Allianz SE
Annual Report 2018

Plain-text annual report

OUTPERFORM TRANSFORM REBALANCE ANNUAL REPORT 2018 ALLIANZ SE 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 – 58 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 30 Corporate Governance Report (not part of the audit) 35 Statement on Corporate Management pursuant to § 289f of the HGB 38 Remuneration Report 55 Other Information C _ Financial Statements of Allianz SE Pages 59 – 88 FINANCIAL STATEMENTS 60 Balance Sheets 62 Income Statement NOTES TO THE FINANCIAL STATEMENTS 63 Nature of Operations and Basis of Preparation 63 Accounting, Valuation and Calculation Methods 66 Supplementary Information on Assets 69 Supplementary Information on Equity and Liabilities 76 Supplementary Information on the Income Statement 79 Other Information 82 List of Participations of Allianz SE, Munich as of 31 December 2018 according to § 285 No. 11 and 11b HGB in conjunction with § 286 (3) No. 1 HGB D _ Further Information 90 Responsibility Statement 91 Independent Auditor's Report Pages 89 – 94 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 2018 – Allianz SE 1 Repor t A _ To our Investors SUPERVISORY BOARD REPORT Ladies and Gentlemen, During the financial year 2018, the Supervisory Board fulfilled all its duties and obligations as laid out in the company statutes and applicable law. It monitored the activities of the company’s Board of Management and advised it on business management issues. OVERVIEW In the financial year 2018, the Supervisory Board held six meetings and adopted two written resolutions. The regular meetings took place in February, March, May, August, October, and December. In all of the Supervisory Board’s 2018 meetings, the Board of Management reported on Group revenues and results as well as developments in individual business segments. The Board of Management informed the Supervisory Board on the course of business as well as on the development of Allianz SE and the Allianz Group, including deviations in actual business developments from the planning. In this context, the adequacy of capital- ization, the solvency ratio, and the respective stress scenarios were discussed. The annual Allianz SE and the Group’s consolidated financial statements including the respective auditor‘s reports, the half-yearly as well as the quarterly reports were reviewed in detail by the Supervisory Board and the Audit Committee. Further key reporting topics were strategic issues, such as the status of implementation of the Renewal Agenda and the following strategic course for 2019-2021, as laid down in the Renewal Agenda 2.0. In addition, the Supervisory Board thoroughly reviewed the Board of Management’s planning for the financial year 2019 as well as for the three-year period from 2019 to 2021. Cyber risk security was another regular topic of discussion. In addition, the Supervisory Board thoroughly dealt with the new remuneration system for the Board of Management introduced in 2019, personnel matters related to the Board of Management as well as with the findings of the review of the efficiency of the Supervisory Board, which was carried out with the support of an external advisor. The Supervisory Board received regular, timely, and comprehensive reports from the Board of Management. The Board of Management’s verbal reports at the meetings were accompanied by written documents, which were sent to each member of the Supervisory Board in time for the relevant meeting. The Board of Management also informed the Supervisory Board 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 Management about their respective half-year as well as full-year performance. Details on each member’s participation in meetings of the Supervisory Board and its committees can be found in the Corporate Governance Report, starting on page 30. Members of the Supervisory Board who were unable to attend meetings of the Supervisory Board or its committees were excused and, as a rule, cast their votes in writing. ISSUES DISCUSSED IN THE SUPERVISORY BOARD PLENARY SESSIONS In the meeting of 15 February 2018, the Supervisory Board comprehensively dealt with the preliminary financial figures for the financial year 2017 as well as the Board of Management’s dividend proposal. The appointed audit firm, KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG), Munich, reported in detail on the preliminary results of their audit. In the further course of the meeting, the Supervisory Board also discussed the target achievement of each individual member of the Board of Management and, on this basis, set their variable remuneration for the financial year 2017. As part of this performance assessment, the fitness and propriety of the members of the Board of Management were also confirmed. In addition, various other issues were dealt with, such as the impact of storm Friederike in Germany, internal reinsurance provided by Allianz Re, ongoing M&A activities, the status of the Euler-Hermes transaction, and the status of preparations for Brexit. The Supervisory Board further reviewed the adequacy of Supervisory Board remuneration and possible needs for adjustment. 