual financial statements of Allianz SE and also the consoli- dated 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 calen- dar listing the dates of major publications and events, such as annual reports, half-yearly financial reports and quarterly statements, AGMs as well as analyst conference calls and financial press conferences. You can find the 2018 financial calendar on our website at www.allianz.com/financialcalendar. Regulatory requirements The regulatory requirements for corporate governance applicable for insurance companies, insurance groups, and financial conglomerates are additionally important. Specifically, they include the establish- ment and further design of significant control functions (risk man- agement, actuarial function, compliance, and internal audit) as well as general principles for a sound business organization. The regulato- ry requirements are applicable throughout the Group in principle and have been implemented using written guidelines issued by the Board of Management of Allianz SE. Since the 2016 financial year, a market value balance sheet has to be prepared at solo and group level, which has to be examined and reported on separately by the audi- tors. Details on the implementation of the regulatory requirements for corporate governance by Allianz SE and by the Allianz Group can be found in the Solvency and Financial Condition Report of Allianz SE and of the Allianz Group, which are published on our website at www.allianz.com/sfcr. Annual Report 2017 – Allianz SE 33 B _ Management Report of Allianz SE STATEMENT ON CORPORATE MANAGEMENT PURSUANT TO § 289f OF THE HGB The Statement on Corporate Management pursuant to § 289f of the German Commercial Code (“Handelsgesetzbuch – HGB”) forms part of the Management Report. According to § 317 (2), sentence 6 of the HGB, this Statement does not have to be included within the scope of the audit. comprehensive risk and control management system regularly also assesses the effectiveness and the appropriateness of the internal control system as part of the System of Governance. For further in- formation on the risk organization and risk principles, please refer to   page 19. Information on the internal Controls over Financial Re- Declaration of Conformity with the German Corporate Governance Code On 14 December 2017, the Board of Management and the Super- visory Board issued the following Declaration of Conformity of Allianz SE with the German Corporate Governance Code (hereinaf- ter 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) 1. Allianz SE currently complies with all recommendations of the German Corporate Governance Code (Code) in the version of February 7, 2017 and will comply with them in the future. F 2. Since the last Declaration of Conformity as of December 15, 2016, Allianz SE has complied with all recommendations of the German Corporate Governance Code in the version of May 5, 2015 Munich, December 14, 2017 Allianz SE For the Board of Management: Signed Oliver Bäte Signed Dr. Helga Jung For the Supervisory Board: Signed Michael Diekmann” In addition, Allianz SE follows all the suggestions of the Code in its 7 February 2017 version. The Declaration of Conformity and further information on corpo- rate governance at Allianz can be found on our website at www.allianz.com/corporate-governance. Corporate governance practices INTERNAL CONTROL SYSTEMS Allianz SE, as a member of the Allianz Group, has an effective inter- nal risk and control system for verifying and monitoring its operating activities and business processes, in particular financial reporting, as well as compliance with regulatory requirements. The requirements placed on the internal control systems are essential not only for the resilience and franchise value of the company, but also to maintain the confidence of the capital market, our customers, and the public. A porting you will find on   page 51. In addition, the quality of the internal control system is assessed by the Internal Audit Function. It conducts independent, objective assurance and consulting activities, analyzing the structure and effi- cienccy of the internal control systems as a whole. In addition, it also examines the potential for additional value and improvement of our organization’s operations. Fully compliant with all international audit- ing principles and standards, Internal Audit contributes to the evalua- tion and improvement of the effectiveness of the risk management, control and governance processes. Therefore, internal audit activities are geared towards helping the company to mitigate risks and fur- ther assist in strengthening 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 central 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 rules-compliant and value-based corporate govern- ance are supported and followed. These include the principles of the United Nations (UN Global Compact), the Guidelines of the Organi- zation for Economic Cooperation and Development for Multinational Enterprises (OECD guidelines), and European and international standards on data and consumer protection, economic and financial sanctions and combating corruption, bribery, money laundering, and terrorism financing. Through its support for and acceptance of these standards, Allianz aims to avoid the risks that might arise from non- compliance. The central compliance function of Allianz SE is respon- sible for ensuring – in close cooperation with regional, divisional and local compliance functions – the effective implementation and moni- toring of the compliance program as well as for investigating poten- tial compliance infringements. The standards of conduct established by the Code of Conduct for Business Ethics and Compliance are obligatory for all employees. is available on our website at    The Code of Conduct www.allianz.com/corporate-governance. The Code of Conduct and the internal guidelines derived from it provide all employees with clear guidance on behavior that lives up to the values of the Allianz Group. In order to transmit the principles of the Code of Conduct and the internal compliance program based on these principles, 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- 34 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE lines and controls to ensure fair dealings with Allianz Group custom- ers (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 continu- ous monitoring and improvement of the internal anti-corruption controls. More information on the Anti-Corruption Program can be the Sustainability Report on our website at    found in www.allianz.com/sustainability. A major component of the compliance program is a whistle- blower system that allows employees and third parties to alert the compliance department in confidence about any irregularities they observe. No employee voicing concerns about irregularities in good faith needs to fear retribution, even if the concerns turn out to be unfounded at a later date. Third parties can contact the compliance department via an electronic mailbox on our website at www.allianz.com/complaint-system. DESCRIPTION OF THE FUNCTIONS OF THE BOARD OF MANAGEMENT AND THE SUPERVISORY BOARD AND OF THE COMPOSITION AND FUNCTIONS OF THEIR COMMITTEES A description of the composition of the Supervisory Board and its committees can be found on pages 5 and 7 of the Annual Report. A description of the composition of the Board of Management can be found on page 8, while the composition of the Committees of the Board of Management is described in the Corporate Governance Report starting on page 29. This information is also available on our website at www.allianz.com/corporate-governance. A general description of the functions of the Board of Manage- ment, the Supervisory Board, and their committees can be found in the Corporate Governance Report starting on page 29, and on our website at www.allianz.com/corporate-governance. Information in accordance with the German Act on Equal Participation of Women and Men in Executive Positions in the Private and the Public Sector This section outlines on the targets set by Allianz SE for the Board of Management and the two management levels below the Board of Management. Article 17 (2) of the German SE Implementation Act stipulates that as of 1 January 2016, the share of women and men among the members of the Supervisory Board of Allianz SE must each total up to 30 % at least. The Supervisory Board currently in office fulfils this requirement because it includes four women (33 %). The targets that had been set up until 30 June 2017 and their implementation are dealt with first: For the Board of Management, the Supervisory Board had set a target of 11 % for the percentage of women until 30 June 2017. This target was exceeded with a percentage of women on the Board of Management of 22 %. For the proportion of women on the two man- agement levels below the Board of Management, a target of 20 % had been set. As of 30 June 2017, this target was met for the second management level with a percentage of women of 24 %, but could not be met on the first level with a percentage of 17 %. The first man- agement level below the Board of Management comprises a very small comparative group of executives. No suitable female candi- dates could be identified for the very few positions that became vacant in the period considered. The following new targets were set for Allianz SE in the 2017 financial year: In August 2017, the Supervisory Board resolved on a new target for the percentage of women on Allianz SE’s Board of Management at 30 % up until 31 December 2021. As regards the proportion of women on the first and second management levels below the Board of Management, the Board of Management of Allianz SE has set a target of 20 % and 25 %, respectively, up until 31 December 2018. In the longer term, Allianz aims to place women in at least 30 % of the positions at these two management levels throughout the Group. Diversity concepts for the Board of Management and Supervisory Board In accordance with the legislation to implement the European CSR Directive, the diversity concepts for the Board of Management and the Supervisory Board, their objectives, implementation, and results achieved are to be reported on for the first time for the 2017 financial year. The Supervisory Board stipulated the following diversity concept for the Board of Management of Allianz SE in August 2017: “For the composition of the Management Board, the Supervisory Board aims for an adequate “Diversity of Minds”. This comprises broad diversity with regard to gender, internationality as well as educational and professional background. The Supervisory Board assesses the achievement of such target, inter alia, on the basis of the following specific indicators: − adequate proportion of women on the Management Board: at least 30 % until 31 December 2021; − adequate share of members with an international background (e.g. based on origin or extensive professional experience abroad), ideally with connection to the regions in which Allianz Group is op- erating; − adequate diversity with regard to educational and professional background, taking into account the limitations for the Superviso- ry Board by regulatory requirements (fitness).” This diversity concept is implemented in the appointment procedure for members of the Board of Management by the Supervisory Board. It is ensured that lists of successors shall comprise an appropriate percentage of female candidates as well as candidates with interna- tional experience. The Personnel Committee takes this into considera- tion especially in succession planning. The current composition of the Board of Management is in accordance with the diversity concept: Its share of women is currently 22 %. Six members of the Management Board have international backgrounds. There is an adequate degree of variety as regards educational and professional background. The diversity concept for the Supervisory Board was approved by the Supervisory Board in August 2017 and included in the objectives for the composition of the Supervisory Board (see No. II.2 of the ob- page 32). jectives for the composition of the Supervisory Board on Annual Report 2017 – Allianz SE 35 B _ Management Report of Allianz SE The Supervisory Board pursues these objectives, and thus also the diversity concept, nominating the candidates for the shareholder representatives. As the employee representatives are appointed according to different national provisions, there is only limited poten- tial influence to the selection of employee representatives. The Su- pervisory Board is currently composed in accordance with the diversi- ty concept. For details please see the Corporate Governance Report on page 29. 36 Annual Report 2017 – Allianz SE REMUNERATION REPORT This remuneration report covers the remuneration arrangements for the Board of Management and the Supervisory Board of Allianz SE. The complete information on Allianz SE Board of Management remuneration as given below and additional information is provided on our remuneration website at www.allianz.com/remuneration. 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 inde- pendent external consultants. The Personnel Committee and the Supervisory Board consult with the Chairman of the Board of Man- agement, as appropriate, in assessing the performance and remu- neration of Board of Management members. However, the Chairman of the Board of Management is not present when his own remunera- tion 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 Key principles underlying the Board of Management remuneration are as follows: − Alignment of pay and performance: The performance-based, variable component shall form a significant portion of the overall remuneration. − Variable remuneration focused on sustainability and aligned with shareholder interests: A major part of the variable remu- neration shall reflect longer-term performance with an adequate deferred payout. Furthermore, a substantial portion shall reward the sustained performance of the share price. − Support of the Group’s strategy: The design of the performance targets must reflect the Allianz Group’s business strategy. In light of the above, the Supervisory Board determines the structure, weighting, and level of each remuneration component. In addition, the Supervisory Board regularly deals with the appropriateness of the Board of Management’s remuneration. For this purpose, we include, amongst others, remuneration survey data of DAX 30 companies and international competitors from external consultants. Compensation levels are oriented towards the third quartile of that peer group, given Allianz’s relative size, complexity, and sustained performance within that group. Furthermore, when reviewing the adequateness and appropriateness of the Board of Management’s remuneration, the Supervisory Board takes into account the development of the Board’s remuneration in relation to other remuneration levels within the Allianz Group. B _ Management Report of Allianz SE REMUNERATION STRUCTURE, COMPONENTS AND TARGET SETTING PROCESS There are four remuneration components in total, which all have the same weighting: the base salary and three variable components – the annual bonus, the annualized mid-term bonus, and the equity- related remuneration. The target level of each of the variable com- ponent does not exceed the base salary, so the total target variable compensation is three times the base salary at maximum. BASE SALARY The base salary is not performance-based. It is paid in twelve month- ly installments. VARIABLE REMUNERATION The variable remuneration (annual bonus, mid-term bonus, and equity-related compensation) is designed to reward performance. A shortfall of targets may result in the variable compensation dropping to zero. Two thirds of the variable compensation are a deferred pay- out after three or four years. Claw-back clauses for compensation components already paid do not exist because according to the governing German labor law, the enforceability of claw-back clauses is subject to major legal restrictions. On the other hand, the payout of variable remuneration is subject to a limit and capped at 150 % of the respective target levels for the annual bonus and the mid-term bonus, as well as at a 200 % increase in value of the grant price for the equity-related remuneration. Variable remuneration components may not be paid, or pay- ment may be restricted, in the case of a breach of the Allianz Code of Conduct or regulatory Solvency II policies or standards, including risk limits. Additionally, a reduction or cancellation of variable remunera- tion may occur if the supervisory authority (BaFin) requires this in accordance with its statutory powers. Annual bonus The annual bonus depends on performance in the respective finan- cial year, and is paid out in the following financial year. The target level of the annual bonus corresponds to the base salary. Perfor- mance targets comprise Group and individual targets. Group targets include – equally weighted – operating profit and net income. Indi- vidual performance is assessed against qualitative as well as respon- sibility-related quantitative targets. For Board of Management members with business division re- individual quantitative targets comprise operating sponsibilities, profit, net income, Property-Casualty revenues, and Life new-business value. For Board of Management members with a functional focus, division-specific quantitative targets are determined based on their key responsibilities. As part of the assessment of the individual qualitative target achievement, the personal contribution to the Renewal Agenda is reviewed alongside behavioral aspects. The latter is framed in a com- mon standard ("People Letter") designed to drive necessary change across the Allianz Group, and comprises of customer orientation, col- laborative leadership, entrepreneurship, and trust (e.g. with regard to sustainability, corporate social responsibility, and diversity as well as integrity). Annual Report 2017 – Allianz SE 37 B _ Management Report of Allianz SE To support the assessment of the individual qualitative behavioral targets, a so-called multi-rater process has been introduced: Each member of the Board of Management collects, amongst others, feedback from his or her fellow Board members and his or her direct reports as well as the CEOs of the most important operating entities he or she is in charge of. Furthermore, they perform a self-assessment. Based on the 2017 target achievement for the Group as a whole and for the respective business division(s) and/or corporate func- tion(s) as well as the qualitative performance achieved, total annual bonus awards range from 111 % to 124 % of the target bonus, while the average bonus award amounts to 117 % of the target. Mid-term bonus (MTB) The mid-term bonus is a variable compensation component with a deferred payout following a three-year cycle. Sustainable and value- adding performance is assessed against a predefined criteria catalog. The current MTB cycle runs from 2016 until 2018 and is based on the following measurable sustainability criteria: “Performance” − Sustainable improvement/stabilization of return on equity (ex- cluding unrealized gains/losses on bonds, net of shadow ac- counting), − Compliance with economic capitalization guidance (capitaliza- tion level and volatility limit). “Health” (in line with the Renewal Agenda) − True Customer Centricity, − Digital by Default, − Technical Excellence, − Growth Engines, − Inclusive Meritocracy (including gender diversity and women in leadership). For the MTB, an amount is typically accrued that is identical to the annual bonus. However, the accrual as such may be subject to ad- justments, for example, if it is foreseeable that the mid-term sustaina- bility criteria are not met or exceeded. The annual accrual is capped at 150 % of the respective target level. Equity-related remuneration Equity-related remuneration is a virtual share award referred to as “Restricted Stock Units” (RSUs) with a deferred payout after four years. The grant value of the RSUs allocated equals the annual bonus of the previous year, i.e. the grant value is also capped at 150 % of the respective target level. The number of RSUs allocated is derived by 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-trading-day average Xetra closing price of the Allianz stock for the ten days fol- lowing the financial press conference where our annual results are publicized. As RSUs are virtual stock without dividend payments during the vesting period, the average Xetra closing price is reduced1 by the net present value of the expected future dividend payments during the vesting period. The expected dividend stream is discount- ed with the swap rates as of 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, as well as on 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. To avoid extreme payouts, the RSU payout level is capped at 200 % of the grant price2. Outstanding RSU holdings are forfeited, should a Board member leave at his/her own request or be terminat- ed for cause. 