2 Annual Report 2018 – Allianz SE A _ To our Investors In the meeting of 8 March 2018, the Supervisory Board discussed the audited annual Allianz SE and consolidated financial statements including market value balance sheets, as well as the Board of Management’s recommendation for the appropriation of earnings for the financial year 2017. The auditors confirmed that there were no discrepancies compared to their February report, and issued an unqualified auditor’s report for the individual and consolidated financial statements. The Supervisory Board also reviewed and approved the separate non-financial report for both Allianz SE and the Group, taking into account the report of the external auditor. Further presentations concerned the Board of Management’s report on risk development in 2017, the annual compliance report, and the annual report of the Head of Group Audit. Next, the Supervisory Board reviewed the agenda and proposals for resolution for Allianz SE’s 2018 Annual General Meeting (AGM). At the recommendation of the Audit Committee, the Supervisory Board appointed PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (PwC) as auditor for the 2018 individual and consolidated financial statements, the auditor’s review of the 2018 half-yearly financial report, and the assurance engagement of the combined separate non-financial report. In addition, the Supervisory Board received reports on the implementation status of the Renewal Agenda as well as on current developments in the individual business segments. The Supervisory Board comprehensively dealt with the appointment of Mr. Iván de la Sota to the Board of Management with responsibility for the newly created Transformation and Innovation division as of 1 April 2018. On 9 May 2018, just before the AGM, the Board of Management briefed the Supervisory Board on business performance in the first quarter of 2018 as well as on the current situation of both the Allianz Group and Allianz SE, in particular with regard to share price development, capitalization, and capital management. In addition, the latest developments in China and the resulting opportunities for Allianz were discussed. Mr. Jean-Jacques Cette’s term as employee representative on the Supervisory Board ended on 31 July 2018. Mr. Jean-Claude Le Goaër replaced Mr. Cette as elected employee representative on the Supervisory Board with effect from 1 August 2018. In June 2018 Mr. Le Goaër was elected to the Audit Committee in a written procedure with effect from 1 August 2018. In a conference call on 29 June 2018, the Supervisory Board discussed the Board of Management’s considerations for a potential further share buy-back program. At the meeting of 2 August 2018, the Board of Management reported in detail on half-yearly results as well as on the current developments of Allianz in China, including the regulatory approval of Allianz's property & casualty insurance joint venture with JD.com and current plans for an initial approval of a foreign holding company in China. Next, the Board of Management gave the first part of its presentation on the future strategy of Allianz. After taking stock of the results of the Renewal Agenda that had been launched in 2015, the presentation addressed relevant external trends and the ongoing changes in the significance of geographical regions and markets, along with the challenges that might result for Allianz. In addition, the Board of Management provided its regular status report on cyber risk security. Furthermore, the Supervisory Board very thoroughly reviewed the ongoing considerations on a possible adjustment of the Board of Management’s remuneration as well as the time plan for a proposal on a new remuneration system. Last but not least, due to Mr. Cette and Mr. Zimmermann leaving the Supervisory Board (effective 31 August 2018), a new composition for the Supervisory Board's committees was required. Effective 1 September 2018, the Supervisory Board decided on the new composition of the committees and elected Ms. Burkhardt-Berg as deputy chairwoman of the Supervisory Board. At the meeting of 12 October 2018, the presentation on the future strategy of the Allianz Group and Allianz SE (solo) was continued. After outlining on future key value drivers and Allianz’s intended position in the digital arena, the presentation addressed possible approaches to implementing these strategic goals in the context of the Renewal Agenda 2.0. As part of its report on business developments, the Board of Management also addressed the consequences of the collapse of a bridge in Genoa, Italy, the conclusion of an exclusive long-term partnership agreement with the International Olympic Committee (IOC) as well as the current investigation into the financial sector carried out by the Royal Commission in Australia. Next, the Supervisory Board adopted the finalized proposal for a new remuneration system for the Board of Management. For more details, please refer page 38. The Supervisory Board resolved a 5-year extension of to the Remuneration Report starting on Mr. Oliver Bäte’s term as CEO of Allianz SE. Following the meeting, the Supervisory Board approved in a written procedure the conclusion of a new Board of Management contract with Mr. Bäte in November 2018. Annual Report 2018 – Allianz SE 3 A _ To our Investors At the meeting on 12 December 2018, the Board of Management reported on the third-quarter financial results, the further course of the business, and the Allianz Group’s general situation. The Supervisory Board also reviewed the planning for both the financial year 2019 and the three-year period from 2019 to 2021, as well as specifically for IT-related investments. Next, the Board of Management gave a status report on cyber risk security. The Super- visory Board then dealt with the declaration of conformity with the German Corporate Governance Code, set targets for the 2019 variable remuneration of the members of the Board of Management, and discussed the succession planning for the Board of Management. Last but not least, the Supervisory Board dealt with the findings of a review on the Supervisory Board’s efficiency, which was carried out with external advisor support. DECLARATION OF CONFORMITY WITH THE GERMAN CORPORATE GOVERNANCE CODE On 12 December 2018, the Board of Management and the Supervisory Board issued the Declaration of Conformity in accordance with § 161 of the German Stock Corporation Act (“Aktiengesetz”). The declaration was posted on the company website, where it is available to shareholders at all times. Allianz SE fully complies and will continue to fully comply with the recommendations of the German Corporate Governance Code in its version of 7 February 2017. Further explanations on corporate governance in the Allianz Group can be found in the Corporate Governance page 30, as well as in the Statement on Corporate Management pursuant to § 289f of the Report starting on HGB, which starts on page 35. More details on corporate governance are provided on the Allianz website, specifically:   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 consultations in plenary sessions as well as the adoption of resolutions; they can also adopt their own resolutions. In 2018, the Standing Committee held five meetings. It primarily dealt with issues of corporate governance, the preparations for the AGM, the employee stock purchase program, the Supervisory Board’s self-assessment as required under the regulatory regime, and the review of the Supervisory Board's efficiency conducted by an external advisor. In addition, the Standing Committee dealt with the appropriateness of the remuneration of the Supervisory Board and the need for adjustment. The Personnel Committee held six meetings in 2018 and adopted two written resolutions. The committee worked on the creation and set-up of, and proposed appointment to, a tenth Board of Management division. Other key topics included the preparatory review and revision of the Board of Management’s remuneration system, target achievement of the Board of Management members in the financial year 2017, and defining the targets for the 2019 variable remuneration. The committee also looked at various mandate matters of individual board members and at the succession planning for the Board of Management. The Audit Committee held five regular meetings in 2018 and adopted one written resolution. In the presence of the auditors, the committee discussed both Allianz SE’s annual financial statements and the Allianz Group’s consolidated financial statements, as well as the management and auditor’s reports and the half-yearly finan- cial report. These reviews revealed no reasons for objection. The Audit Committee further received the Board of Management’s reports on quarterly results. It prepared the engagement of the external advisor and defined key audit areas for the 2018 financial year. The committee also discussed the assignments of non-audit services to the auditors and approved an updated appropriate positive list of pre-authorized audit and non-audit services. 