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. Upon retirement, the accumulated capital is paid out as a lump sum or, alternatively, 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 target 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 – again convertible into an annuity – will be paid to dependents. Should Board membership cease before retire- ment age for other reasons, the accrued pension rights are main- tained if vesting requirements 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 retirement age is still 60. From 1 January 2005 until 31 December 2014, most Board of Man- agement members participated in a contribution-based system which was frozen as of 31 December 2014, now only covering disability and death. Before 2005, a defined benefit plan provided fixed benefits not linked to base salary increases. Benefits generated under this plan were frozen at the end of 2004. Additionally, most Board members participat- ed in Allianz Versorgungskasse VVaG (AVK), a contribution-based pen- sion plan, and in Allianz Pensionsverein e.V. (APV), both these plans were closed for new entries on 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 paying the income tax due on these perquisites. The Supervisory Board regularly reviews the level of perquisites. REMUNERATION FOR 2017 The following remuneration disclosure, which is based on and com- pliant with the German Corporate Governance Code, shows the individual Board members’ remuneration for 2016 and 2017 includ- ing fixed and variable remuneration and pension service cost. The 1_In addition, the fair market value of the RSUs is subject to a small reduction of a few Euro cents due to the 200 % cap on 2_The relevant share price used to determine the final number of RSUs granted and the 200 % cap is available only after the RSU payout. This reduction is calculated based on a standard option pricing formula. sign-off by the external auditors. 38 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE “Grant” column below shows the remuneration at target, minimum, and maximum levels. The “Payout” column discloses the 2016 and 2017 payments. The base salary, annual bonus, and perquisites are linked to the reported performance years, 2016 and 2017, whereas the Group Equity Incentive (GEI) and Allianz Equity Incentive (AEI) payouts result from grants related to the performance years 2010, 2012 and 2013. To enhance transparency of the remuneration relat- ed to the performance year 2017, the additional column “Actual grant” includes the 2017 fixed compensation, the annual bonus paid for 2017, the MTB 2016 – 2018 tranche accrued for the performance year 2017, and the fair value of the RSU grant value for the perfor- mance year 2017. All variable components are granted in accordance with the rules and conditions of the “Allianz Sustained Performance Plan” (ASPP). Depending on individual and company performance, the amounts actually paid can vary between 0 % and 150 % of the respec- tive target levels. If performance is rated at 0 % no variable compo- nent will be granted. Consequently, the minimum total direct com- pensation for a regular member of the Board of Management will equal the base salary of € 750 thou (excluding perquisites and pen- sion contributions), while the maximum total direct compensation (excluding perquisites and pension contributions) is € 4,125 thou: a € 750 thou base salary plus € 3,375 thou (i.e., 150 % of the sum of all three variable compensation components at target level). The CEO’s maximum total direct compensation (excluding perquisites and pension contributions) is € 6,188 thou: a € 1,125 thou base salary plus € 5,063 thou (150 % of the sum of all three variable compensation components at target level). Annual Report 2017 – Allianz SE 39 B _ Management Report of Allianz SE Individual remuneration: 2017 and 2016 € 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 AEI 2018/RSU3 AEI 2017/RSU3 AEI 2013/RSU3 AEI 2012/RSU3 GEI 2010/SAR4 Total Pensions service cost5 Total Oliver Bäte (Appointed: 01/2008; CEO since 05/2015) Grant 2017 Target Min 1,125 32 1,157 1,125 32 1,157 2016 Target 1,125 30 1,155 Max 1,125 32 1,157 Actual grant Payout1 2017 2016 2017 1,125 32 1,157 1,125 30 1,155 1,125 32 1,157 1,125 1,125 1,125 - 1,125 - - - 1,125 1,125 - - - - - - - - - - - 1,688 1,384 1,474 1,384 1,688 1,688 1,384 1,384 - - - - - - - - - - - - 1,334 - 3,963 625 - - - 1,820 - - 4,361 622 4,530 625 4,532 622 1,157 622 6,221 622 5,308 622 5,155 5,154 1,779 6,843 5,930 4,588 4,983 1_In accordance with the German Corporate Governance Code, the annual bonus disclosed for performance year 2017 is paid in 2018 and for performance year 2016 in 2017. The payments for equity-related deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment was made. 2_The MTB figure included in the Actual Grant column shows the annual accrual. 3_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. 4_The equity-related remuneration that applied before 2010 consisted of two vehicles, virtual stock awards known as RSUs and virtual stock options known as “Stock Appreciation Rights” (SAR). Only RSUs have been awarded as of 1 January 2010. The remuneration system valid until December 2009 is disclosed in the Annual Report 2009 (starting on page 17). Whereas the 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). 5_Pension service cost in accordance with IAS 19: represents the company cost not the actual entitlement nor a payment, however, according to the German Corporate Governance Code the Pension Service Cost is to be included in all columns. 40 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE Sergio Balbinot (Appointed: 01/2015)6 Jacqueline Hunt (Appointed: 07/2016)7 Grant 2017 Actual grant Payout1 2017 2016 2017 Target 750 22 772 750 750 750 - - - - Min 750 22 772 - - - - - - - Max 750 22 772 1,125 1,125 1,125 - - - - 750 22 772 932 932 932 - - - - 750 32 782 983 - - - - - - 750 22 772 932 - - - - - - 2016 Target 750 32 782 750 750 - 750 - - - 3,032 365 3,022 374 772 374 4,147 374 3,568 374 1,765 365 1,704 374 Grant 2017 Actual grant Payout1 2017 2016 2017 Target 750 18 768 750 750 750 - - - - Min 750 18 768 - - - - - - - Max 750 18 768 1,125 1,125 1,125 - - - - 750 18 768 923 923 923 - - - - 375 1368 511 456 - - - - - - 750 18 768 923 - - - - - - 3,018 317 768 317 4,143 317 3,536 317 967 159 1,691 317 2016 Target 375 1368 511 377 377 - 377 - - - 1,642 159 3,397 3,396 1,146 4,521 3,942 2,130 2,078 1,801 3,335 1,085 4,460 3,853 1,126 2,008 6_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. 7_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 in 2016 to compensate for forfeited grants from her previous employer. 8_Jacqueline Hunt received an off-cycle one-time payment of € 120 thou to reimburse her for relocation cost. Annual Report 2017 – Allianz SE 41 B _ Management Report of Allianz SE Individual remuneration: 2017 and 2016 € 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 AEI 2018/RSU3 AEI 2017/RSU3 AEI 2013/RSU3 AEI 2012/RSU3 GEI 2010/SAR4 Total Pensions service cost5 Total Base salary Perquisites Total fixed compensation Annual variable compensation Annual bonus Deferred compensation MTB (2016 - 2018)2 AEI 2018/RSU3 AEI 2017/RSU3 AEI 2013/RSU3 AEI 2012/RSU3 GEI 2010/SAR4 Total Pensions service cost5 Total 750 14 764 866 - - - 1,649 - - 3,279 431 Dr. Helga Jung (Appointed: 01/2012) Grant 2017 Actual grant Payout1 2017 2016 2017 2016 Target 750 14 764 750 750 - 750 - - - Target 750 14 764 750 750 750 - - - - Min 750 14 764 - - - - - - - Max 750 14 764 1,125 1,125 1,125 - - - - 750 14 764 866 866 866 - - - - 750 14 764 889 - - - - - - 3,014 420 3,014 431 764 431 4,139 431 3,363 431 1,653 420 3,434 3,445 1,195 4,570 3,794 2,073 3,710 Dr. Axel Theis (Appointed: 01/2015) Grant 2017 Actual grant Payout1 2017 2016 2017 Target 750 27 777 750 750 750 - - - - Min 750 27 777 - - - - - - - Max 750 27 777 1,125 1,125 1,125 - - - - 750 27 777 885 885 885 - - - - 750 28 778 973 - - - - - - 750 27 777 885 - - - - - - 2016 Target 750 28 778 750 750 - 750 - - - 3,028 482 3,027 501 777 501 4,152 501 3,432 501 1,751 482 1,662 501 3,510 3,528 1,278 4,653 3,933 2,233 2,163 1_In accordance with the German Corporate Governance Code, the annual bonus disclosed for performance year 2017 is paid in 2018 and for performance year 2016 in 2017. The payments for equity-related deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment was made. 2_The MTB figure included in the Actual Grant column shows the annual accrual. 3_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. 4_The equity-related remuneration that applied before 2010 consisted of two vehicles, virtual stock awards known as RSUs and virtual stock options known as “Stock Appreciation Rights” (SAR). Only RSUs have been awarded as of 1 January 2010. 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). 5_Pension service cost in accordance with IAS 19: represents the company cost not the actual entitlement nor a payment, however, according to the German Corporate Governance Code the Pension Service Cost is to be included in all columns. 42 Annual Report 2017 – Allianz SE 2016 Target 750 2 752 750 750 - 750 - - - 2016 Target 750 15 765 750 750 - 750 - - - B _ Management Report of Allianz SE Dr. Christof Mascher (Appointed: 09/2009) Dr. Günther Thallinger (Appointed: 01/2017) Grant 2017 Actual grant Payout1 2017 2016 2017 Target 750 11 761 750 750 750 - - - - Min 750 11 761 - - - - - - - Max 750 11 761 1,125 1,125 1,125 - - - - 750 11 761 829 829 829 - - - - 750 2 752 870 - - - - 1,155 - 2,777 418 750 11 761 829 - - - 1,619 - 645 3,854 428 3,002 418 3,011 428 761 428 4,136 428 3,247 428 3,420 3,439 1,189 4,564 3,675 3,195 4,282 Grant 2017 Actual grant Payout1 2017 2016 2017 Target 750 2 752 750 750 750 - - - - Min 750 2 752 - - - - - - - Max 750 2 752 1,125 1,125 1,125 - - - - 750 2 752 857 857 857 - - - - 3,002 318 752 318 4,127 318 3,323 318 3,320 1,070 4,445 3,641 - - - - - - - - - - - - - 750 2 752 857 - - - - - - 1,609 318 1,927 2016 Target - - - - - - - - - - - - - Dr. Dieter Wemmer (Appointed: 01/2012 - End of Service: 12/2017) Dr. Werner Zedelius (Appointed: 01/2002 - End of Service: 12/2017)6 Grant 2017 Actual grant Payout1 2017 2016 2017 Grant 2017 Actual grant Payout1 2017 2016 2017 Target 750 46 796 750 750 750 - - - - Min 750 46 796 - - - - - - - Max 750 46 796 1,125 1,125 1,125 - - - - 750 46 796 866 866 866 - - - - 750 15 765 954 - - - - - - 750 46 796 866 - - - 1,843 - - 3,505 499 2016 Target 750 18 768 750 750 - 750 - - - Target 750 33 783 750 750 750 - - - - Min 750 33 783 - - - - - - - Max 750 33 783 1,125 1,125 1,125 - - - - 750 33 783 829 829 829 - - - - 750 18 768 954 - - - - 1,083 - 2,805 661 750 33 783 829 - - - 1,725 - - 3,337 721 3,015 479 3,046 499 796 499 4,171 499 3,395 499 1,719 479 3,018 661 3,033 721 783 721 4,158 721 3,269 721 3,494 3,545 1,295 4,670 3,894 2,198 4,005 3,679 3,754 1,504 4,879 3,990 3,466 4,057 6_Dr. Werner Zedelius left the Allianz SE Board of Management upon his retirement effective 31 December 2017. 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 2018, 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 2019. Annual Report 2017 – Allianz SE 43 PENSIONS Company contributions for the current pension plan are set at 50 % of the base salary, reduced by an amount covering the disability and death risk. They are invested in a fund and include a guarantee for the contributions paid, but no further interest guarantee (for members of the Board of Management 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 € 4 mn (2016: € 5 mn) to increase reserves for pensions and similar benefits for active members of the Board of Management. As of 31 December 2017, reserves for pensions and similar benefits for active members of the Board of Management amounted to € 41 mn (2016: € 44 mn). B _ Management Report of Allianz SE GERMAN ACCOUNTING STANDARD 17 DISCLOSURE Under the German Accounting Standard 17, the total remuneration to be disclosed for 2017 (2016 in parenthesis) is defined differently as is compared to the German Corporate Governance Code: composed of the base salary, perquisites, the annual bonus, and the fair value of the RSU grant, but excludes both the notional annual accruals of the MTB 2016 – 2018 and the pension service cost: It Oliver Bäte € 3,925 (4,103) thou, Sergio Balbinot € 2,636 (2,747) thou, Jacqueline Hunt € 2,613 (1,423) thou, Dr. Helga Jung € 2,497 (2,542) thou, Dr. Christof Mascher € 2,419 (2,492) thou, Dr. Günther Thallinger € 2,466 (-) thou, Dr. Axel Theis € 2,547 (2,724) thou, Dr. Dieter Wemmer € 2,529 (2,674) thou, Dr. Werner Zedelius € 2,441 (2,677) thou. The sum total of the remuneration of the Board of Management for 2017 – excluding the notional accruals of the MTB 2016 – 2018 as well as the pension service cost, as outlined above – amounts to € 24 mn (2016: € 26 mn). If pension service cost is included, the sum total is € 28 mn (2016: € 30 mn). EQUITY-RELATED REMUNERATION In accordance with the approach described earlier, in March 2018 a number of RSUs were granted to each member of the Board of Man- agement, which will vest and be settled in 2022. Grants and outstanding holdings under the Allianz Equity Program Board members RSU Number of RSU granted on 2/3/20181 Number of RSU held at 31/12/20171 Oliver Bäte Sergio Balbinot Jacqueline Hunt Dr. Helga Jung Dr. Christof Mascher Dr. Günther Thallinger Dr. Axel Theis Dr. Dieter Wemmer Dr. Werner Zedelius Total 8,164 5,498 5,443 5,111 4,890 5,056 5,222 5,111 4,890 40,714 41,479 3,417 28,696 30,623 11,517 25,902 33,701 33,311 49,385 249,360 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 2016, the equity-related grant in 2017 was made to participants as part of their 2016 remuneration. The disclosure in the Annual Report 2016 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 3 March 2017 under the Allianz Equity Incentive are as follows: Oliver Bäte: 11,038, Sergio Balbinot: 7,359, Jacqueline Hunt: 3,417, Dr. Helga Jung: 6,657, Dr. Christof Mascher: 6,516, Dr. Axel Theis: 7,289, Dr. Dieter Wemmer: 7,148, Dr. Werner Zedelius: 7,148. 44 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE Individual pensions: 2017 and 2016 € thou (total might not sum up due to rounding) Defined benefit pension plan (frozen) Contribution-based pension plan (frozen)1 Current pension plan AVK/APV2 Transition payment3 Total Board of Management Oliver Bäte Sergio Balbinot Jacqueline Hunt Dr. Helga Jung Dr. Christof Mascher Dr. Günther Thallinger Dr. Axel Theis Dr. Dieter Wemmer Dr. Werner Zedelius Expected annual pension payment4 SC5 DBO6 SC5 - - - - - - 62 62 - - - - 120 120 - - 225 225 - - - - - - 59 54 - - - - 114 107 - - 221 207 - - - - - - 1,429 1,347 - - - - 3,332 3,422 - - 6,711 6,385 45 33 14 5 - - 19 12 26 12 27 - 16 6 497 477 466 431 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 DBO6 3,149 3,063 28 39 - - 1,863 1,813 3,208 3,115 1,311 - 2,537 2,528 2,339 1,832 5,671 5,090 SC5 536 536 357 357 317 159 345 345 357 357 284 - 334 334 - - - - DBO6 1,385 818 961 582 472 159 924 558 1,018 637 570 - 889 535 - - - - SC5 DBO6 6 5 3 2 - - 8 8 5 5 7 - 11 9 2 2 11 9 36 36 6 4 - - 204 159 42 42 32 - 283 233 11 10 246 222 SC5 36 51 - - - - - - 40 43 - - 25 25 - - 23 14 DBO6 675 594 1 1 - - - - 646 583 - - 768 774 - - 716 678 SC5 622 625 374 365 317 159 431 420 428 418 318 - 501 482 499 479 721 661 DBO6 5,245 4,511 995 626 472 159 4,421 3,878 4,914 4,377 1,914 - 7,810 7,493 2,350 1,842 13,344 12,375 1_The service cost of the frozen contribution-based pension plan reflects the continued death and disability cover. 2_Plan participants contribute 3 % of their relevant salary to the AVK. For the AVK the minimum guaranteed interest rate is 2.75 % – 3.50 % depending on the date of joining Allianz. In general, the company funds the balance required via the APV. Before Allianz’s founding of the APV in 1998, both Allianz and the plan participants were contributing to the AVK. 3_For details on the transition payment, see section “Termination of service”. In any event a death benefit is included. 4_Expected annual pension payment at assumed retirement age (age 60), excluding current pension plan. 5_SC = service cost. Service costs are calculatory costs for the DBO related to the reported business year. 6_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. In 2017, former members of the Board of Management and their dependents received remuneration and other benefits totaling € 7 mn (2016: € 7 mn), while reserves for current pension obligations and accrued pension rights totaled € 131 mn (2016: € 119 mn). LOANS TO MEMBERS OF THE BOARD OF MANAGEMENT As of 31 December 2017, 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 a shorter period is typical, a practice in line with the German Corporate Governance Code. Arrangements for termination of service including retirement are as follows: 1. Board members who were appointed before 1 January 2010, and who have served a minimum of five years, are eligible for a six- month transition payment after leaving the Board of Manage- ment. 2. Severance payments made to Board members in case of early termination comply with the German Corporate Governance Code. 3. Special terms – which are also in accordance with the German Corporate Governance Code – apply if a Board member’s service ended as a result of a “change of control” (i.e., if a situation arises in which a shareholder of Allianz SE, acting alone or together with oth- er shareholders, holds more than 50 % of voting rights in Allianz SE). Contracts do not contain provisions for any other cases of early ter- mination of Board of Management service. Board members who were appointed before 1 January 2011 are eligible to continue using a company car for up to one year after retirement. TERMINATION OF SERVICE – DETAILS OF THE PAYMENT ARRANGEMENTS Transition payment (appointment before 1 January 2010) Board members who receive a transition payment are subject to a six-month non-compete clause. The transition payment comprises an amount corresponding to the most recent base salary, covering a period of six months, plus 25 % of the target variable remuneration at the notice date. 