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 received regular reports on legal and compliance issues and on the work of the Internal Audit department, as well as the annual report of the head of the actuarial department (Group Actuarial, Planning & Controlling). Furthermore, the committee dealt with the it thoroughly addressed the findings of a BaFin review and the review of the implementation of Solvency II governance requirements in the Allianz Group. The written resolution mentioned above approved the auditor’s engagement to perform non-audit services at Group companies abroad. Internal Audit function’s audit plan for 2019. Last but not least, 4 Annual Report 2018 – Allianz SE A _ To our Investors The Risk Committee held two meetings in 2018. In both meetings, the committee 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 in the annual Allianz SE and consolidated financial statements as well as management and group management reports were reviewed with the auditor and the Audit Committee was informed of the result. The appropriateness of the early risk recognition system at Allianz and the result of further, voluntary risk assessments by the auditor were also discussed. The committee took a detailed look at the risk strategy and capital management, as well as the effectiveness of the risk management system for the Allianz Group and Allianz SE. Other matters considered included the risk strategy pursued by both Allianz SE and the Allianz Group, the report on Allianz’s own risk and solvency assessment (ORSA), and the planned changes to the internal Solvency II model. Moreover, the Risk Committee dealt with the company’s exposure to cyber risks, the specific risks of the cyber insurance industry, and political risks. The Technology Committee held two meetings in the 2018 financial year, in which it extensively discussed IT transformation and the IT harmonization across the Allianz Group. Both meetings also dealt with recent technological developments, such as block chain and open-platform solutions, and the resulting opportunities for Allianz. Another key topic in both meetings was IT security. The Nomination Committee had no reason to convene a meeting in the financial year 2018. The Supervisory Board was informed regularly and comprehensively of the committees’ work. CHAIR AND COMMITTEES OF THE SUPERVISORY BOARD – AS OF 31 DECEMBER 2018 Chairman: Michael Diekmann Vice Chairwoman/ Chairman: Gabriele Burkhardt-Berg, Jim Hagemann Snabe Standing Committee: Michael Diekmann (Chairman), Jean-Claude Le Goaër, Herbert Hainer, Jürgen Lawrenz, Jim Hagemann Snabe Personnel Committee: Michael Diekmann (Chairman), Gabriele Burkhardt-Berg, Herbert Hainer Audit Committee: Dr. Friedrich Eichiner (Chairman), Sophie Boissard, Michael Diekmann, Jean-Claude Le Goaër, Martina Grundler Risk Committee: Michael Diekmann (Chairman), Christine Bosse, Dr. Friedrich Eichiner, Godfrey Hayward, Frank Kirsch Technology Committee: Jim Hagemann Snabe (Chairman), Gabriele Burkhardt-Berg, Michael Diekmann, Dr. Friedrich Eichiner, Jürgen Lawrenz 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 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (PwC) as statutory auditor for the annual Allianz SE and consolidated financial statements, as well as for the review of the half-yearly financial report of the financial year 2018. PwC audited the financial statements of Allianz SE and the Allianz Group as well as the respective management reports. They issued an auditor’s report without any reservations. The consolidated financial statements were prepared on the basis of the International Financial Reporting Standards (IFRS), as adopted in the European Union. PwC performed a review of the half- yearly financial report. In addition, PwC was also mandated to perform an audit of the market value balance sheet according to Solvency II as of 31 December 2018, 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 PwC on schedule. The preliminary financial statements and PwC’s preliminary audit results were discussed in the Audit Committee on 13 February 2019 as well as in the Supervisory Board’s ple- nary session on 14 February 2019. The finalized financial statements and PwC’s audit reports (dated 25 February 2019) were reviewed by the Audit Committee on 6 March 2019, and in the Supervisory Board plenary session on 7 March 2019. The auditors participated in the discussions and presented key results from their audit. Particular emphasis was placed on the key audit matters described in the auditor’s report and on the audit procedures performed. No material weaknesses in the internal financial reporting control process were discovered. There were no circumstances that might give cause for concern about the auditor’s independence. In addition, the market value balance sheets dated 31 December 2018 for both Allianz SE and the Annual Report 2018 – Allianz SE 5 A _ To our Investors Allianz Group as of 31 December 2018, as well as the respective PwC reports were addressed by the Audit Committee and the Supervisory Board. On the basis of its own reviews of the annual Allianz SE and consolidated financial statements, the management and group management reports, and the recommendation for the appropriation of earnings, the Supervisory Board has raised no objections and instead agreed with the results of the PwC audit. It has also approved the Allianz SE and consolidated financial statements prepared by the Board of Management. The financial statements have thus been formally adopted. The Supervisory Board agrees 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. ASSURANCE ENGAGEMENT OF THE COMBINED SEPARATE NON-FINANCIAL REPORT In the financial year 2018, 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 an assurance engagement of this report. All Supervisory Board members received the combined separate non- financial report and the independent practitioner’s 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 7 March 2019. 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 Supervisory Board did not raise any objections and approved by acknowledgement the results of the PwC assurance engagement. MEMBERS OF THE SUPERVISORY BOARD AND BOARD OF MANAGEMENT Mr. Jean-Jacques Cette's membership in the Supervisory Board ended on 31 July 2018. Mr. Jean-Claude Le Goaër replaced Mr. Cette in his function as elected employee representative with effect from 1 August 2018. Mr. Rolf Zimmermann, vice chairman of the Supervisory Board and employee representative, left the Supervisory Board on 31 August 2018. The employee representative Mr. Frank Kirsch was appointed as successor, effective 1 September 2018. The Supervisory Board expressed its sincere thanks to all leaving members for their many years of active service to Allianz, as well as their dedicated contributions to the Supervisory Board. The 2018 financial year also saw personnel changes within Allianz SE’s Board of Management. Effective 1 January 2018, Mr. Niran Peiris and Mr. Giulio Terzariol were appointed to the Board of Management as successors to Dr. Dieter Wemmer and Dr. Werner Zedelius; their respective membership in the Board of Management ended as of 31 December 2017. For the new and additionally created Board of Management division Business Transformation and Innovation, Mr. Iván de la Sota has been appointed to the Board of Management effective 1 April 2018. Munich, 7 March 2019 For the Supervisory Board: Michael Diekmann Chairman 6 Annual Report 2018 – Allianz SE A _ To our Investors MARTINA GRUNDLER National Representative Insurances, ver.di Berlin HERBERT HAINER 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) until 3 October 2018 GODFREY ROBERT HAYWARD Employee of Allianz Insurance plc FRANK KIRSCH since 1 September 2018 Employee of Allianz Beratungs- und Vertriebs-AG Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Deutschland AG JÜRGEN LAWRENZ Employee of Allianz Technology SE Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Technology SE MANDATES OF THE MEMBERS OF THE SUPERVISORY BOARD MICHAEL DIEKMANN 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 Siemens AG JIM HAGEMANN SNABE Vice Chairman Member of various Supervisory Boards Membership in other statutory supervisory boards and SE administrative boards in Germany Siemens AG (Chairman since 31 January 2018) Membership in comparable1 supervisory bodies A.P. Møller-Mærsk A/S (Chairman) ROLF ZIMMERMANN until 31 August 2018 Vice Chairman Chairman of the (European) SE Works Council of Allianz SE GABRIELE BURKHARDT-BERG Vice Chairwoman since 1 September 2018 Chairwoman of the Group Works Council of Allianz SE Membership in other statutory supervisory boards and SE administrative boards in Germany Allianz Deutschland AG until 2 March 2018 SOPHIE BOISSARD 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 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 until 14 May 2018 JEAN-JACQUES CETTE until 31 July 2018 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 JEAN-CLAUDE LE GOAËR since 1 August 2018 Employee of Allianz Informatique G.I.E. Membership in comparable1 supervisory bodies Membership in Group bodies Allianz France S.A. 1_Generally, we regard memberships in other supervisory bodies as “comparable” if the company is listed on a stock exchange or has more than 500 employees. Annual Report 2018 – Allianz SE 7 A _ To our Investors MANDATES OF THE MEMBERS OF THE BOARD OF MANAGEMENT OLIVER BÄTE Chairman of the Board of Management Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Deutschland AG SERGIO BALBINOT Insurance Western & Southern Europe, Asia Pacific Membership in comparable1 supervisory bodies UniCredit S.p.A. Bajaj Allianz General Insurance Co. Ltd. Bajaj Allianz Life Insurance Co. Ltd. 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 Legal, Compliance, Mergers & Acquisitions Human Resources since 1 April 2018 Insurance Iberia & Latin America until 31 March 2018 Membership in other statutory supervisory boards and SE administrative boards in Germany Deutsche Telekom AG Membership in Group bodies Allianz Beratungs- und Vertriebs-AG since 13 March 2018 Allianz Deutschland AG Allianz Global Corporate & Specialty SE Allianz Private Krankenversicherungs-AG since 12 March 2018 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. GÜNTHER THALLINGER Investment Management Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Investment Management SE (Chairman) Allianz Lebensversicherungs-AG Allianz Private Krankenversicherungs-AG since 12 March 