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 pay- ment amounts are offset against it. Severance payment cap Payments for early termination to Board members with a remaining term of contract of more than two years are capped at twice the annual compensation – whereby the annual compensation: Annual Report 2017 – Allianz SE 45 B _ Management Report of Allianz SE 1. is determined based on the previous year’s annual base salary plus 50 % of the target variable remuneration (annual bonus, annual- ized MTB, and equity-related remuneration: For a Board member with a fixed base salary of € 750 thou, the annual compensation 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 times the annual compensation (as defined above) and shall not exceed 150 % of the severance payment cap. A Board member 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 simultaneously holds an appointment at another company within the Allianz Group, the full amount of the respective remuneration is transferred to Allianz SE. In recognition of related benefits to the organization, Board of Man- agement members are also allowed to accept a limited number of non-executive supervisory roles in appropriate external organiza- tions. In these cases, 50 % of the remuneration received is paid to Allianz SE. Only if the Allianz SE Supervisory Board classifies the appointment as a personal one will the respective Board member retain the full remuneration for that position. Any remuneration paid by external organizations will be itemized in those organizations’ annual reports; its level is determined by the governing body of the relevant organization. OUTLOOK FOR 2018 The remuneration of the two new regular members of the Board of Management, Niran Peiris and Giulio Terzariol, have been set at the same level as for the other regular members of the Board of Man- agement. Based on the yearly adequacy test, the Allianz SE Supervisory Board agreed to an increase of the base salary of Oliver Bäte, in line with the well-established approach at Allianz, from € 1,125 thou to € 1,312.5 thou – i.e., from 1.5 times to 1.75 times of a regular Board member. The target values of his variable components increase accordingly, resulting in a total target compensation of € 5,250 thou. Remuneration of the Supervisory Board The remuneration of the Supervisory Board is governed by the Stat- utes of Allianz SE and the German Stock Corporation Act. The struc- ture of the Supervisory Board’s remuneration is regularly reviewed with regard to its compliance with German, European, and interna- tional corporate governance recommendations and regulations. REMUNERATION PRINCIPLES − Set total remuneration at a level both aligned with the scale and scope of the Supervisory Board’s duties and appropriate in view of the company’s activities and its business and financial situation. − Establish a remuneration structure that takes into account the individual functions and responsibilities of Supervisory Board members, such as chair, vice chair, or committee mandates. − Establish a remuneration structure that allows proper oversight of business as well as independent 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 in 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. In 2017, as in 2016, each regular Superviso- ry Board member received a fixed compensation amounting to € 100 thou per year. Each Vice Chairperson received € 150 thou, the Chairperson received € 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, Technology 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 at- tendance fee will only be paid once. In addition, Allianz SE reimburs- es the Supervisory Board members for their out-of-pocket expenses and the VAT payable on their Supervisory Board service. The Compa- ny provides insurance coverage and technical support to the Supervi- sory Board members to an extent reasonable for carrying out the Supervisory Board duties. REMUNERATION FOR 2017 The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2,179 thou (2016: € 2,025 thou). The following table shows the individual remuneration for 2017 and 2016: 46 Annual Report 2017 – Allianz SE Individual remuneration: 2017 and 2016 € thou (total might not sum up due to rounding) Committees1 P C C C M M M M Members of the Supervisory Board Michael Diekmann2 (Chairman) Dr. Helmut Perlet3 (Chairman) Dr. Wulf H. Bernotat4 (Vice Chairman) Jim Hagemann Snabe (Vice Chairman) Rolf Zimmermann (Vice Chairman) Dante Barban8 A M M M C C M5 M N C C C M M Sophie Boissard9 M Christine Bosse M10 M M C13 M M Gabriele Burkhardt-Berg Jean Jacques Cette Dr. Friedrich Eichiner12 Martina Grundler14 Herbert Hainer15 Godfrey Robert Hayward16 Prof. Dr. Renate Köcher17 Jürgen Lawrenz Total19 M M T M C M M M R C C C M M M11 M M M M M M S C C C M M M6 M7 M M M M M M M18 B _ Management Report of Allianz SE Fixed remune- ration Committee remune- ration Atten- dance fees Total remune- ration 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 133.3 - 83.3 200.0 62.5 150.0 133.3 100.0 150.0 150.0 41.7 100.0 66.7 - 100.0 100.0 100.0 100.0 100.0 100.0 100.0 66.6 100.0 75.0 66.7 - 66.7 - 41.7 100.0 100.0 100.0 120.0 - 66.6 160.0 41.7 100.0 56.7 40.0 41.7 40.0 8.3 20.0 26.7 - 28.3 40.0 33.3 20.0 40.0 40.0 86.7 13.3 40.0 26.6 26.7 - 13.3 - 8.3 20.0 33.3 20.0 3.7 - 2.3 6.7 2.2 4.5 4.5 5.2 4.5 4.5 3.0 4.5 3.7 - 4.5 4.5 3.8 4.5 5.3 6.0 6.0 2.2 5.3 4.5 3.0 - 3.0 - 2.2 3.7 4.5 4.5 257.0 - 152.2 366.7 106.4 254.5 194.5 145.2 196.2 194.5 53.0 124.5 97.1 - 132.8 144.5 137.1 124.5 145.3 146.0 192.7 82.1 145.3 106.1 96.4 - 83.0 - 52.2 123.7 137.8 124.5 2017 2016 1,445.9 1,408.2 671.7 558.2 61.5 58.5 2,179.0 2,025.2 Legend: C = Chairperson of the respective committee, M = Member of the respective committee 1_Abbreviations: A - Audit, N - Nomination, P - Personnel, R - Risk, S - Standing, T - Technology 2_Since 7 May 2017 3_Until 6 May 2017 4_Until 3 May 2017 5_Until 3 May 2017 6_Since 3 May 2017 7_Until 3 May 2017 8_Until 3 May 2017 9_Since 3 May 2017 10_Since 3 May 2017 11_Until 3 May 2017 12_Since 4 May 2016 13_Since 3 May 2017 14_Since 1 April 2016 15_Since 3 May 2017 16_Since 3 May 2017 17_Until 3 May 2017 18_Since 3 May 2017 19_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 € 61.8 thou for the financial year 2017. Mr. Jürgen Lawrenz did not receive any remuneration for his service on the Supervisory Board of Allianz Technology SE. All current employee representatives of the Supervisory Board except for Ms. Martina Grundler are employed by Allianz Group companies and receive a market-based remuneration for their services. LOANS TO MEMBERS OF THE SUPERVISORY BOARD As of 31 December 2017, there was one outstanding loan granted to a member of the Allianz SE Supervisory Board by an Allianz Group company: It is an € 80 thou mortgage loan from Allianz Bank, grant- ed at the normal market interest rate in 2010, with an overall dura- tion of ten years. Annual Report 2017 – Allianz SE 47 B _ Management Report of Allianz SE OTHER INFORMATION Our steering 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. In 2017 they were overseen by five Board members. The remaining four divisions (i.e. Chairman of the Board of Management, Finance, Investments, and Operations 1 ) 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. TARGET SETTING AND MONITORING The Allianz Group steers its operating entities and business segments 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 targets to ensure effectiveness and emphasize sustainability. For further details about our remuneration structure, including target setting and performance assessment, please refer to the Remunera- tion Report starting on page 37. 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 ap- propriate 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 indica- tors include segment-specific figures, such as the combined ratio for Property-Casualty, return on equity2 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). We also use new business margins for Life/Health. Besides performance steering, we also have a risk steering pro- cess in place, which is described in the Risk and Opportunity Report starting on page 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 De- fault, and Inclusive Meritocracy. Examples include the Allianz En- gagement Survey and Net Promoter Score (NPS3) results, diversity development, and the share of digital retail products/digital client communication. Our Corporate Responsibility approach Allianz seeks to position itself as the world’s most trusted financial services provider and a global sustainability leader. As such, we strive to create sustainable economic value through a long-term approach to corporate governance, social responsibility, and environmental stewardship. In 2017, we took the leading position among all rated insurance companies in the Dow Jones Sustainability Index (DJSI) ranking, scoring 87 out of 100 points. The DJSI ranks companies according to environmental, social, and governance (ESG) criteria, assessing their strategy and performance. CORPORATE RESPONSIBILITY GOVERNANCE Strong corporate governance is pivotal to our sustainability approach and features among our most important material issues. Established in 2012, the Group ESG Board is the highest govern- ing body for sustainability-related issues. It consists of three Allianz SE Board members and several department heads. They meet quarterly and are responsible for ensuring ESG integration across all business lines as well as all core processes dealing with insurance and invest- ment decisions. Key topics of focus in 2017 included implementation of the recommendations of the Taskforce of Climate-related Financial Disclosures and development of a more systematic approach to investor engagement. The Group ESG Board is in charge of corporate responsibility and climate-related topics, and leads on associated stakeholder en- gagement. Functional departments provide regular updates on sustainability issues directly to the Group ESG Board. CORPORATE RESPONSIBILITY APPROACH We want our stakeholders to know that Allianz is a financially solid and trustworthy company that embraces sustainable business as good business. To achieve this, we also need to understand our stakeholders’ needs and concerns, which is why we engage with a broad range of social and political players and organizations. The insight they provide enables us to focus our Corporate Responsibility strategy, activities, and reporting on the right areas. We organize our Corporate Responsibility strategy around three focus areas in which we address the relevant material issues our stakehold- ers perceive as vital for business success and sustainability: Low-carbon economy: supporting renewable energy and decarbon- ization through our investments; providing sustainable insurance solutions; reducing our environmental footprint. 1_This member of the Board of Management also oversees Allianz Partners. 2_Excluding unrealized gains/losses on bonds net of shadow accounting. 3_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. 48 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE 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 wellbe- ing among our employees. Business integration: integrating environmental, social, and govern- ance (ESG) issues across our investment and insurance businesses; building trust through transparency, responsible sales, and data privacy. For reporting purposes, we organize our approach around Allianz’s five key roles as a sustainable insurer, responsible investor, trusted company, attractive employer, and committed corporate citizen. Allianz SE and Allianz Group comply with the legal requirements to provide a non-financial statement and a non-financial Group state- ment according to §§ 289b (1), 315b (1) of the HGB by issuing a com- bined separate non-financial report for Allianz Group and Allianz SE according to §§ 289b (3), 315b (3), sentence 1, sentence 2 in conjunction with § 298 (2) of the HGB. This report can be found on our website at: www.allianz.com/nf-report. Please also refer to our 2017 Group Sustainability Report (to be published in April 2018) for full details of our corporate respon- sibility strategy, approach, and performance: www.allianz.com/ sustainability. Branches In 2017, Allianz SE operated its 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 provided pursuant to § 289a (1) 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 2017, the share capital of Allianz SE was € 1,169,920,000. It was divided into 440,249,646 registered and fully paid-up shares with no-par value. All shares carry the same rights and obligations. Each no-par value share carries one vote. RESTRICTIONS ON VOTING RIGHTS AND SHARE TRANSFERS; EXERCISE OF VOTING RIGHTS IN CASE OF EMPLOYEE EQUITY PARTICIPATIONS Shares may only be transferred with the consent of the company. An approval duly applied for may only be withheld if 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 be up to five years in some cases. In some countries, the employee shares are held by a bank, another natural person, or a legal entity acting as a trustee throughout that period in order to ensure that the lock-up period is observed. Nevertheless, employees may instruct the trustee to exercise voting rights, or have power of attorney granted to them to exercise such voting rights. Lock-up periods serve the Employee Stock Purchase Plan’s aims of tying 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 capi- tal 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 Stat- utes). Reappointments, for a maximum of five years each, are permit- ted. 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 repre- sentative. A Vice Chairperson who is an employee representative has no casting vote (§ 8 (3) of the Statutes). If one of the required mem- bers of the Board of Management is missing, the courts must appoint such member in urgent cases upon the application of an interested party (§ 85 AktG). The Supervisory Board may dismiss members of the Board of Management 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. The Supervisory Board deter- mines the number of any additional 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 al- ready 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 Ger- man Insurance Supervision Act (“Versicherungsaufsichtsgesetz – VAG”)). The Federal Financial Services Supervisory Authority (“Bun- desanstalt für Finanzdienstleistungsaufsicht – BaFin”) must be noti- fied 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 Annual Report 2017 – Allianz SE 49 B _ Management Report of Allianz SE share capital is represented, a simple majority of the votes cast. The Statutes thereby make use of the option set out in § 51 of the SE Implementation Act (“SE-Ausführungsgesetz – SEAG”), which is based upon Article 59 (1) and (2) of the SE Regulation. A larger majority is required, inter alia, for a change in the corporate object or the reloca- tion of the registered office to another E.U. member state (§ 51 SEAG). The Supervisory 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 registered no-par value shares against contributions in cash and/or in kind, on one or more occasions: − Up to a total of € 550,000,000 (Authorized Capital 2014/I). In case of a capital increase against cash contribution, the Board of Management may exclude the shareholders’ subscription rights for these shares with the consent of the Supervisory Board, (i) for fractional amounts, (ii) in order to safeguard the rights pertaining to holders of convertible bonds or bonds with warrants, including mandatory convertible bonds, and (iii) in the event of a capital in- crease of up to 10 %, if the issue price of the new shares is not sig- nificantly below the stock market price. The Board of Manage- ment may furthermore exclude the shareholders’ subscription rights with the consent of the Supervisory Board, in the event of a capital increase against contributions in kind. − Up to a total of € 13,720,000 (Authorized Capital 2014/II). The shareholders’ subscription rights can be excluded in order to issue the new shares to employees of Allianz SE and its Group compa- nies, as well as for fractional amounts. The company’s share capital is conditionally increased by up to € 250,000,000 (Conditional Capital 2010/2014). This conditional capital increase will only be carried out to the extent that conversion or option rights are exercised (or conversion obligations fulfilled) resulting from bonds issued by Allianz SE or its subsidiaries, 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 as per authorization of the Gen- eral Meeting of 7 May 2014 (§ 71 (1) No. 8 AktG). Together with other treasury shares that are held by Allianz SE, or which are attributable 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’ subscription rights, for any legally admissible purposes, in particular those specified in the authorization. Furthermore, the acquisition 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 the event of 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 venture or the target company, if there is a change of control of the other party. − The framework agreements between Allianz SE and the subsidi- aries of various car manufacturers relating to the distribution of car insurance by the respective car manufacturers each include a clause under which each party has an extraordinary termination right in case there is a change of control of the other party. − Bilateral credit agreements in some cases provide for termination rights if there is a change of control, mostly defined as the acquisi- tion 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 em- ployees 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 company’s share capital by one shareholder or several shareholders acting in concert (change of control) the appointment as a member of the Board of Management is revoked unilaterally by the Supervisory Board, or if the mandate is ended by mutual agreement, or if the Management Board member resigns because his or her responsibilities as a Board member are significantly reduced through no fault of the Board member, he or she shall receive his or her contractual remuneration for the remaining term of the service contract, but limited, for the purpose hereof, to three years, in the form of a one-off payment. The 50 Annual Report 2017 – Allianz SE B _ Management Report of Allianz SE ACCOUNTING PROCESSES The accounting processes we use to produce financial statements are based on a group-wide IT solution and local general ledger. Access rights to accounting systems are managed according to strict author- ization 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 ac- counts that have to be in the scope of our internal control system over financial reporting. The methodology is described in the ICOFR manual which is applicable group-wide and the IRCS Guideline. During the scoping process, both materiality and sus- ceptibility to a misstatement are considered simultaneously. In addition to the quantitative calculation, we also consider qualita- tive criteria. − Next, we identify risks that could lead to material financial mis- statements including all relevant root causes (i.e. human pro- cessing errors, fraud, system shortcomings, external factors, etc.). − Preventive and detective key controls to address financial report- ing risks have been put in place to reduce the likelihood and im- pact of financial misstatements. If a potential risk materializes, actions are taken to reduce the impact of the financial misstate- ment. Given the strong dependence of financial reporting pro- cesses on information technology systems, we also implement IT controls. − Finally, we ensure that controls are appropriately designed and effectively executed to mitigate risk. We have set consistent doc- umentation requirements across the Allianz Group for elements such as processes, related key controls, and execution. We con- duct an annual assessment of our control system to maintain and continuously enhance its effectiveness. Audit ensures that the overall quality of our control system is subjected to regular control- testing, to assure reasonable design and operating effectiveness. one-off payment is based on the fixed remuneration plus 50 % of the variable remuneration, with this basis being limited, however, 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 pay- ment is generally increased in line with a term of three years. This applies accordingly if, within two years of a change of control, a mandate in the Board of Management 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 peri- od following the change of control. For further details, please refer to the Remuneration Report starting on page 37. Under the Allianz Sustained Performance Plan (ASPP), Restrict- ed Stock Units (RSU) – i.e. virtual Allianz shares – are granted as a stock-based remuneration component to senior management of the Allianz Group worldwide. The conditions for these RSU contain change-of-control clauses, which apply when 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. In line with the relevant general conditions, the company will release the RSU to plan participants on the day of the change of control, without observing any vesting period that would otherwise apply. The cash amount payable per RSU must equal the average market value of the Allianz share and be equal to or above the price offered per Allianz share in a preceding tender offer. By providing for the non- application of the vesting period in the event of a change of control, the terms take into account the fact that the conditions influencing the share price are very different when there is a change of control. Controls over Financial Reporting The following information is given pursuant to § 289 (4) of the HGB. In line with both our prudent approach to risk governance and compliance with regulatory requirements, we have created a struc- ture to identify and mitigate the risk of material errors in our financial statements (this also includes market value balance sheet and risk capital controls). Our internal control system over financial reporting (ICOFR) is regularly reviewed and updated. ICOFR is split into an Entity-Level Control Assessment Process (ELCA), IT General Controls (ITGC) and controls at process levels. The ELCA framework contains controls to monitor the system of governance effectiveness. In the ITGC framework we have implemented, for example, controls for access rights management and for project and change manage- ment. The ICOFR framework is part of the Integrated Risk and Con- trol System (IRCS) of Allianz SE. The IRCS is split into the main com- ponents of Reporting- (ICOFR), Compliance-, and Operations-Risks. Annual Report 2017 – Allianz SE 51 B _ Management Report of Allianz SE This page intentionally left blank. 52 Annual Report 2017 – Allianz SE FINANCIAL STATEMENTS OF ALLIANZ SE C Annual Report 2017 – Allianz SE 53 Repor t C _ Financial Statements of Allianz SE FINANCIAL STATEMENTS BALANCE SHEET € thou as of 31 December ASSETS A. Intangible assets I. Self-created 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 B. Investments I. Real estate, real estate rights, and buildings, including buildings on land not owned by Allianz SE 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: € 280,343 thou (2016: € 217,820 thou) thereof from participations¹: € 1,197 thou (2016: € 1,756 thou) II. Other receivables thereof from affiliated enterprises: € 4,430,597 thou (2016: € 4,325,105 thou) thereof from participations¹: € 541 thou (2016: € 2,807 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 F. Excess of plan assets over pension and similar obligations Total Assets 1_Companies in which we hold a participating interest. Note 2017 2017 2016 1, 2 1, 3 - 6 29,187 1,146 245,401 74,176,435 33,329,072 8,310,276 30,333 17,623 2,928 20,551 250,343 71,354,121 33,446,657 8,028,086 116,061,184 113,079,207 528,244 450,606 7 4,869,995 5,022,127 15,150 234,138 22,835 237,273 70,072 8 9 10 5,398,239 5,472,733 15,632 49,528 227,014 292,174 474,724 140,532 615,256 - 272,123 307,345 10,811 122,080,035 119,479,921 54 Annual Report 2017 – Allianz SE C _ Financial Statements of Allianz SE Note 2017 2017 2017 2016 12 1,169,920 3,638 42,013,894 13,689,227 1,166,282 27,905,256 8,825,017 4,117,339 1,576,208 682,140 10,128,094 22,520 2,541,167 30,154 1,229 8,823,789 1,641,405 65,197 709,801 27,661 12,092,668 1,964,574 22,551 31 30,154 1,169,920 4,945 1,164,975 27,844,664 1,229 11,782,928 11,784,157 3,855,866 44,649,662 13,806,280 1,642,350 81,950 1,560,400 814,245 26,734 787,511 11,683,973 1,942,252 9,741,721 33,968 21 33,947 2,315,370 32,260 32,260 14,980,283 14,471,209 7,949,981 983,272 7,369,141 1,075,022 362,729 410,563 2,353,545 490 39,735,524 2,575,931 397,574 34,717,195 42,452,289 38,101,263 11,091 7,344 122,080,035 119,479,921 13, 16 14 15 16 16 16 € 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 D. Other provisions E. Funds held with reinsurance business ceded F. Other liabilities I. Accounts payable on reinsurance business thereof to affiliated enterprises: € 214,528 thou (2016: € 269,609 thou) thereof to participations¹: € 325 thou (2016: € 11,968 thou) II. Bonds thereof to affiliated enterprises: € 2,353,545 thou (2016: € 2,575,931 thou) III. Liabilities to banks IV. Miscellaneous liabilities including taxes of: € 21,445 thou (2016: € 21,626 thou) thereof to affiliated enterprises: € 38,397,220 thou (2016: € 33,429,044 thou) thereof to participations¹: € 266 thou (2016: € 3 thou) G. Deferred income Total equity and liabilities 1_Companies in which we hold a participating interst. Annual Report 2017 – Allianz SE 55 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 Premium earned (net) 2. Allocated interest return (net) 3. Other underwriting income (net) 4. Loss and loss adjustment expenses (net) a) Claims paid aa) Gross ab) Amounts ceded in reinsurance b) Change in reserve for loss and loss adjustment expenses (net) ba) 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 Notes 2017 2017 2017 2016 10,265,435 (777,449) (50,839) (3,712) (6,076,163) 421,733 (776,415) 169,179 9,487,986 (54,550) (5,654,430) (607,236) 18 19 20 21 22 23 24 5,647,514 (1,934,808) 25 26 (392,665) 514,930 3,712,706 (21,819) 3,158,500 (3,425,921) 122,265 12,401 10,820,290 (787,517) 10,032,773 (425,198) 17,098 (408,100) 9,433,436 9,624,673 20,849 19,249 21,025 72,789 (4,504,389) (571,225) (5,075,614) (2,164,929) 896,657 (1,268,272) (6,261,666) (6,343,886) 20,093 11,123 6,725 (13,244) (2,884,228) (2,946,248) (19,771) 339,084 (225,797) 113,287 3,690,886 (267,421) 3,423,465 3,536,752 134,666 3,671,418 445,920 4,117,339 (21,864) 399,970 (527,557) (127,587) 5,084,886 (1,795,458) 3,289,428 (22,131) 3,267,297 2,718,536 (3,177,927) (459,391) 2,807,906 2,680,319 (256,718) 522,931 266,213 1,082 267,295 2,947,614 908,252 3,855,866 14. Unappropriated earnings carried forward 15. Net earnings 27 56 Annual Report 2017 – Allianz SE C _ Financial Statements of Allianz SE NOTES TO THE FINANCIAL STATEMENTS NATURE OF OPERATIONS AND BASIS OF PREPARATION NATURE OF OPERATIONS Allianz SE, 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 of the German Commer- cial Code (HGB), the German Stock Corporation Act (AktG), the Law on the Supervision of Insurance Enterprises (VAG), and the Govern- ment Order on the External Accounting Requirements of Insurance Enterprises (RechVersV). All amounts in these financial statements are presented in thou- sands 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, INCLUDING 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. INVESTMENTS IN AFFILIATED ENTERPRISES AND PARTICIPATIONS 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 ac- quisition cost and the respective value, in accordance with IDW RS HFA 10 in conjunction with IDW S1, or as the difference between acquisition cost and the lower share price as of 31 December 2017. Wherever the market value at the balance sheet date was high- er 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 ac- cordance with § 253 (3) sentence 5 of the German Commercial Code. However, when converting foreign-currency loans into Euros at the reporting 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 These items are generally 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 either the acquisition cost or the stock exchange or market value on the balance sheet date, which- ever is lower. We calculate the acquisition cost by averaging the different acquisition costs for securities of the same type. 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 accordance 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. 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 contracts are recorded at asset value. Annual Report 2017 – Allianz SE 57 C _ Financial Statements of Allianz SE TANGIBLE FIXED ASSETS, INVENTORIES, AND MISCELLANEOUS ASSETS These items are recorded at acquisition cost less depreciation. Low- value assets worth 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 depreciated 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, − − − claims equalization and similar reserves, − other insurance reserves. reserves for loss and loss adjustment expenses, reserves for premium refunds, 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 actuar- ial 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 gener- ally 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 re- ported claims and reserves for incurred but not reported yet, 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 applying actuarial principles. From 2016 onwards, the discount rate used for calculating 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 earmarked for profit distribution (§ 253 (6) sentence 2 of the German Commercial Code). The aforementioned change only applies to pension obligations, not to other provisions such as phased-in early retirement benefits, long- term credit accounts, or jubilee payments. 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 is still being applied (duration of fifteen years). The effect result- ing from the change in the discount rate is reported under other non- technical result. Provisions for jubilee payments, birthday payments and phased- in early retirement benefits are also calculated in accordance with actuarial principles. For further information regarding the accounting for pensions and similar obligations, please refer to note 15 to our financial statements. Remaining other provisions are recognized at the settlement amount. Long-term provisions are discounted applying the net ap- proach 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 rec- orded 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 converted into Euros at the relevant daily rate (middle forex spot rate). Loans to affiliated enterprises denominated in foreign currencies are converted into Euros with the middle forex spot rate as of the reporting date and applying the strict lower of cost or market value principle. 58 Annual Report 2017 – Allianz SE C _ Financial Statements of Allianz SE The valuation of foreign currency shares in affiliated enterprises and participations, stocks, interests in funds, and other variable and fixed-income securities is performed by converting their value in the original currency into Euro, 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 (exchange rate 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 for- eign currency positions are reflected in the other non-technical result. VALUATION UNITS Allianz SE made use of the option of forming valuation units as de- fined in § 254 of the German Commercial Code. This option is used for derivative contracts in which Allianz SE acts as an intra-group clear- ing agency. In this function, Allianz SE enters into derivative transac- tions with other Group companies and hedges the exposure resulting from these transactions by entering into mirror positions with the same term and structure but with different partners. Opposing posi- tions whose performance completely offset each other have been combined into valuation units and form a perfect micro hedge. When accounting for valuation units, we apply the “freezing” method, which means that mutually offsetting changes in value of opposing positions (i.e., within valuation units) are not recorded in the income statement (see also note 17). Annual Report 2017 – Allianz SE 59 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-created 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 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 a) Registered bonds b) Loans and promissory notes 3. Bank deposits Subtotal B.III. Subtotal B.I. – B.III. Total 2 _ Intangible assets Values stated as of 1 January 2017 € thou 17,623 2,928 20,551 250,343 64,405,015 6,446,846 501,160 1,100 71,354,121 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 The book value of intangible assets totaled € 30 mn (2016: € 21 mn) and mainly consists of internally generated software. In 2017, the research and development costs of Allianz SE amounted to € 13 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 as of 31 December Real estate Equity securities Debt securities Loans Bank deposits Funds held by others under reinsurance business assumed Total Book value Market value Valuation reserve 2017 0.2 71.6 28.4 6.3 1.2 8.3 2016 0.3 66.7 27.4 9.3 1.4 8.0 2017 0.7 81.3 28.8 6.8 1.2 8.3 2016 0.7 76.1 28.1 10.6 1.4 8.0 2017 2016 0.5 9.7 0.4 0.5 - - 0.4 9.4 0.7 1.3 - - 116.1 113.1 127.1 124.9 11.1 11.8 60 Annual Report 2017 – Allianz SE C _ Financial Statements of Allianz SE Values stated as of 31 December 2017 Additions (+) € thou 13,343 265 13,608 9,000 10,633,346 167,430 27,712 2,900 Disposals (-) € thou - 153 153 9,622 5,030,292 2,954,611 1,526 - 10,831,388 7,986,429 709,198 25,233,196 1,814,677 63,350 - 27,820,420 38,660,808 38,674,416 1,399,742 24,054,321 2,053,109 28,162 173,419 27,708,754 35,704,804 35,704,957 Revaluation (+) € thou Depreciation (-) € thou Net additions (+) Net disposals (-) € thou - - - 860 - - - - - 842 8,749 - - - 9,590 10,450 10,450 1,779 1,894 3,673 5,180 8,818 302 13,525 - 22,645 130 238,712 - - - 238,843 266,668 270,341 11,564 (1,782) 9,782 (4,942) 5,594,236 (2,787,482) 12,661 2,900 € thou 29,187 1,146 30,333 245,401 69,999,251 3,659,363 513,821 4,000 2,822,315 74,176,435 (689,833) 948,911 (238,432) 35,188 (173,419) (117,586) 2,699,787 2,709,569 1,063,961 28,371,956 2,368,255 314,203 1,210,697 33,329,072 107,750,908 107,781,241 % 0.2 65.0 3.4 0.5 - 68.8 1.0 26.3 2.2 0.3 1.1 30.9 100.0 VALUATION METHODS USED TO DETERMINE THE MARKET VALUE REAL ESTATE Land and buildings are valued using the discounted cash flow meth- od 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 general- ly measured by the stock exchange price quoted on the last trading day of 2017. Non-quoted 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 2017 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. 4 _ Real estate, real estate rights and buildings The book value of own property for own use amounted to € 135,863 thou (2016: € 0 thou). 5 _ Investments in affiliated enterprises and participations € bn as of 31 December Shares in affiliated enterprises Loans to affiliated enterprises Participations Total 2017 70.0 3.7 0.5 74.2 2016 64.4 6.5 0.5 71.4 Change 5.6 (2.8) - 2.8 Annual Report 2017 – Allianz SE 61 C _ Financial Statements of Allianz SE The book value of shares in affiliated enterprises went up by € 5.6 bn to € 70.0 bn (2016: € 64.4 bn). This increase resulted from the following: 7 _ Other receivables − a € 2.8 bn capital increase of our subsidiary Allianz Europe B.V. by contribution in kind of an intra-group loans receivable against Allianz of America, Inc., − a contribution in kind of investment fund shares to our holding companies Allianz of Asia-Pacific and Africa GmbH and Atropos Vermögensverwaltungsgesellschaft mbh resulting in book value increases by (€ 0.6 bn) and (€ 0.4 bn), respectively, the acquisition of shares in Euler Hermes Group S.A. for a purchase price of € 0.8 bn (€ 122 per share), increasing the Allianz Group participation in Euler Hermes by 15.2 % to 79.1 % at year end 2017, − − various further capital increases and decreases of Group compa- nies amounting to € 1.1 bn and € 0.1 bn, respectively. Loans to affiliated enterprises declined by € 2.8 bn to € 3.7 bn (2016: € 6.5 bn) due to the termination of intra-group loans provided to our North American holding company Allianz of America, Inc. 6 _ Interests in investment funds Details on interests in investment funds in accordance with § 285 (26) of the German Commercial Code: Book value Fair value Valuation reserve Dividend distribution 3,939 3,000 4,000 10,939 4,364 4,062 4,181 12,607 425 1,062 181 1,668 - 79 - 79 Other receivables dropped by € 152 mn. This was caused by a reduc- tion in tax receivables (€ (251) mn), partly compensated for by a rise of intra-group receivables (€ 103 mn). 8 _ Miscellaneous assets At the end of the fiscal year, this position mainly included variation margins paid in connection with financial derivative transactions (€ 10 mn) and options on stock indices (€ 6 mn). 9 _ Deferred charges and prepaid expenses This item includes accrued interests in the amount of € 237 mn (2016: € 475 mn), which mainly result from our investments in debt securities and loans, as well as other deferred charges and prepaid expenses amounting to € 70 mn (2016: € 140 mn). The latter comprise the discount on borrowings from affiliated enterprises, issued bonds, and subordinated liabilities. 10 _ Excess of plan assets over pension and similar obligations A part of the pension obligations is secured by reinsurance contracts and other plan assets respectively. As a different discount rate is applied for these plan assets, compared to the calculation of the settlement amount of the pension obligations, this results in an excess of plan assets over pension and similar obligations for some pension plans. So far this amount has been netted with the exceeding joint liability. In 2017, the netting was carried out per pension plan. Furthermore, netting the remuneration obligations for phased-in early retirement benefits with the plan assets also results in an excess of plan assets over pension and similar obligations. 859,456 893,012 33,556 21,135 This results in the disclosure of an excess of plan assets over pen- 49,368 53,872 4,504 3,891 3,891 99,744 35,855 99,744 35,963 1,048,314 1,086,482 - - 108 38,168 615 240 4,771 776 27,537 3,890 3,915 25 120 sion and similar obligations of € 11 mn (2016: € 0 mn). 11 _ Collateral Assets amounting to € 0.6 bn (2016: € 1.0 bn), of which € 0.6 bn (2016: € 0.6 bn) were in favor of affiliated enterprises, were pledged as collateral for liabilities. Total 1,063,143 1,103,004 39,861 27,736 Allianz SE holds more than 10.0 % of the respective shares of these investment funds. The fund shares can be redeemed each trading day. 62 Annual Report 2017 – Allianz SE € thou Equity funds Allianz Global AC Equity Insights Fund Allianz Global Emerging Markets Equity Dividend Fund Allianz All China Equity I Fund Subtotal equity funds Bond funds Allianz RE Asia Fund PIMCO Covered Bond Source UCITS ETF Allianz Emerging Markets Local Currency Bond Fund PIMCO Select Funds U.S. High Yield BB-B Bond Allianz SE – PD Fund Subtotal bond funds Mixed funds Allianz Global Dynamic Multi Asset Income C _ Financial Statements of Allianz SE SUPPLEMENTARY INFORMATION ON EQUITY AND LIABILITIES 12 _ Shareholders’ equity ISSUED CAPITAL Issued capital as of 31 December 2017 amounted to € 1,169,920.0 thou, divided into 440,249,646 registered shares. The shares have no-par value but a mathematical per-share value as a proportion of the issued capital. AUTHORIZED CAPITAL As of 31 December 2017, Allianz SE had authorized capital with a notional amount of € 550,000.0 thou for the issuance of new shares until 6 May 2019 (Authorized Capital 2014/I). The shareholders’ sub- scription rights can be excluded for capital increases against contri- bution in kind. For a capital increase against contributions in cash, the shareholders’ subscription rights can be excluded: (i) for fractional amounts, (ii) if the issue price is not significantly below the market price and the shares issued under exclusion of the subscription rights pursuant to § 186 (3) sentence 4 of the German Stock 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 Conditional 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 Capital 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 2017, the Authorized Capital 2014/II amounted to € 13,720.0 thou. CONDITIONAL CAPITAL As of 31 December 2017, Allianz SE had conditional capital totaling € 250,000.0 thou (Conditional Capital 2010/2014). This conditional capital increase will only be carried out if conversion or option rights attached to bonds which Allianz SE or its Group companies have issued against cash payments according to the resolutions of the Annual General Meeting (AGM) on 5 May 2010 or 7 May 2014, are exercised or the conversion obligations under such bonds are fulfilled, and only to the extent that the conversion or option rights or conver- sion 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 as of inception and subject to anti-dilution provisions. The subscription rights of shareholders for these converti- ble notes have been excluded with the consent of the Supervisory Board and pursuant to the authorization of the AGM on 5 May 2010. The granting of new shares to persons entitled under such convertible notes is secured by the Conditional Capital 2010/2014. On or before 31 December 2017, there was no conversion of any such notes into new shares. CHANGES IN THE NUMBER OF ISSUED SHARES OUTSTANDING Number of issued shares outstanding Number of issued shares outstanding as of 1 January 455,067,737 454,823,638 2017 2016 Changes in number of treasury shares Cancellation of issued shares Number of issued shares outstanding as of 31 December Treasury shares1 562,546 (16,750,354) 438,879,929 1,369,717 244,099 - 455,067,737 1,932,263 Total number of issued shares 440,249,646 457,000,000 1_Thereof 1,369,131 (2016: 1.931.677) 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 € 4,117,338,522.10 for the 2017 fiscal year shall be appropriated as follows: − Distribution of a dividend of € 8.00 per no-par share entitled to a dividend: € 3,511,039,432.00 − Unappropriated earnings carried forward: € 606,299,090.10 The proposal for appropriation of net earnings reflects the 1,369,717 treasury shares held directly and indirectly by the company as of 31 December 2017. Such treasury shares are not entitled to the divi- dend pursuant to § 71b of the German Stock Corporation Act (AktG). Should there be any change in the number of shares entitled to the dividend by the date of the Annual General Meeting, the above proposal will be amended accordingly and presented for resolution on the appropriation of net earnings at the Annual General Meeting, with an unchanged dividend of € 8.00 per each share entitled to dividend. TREASURY SHARES As of 31 December 2017, Allianz SE held 1,369,131 (2016: 1,931,677) treasury shares. Of these, 343,102 (2016: 905,648) were held for covering future subscriptions by employees in Germany and abroad in the context of Employee Stock Purchase Plans, whereas 1,026,029 (2016: 1,026,029) were held as a hedge for obligations from the Allianz Equity Incentive Program (former Group Equity Incen- tive Program). In the year ending 31 December 2017, 562,546 (2016: 617,084) shares were sold to employees of Allianz SE as well