2018 Allianz Versicherungs-AG since 12 March 2018 Membership in comparable1 supervisory bodies Membership in Group bodies Allianz S.p.A until 21 November 2018 DR. AXEL THEIS Insurance German Speaking Countries and Central & Eastern Europe Membership in other statutory supervisory boards and SE administrative boards in Germany Gemeinnützige ProCurand GmbH (Chairman) Membership in Group bodies Allianz Deutschland AG (Chairman) Allianz Investment Management SE Allianz Global Corporate & Specialty SE (Chairman) until 8 April 2018 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 Euler Hermes Group S.A. (Chairman) until 4 May 2018 DR. CHRISTOF MASCHER Operations, Allianz Partners until 31 March 2018 Membership in other statutory supervisory boards and SE administrative boards in Germany Volkswagen Autoversicherung AG Membership in Group bodies Allianz Technology SE (Chairman) Membership in comparable1 supervisory bodies Membership in Group bodies Allianz Partners S.A.S. NIRAN PEIRIS Global Insurance Lines & Anglo Markets, Reinsurance, Middle East, Africa Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Global Corporate & Specialty SE (Chairman) since 9 April 2018 Membership in comparable1 supervisory bodies Membership in Group bodies Allianz Australia Ltd. Allianz p.l.c. IVÁN DE LA SOTA since 1 April 2018 Business Transformation, Insurance Iberia & Latin America, Allianz Partners Membership in comparable1 supervisory bodies Membership in Group bodies Allianz Compañía de Seguros y Reaseguros S.A., Spain Allianz Partners S.A.S. since 16 May 2018 (Chairman since 19 October 2018) Allianz Seguros S.A., Brazil Allianz Seguros S.A., Colombia until 1 November 2018 Companhia de Seguros Allianz Portugal S.A. GIULIO TERZARIOL Finance, Controlling, Risk 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 2018 – Allianz SE MANAGEMENT REPORT OF ALLIANZ SE B Annual Report 2018 – 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 2018 2017 10,912 10,265 Change 647 10,047 (6,946) (3,018) 45 128 160 289 5,933 (20) (1,358) 4,555 4,843 512 5,355 9,433 (6,262) (2,884) 52 339 (226) 113 3,713 (22) (267) 3,423 3,537 135 3,671 613 (684) (134) (6) (211) 386 175 2,220 2 (1,090) 1,131 1,307 377 1,684 NET UNDERWRITING RESULT Gross premiums written increased by 6.3 % to € 10,912 mn (2017: € 10,265 mn), mainly driven by higher premium volume from Allianz Benelux S.A. and Allianz Versicherungs-AG. In total, € 10,514 mn (2017: € 9,858 mn) of gross premiums came from Property-Casualty reinsurance and € 398 mn (2017: € 407 mn) from Life/Health rein- surance. The net retention ratio decreased slightly to 92.3 % (2017: 92.4 %). Premiums earned (net) increased by € 613 mn to € 10,047 mn (2017: € 9,433 mn), mainly driven by the development of gross premiums written. The accident year loss ratio (net) in Property-Casualty reinsurance rose to 71.5 % (2017: 69.6 %), driven by the increase in natural catas- trophe losses to € 343 mn (2017: € 153 mn)1, mainly as Allianz SE did not receive retro compensation for natural catastrophe events in 2018 (2017: € 172 mn). Natural catastrophes before retrocessions € mn Losses for Allianz SE Major Events in 2018 Storm Friederike, Germany Hailstorm in Australia Typhoon Jebi, Japan Storm Yvonne, Germany Storm Eleanor (Burglind), Western Europe Rain and Storm, Italy Storm Fabienne, Western Europe Storm Wilma, Germany Earthquake and Tsunami, Indonesia Storm, France Other Total 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 114 56 52 20 16 14 13 12 11 9 25 343 Losses for Allianz SE 46 36 33 32 26 20 20 18 17 15 14 12 11 25 325 The positive run-off result decreased to € 276 mn (2017: € 343 mn) and was mainly influenced by the development of fire reinsurance (€ 194 mn), credit and bond insurance (€ 115 mn) and marine and aviation reinsurance (€ 51 mn), partly offset by liability reinsurance (€ (90) mn). In total, there was an increase of the loss ratio (net) in Property-Casualty reinsurance to 68.7 % (2017: 65.8 %). The expense ratio (net) in Property-Casualty reinsurance de- creased to 30.0 % (2017: 30.7 %), driven by a lower commission ratio of 29.0 % (2017: 29.8 %). The administrative expense ratio slightly increased to 1.0 % (2017: 0.9 %). Driven by the negative development of the calendar year loss ratio in Property-Casualty reinsurance in 2018, the net underwriting result declined to € 128 mn (2017: € 339 mn). 1_Based on Group definition for large losses. 