as its subsidiaries in Germany and abroad in the context of the Employee Stock Pur- chase Plan. These shares were taken from the stock of treasury shares dedicated to this purpose. In 2017, as in the previous year, no capital increase for the purpose of Employee Stock Purchase Plans was un- Annual Report 2017 – Allianz SE 63 C _ Financial Statements of Allianz SE dertaken. Employees of the Allianz Group purchased shares at prices ranging from € 108.04 (2016: € 94.54) to € 158.72 (2016: € 121.84) per share. As of 31 December 2017, 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 subsidiar- ies in Germany and abroad amounted to 343,102 shares. In the year ending 31 December 2017, the total number of treasury shares of Allianz SE decreased by 562,546 (2016: decrease of 244,099), which corresponds to € 1,494,910.50 (2016: € 624,893.00) or 0.13 % (2016: 0.05 %) of issued capital as of 31 December 2017. The treasury shares of Allianz SE and its subsidiaries represent € 3,638 thou (2016: € 4,945 thou) or 0.31 % (2016: 0.42 %) of the issued capital as of 31 December 2017. SHARE BUY-BACK PROGRAM 2017 In its meeting on 16 February 2017, the Board of Management of Allianz SE has resolved to conduct a share buy-back program in an amount of up to € 3 bn within a period of twelve months. The share buy-back program is based on the authorization granted by the Annual General Meeting on 7 May 2014. In the period between 17 February 2017 and 15 December 2017, total of 16,750,354 treas- ury shares with a market value of € 2,999,969,793.55 have been acquired for an average price of € 179.10. All of the treasury shares acquired within the share buy-back program 2017 have been re- deemed according to the simplified procedure without reduction of the share capital. Additional paid-in capital € thou As of 31 December 2016 Own shares: realized gains As of 31 December 2017 Revenue reserves € thou as of 31 December 1. Statutory reserves 27,844,664 60,592 27,905,256 Own shares exceeding mathematical value Own shares: Cancellation1 - - 2016 1,229 2017 1,229 2. Other revenue reserves2 11,782,928 38,566 (2,997,705) 8,823,789 Total 11,784,157 38,566 (2,997,705) 8,825,017 1_Share buy-back program 2017: Acquisition costs of the repurchased and cancelled shares of Allianz SE. 2_Thereof reserves for own shares € 3,638 thou (2016: € 4,945 thou). RESTRICTIONS ON DIVIDEND PAYOUT The unappropriated reserves plus the unappropriated earnings carried forward are not fully available for the distribution of a divi- dend due to legal restrictions. The unappropriated reserves of Allianz SE correspond to the other revenue reserves. Of the unappropriated reserves plus the unappropriated earn- ings carried forward, a total of € 929,512 thou (2016: € 772,254 thou) is exempt from dividend distribution. Of this amount, € 896,687 thou (2016: € 749,686 thou) are due to the change in the legal require- ment in 2016 for discounting pension obligations according to § 253 (2) sentence 1 in connection with § 253 (6) of the German Com- mercial Code. Another, € 3,638 thou (2016: € 4,945 thou) relate to the mathematical value of own shares deducted from issued capital according to § 272 (1a) of the German Commercial Code. Another € 29,187 thou (2016: € 17,623 thou) account for internally generated intangible assets according to § 268 (8) of the German Commercial Code. 13 _ Subordinated liabilities liabilities decreased to € 13.7 bn Subordinated in 2017 (2016: € 13.8 bn). € 10.3 bn (2016: € 8.9 bn) were external subordinated liabilities resulting from bonds directly issued by Allianz SE. In 2017, Allianz SE placed two new subordinated bonds with volumes of € 1.0 bn and of USD 0.6 bn (equals € 0.6 bn). This was partly offset by a book value decline of € 0.2 bn, a consequence of the foreign- currency revaluation of our subordinated liabilities denominated in USD and CHF. Further, liabilities amounting intra-group subordinated to € 3.4 bn (2016: € 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. In 2017, Allianz Finance II B.V. redeemed a subordinated bond with a volume of € 1.4 bn. Allianz SE provides a financial guarantee for the total amount of bonds issued by Allianz Finance II B.V. 64 Annual Report 2017 – Allianz SE C _ Financial Statements of Allianz SE 14 _ Insurance reserves € mn as of 31 December 2017 Motor Fire and property reinsurance Liability Credit and bond Personal accident Life Marine and aviation 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 480 461 210 21 38 40 20 47 2 256 1,576 - - - - 41 640 - - 1 - 2,908 1,893 3,215 446 492 94 440 274 13 353 682 10,128 - - - 21 - - - - - - 23 302 611 441 493 3 - 74 38 - 579 2,541 5 7 3 2 2 6 - 2 - 3 30 Total 3,695 2,973 3,869 983 577 780 534 361 17 1,192 14,980 The development of the insurance reserves was mainly driven by increased reserves for loss and loss adjustment expenses due to the overall portfolio growth in the last years. AGGREGATE POLICY RESERVES Aggregate policy reserves declined by € 105 mn to € 682 mn due to the Life/Health reinsurance. RESERVES FOR LOSS AND LOSS ADJUSTMENT EXPENSES Reserves for loss and loss adjustment expenses increased by 4.0 % to € 10,128 mn, largely due to the growth of the portfolio in the last years. CLAIMS EQUALIZATION AND SIMILAR RESERVES In 2017, claims equalization and similar reserves rose by € 226 mn to € 2,541 mn. The increase resulted mainly from other reinsurance lines (€ 111 mn), credit and bond reinsurance (€ 53 mn), and liability reinsurance (€ 47 mn). 15 _ 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 2017 6,066,802 541,230 336,896 424,213 7,369,141 Use (-) 262,396 4,917 181,228 245,173 693,714 Release1 Additions1 (-) 2,117 35,292 30,823 71,212 139,444 (+) 81,475 357,199 143,029 294,184 875,888 Reversal of Discounting Provision (+) 31 December 2017 534,411 - 1,227 2,471 6,418,175 858,220 269,102 404,483 538,109 7,949,981 Other provisions increased by € 581 mn, largely due to a net increase in pension liabilities (€ 351 mn) and tax provisions (€ 317 mn). Mis- cellaneous provisions dropped by € 87 mn, driven by declines in both the provisions for anticipated losses (€ 68 mn) and the remaining provisions (€ 20 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 provisions 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, with Allianz SE assuming responsibility for settlement. Consequently, these pension provisions are reported by Allianz SE. As of 1 January 2015, Allianz SE completely assumed the obliga- tions resulting from the agents pension fund (“Vertreterversorgungs- werk” – VVW) from Allianz Beratungs- und Vertriebs-AG. Effective from 1 January 2017, the German subsidiaries reimburse only the service costs for their employees. There is no cost reimbursement anymore for the risks arising from changes in interest rate, inflation, and mortality tables. Annual Report 2017 – Allianz SE 65 C _ Financial Statements of Allianz SE The following table shows a breakdown of pension liabilities: Settlement amount of the offset liabilities € thou The mortality tables used are the current RT2005G-tables ac- cording to Heubeck, which have been adjusted with respect to mor- tality, disability, and labor turnover to reflect company-specific cir- cumstances. as of 31 December 2017 2016 The retirement age applied is the contractual or legal retirement Old pension promises of the German subsidiaries 1,854,607 1,808,224 age. Pension promises of Allianz SE Vertreterversorgungswerk old pension promises to employees contribution-based pension plans deferred compensation Total 4,576,550 4,285,330 202,381 202,858 100,848 194,941 184,826 87,006 6,937,244 6,560,327 Supplementary information € thou as of 31 December Historical costs of the offset assets Settlement amount of the offset liabilities (-) Fair value of the offset assets 2017 522,640 2016 488,562 6,937,244 529,751 6,560,327 493,525 The settlement amount is calculated on the basis of the projected unit credit method and/or reported as the present value of the en- titlements acquired. In the 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 be- tween the tied agents and Allianz SE, and since Allianz Beratungs- und Vertriebs-AG no longer reimburses any costs, the pension obliga- tions resulting from the VVW are recorded at their full present value. Actuarial parameters % as of 31 December Applied discount rate (10-year-average) Applied discount rate (7-year-average) Rate of assumed pension trend Rate of assumed salary increase (inclusiv average career trend) 2017 3.68 2.81 1.50 3.25 2016 4.01 3.23 1.50 3.25 Net amount of pension provisions and excess of plan assets over pension and similar obligations 6,407,493 6,066,802 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 (ex- cept for the discount rate). Offsettable plan assets are held at Methusalem Trust e.V. to se- cure 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 Contrary to the above rates, part of the pension promises are calcu- lated using a guaranteed interest rate of 2.75 % p.a. and a guaran- teed pension increase rate of 1.00 % p.a. of these pension promises. as of 31 December Historical costs of the offset assets Settlement amount of the offset liabilities Fair value of the offset assets 2017 19,740 19,912 20,755 2016 19,513 19,691 20,530 66 Annual Report 2017 – Allianz SE 16 _ Maturity of financial liabilities The residual terms of subordinated liabilities, bonds issued, and mis- cellaneous liabilities are as follows: Maturity table as of 31 December 2017 € thou Subordinated liabilities (B.) Intra-group transmission of proceeds from third-party financing Subordinated bonds issued by Allianz SE Subtotal Subordinated liabilities (B.) Bonds (intra-group – F.II.) Liabilities to banks (F.III.) Miscellaneous liabilities (F.IV.) Intra-group transmission of proceeds from third-party financing Other intra-group liabilities1 Subtotal intra-group miscellaneous liabilities Liabilities to third parties Subtotal Miscellaneous liabilities Total C _ Financial Statements of Allianz SE Total 3,412,136 10,277,091 13,689,227 2,353,545 490 7,278,317 31,118,903 Term < 1 year Term 1 – 5 years Term > 5 years 112,136 122,335 234,471 1,807,545 490 - 1,500,000 1,500,000 150,000 - 788,913 20,680,613 4,125,000 10,338,290 3,300,000 8,654,756 11,954,756 396,000 - 2,364,404 100,000 38,397,220 21,469,526 14,463,290 2,464,404 1,338,304 39,735,524 1,338,304 22,807,830 - - 14,463,290 2,464,404 55,778,786 24,850,336 16,113,290 14,815,160 1_As of 31 December 2017, other intra-group liabilities due within one year armounted to € 20.7 bn. Thereof, cash pool and intra-group loans accounted for € 14.0 bn and € 5.7 bn, respectively. Upon maturity, intrag-roup loans are rolled forward by Allianz SE on a regular basis. Maturity table as of 31 December 2016 € thou Subordinated liabilities (B.) Intra-group transmission of proceeds from third-party financing Subordinated bonds issued by Allianz SE Subtotal Subordinated liabilities (B.) Bonds (intra-group – F.II.) Liabilities to banks (F.III.) Miscellaneous liabilities (F.IV.) Intra-group transmission of proceeds from third-party financing Other intra-group liabilities1 Subtotal intra-group miscellaneous liabilities Liabilities to third parties Subtotal Miscellaneous liabilities Total Total 4,868,974 8,937,306 13,806,280 2,575,931 397,574 5,177,377 28,251,667 Term < 1 year 168,974 100,658 269,632 379,931 397,574 173,745 27,059,263 Term 1 – 5 years Term > 5 years - - - 1,800,000 - 2,625,000 1,092,404 4,700,000 8,836,648 13,536,648 396,000 - 2,378,632 100,000 33,429,044 27,233,008 3,717,404 2,478,632 1,288,151 34,717,195 1,288,151 28,521,159 - - 3,717,404 2,478,632 51,496,980 29,568,296 5,517,404 16,411,280 1_As of 31 December 2016, other intra-group liabilities due within one year armounted 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. As of 31 December 2017, € 0.8 bn (2016: € 0.6 bn) of the total finan- cial liabilities were secured by assets pledged as collateral. Annual Report 2017 – Allianz SE 67 C _ Financial Statements of Allianz SE 17 _ Information about derivative financial instruments Options dealing in shares and share indices as of 31 December 2017 Nominal Fair value Book value Underlying Balance sheet position Class Long call Short call Long put Short put € thou 44,392 44,392 88,380 88,380 € thou 5,280 (5,280) 636 (636) € thou 4,301 4,301 1,956 1,956 Share index Share index Share index Share index Assets D.III. Liabilities F.IV. Assets D.III. Liabilities F.IV. Options on stock indices are held in the context of hedging activities of other entities of the Allianz Group. Allianz SE has hedged intra- group positions by entering into countertrade agreements at the market. Both intra-group and group-external positions were com- into valuation units (“Bewertungseinheiten”) representing bined perfect micro hedges. The opposing value changes within these units completely offset each other and are not recorded in either our in- come statement or our balance sheet. European-type options are valued using the Black Scholes mod- el, American-type options are valued using the binomial model, based on the market information available on the valuation date. Yield curves are derived from the swap rates prevailing on the valua- tion date. The future dividend yield is estimated on the basis of mar- ket information on the valuation date. The volatility is estimated based on currently traded implicit volatility, taking into account the residual term and the ratio between the strike price and the prevail- ing share price. Forward contracts in shares, share indices and hedge RSU as of 31 December 2017 Class Long forward Long forward Long forward Short forward Short forward Hedge RSU Nominal Fair value Book value Underlying Balance sheet position € thou 574,476 379,731 368,275 379,731 368,275 295,637 € thou 60,497 (33,997) 4,234 33,997 (4,234) € thou 449 – – – – Allianz SE share Liabilities D. UniCredit S.p.A. share China Pacific Insurance (Group) Co., Ltd. share UniCredit S.p.A. share China Pacific Insurance (Group) Co., Ltd. share – – – – (452,219) 452,228 Allianz SE share Liabilities F.IV. The positions in long forwards 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 and of the shares in China Pacific Insurance (Group) Co., Ltd., our subsidiary Allianz Finance II Luxembourg S.à.r.l. entered into short forwards on these underlyings with Allianz SE. Allianz SE hedged these positions by entering into countertrade agreements in the market. Both intra-group and group-external positions were combined to form valuation units (“Bewertungseinheiten”) represent- ing perfect micro hedges. The opposing value changes within these units completely offset each other and are not recorded in either our income statement or our balance sheet. The fair value of a forward contract is determined as the differ- ence 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 inter­polated swap rates. 68 Annual Report 2017 – Allianz SE C _ Financial Statements of Allianz SE Forward currency contracts as of 31 December 2017 Class Long forward Short forward Nominal € thou Fair value Book value € thou € thou 6,928,210 (117,691) 104,447 11,393,759 224,794 23,644 Underlying Balance sheet position AED, AUD, BRL, CAD, CHF, COP, CZK, DKK, GBP, HKD, HUF, ILS, JPY, KRW, NOK, NZD, PLN, QAR, SAR, SGD, THB, TRY, TWD, USD AED, AUD, BRL, CAD, CHF, CNY, COP, CZK, DKK, GBP, HKD, HUF, JPY, MYR, NOK, PLN, QAR, 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. external counterparts, respectively, form a perfect micro hedge be- cause the fair value changes of the diametric positions completely compensate each other. The fair value of a forward currency contract is the difference be- tween the discounted forward price and the spot rate in Euro. 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 € 2.9 bn and a fair value of € 23.8 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- 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 including the option agreements were taken into account when determining the fair value of the financial participation. We did not perform a stand-alone valuation of the options as derivative financial instru- ments. Swap contracts as of 31 December 2017 Class Receiver swap EUR Nominal € thou 1,500,000 Fair value Book value € thou (3,611) € thou 3,611 Underlying Balance sheet position Long-term interst rate positions Liabilities D. Allianz SE has entered into an EUR interest rate swap agreement to hedge interest rate risk arising from its interest rate positions. The fair value of an interest rate swap is the aggregate net pre- sent value of all incoming and outgoing cash flows expected for the swap transaction. Annual Report 2017 – Allianz SE 69 C _ Financial Statements of Allianz SE SUPPLEMENTARY INFORMATION ON THE INCOME STATEMENT 18 _ Gross premiums written 22 _ Underwriting expenses (net) € thou Property-Casualty reinsurance Life/Health reinsurance Total 2017 2016 9,857,787 10,385,480 407,648 434,810 10,265,435 10,820,290 € thou Gross Ceded Net 2017 2016 (2,930,442) (3,063,930) 46,213 117,682 (2,884,228) (2,946,248) Gross premiums written decreased by 5.1 % to € 10,265 mn. This decrease is driven by the lines of business motor reinsurance (€ 282 mn), fire reinsurance (€ 130 mn) and liability reinsurance (€ 64 mn). The decrease of underwriting expenses (net) was mainly influenced by the premium development, the expenses ratio stayed stable with 30.6 % (2016: 30.6 %). 19 _ Allocated interest return (net) The amount of interest income transferred from the non-technical section to the technical section was calculated in accordance with § 38 RechVersV and remained stable with € 21 mn. 20 _ Run-off result In 2017, the positive run-off result in Property-Casualty amounted to € 343 mn (2016: € 427 mn) and was primarily owed to the positive development of the following four lines of business: fire reinsurance (€ 122 mn), − − engineering reinsurance (€ 103 mn), − personal accident reinsurance (€ 49 mn), − credit and bond reinsurance (€ 48 mn). 21 _ Change in other insurance reserves (net) 23 _ Investment income € thou a) Income from affiliated enterprises and participations thereof from affiliated enterprises: € 1,052,491 thou (2016: € 1,722,849 thou) b) Income from other investments thereof from affiliated enterprises: € 464,023 thou (2016: € 473,296 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 € thou Change in aggregate policy reserves (net) Other insurance reserves (net) Total 2017 17,954 2,139 2016 3,931 2,794 Bank deposits Other Total 20,093 6,725 2017 2016 1,098,617 1,726,629 9,443 850,142 10,450 653,231 27,532 916,897 105,206 365,486 3,025,630 1,943,136 5,647,514 5,084,886 2017 2016 386,536 314,979 79,852 39,808 1,301 20,473 4,795 2,398 416,928 385,837 72,124 24,935 6,282 7,450 2,686 655 850,142 916,897 The change in aggregate policy reserves (net) was driven by de- creased business volume due to a recapture of several reinsurance contracts in Life/Health reinsurance. The other insurance reserves (net) mostly include reserves for credit and bond reinsurance and motor reinsurance. 70 Annual Report 2017 – Allianz SE C _ Financial Statements of Allianz SE 24 _ Investment expenses € thou a) Expenses for the management of investments, interest, and other investment-related expenses 2017 2016 aa) Interest expenses (see below) (1,000,900) (1,021,215) ab) Other b) Depreciation and impairments of investments c) Realized losses d) Expenses from losses taken over Total 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 (92,073) (266,668) (130,532) (444,635) (84,983) (182,873) (198,564) (307,823) (1,934,808) (1,795,458) 2017 2016 (406,622) (226,162) (323,824) (270,917) (208,861) (107,023) (24,637) (12,996) (14,599) (267,960) (111,109) (29,860) (8,647) (8,898) (1,000,900) (1,021,215) The depreciation and impairments of investments include unsched- uled write-downs of € 8 mn (2016: € 51 mn) on holdings in affiliated enterprises and € 0 mn (2016: € 7 mn) on real estate. The net result from currency translation amounted to € 664 mn after € 24 mn in the previous year. The considerably positive result in 2017 was mainly driven by currency translation gains on liabilities denomi- nated in USD due to a significantly weaker USD. These gains were economically compensated by currency-translation losses on invest- ments denominated in USD. These losses are generally shown within the investment result. In 2017, however, they were only partly reflect- ed in the income statement as they largely represented a decline of unrealized gains created in the past without impact on net income. Allianz SE has a joint liability for a large part of the pension pro- visions of its German subsidiaries (see note 15 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. The decline in income from the release of other provisions was largely due to the reduction of the assumed pension trend from 1.7 % to 1.5 % in 2016. As a result, the income from the release of pension provisions had amounted to € 143 mn in the previous year. The increase in interest and similar expense of € 404 mn was predominantly caused by a year-on-year higher interest expense regarding the addition to the pension provisions of € 397 mn. As a result of a change in legislation, effective from 2016, the interest rate used for calculating the pension obligations has to be determined as a 10-year-average instead of a 7-year-average. Applying this change in 2016 led to a higher interest rate, which in turn led to low interest expense compared to 2017. Furthermore, the items other income and other expenses include the following offset income and expenses: 25 _ Other non-technical result € thou € thou Other Income Currency gains Gains on derivatives Other service revenues from group companies Income due to adjustment of cost allocation contract Income from the release of other provisions Intercompany income Service revenues from pensions charged to group companies Other Total other income Other expenses Currency losses Expenses on derivatives Interest and similar expenses Other HR-related expenses Other service expenses to group companies Anticipated losses on derivatives Pension expenses Service expenses from pensions charged to group companies Expenses for financial guarantees Other Total other expenses Other non-technical Result 2017 2016 1,569,244 1,099,634 214,088 153,454 53,928 31,788 23,394 12,969 1,018,676 1,135,670 179,192 147,827 158,528 39,798 32,912 5,933 3,158,500 2,718,536 (904,962) (895,723) (567,124) (352,071) (214,088) (147,198) (78,613) (23,394) (15,366) (994,231) (998,915) (163,233) (285,837) (179,192) (189,683) (28,675) (32,912) (42,586) (227,380) (262,663) (3,425,921) (3,177,927) (267,421) (459,391) 2017 Pensions and similar obligations Other obligations Actual return of the offset assets 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 (17,136) 256,598 294,911 534,373 (145) 255 17 127 FEES TO THE AUDITOR The fees for audit services of KPMG AG Wirtschaftsprüfungsgesell- schaft primarily relate to services rendered for the audit of the Allianz Group’s consolidated financial statements as well as the audit of the statutory financial statements of Allianz SE and its subsidiaries, including the statutory audit scope extensions required by law (e.g. Solvency II). In addition, reviews were performed of interim financial statements, project-related IT audits as well as contractual reviews on the effectiveness of controls of service companies. Other attestation services refer to statutory filing services for regulatory purposes, the issuing of comfort letters, and statutory or contractually agreed assessments, as well as required audits of funds, including contractually agreed assurance services. Tax services primarily include support in the preparation of tax returns and advice on individual matters. In respect to tax services, significant tax advice services in relation to the German Investment Tax Reform were provided. Annual Report 2017 – Allianz SE 71 C _ Financial Statements of Allianz SE Other services primarily refer to quality assurance support services and consulting services in connection with current developments in financial reporting and regulatory requirements based on con- cepts/solutions presented by Allianz. In addition, IT quality assurance and advisory on non-financial information systems and forensic advisory services were provided. In respect to the other services, significant quality assurance services in relation to the initial applica- tion of new/prospective accounting standards, such as IFRS 17 and IFRS 9, application were provided. Details of the fees to the auditor pursuant to § 285 No. 17 HGB for services to Allianz SE can be found in the notes to the Allianz Group’s consolidated financial statements. 26 _ Income taxes The greatest differences between accounting and tax-based valua- tion concern the balance sheet items reserves for loss and loss ad- justment expenses, pension accruals, and liabilities resulting in de- ferred 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 follow- ing tax rates: − 31.0 % differences in balance sheet items, − 15.8 % corporate tax losses, − 15.2 % trade tax losses. 27 _ Net earnings In 2017, our tax income, most of which relates to our net operating income, decreased to € 122 mn (2016: € 266 mn). € thou 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 € 515 mn (2016: € 523 mn) received from members of the tax group result in a tax income. Net income Unappropriated earnings carried forward Net earnings 2017 3,671,418 445,920 2016 2,947,614 908,252 4,117,339 3,855,866 72 Annual Report 2017 – Allianz SE OTHER INFORMATION Contingent liabilities, other financial commitments, and legal proceedings CONTINGENT LIABILITIES GUARANTEES RELATING TO ALLIANZ GROUP COMPANIES The following guarantees have been 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 € 12.3 bn, of which € 3.3 bn were on a subordinated basis, − commercial papers issued by Allianz Finance Corporation. As of 31 December 2017, USD 0.2 bn in commercial papers were is- sued as part of the program, letters of credit amounting to € 0.9 bn. issued to various Allianz Group companies − The guarantees refer to 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 outstanding guarantees to be extremely remote. Guarantee declarations totaling € 1.1 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 Versorgungskasse VVaG) and support funds (Allianz Pensionsverein e.V.). Allianz SE has a joint liability of € 435 mn for a part of the pension promises of its German subsidiaries. In the context of the sale of investments, guarantees were given in individual cases to cover counterparty exposure 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 (OLB), in accord- ance with § 5 (10) of the Statute of Deposit Security Arrangement Fund. In connection with the sale of OLB in February 2018, Allianz SE terminated the indemnification undertaking; however, it remains applicable with respect to supporting measures that are based on facts that were already existing at the time of termination. In addition, Allianz SE has issued guarantees to various Allianz Group companies totaling € 476 mn. OTHER GUARANTEES TO THIRD PARTIES A contingent indemnity agreement has been entered into with re- spect 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. Allianz SE expects not to be obliged to make a payment in the C _ Financial Statements of Allianz SE foreseeable future. However it is not possible for Allianz SE to predict the ultimate payment obligations at this point in time. As of 31 December 2017, other guarantee commitments given by Allianz SE amounted to € 12 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 GmbH, − Allianz Capital Partners GmbH (terminated as of 31 December 2017), − Allianz Deutschland AG, − Allianz Finanzbeteiligungs GmbH, − Allianz Global Corporate & Specialty SE, − Allianz Global Health GmbH, − Allianz Investment Management SE, − Allianz Technology SE, − Allianz Real Estate GmbH, − AZ-Arges Vermögensverwaltungsgesellschaft mbH, − IDS GmbH-Analysis and Reporting Services. OTHER FINANCIAL COMMITMENTS Advertising agreements incurred financial obligations of € 102 mn. Security deposits for rental contracts amounted to € 0.1 mn in financial commitments. LITIGATION Allianz SE is involved in legal, regulatory, and arbitration proceed- ings. Such proceedings arise in the ordinary course of business, includ- ing, amongst others, Allianz SE’s activities as a reinsurance company, employer, investor and taxpayer. It is not feasible to predict or deter- mine the ultimate outcome of the pending or threatened proceed- ings. Management does not believe that the outcome of these pro- ceedings, 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 shareholder, in return for payment of a cash settlement amounting to € 51.50 per share. Allianz established the amount of the cash settlement on the basis of an expert opinion and its adequacy was confirmed by a court-appointed auditor. Some of the former minority shareholders applied for a court review of the appropriate amount of the cash settlement in a mediation procedure (“Spruchverfahren”). In Septem- ber 2013 the district court (“Landgericht”) of Frankfurt dismissed the minority shareholders’ claims in their entirety. This decision has been appealed to the higher regional court (“Oberlandesgericht”) of Frankfurt. In the event that a final decision were to determine a high- Annual Report 2017 – Allianz SE 73 C _ Financial Statements of Allianz SE er amount as an appropriate cash settlement, this would affect all of the approximately 16 mn shares that were transferred to Allianz. Board Members All supervisory board members, current or having resigned during the year, and all board members, current or having resigned during the year, are denoted on   pages 7 and 8. Their memberships in super- visory boards or similar committees of other enterprises are also mentioned on these pages. Board of Management remuneration1 As of 31 December 2017, the Board of Management was comprised of nine members. The following expenses reflect the full Board of Management 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 2017, the equity-related remuneration was com- prised of 49,3852 (2016: 66,6943) Restricted Stock Units (RSU). Board of Management remuneration € thou Base salary Annual bonus Perquisites Subtotal Base salary, Annual bonus and Perquisites Fair value of RSU at grant date Subtotal equity-related remuneration Total 2017 (7,125) (8,370) (205) (15,700) (8,370) (8,370) 2016 (7,125) (8,911) (302) (16,338) (8,911) (8,911) (24,070) (25,249) The total remuneration of the Board of Management of Allianz SE for 2017 (excluding the relevant MTB 2016 – 2018 tranche) amounted to € 24,070 thou (2016: € 25,624 thou4). EQUITY-RELATED REMUNERATION The remuneration system as of 1 January 2010 only awards RSU. For 2017, the fair value of the RSU at the date of grant was € 8,370 thou (2016: € 8,911 thou). Full-time staff Part-time staff Total BENEFITS TO RETIRED MEMBERS OF THE BOARD OF MANAGEMENT In 2017, remuneration and other benefits of € 7 mn (2016: € 7 mn) were paid to retired members of the Board of Management and to surviving dependents of deceased former Board members. The pension obligations for former members of the Board of Management and their surviving dependents are as follows: € 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 2017 105,768 105,768 109,498 3,730 2016 94,006 94,006 96,826 2,820 The asset value of the pension plan reinsurance contracts is taken as a basis for the fair value of the offset assets. Supervisory Board remuneration5 Fixed remuneration Committee-related remuneration Attendance fees Total 2017 2016 € thou (1,446) (672) (61) % 66.4 30.8 2.8 € thou (1,408) (558) (59) % 69.5 27.5 3.0 (2,179) 100.0 (2,025) 100.0 Average number of employees Excluding members of the Board of Management, trainees, interns, employees in the passive phase of early retirement and on early retirement, and employees on maternity leave or voluntary mili- tary/federal voluntary service. 2017 1,300 340 2016 1,389 226 1,640 1,615 1_For detailed information regarding the Board of Management remuneration, please refer to the Remuneration Report starting on page 37. 2_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. 3_The disclosure in the Annual Report 2016 was based on a best estimate of the RSU grants. The figure shown here for 2016 now includes the actual fair value as of the grant date (3 March 2017). The value therefore differs from the value disclosed last year. 5_For detailed information regarding the Supervisory Board remuneration, please refer to the Remuneration Report 4_Including the payment of the MTB tranch for Jay Ralph of € 375 thou. starting on page 37. 74 Annual Report 2017 – Allianz SE C _ Financial Statements of Allianz SE Mandates of the Members of the Supervisory 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 pages 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 WpHG1: By way of a letter dated 25 July 2017, BlackRock Inc., Wilming- ton, Delaware, United States of America, notified in the course of a voluntary group notification with triggered threshold on subsidiary level its voting rights pursuant to § 21 (1) WpHG as of 20 July 2017 amounting to 6.90 % (representing 31,026,017 shares), its holdings in instruments pursuant to § 25 (1) No. 1 WpHG as of 20 July 2017, amounting to 0.001 % (representing 3,255 voting rights absolute), and its holdings in instruments pursuant to § 25 (1) No. 2 WpHG as of 20 July 2017, amounting to 0.03 % (representing 130,720 voting rights absolute). The total position notified on 25 July 2017 amounted to 6.93 %. Declaration of Conformity with the German Corporate Governance Code On 14 December 2017, the Board of Management and the Supervi- sory Board of Allianz SE issued the Declaration of Conformity with the German Corporate Governance Code required by § 161 AktG and it permanently available on the company’s website at made www.allianz.com/corporate-governance. 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 2017 2016 (380,643) (318,337) (24,701) (26,501) (22,305) (23,313) (431,845) (363,955) Events after the balance sheet date TENDER OFFER FOR OUTSTANDING EULER HERMES SHARES On 15 January 2018, Allianz launched a simplified cash tender offer to acquire all outstanding Euler Hermes shares which expired on 13 February 2018. As of 23 February 2018, the remaining float on the market represented less than 5 % of Euler Hermes share capital. In continuation with its initial tender offer, Allianz intends to launch a further simplified cash tender offer for all remaining Euler Hermes shares held by minority shareholders, which will be immediately followed by a squeeze-out procedure and delisting of Euler Hermes shares from the Euronext Paris stock exchange. The consideration for one Euler Hermes share will remain unchanged from the prior tender offer and will be € 122 in cash. For further details, please refer to note 3 of the consolidated financial statements of the Allianz Group. SHARE BUY-BACK PROGRAM Beginning 2018, Allianz SE has started a new share buy-back pro- gram with a volume of up to € 2.0 bn. For further information, please refer to the section “Expected dividend development” of the chapter Outlook 2018 within the Group Management Report. Annual Report 2017 – Allianz SE 75 1_From 2018 onwards §§ 33 WpGH. C _ Financial Statements of Allianz SE LIST OF PARTICIPATIONS OF ALLIANZ SE, MUNICH AS OF 31 DECEMBER 2017 ACCORDING TO § 285 NO. 11 AND 11B HGB IN CONJUNCTION WITH § 286 (3) NO. 1 HGB Allianz Global Corporate & Specialty SE, Munich 100.0 3,2 1,144,236 GERMAN ENTITIES Affiliates ACP Vermögensverwaltung GmbH & Co. KG Nr. 4a, Munich ACP Vermögensverwaltung GmbH & Co. KG Nr. 4c, Munich ADEUS Aktienregister-Service-GmbH, Munich AGCS Infrastrukturfonds GmbH, Munich AGCS-Argos 76 Vermögensverwaltungsgesellschaft mbH, Munich AGCS-Argos 86 Vermögensverwaltungsgesellschaft mbH, Munich Alida Grundstücksgesellschaft mbH & Co. KG, Hamburg Allianz Argos 14 GmbH, Munich Allianz Asset Management GmbH, 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 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 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 Real Estate GmbH, Munich Allianz Renewable Energy Subholding GmbH & Co. KG, Sehestedt Allianz Taunusanlage GbR, Stuttgart Allianz Technology SE, Munich Allianz Versicherungs-Aktiengesellschaft, Munich AllSecur Deutschland AG, Munich APK Infrastrukturfonds GmbH, Munich APK-Argos 85 Vermögensverwaltungsgesellschaft mbH, Munich APKV Direkt Infrastruktur GmbH, Munich APKV Infrastrukturfonds GmbH, Munich APKV Private Equity Fonds GmbH, Munich Owned1 % Equity € thou Net Earnings € thou APKV-Argos 74 Vermögensverwaltungsgesellschaft mbH, Munich APKV-Argos 84 Vermögensverwaltungsgesellschaft mbH, Munich 100.0 5,711 (3) ARE Funds APKV GmbH, Munich 100.0 79.6 100.0 2 22,737 8,714 7,393 100.0 2 8,088 100.0 2 94.8 3 100.0 2 100.0 2 100.0 100.0 2 100.0 100.0 2 100.0 2 6,505 405,963 5,069,081 3,308,258 409,456 8,605 37,416 8,074,341 824,678 100.0 2 100.0 3 100.0 2 100.0 2 100.0 2 100.0 2 100.0 2 100.0 2 100.0 2 100.0 100.0 2 100.0 100.0 100.0 2 337,538 28,776 5,882 182,185 341,147 32,893 2,332,235 40,321 727,527 5,656 56,086 240,213 31,323 100.0 2 100.0 3,2 387,731 21,237 100.0 3 99.5 3 100.0 3,2 100.0 100.0 2 100.0 2 100.0 2 100.0 2 100.0 2 100.0 2 19,085 177,437 253,496 1,387,569 44,831 6,840 9,673 50,477 45,986 382,026 ARE Funds AZL GmbH, Munich ARE Funds AZV GmbH, Munich Atropos Vermögensverwaltungsgesellschaft mbH, Munich AWP Service Deutschland GmbH, Aschheim AZ-Arges Vermögensverwaltungsgesellschaft mbH, Munich AZ-GARI Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich AZL AI Nr. 1 GmbH, Munich AZL-Argos 73 Vermögensverwaltungsgesellschaft mbH, Munich AZL-Argos 83 Vermögensverwaltungsgesellschaft mbH, Munich AZ-SGD Classic Infrastrukturfonds 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 17,777 1,173 - 1 - 11,133 - - (62) - 26,466 - - - - 1,763 AZV-Argos 72 Vermögensverwaltungsgesellschaft mbH, Munich - - - - - - (28) - 2,001 (23,108) - - - 1,144 5,508 - 131 - - - - - - AZV-Argos 82 Vermögensverwaltungsgesellschaft mbH, Munich AZV-Argos 87 Vermögensverwaltungsgesellschaft mbH, Munich BrahmsQ Objekt GmbH & Co. KG, Stuttgart Deutsche Lebensversicherungs-Aktiengesellschaft, Berlin Euler Hermes Aktiengesellschaft, Hamburg Lola Vermögensverwaltungsgesellschaft mbH & Co. KG, Munich manroland AG, Offenbach am Main manroland Vertrieb und Service GmbH, Mühlheim am Main Münchener und Magdeburger Agrarversicherung Aktiengesellschaft, Munich 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 1,442,771 166,000 Owned1 % Equity € thou 100.0 2 12,297 100.0 2 100.0 2 100.0 2 100.0 2 100.0 100.0 3 66,136 12,476 90,181 5,994 405,260 7,101 Net Earnings € thou 1 - - - 3 (1) 1,296 100.0 2 172,158 - 100.0 100.0 2 136,852 8,778 100.0 2 57,003 100.0 100.0 2 100.0 2 100.0 2 100.0 2 100.0 2 697,636 42,935 47,786 31,248 30,538 524,890 100.0 2 8,224 100.0 2 16,175 100.0 2 94.8 3 100.0 2 100.0 3 88,500 89,400 44,991 105,752 48,239 - 1 - - - - - - 1 - - 3,540 - 45,215 100.0 6,027 (23) 100.0 4,5 148,289 (179,129) 100.0 4,5 5,155 100.0 3,2 7,686 649,349 35,030 303,583 76,156 108,517 - 17 35,219 - 10,442 3,150 - 111,496 (3,906) 22,821 11,216 25,429 49,455 14,055 34,035 777 1,164 1,555 1,650 1,130 3,481 90.2 3 100.0 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 76 Annual Report 2017 – Allianz SE Owned1 % 100.0 3 Equity € thou 39,769 Net Earnings € thou 1,596 Allianz Asset Management U.S. Holding II LLC, Dover, DE 100.0 3 22,037 1,270 Allianz Australia Insurance Limited, Sydney 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 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 23,953 5,551 8,704 16,791 16,582 26,900 18,639 10,889 28,047 567 379 342 1,445 1,285 1,691 477 414 1,783 Joint ventures Dealis Fund Operations GmbH, Frankfurt am Main 50.0 32,011 13,424 Associates Autobahn Tank & Rast Gruppe GmbH & Co. KG, Bonn AV Packaging GmbH, Munich T&R Real Estate GmbH, Bonn 25.0 3 51.0 25.0 3 478,206 17,396 140,841 Other participations below 20 % voting rights Bürgschaftsbank Bremen GmbH, Bremen 2.53 6,839 EURO Kartensysteme Gesellschaft mit beschränkter Haftung, Frankfurt am Main EXTREMUS Versicherungs-Aktiengesellschaft, Cologne FC Bayern München AG, Munich GDV Dienstleistungs-GmbH, Hamburg Mittelständische Beteiligungsgesellschaft Niedersachsen (MBG) mbH, Hanover MLP AG, Wiesloch Niedersächsische Bürgschaftsbank (NBB) GmbH, Hanover Parkhaus am Waffenplatz GmbH, Oldenburg paydirekt Beteiligungsgesellschaft privater Banken mbH, Unterföhring Protektor Lebensversicherungs-AG, Berlin Sana Kliniken AG, Ismaning FOREIGN ENTITIES Affiliates 490 Lower Unit LP, Wilmington, DE Aero-Fonte S.r.l., Catania AGA Assistance Beijing Services Co. Ltd., Beijing AGA Service Company Corp., Richmond, VA AGCS International Holding B.V., Amsterdam 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 Annual Report 2017 – Allianz SE 1.53 16.03 8.33 18.93 5.53 9.73 2.83 3.43 2.03 10.03 14.33 100.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 3 100.0 100.0 2 100.0 100.0 3 100.0 100.0 100.0 100.0 100.0 11,635 64,740 454,574 21,773 13,131 383,585 24,464 5,968 6,683 105,412 757,734 127,635 12,527 17,837 15,487 1,331,683 163,672 65,174 98,469 9,655 1,025,798 46,400 7,163 113,372 21,927 Allianz Australia Life Insurance Limited, Sydney Allianz Australia Limited, Sydney 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 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 (304) (26) 548 173 300 20,580 1,215 899 14,696 1,273 502 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- Aktiengesellschaft, Vienna Allianz Elementar Versicherungs-Aktiengesellschaft, Vienna Allianz EM Loans S.C.S., Luxembourg Allianz Engineering Inspection Services Limited, Guildford Allianz Equity Investments Ltd., Guildford Allianz Europe B.V., Amsterdam 550 Allianz Europe Ltd., Amsterdam 12,512 90,075 3,750 4,216 12,743 12,823 (119) 8,826 466 2,067 (27) 65 3,970 3,652 62,697 13,817 Allianz Finance II B.V., Amsterdam Allianz Finance II Luxembourg S.à r.l., Luxembourg Allianz Finance IV 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 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 687,910 1,370,379 Allianz Global Investors Distributors LLC, Dover, DE 5,953,166 1,676,851 Allianz Global Investors Japan Co. Ltd., Tokyo C _ Financial Statements of Allianz SE Owned1 % Equity € thou Net Earnings € thou 66,111 212,861 7,762 230,232 1,697,895 51,132 1,730,187 226,595 418,920 111,005 243,091 119,287 732,129 56,195 17,096 12,173 12,928 5,506 173,021 51,841 37,230 100,288 42,925 15,469 7,751 5,991 80,865 16,604 (3,773) 3,568 (122) 276 73 3,071 27,600 9,661 100.0 100.0 100.0 3 100.0 3 62.6 99.9 3 100.0 3 100.0 100.0 66.2 3 100.0 75.4 100.0 3 100.0 100.0 100.0 51.0 100.0 99.9 3 956,836 146,485 100.0 3 74.1 3 71.0 3 100.0 3 100.0 19,181 5,359 6,495 15,216 224,709 4,869 2,080 2,211 (72) (15,921) 100.0 207,158 6,113 100.0 100.0 3 100.0 100.0 437,322 43,812 11,791 169,469 55,028 426 4,019 3,712 100.0 3 45,713,477 1,297,755 3,340,815 18,758 3,756,754 5,251 3,202 83,223 44,098 (12,467) 1,120,680 339,732 29,842 138,400 100.0 3 1,735,439 465,792 6,230 (60) 4,403 5,349 54,253 (2,339) 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 100.0 100.0 100.0 3 6,217,889 770,988 111,266 284,569 1,142 9,240 100.0 3 224,758 100.0 3 7,824 100.0 3 100.0 100.0 100.0 7,822 32,326 31,024 13,514 - 347 344 9,199 3,657 4,773 77 Allianz General Insurance Company (Malaysia) Berhad p.l.c., Kuala Lumpur 100.0 392,421 41,509 C _ Financial Statements of Allianz SE 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 p.l.c., Dublin Allianz Holdings plc, Guildford Allianz Hungária Biztosító Zrt., Budapest Allianz HY Investor LP, Wilmington, DE 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-Egypt S.A.E., New Cairo Allianz Insurance Lanka Limited, Colombo Allianz Insurance plc, Guildford Allianz Inversiones S.A., Bogotá D.C. Allianz Invest Kapitalanlagegesellschaft mbH, Vienna Allianz Investment Management LLC, Minneapolis, MN Allianz Investmentbank Aktiengesellschaft, Vienna Allianz Investments III Luxembourg S.A., Luxembourg Allianz Leasing Bulgaria AD, Sofia 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 Groep N.V., Rotterdam Owned1 % 100.0 100.0 100.0 100.0 100.03 Equity € thou 12,787 31,296 105,263 70,811 121,101 Net Earnings € thou 1,463 14,324 98,832 Allianz Nederland Levensverzekering N.V., Rotterdam Allianz New Europe Holding GmbH, Vienna Allianz New Zealand Limited, Auckland Owned1 % 100.0 100.0 100.0 3 Equity € thou 252,856 833,247 36,154 Net Earnings € thou 29,404 176,077 1,536 141,371 Allianz of America Inc., Wilmington, DE 100.0 13,000,580 2,118,491 4,787 Allianz p.l.c., Dublin Allianz Popular S.L., Madrid 60.0 1,010,719 100.0 3 1,831,570 (254,634) 89.0 100.0 100.0 3 100.0 100.0 100.0 3 100.0 100.0 100.0 3 100.0 100.0 3 18,906 137,362 374,646 2,315,797 4,880 2,423 13,018 263,437 9,350,681 2,883,884 61,516 1,666,889 110,940 428,065 2,097,839 243,793 - 52,718 61,285 (1,492) 317,523 (4,538) 100.0 3 166,012 81,821 100.0 3 165,942 81,906 Allianz Partners S.A.S., Saint-Ouen 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 Vida Compañía de Seguros y Reaseguros S.A., Madrid Allianz Presse US REIT LP, Wilmington, DE 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 100.0 3 1,111,893 20,786 Allianz Renewable Energy Partners IV Limited, London 100.0 3 100.0 3 232,207 4,307 Allianz Renewable Energy Partners of America LLC, Wilmington, DE 1,681,393 187,804 Allianz Renewable Energy Partners V plc., London 100.0 3 124,882 100.0 3 53,601 100.0 3 95.0 3 100.0 100.0 100.0 100.0 100.0 3 100.0 100.0 3 51.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 12,313 7,136 8,634 1,353,479 5,865 7,090 7,633 35,152 649,588 5,731 8,244 28,952 35,760 53,304 291,581 499 (3) 9,606 (94) 702 99,930 3,060 1,541 55,825 5,638 Allianz Renewable Energy Partners VI Limited, London Allianz Renewable Energy Partners VIII Limited, London Allianz Risk Transfer (Bermuda) Ltd., Hamilton Allianz Risk Transfer Inc., New York, NY 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 Services (UK) Limited, London Allianz Sigorta A.S., Istanbul Allianz SNA s.a.l., Beirut (10,496) Allianz Société Financière S.à r.l., Luxembourg 1,050 1,574 10,289 (85) 18,037 (3,697) Allianz South America Holding B.V., Amsterdam 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 Technology (Thailand) Co.,Ltd, Bangkok 100.0 3 155,605 12,742 Allianz Technology AG, Wallisellen 100.0 3 100.0 7,120,651 6,284 669,690 (2,089) Allianz Technology GmbH, Vienna Allianz Technology International B.V., Amsterdam Allianz Technology of America Inc., Wilmington, DE 33,435 3,772 386 2,671 2,514 27,571 3,709 21,620 21,618 7,761 64,626 (29) 14,643 191,186 914 (64,079) 2,952 (41,186) 113,939 18,031 (7,984) (4,108) 928 (4,454) 684,203 (24,085) 6,564 100.0 100.0 3 100.0 100.0 3 51.0 100.03 100.03 100.0 100.0 375,422 369,015 11,610 32,294 30,666 166,533 16,641 6,065 19,954 106,320 37,677 169,550 731,869 181,404 191,456 149,927 715,671 751,677 692,912 585,142 221,803 53,597 57,754 2,549,878 51,997 59,469 100.0 100.0 100.0 100.03 100.0 100.0 98.8 98.8 100.0 100.0 100.0 100.0 100.03 100.03 100.0 100.0 100.0 100.0 100.0 100.0 96.2 100.03 100.03 100.03 98.1 220,914 (14,157) 46,224 6,312 371,859 56,104 1,490,395 3,139 (92) 139,245 6,731 43,402 424,170 (52,288) 5,545 106 100.0 857,608 72,844 100.0 99.7 100.03 100.0 100.0 100.03 100.03 100.0 100.03 100.03 52.2 571,797 259,986 305,371 (17,816) 5,279 17,908 19,984 35,509 16,838 15,814 78,236 41,928 178,903 2,188 3,496 1,198 (14) (1,139) 11 (2,716) 1,408 35,358 Allianz Technology S.C.p.A., Milan Allianz Technology S.L., Barcelona Allianz Technology SAS, Paris Allianz Tiriac Asigurari SA, Bucharest 100.0 100.0 75.0 100.0 3 98.9 3 99.9 3 100.0 100.0 185,823 74,750 216,306 11,138 89,813 26,488 134,628 278,686 19,748 9,867 15,752 68 10,193 8,887 60,172 25,517 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 100.0 17,588 20,256 100.0 100.0 61,243 1,215,143 1,632 5,854 78 Annual Report 2017 – Allianz SE C _ Financial Statements of Allianz SE Owned1 % 100.0 100.03 64.8 100.0 50.0 50.0 100.0 50.1 100.03 100.0 100.03 100.03 55.03 100.03 100.03 Equity € thou 75,943 5,605 178,961 70,979 88,990 508,238 303,641 65,349 10,940 12,444 Net Earnings € thou 1,470 807 6,375 18,947 4,083 47,536 58,323 22,425 1,381 755 664,150 10,807 6,869 7,080 12,887 164,095 1,168 937 2,342 6,473 Net Earnings € thou 6,742 Climmolux Holding SA, Luxembourg 272,337 Club Marine Limited, Sydney Companhia de Seguros Allianz Portugal S.A., Lisbon 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 Sp. z o.o., Warsaw Euler Hermes Crédit France S.A.S., Paris la Défense Euler Hermes Group SA, Paris la Défense 79.13 1,700,869 777,887 Euler Hermes Luxembourg Holding S.à r.l., Luxembourg 100.03 109,599 (34) Euler Hermes North America Holding Inc., Owings Mills, MD 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 North America LLC, Owings Mills, MD Euler Hermes Services Schweiz AG, Wallisellen Euler Hermes Serviços de Gestão de Riscos Ltda., São Paulo Euler Hermes Sigorta A.S., Istanbul Euler Hermes Singapore Services Pte. Ltd., Singapore 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 Fragonard Assurance S.A., Paris Fu An Management Consulting Co. Ltd., Beijing Fusion Company Inc., Richmond, VA 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, Guildford Immovalor Gestion S.A., Paris la Défense ImWind GHW GmbH & Co. KG, Pottenbrunn Insurance CJSC “Medexpress”, Saint Petersburg 100.0 165,436 1,787 100.0 100.03 100.03 60.03 100.03 100.03 100.03 100.03 100.03 100.03 100.0 100.03 100.03 100.03 100.0 100.03 100.03 100.0 100.03 100.0 100.0 177,333 243,084 61,055 202,200 13,664 866,609 761,784 6,975 8,655 10,247 6,494 7,308 7,974 5,374 5,163 36,134 8,172 52,242 9,187 40,830 12,445 21,513 (1,040) - (2,190) 8,092 137,748 148,491 183 7,265 9,747 5,044 2,922 (237) (198) 2,056 626 822 1,740 557 (4,476) (172) 100.0 1,155,384 87,761 100.0 100.03 1.03 100.03 100.03 52.5 100.0 100.0 100.0 100.0 100.03 100.03 7,618 84,425 6,568 5,086 126,136 68,372 349,727 5,527 19,254 6,987 5,652 8,186 (109) 26,738 (49) 234 770 2,920 683,989 (330) 2,728 3,055 (997) 1,793 79 Owned1 % 100.0 100.0 100.0 80.0 83.23 51.0 100.03 99.6 100.0 100.03 100.03 100.0 100.0 100.03 100.03 100.0 100.0 100.0 100.0 100.03 100.03 100.03 100.03 95.03 100.03 75.03 100.03 100.03 100.03 100.03 100.03 100.03 100.03 100.03 100.03 100.03 100.0 55.03 100.03 100.0 100.03 100.0 100.03 100.0 100.0 100.0 100.0 93.2 100.0 100.03 100.03 100.03 100.03 100.0 100.03 Allianz US Private REIT LP, Wilmington, DE Allianz Vie S.A., Paris la Défense Allianz Vorsorgekasse AG, Vienna 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 Ann Arbor Annuity Exchange Inc., Ann Arbor, MI APK US Investment LP, Wilmington, DE APKV US Private REIT LP, Wilmington, DE 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 Assurances Médicales SA, Metz AWP Assistance (India) Private Limited, Gurgaon AWP Assistance UK Ltd., London AWP Australia Holdings Pty Ltd., Toowong AWP Australia Pty Ltd., Toowong AWP France SAS, Saint-Ouen AWP Health & Life S.A., Saint-Ouen AWP MEA Holdings Co. W.L.L., Manama AWP P&C S.A., Saint-Ouen AWP Service Brasil Ltda., São Bernardo do Campo AWP Services NL B.V., Amsterdam 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 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 CEPE de Sambres S.à r.l., Versailles CEPE des Portes de la Côte d'Or S.à r.l., Versailles CEPE du Bois de la Serre S.à r.l., Versailles Chicago Insurance Company Corp., Chicago, IL CIC Allianz Insurance Ltd., Sydney Annual Report 2017 – Allianz SE Equity € thou 1,252,871 2,586,328 25,647 104,433 123,149 22,600 45,863 302,762 64,981 35,269 15,072 80,478 209,884 142,178 138,975 29,209 5,447 74,965 5,597 9,362 9,911 7,552 15,013 26,376 410,088 15,612 308,014 36,552 13,081 15,088 270,063 5,797 51,704 10,405 10,484 5,275 71,672 675 2,663 1,574 275 2,217 (678) 383 1,920 4,792 601 4,091 1,002 5,692 5,968 1,492 42,405 37,842 (2,336) 23,596 41 1,559 13,989 2,726 3,390,188 204,864 148,311 7,885 3,265,428 343,300 82,959 20,984 580,680 11,488 86,610 121,508 48,443 10,348 139,809 71,611 20,407 189,734 60,655 8,110 15,368 9,972 6,733 55,379 35,461 1,104 (14) (189) 4,385 971 6,183 - (32) 2,132 8,645 2,395 44 (10,068) 7,912 786 3,194 2,350 (2,496) (6,248) (4,893) (3,743) (213) 6,458 C _ Financial Statements of Allianz SE Interstate Fire & Casualty Company, Chicago, IL Investitori SGR S.p.A., Milan Järvsö Sörby Vindkraft AB, Danderyd Jefferson Insurance Company Corp., New York, NY Joukhaisselän Tuulipuisto Oy, Oulu Jouttikallio Wind Oy, Kotka JSC Insurance Company Allianz, Moscow Kensington Fund, Milan Kiinteistöosakeyhtiö Eteläesplanadi 2 Oy, Helsinki Kuolavaara-Keulakkopään Tuulipuisto Oy, Oulu LAD Energy GmbH & Co. KG, Pottenbrunn LLC “IC Euler Hermes Ru”, Moscow Lloyd Adriatico Holding S.p.A., Trieste Maevaara Vind 2 AB, Stockholm National Surety Corporation, Chicago, IL NEXtCARE Claims Management LLC, Dubai 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 Parc Eolien de Chaourse SAS, Versailles Parc Eolien de Fontfroide SAS, Versailles Parc Eolien de la Sole du Bois SAS, Paris 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 Pty Ltd., Sydney PIMCO Canada Corp., Toronto, ON PIMCO Europe Ltd., London PIMCO Global Advisors (Ireland) Ltd., Dublin 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 Primacy Underwriting Management Pty Ltd., Melbourne 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 SA Carène Assurance, Paris SA Vignobles de Larose, Saint-Laurent-Médoc Saarenkylä Tuulipuisto Oy, Oulu San Francisco Reinsurance Company, Los Angeles, CA 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 80 Owned1 % 100.0 100.0 100.03 100.03 100.03 100.03 100.03 100.0 100.0 100.03 100.03 100.03 99.9 100.03 100.0 100.03 100.0 100.03 100.03 95.7 100.03 100.03 100.03 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 65.93 100.03 100.0 99.8 100.0 94.0 100.03 100.03 100.03 100.03 100.0 100.0 100.03 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 90.0 Société Foncière Européenne B.V., Amsterdam 100.03 1,207,366 Equity € thou 58,363 19,824 23,901 67,732 19,774 9,699 113,671 148,103 33,991 23,778 7,767 6,761 21,987 12,322 61,464 13,523 125,935 8,847 18,178 Net Earnings € thou (328) 8,506 (4,641) 8,020 (5,491) 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 25 SCI Allianz ARC de Seine, Paris la Défense 31,067 49,633 1,611 (8,434) (145) 211 SCI Allianz Chateaudun, Paris la Défense SCI Allianz Invest Pierre, Paris la Défense SCI Allianz Messine, Paris la Défense SCI Allianz Value Pierre, 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 (252) (141) 4,150 4,261 516 1,642 523,674 1,732,566 Société Nationale Foncière S.A.L., Beirut 7,239 5,259 5,490 109,219 232,904 8,374 8,184 19,792 17,778 32,870 21,766 184,152 22,775 373,224 31,772 80,807 33,927 24,612 6,338 35,471 370,147 49,265 87,373 14,892 72,373 63,774 23,488 14,233 36,464 10,753 495,356 115,681 112,673 242,292 606,956 274,242 101,538 340,819 296,018 (1,175) Sofiholding S.A., Brussels (398) 1,189 43 6,168 5,463 3,404 614 2,629 16,749 17,242 134,496 9,943 241,528 20,622 260,575 29,088 9,460 2,090 8,472 19,463 4,818 3,378 (7,174) 227 746 (42) 698 (47) (4,541) (16,839) 4,380 4,421 6,733 8,635 16,677 3,915 11,879 2,894 South City Office Broodthaers SA, Brussels 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 GHW GmbH, Pottenbrunn Windpark Ladendorf GmbH, Vienna 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 114 Venture LP, Wilmington, DE A&A Centri Commerciali S.r.l., Milan Allee-Center Kft., Budapest AMLI-Allianz Investment LP, Wilmington, DE AS Gasinfrastruktur Beteiligung GmbH, Vienna 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 Dundrum Car Park Limited Partnership, Dublin Dundrum Retail Limited Partnership, Dublin Euromarkt Center d.o.o., Ljubljana Fiumaranuova S.r.l., Genoa Net Earnings € thou 28,351 2,462 (899) 1,368 4,086 6,996 1,843 1,323 3,766 (64) 11,451 2,918 11,314 2,677 649 4,136 6,273 178 1,545 304 358 2,110 1,829 (756) 108 (11) 600 1,034 (1,585) 1,245 330 29,156 12,990 849 100,121 (6,479) (184) (286) (590) 1 4,185 3,219 8,882 1,390 5,800 5,011 9,955 2,688 (11) 8,647 5,140 8,454 6,252 Owned1 % 100.0 100.0 100.03 100.0 100.0 100.0 100.0 100.0 100.0 49.3 100.0 75.0 100.0 100.0 100.03 100.03 94.8 100.0 Equity € thou 646,165 196,256 10,142 54,100 112,885 213,497 116,913 289,987 227,875 30,387 46,175 106,183 253,132 173,512 6,645 77,408 320,277 36,390 66.03 100.0 100.0 100.03 100.0 14,119 17,564 52,957 6,877 55,524 100.03 22,230 5,272 5,897 8,890 17,801 19,693 43,986 249,279 103,567 20,049 76,928 230,440 7,456 8,382 7,959 155,673 33,462 31,488 22,035 11,155 198,160 167,225 109,207 87,534 338,770 269,063 246,158 65,040 40,942 100.0 100.0 100.0 100.0 100.03 100.0 100.0 100.0 100.0 100.0 87.5 100.0 100.03 100.03 100.03 87.43 99.03 51.03 100.03 49.53 50.03 50.03 75.0 60.03 80.03 80.03 50.03 50.03 50.03 50.03 50.13 1,740,524 152,081 28,584 153,952 8,796 4,698 Annual Report 2017 – Allianz SE C _ Financial Statements of Allianz SE Owned1 % Equity € thou Net Earnings € thou 14.53 1,988,842 5.23 18.03 19.9 6.93 8.53 19.53 3.33 2.4 10.03 1.53 3.73 5.03 5.43 4.83 7.6 5.83 5.83 6.7 8.83 1.93 2.23 2.53 10.03 10.9 20.83 16.33 7.33 16.83 6.03 1.03 12,947 27,776 5,356 6,117,662 2,440,477 14,885 588 3,384 (15) 930,375 313,230 869 18,385,255 1,675,864 1,852,935 20,122 1,708,651 5,882 96,627 2,136 12,629 (2,152) 1,110,500 274,900 203,801 48,470 76,816 203,567 750,354 69,185 9,434 5,276 814,000 3,876 80,542 (4,105) 23,737 2,455 33,540 4,498 (9,393) (983) 65,327 2,300,530 186,000 8,565 12,092 230,428 77,353 25,916 186,447 1,002 2,416 (22,678) 14,824 41,204 16,287 34,817 3,633 32,697,000 (11,460,000) Guotai Jun'an Allianz Fund Management Co. Ltd., Shanghai Israel Credit Insurance Company Ltd., Tel Aviv Italian Shopping Centre Investment S.r.l., Milan LBA IV-PPI Venture LLC, Dover, DE LBA IV-PPII-Office Venture LLC, Dover, DE LBA IV-PPII-Retail Venture LLC, Dover, DE NET4GAS Holdings s.r.o., Prague NRF (Finland) AB, Västeras Porterbrook Holdings I Limited, London Queenspoint S.L., Madrid SC Holding SAS, Paris SES Shopping Center AT1 GmbH, Salzburg SES Shopping Center FP 1 GmbH, Salzburg Solunion Compañía Internacional de Seguros y Reaseguros SA, Madrid The State-Whitehall Company LP, Dover, DE TopTorony Ingatlanhasznosító Zrt., Budapest VGP European Logistics S.à r.l., Senningerberg Waterford Blue Lagoon LP, Wilmington, DE Associates Owned1 % 49.03 50.03 50.03 45.03 45.03 45.03 50.03 50.03 30.03 50.03 50.03 50.03 50.03 50.03 49.93 50.03 50.03 49.03 Equity € thou 96,765 46,312 21,198 335,142 29,944 44,395 105,401 129,695 1,326,430 108,273 10,603 220,016 104,911 105,103 5,893 10,453 156,960 383,677 Net Earnings € thou 18,239 6,130 (3,925) 2,369 471 163 64,877 26,176 17,328 3,368 967 9,892 2,806 8,281 (3,688) (1,658) (674) 2,116 Other participations below 20 % voting rights Agrupación Española de Entidades Aseguradoras de los Seguros Agrarios Combinados S.A., Madrid Al-Nisr Al-Arabi Insurance Company, Amman ALTRO Invest S.C.A., Weiswampach Autostrade per l’Italia S.p.A., Rome Banco BPI S.A., Porto Catch a Car AG, Luzern China Pacific Insurance (Group) Co. Ltd., Shanghai Cofinimmo S.A., Brussels Commercial Bank of Cameroon LC, Douala ESL Partners L.P., Wilmington, DE Formula E Holdings Limited, Hong Kong Geodis SACS, Levallois-Perret IDI SCA, Paris IPUT plc, Dublin Lemonade Inc., New York, NY Logistis Luxembourg Feeder S.A., Luxembourg Logistis Luxembourg S.A., Luxembourg Logistis SPPICAV, Paris Meiji Yasuda Asset Management Company Ltd., Tokyo Allianz EFU Health Insurance Ltd., Karachi 49.03 5,732 1,191 MFM Holding Ltd., London 32.53 57,138 685 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 Areim Fastigheter 3 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 Delgaz Grid S.A., Târgu Mures Douglas Emmett Partnership X LP, Wilmington, DE Four Oaks Place LP, Wilmington, DE Helios Silesia Holding B.V., Amsterdam Lennar Multifamily Venture LP, Wilmington, DE Liverpool Victoria General Insurance Group Limited, Bournemouth Medgulf Allianz Takaful B.S.C., Seef 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 UK Outlet Mall Partnership LP, Edinburgh Wildlife Works Carbon LLC, San Francisco, CA 40.03 28.63 23.33 26.23 26.03 26.03 34.33 25.03 49.93 22.93 30.03 28.63 49.03 45.03 11.33 49.0 25.03 49.0 33.33 49.0 49.0 25.83 49.0 49.0 49.0 30.03 19.53 10.03 85,977 165,272 83,949 36,926 493,760 1,183,961 162,020 10,999 232,217 106,351 816,106 33,868 499,644 64,096 905,806 776,911 13,696 119,582 120,521 267,429 43,947 14,240 31,291 25,628 13,896 320,410 445,589 8,897 Nauto Inc., Paolo Alto, CA Oddo et Cie SCA, Paris PARIS-ORLEANS, Paris PERILS AG, Zürich Portima SCRL, Bruxelles Société d'Assurances de Consolidation des Retraites de l'Assurance S.A., Paris Société Générale de Banque au Cameroun LC, Douala Société Générale de Banques en Côte d'Ivoire S.A., Abidjan Sri Ayudhya Capital Public Company Limited, Bangkok Tecnologías de la Información y Redes para las Entidades Aseguradoras S.A., Las Rozas de Madrid (649) (59,672) (170) (3,310) 101,673 116,819 - 1,906 41,741 (10,462) UniCredit S.p.A., Milan Zagrebacka banka d.d., Zagreb 11.73 1,957,654 226,156 1_Percentage includes equity participations held by dependent entities in full, even if the Allianz Group’s share in the dependent entity is below 100 %. 2_Profit and loss transfer agreement. 3_As per annual financial statement 2016. 4_Insolvent. Dependent entities are shown in a way, which reflects the state as of the date of filing for insolvency. 5_As per annual financial statement 2010. This is only applicable for manroland AG and their subsidiaries. 74,648 2,624 15,240 (585) (5,981) (24,953) (219) 7,721 578 1,807 8,359 985 2,026 4,353 2,990 38,551 167,334 (969) Annual Report 2017 – Allianz SE 81 C _ Financial Statements of Allianz SE This page intentionally left blank. 82 Annual Report 2017 – Allianz SE FURTHER INFORMATION D Annual Report 2017 – Allianz SE 83 Repor t D – 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, 13 February 2018 Allianz SE The Board of Management Oliver Bäte Sergio Balbinot Jacqueline Hunt Dr. Helga Jung Dr. Christof Mascher Niran Peiris Giulio Terzariol Dr. Günther Thallinger Dr. Axel Theis 84 Annual Report 2017 – Allianz SE D _ Further Information INDEPENDENT AUDITOR’S REPORT To Allianz SE, Munich Report on the Audit of the Annual Financial Statements and of the Management Report OPINIONS We have audited the annual financial statements of Allianz SE, Mu- nich, which comprise the balance sheet as at 31 December 2017, and the statement of profit and loss for the financial year from 1 January to 31 December 2017, and notes to the financial statements, includ- ing the recognition and measurement policies presented therein. In addition, we have audited the management report of Allianz SE for the financial year from 1 January to 31 December 2017. In accord- ance with the German legal requirements we have not audited the content of the Statement on Corporate Management pursuant to Section 289f of the German Commercial Code [HGB] and the corpo- rate governance report according to No. 3.10 of the German Corpo- rate Governance Code, which is included in section B of the man- agement report. In our opinion, on the basis of the knowledge obtained in the audit, − − the accompanying annual financial statements comply, in all material respects, with the requirements of German commercial law applicable to insurance companies and give a true and fair view of the assets, liabilities and financial position of the Compa- ny as at 31 December 2017 and of its financial performance for the financial year from 1 January to 31 December 2017 in com- pliance with German Legally Required Accounting Principles, and the accompanying management report as a whole provides an appropriate view of the Company's position. In all material re- spects, this management report is consistent with the annual fi- nancial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Our opinion on the management report does not cover the content of the Statement on Corporate Management and the corporate governance report mentioned above. Pursuant to Section 322 (3) sentence 1 HGB [Handelsgesetzbuch: German Commercial Code], we declare that our audit has not led to any reservations relating to the legal compliance of the annual finan- cial statements and of the management report. BASIS FOR THE OPINIONS We conducted our audit of the annual financial statements and of the management report in accordance with Section 317 HGB and the EU Audit Regulation No. 537/2014 (referred to subsequently as "EU Audit Regulation") and in compliance with German Generally Accept- ed Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Our responsibilities under those requirements and principles are further described in the "Auditor's Responsibilities for the Audit of the Annual Financial Statements and of the Management Report" section of our auditor's report. We are independent of the Company in accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these re- quirements. In addition, in accordance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided non- audit services prohibited under Article 5 (1) of the EU Audit Regula- tion. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinions on the annual finan- cial statements and on the management report. KEY AUDIT MATTERS IN THE AUDIT OF THE ANNUAL FINANCIAL STATEMENTS Key audit matters are those matters that, in our professional judge- ment, were of most significance in our audit of the financial statements for the financial year from 1 January 2017 to 31 December 2017. These matters were addressed in the context of our audit of the annual financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. VALUATION OF SHARES IN AFFILIATED ENTERPRISES With regard to the accounting policies applied, please refer to the Company's explanations in the notes to the financial statements in the section "Accounting, Valuation and Calculation Methods" under “Shares in affiliated enterprises and participations”, for a breakdown and description of the changes in the financial year see the note "Investments in affiliated enterprises and participations" and for a presentation of the fair values and valuation reserves see the note "Market value of investments". For a presentation of shareholdings, please see the section "List of participations of Allianz SE, Munich, as of 31 December 2017 according to Section 285 No. 11 and 11b HGB in conjunction with Section 286 (3) No. 1 HGB" in the notes. Risk dis- closures can be found in the management report in the "Risk and Opportunity Report" under section "Quantifiable risks and opportuni- ties by risk category" under “Market risk” and “Credit risk”. FINANCIAL STATEMENT RISK As at the reporting date shares in affiliated enterprises amount to EUR 69,999.3 million. This represents 57.3 % of total assets. Shares in affiliated enterprises represent a significant part of the investments. Shares in affiliated enterprises are measured at the lower of cost or fair value. This fair value is generally determined on the basis of internal valuations and corresponding documentation. For all signifi- cant subsidiaries, the fair value is determined on the basis of a divi- dend discount method according to IDW Standard S 1 of the German Institute of Public Auditors [IDW S 1]. For life/health insurance com- panies, the fair value is determined based on the appraisal value. The appraisal value is generally composed of the market consistent em- bedded value (MCEV), which reflects the value of the existing insur- ance portfolio, and the estimated value of new business. The fair value of asset management companies is determined from the fair value of the assets held less liabilities. Annual Report 2017 – Allianz SE 85 D – Further Information The cash flows used for the dividend discount method are based on income or cash flow projections for the next three years, and are extrapolated based on assumptions for long-term growth rates. This involves determining both expected business development and sus- tainable returns on investments. The applied discount rate is derived in each case from the return of a risk-adequate alternative invest- ment and requires judgement to determine the risk premium and the beta factor; this applies also for the growth rate. If the fair value is lower than the book value, qualitative and quantitative criteria are used to assess whether or not the impairment is expected to be per- manent. The calculation of the fair value according to the dividend dis- count method is complex and, as regards the assumptions made, based largely on estimations and assessments of the Company. A set of parameters that are subject to judgement have to be determined for the purposes of valuation. OUR AUDIT APPROACH To audit the shares in affiliated enterprises, we engaged valuation experts and actuaries as part of the audit team. In particular, we performed the following significant audit procedures: − We used a risk-based audit approach. First, we used the infor- mation obtained during our audit to assess which shares in affili- ated enterprises indicated a need for impairment. We also evalu- ated the shares in affiliated enterprises in terms of their size and significance for the financial statements of Allianz SE. − With the involvement of our valuation specialists, we assessed the appropriateness of the significant assumptions and the valuation model of the Company. For this purpose we discussed the ex- pected cash flows and the assumed long-term growth rates with those responsible for planning. We also reconciled this infor- mation with other internally available forecasts. Furthermore, we evaluated the consistency of assumptions with external market assessments. − We also confirmed the accuracy of the Company's previous fore- casts by comparing the estimations in previous financial years with actual results and analysed the deviations. − We compared the assumptions and parameters underlying the capitalisation rate, in particular the risk-free rate, the market risk premium and the beta factor, with our own assumptions and pub- licly available data. In order to take account of the uncertainty of estimates, we also investigated the impact of potential changes to the long-term growth rate and the combined ratio on the fair value (sensitivity analysis) by calculating alternative scenarios and comparing these with the Company's valuations. To ensure the computational accuracy of the valuation model used, we verified the Company's calculations on the basis of a risk-based sample. − We assessed whether impairments or reversals had been appro- priately made based on the valuation results. OUR OBSERVATIONS The approach used for impairment testing of shares in affiliated enterprises is appropriate and in line with the accounting policies. The assumptions and parameters used by the Company are appropriate as a whole. VALUATION OF THE GROSS IBNR RESERVE FOR THE PROPERTY-CASUALTY BUSINESS With regard to the accounting policies applied, please refer to the Company´s explanations in the notes to the financial statements under section "Accounting, Valuation and Calculation Methods" under the “Insurance Reserves”. Risk disclosures can be found in the management report in the "Risk and Opportunity Report" under section "Quantifiable risks and opportunities by risk category" under “Underwriting Risk”, “Property-Casualty”. FINANCIAL STATEMENT RISK The gross reserves for loss and loss adjustment expenses amount to EUR 12,092.7 million. This represents 9.9 % of the balance sheet total. A significant part of the gross reserve for loss and loss adjustment expenses is attributable to the gross reserve for incurred but not reported (IBNR) reserve. The gross reserves for loss and loss adjustment expenses are de- termined according to the cedent´s statements and the application of actuarial and statistical models that require a sufficient data history and stability of the observed data. To this assumptions about premi- ums, ultimate loss ratios, run-off periods, run-off factors and run-off dynamics based on historical experience are taken into account. The IBNR is determined in consideration of the results of actuarial meth- ods, the cedent´s statements and additional information regarding the uncertainty of the calculations. The valuation of the gross IBNR is subject to uncertainty and therefore based on judgements. Estimation uncertainties arise partic- ularly in respect of the amount of the ultimate loss and the run-off dynamics, particularly in the Liability business. In accordance with German GAAP, this estimation must be made in accordance with the prudence principle under German commercial law (Section 252 (1) No. 4 HGB, Section 341e (1) sentence 1 HGB) and may not be a risk-neutral equal weighting of opportunities and risks. The risk concerning unreported losses is that these losses are not, or not sufficiently, taken into account. OUR AUDIT APPROACH For the audit of the IBNR, we engaged actuaries as part of the audit team. In particular, we performed the following significant audit procedures: − We recorded the process for determining the IBNR, identified key controls and tested them for their appropriateness and effective- ness. We also verified that the controls were performed. − We assessed the appropriateness of significant assumptions used, including loss ratios and assumptions about the run-off be- haviour of claims. − We carried out our own actuarial reserve calculations for selected segments, which we selected on the basis of risk considerations. In doing so, for the ultimate loss expense, we determined a point es- timate and an appropriate range using statistical probabilities in each case and compared these with the Company's calculations. − We compared the level of reserving as at the reporting date with that of the prior year. To do this, we particularly assessed the ap- propriateness of the way in which management, using reasona- ble business judgement, made adjustments to the estimates that had been calculated by actuarial methods. We did this by in- 86 Annual Report 2017 – Allianz SE D _ Further Information specting and assessing the documentation of the underlying cal- culations or qualitative explanations. − We used the run-off results to analyse the actual development in the reserves for loss and loss adjustment expenses recognised in the prior year (including the IBNR reserve) for their retrospective appropriateness. OUR OBSERVATIONS The Company's approach for the valuation of the IBNR reserve in the Property-Casualty business is appropriate and suitable. The methods used as well as the underlying assumptions for the valuation of this IBNR reserve are appropriate as a whole. OTHER INFORMATION Management is responsible for the other information. The other information comprises: − − the Statement on Corporate Management pursuant to Section 289f HGB and the corporate governance report according to No. 3.10 of the German Corporate Governance Code, and the remaining parts of the annual report of Allianz SE, with the exception of the audited annual financial statements and man- agement report and our auditor's report. Our opinions on the annual financial statements and on the man- agement report do not cover the other information, and consequent- ly we do not express an opinion or any other form of assurance con- clusion thereon. In connection with our audit, our responsibility is to read the other information and, in doing so, consider whether the other information − is materially inconsistent with the annual financial statements, with the management report or our knowledge obtained in the audit, or − otherwise appears to be materially misstated. RESPONSIBILITIES OF MANAGEMENT AND THE SUPERVISORY BOARD FOR THE ANNUAL FINANCIAL STATEMENTS AND THE MANAGEMENT REPORT Management is responsible for the preparation of the annual finan- cial statements that comply, in all material respects, with the require- ments of German commercial law applicable to insurance compa- nies, and that the annual financial statements give a true and fair view of the assets, liabilities, financial position and financial perfor- mance of the Company in compliance with German Legally Required Accounting Principles. In addition, management is responsible for such internal control as they, in accordance with German Legally Required Accounting Principles, have determined necessary to ena- ble the preparation of annual financial statements that are free from material misstatement, whether due to fraud or error. In preparing the annual financial statements, management is re- sponsible for assessing the Company's ability to continue as a going concern. They also have the responsibility for disclosing, as applica- ble, matters related to going concern. In addition, they are responsi- ble for financial reporting based on the going concern basis of ac- counting, provided no actual or legal circumstances conflict therewith. Furthermore, management is responsible for the preparation of the management report that as a whole provides an appropriate view of the Company’s position and is, in all material respects, con- sistent with the annual financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, management is responsible for such arrangements and measures (systems) as they have consid- ered necessary to enable the preparation of a management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the management report. The supervisory board is responsible for overseeing the Compa- ny's financial reporting process for the preparation of the annual financial statements and of the management report. AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE ANNUAL FINANCIAL STATEMENTS AND OF THE MANAGEMENT REPORT Our objectives are to obtain reasonable assurance about whether the annual financial statements as a whole are free from material mis- statement, whether due to fraud or error, and whether the manage- ment report as a whole provides an appropriate view of the Compa- ny's position and, in all material respects, is consistent with the annual financial statements and the knowledge obtained in the audit, com- plies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor's report that includes our opinions on the annual financial statements and on the management report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 HGB and the EU Audit Regulation and in compliance with Ger- man Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the ag- gregate, they could reasonably be expected to influence the econo- mic decisions of users taken on the basis of these annual financial statements and this management report. We exercise professional judgement and maintain professional scep- ticism throughout the audit. We also: − Identify and assess the risks of material misstatement of the annual financial statements and of the management report, whether due to fraud or error, design and perform audit proce- dures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. − Obtain an understanding of internal control relevant to the audit of the annual financial statements and of arrangements and measures (systems) relevant to the audit of the management re- port in order to design audit procedures that are appropriate in the cicumstances, but not for the purpose of expressing an opinion on the effectiveness of these systems. Annual Report 2017 – Allianz SE 87 Other Legal and Regulatory Requirements FURTHER INFORMATION PURSUANT TO ARTICLE 10 OF THE EU AUDIT REGULATION We were elected as auditor by the supervisory board meeting on 9 March 2017. We were engaged by the chairman of the audit com- mittee of the supervisory board on 13 June 2017. We have been the auditor of Allianz SE without interruption for more than 25 years. We declare that the opinions expressed in this auditor's report are consistent with the additional report to the audit committee pursuant to Article 11 of the EU Audit Regulation (long-form audit report). GERMAN PUBLIC AUDITOR RESPONSIBLE FOR THE ENGAGEMENT The German Public Auditor responsible for the engagement is Andre- as Dielehner. Munich, 28 February 2018 KPMG AG Wirtschaftsprüfungsgesellschaft [Original German version signed by:] Becker Wirtschaftsprüfer [German Public Auditor] Dielehner Wirtschaftsprüfer [German Public Auditor] D – Further Information − Evaluate the appropriateness of accounting policies used by management and the reasonableness of estimates made by management and related disclosures. − Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evi- dence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Com- pany's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor's report to the related disclosures in the annual finan- cial statements and in the management report or, if such disclo- sures are inadequate, to modify our respective opinions. Our con- clusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to be able to continue as a going concern. − Evaluate the overall presentation, structure and content of the annual financial statements, including the disclosures, and whether the annual financial statements present the underlying transactions and events in a manner that the annual financial statements give a true and fair view of the assets, liabilities, finan- cial position and financial performance of the Company in com- pliance with German Legally Required Accounting Principles. − Evaluate the consistency of the management report with the annual financial statements, its conformity with [German] law, and the view of the Company's position it provides. − Perform audit procedures on the prospective information pre- sented by management in the management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by management as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a state- ment that we have complied with the relevant independence re- quirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independ- ence, and where applicable, the related safeguards. From the matters communicated with those charged with gov- ernance, we determine those matters that were of most significance in the audit of the annual financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclo- sure about the matter. 88 Annual Report 2017 – Allianz SE Allianz SE – Königinstrasse 28 – 80802 Munich – Germany – Phone + 49 89 3800 0 – info@allianz.com – www.allianz.com Front page design: hw.design GmbH – Typesetting: Produced in-house with firesys Annual Report on the internet: www.allianz.com/annualreport – Date of publication: 9 March 2018 This is a translation of the German Annual Report of Allianz SE. In case of any divergences, the German original is legally binding. 

Continue reading text version or see original annual report in PDF format above