10 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE Realized gains declined by € 534 mn to € 119 mn after significant one-off gains in 2017, resulting from the termination of intra-group loans (€ 389 mn). Realized gains in 2018 mainly resulted from the sale of bonds, which decreased by € 98 mn to € 112 mn, contributing to the overall decrease. Income from reversal of impairments rose by € 137 mn to € 147 mn, stemming from write-ups related to shares in affiliated enterprises (€ 115 mn) and to our bond portfolio (€ 32 mn). Expenses for the management of investments, interest and other investment-related expenses were reduced by € 21 mn to € 1,072 mn. This reduction is fully attributable to investment management expenses while interest expense remained stable at € 1,001 mn. Depreciation and impairments of investments decreased by € 89 mn to € 178 mn. Much of the impairments in 2018 was related to our bond portfolio (€ 160 mn). Realized losses slightly declined by € 11 mn to € 120 mn, mainly resulting from the sale of bonds (€ 113 mn). Expenses for losses taken over went down by € 168 mn to € 277 mn. This was primarily due to lower losses taken over from our service provider Allianz Technology SE, which decreased by € 166 mn to € 276 mn. OTHER NON-TECHNICAL RESULT The other non-technical result deteriorated significantly by € 1,090 mn to € (1,358) mn. This development was primarily driven by the foreign currency translation result, which deteriorated by € 866 mn. 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 company (“Organträger”) of the German tax group most German subsidiaries 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 € (130) mn (2017: € (393) mn). Moreover, Allianz SE received a tax allocation of € 635 mn (2017: € 515 mn) by Allianz SE tax group companies that recorded taxable income. Taking into account other taxes, the income from taxes amounted to € 512 mn (2017: € 135 mn). The net income rose substantially by € 1,684 mn to € 5,355 mn (2017: € 3,671 mn). NET TECHNICAL RESULT In 2018, a change in claims equalization and similar reserves of € 160 mn (2017: € 226) mn) mainly resulted from other reinsurance lines (€ 203 mn), driven by the claims development in extended household business as well as the premium development for motor warranty business. The net technical result increased to € 289 mn (2017: € 113 mn), driven by the decrease of equalization and similar reserves. 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 2018 2017 Change 2,111 4,587 615 119 147 7,579 3,026 1,099 860 653 10 5,648 (1,072) (1,093) (178) (120) (277) (1,647) 5,933 (267) (131) (445) (1,935) 3,713 (914) 3,488 (245) (534) 137 1,932 21 89 11 168 288 2,220 The investment result increased by € 2,220 mn to € 5,933 mn. Income from profit transfer agreements declined by € 914 mn to € 2,111 mn, primarily due to a lower profit transfer from Allianz Deutschland AG, which went down by € 503 mn to € 920 mn, as well as lower profit transfers from Allianz Argos 14 GmbH and from Allianz Global Corporate & Specialty SE, which decreased by € 296 mn to € 604 mn and by € 241 mn to € 90 mn. This was partly offset by a higher profit transfer from Allianz Asset Management GmbH, which rose by € 119 mn to € 475 mn. Income from affiliated enterprises and participations grew sig- nificantly by € 3,488 mn to € 4,587 mn, mainly because the dividend payments received from our subsidiary Allianz Europe B.V. increased by € 3,500 mn to € 4,100 mn in 2018. Income from other investments decreased by € 245 mn to € 615 mn, predominantly driven by lower income from intra-group loans, which declined by € 235 mn to € 151 mn. Further, interest income from bonds went down by € 20 mn to € 295 mn. Annual Report 2018 – Allianz SE 11 B _ Management Report of Allianz SE Economic outlook12 As we move into 2019, prospects for the world economy remain favorable overall. Nevertheless, political and economic risks remain sizable, in particular in relation to the trade dispute with the United States and Brexit. In our economic scenario we have penciled in positive outcomes for most political and policy-related risks. The U.S. economy is expected to grow by 2.5 %. In the Eurozone, growth is likely to slow to about 1.6 % in 2019. Most major Eurozone member countries are likely to experience somewhat lower growth than in like Germany, fiscal policy will be growth- 2018. In countries less dynamic economic development supportive. Driven by a in China, growth in the emerging market world will slow to 4.5 % from 4.7 % in 2018. All in all, global output is expected to increase by 3.0 % in 2019. The uncertain global political environment bears the potential for higher financial-market volatility, especially as monetary policy is gradually becoming less expansionary. In the U.S., the Federal Reserve is getting closer to the peak in the current rate hiking cycle. One rate hike in the course of 2019 looks realistic. In the Eurozone, the European Central Bank is expected to start raising rates in autumn 2019. Modestly rising yields on 10-year U.S. government bonds and the prospects of the ECB starting to hike its key interest rates are likely to influence investors´ interest rate expectations and exert upward pressure on European benchmark bond yields. For 10-year German government bonds, we see yields climbing modestly to about 0.7 % in the course of 2019; yields on 10-year U.S. govern- ment bonds may end the year at slightly above 3 %. Insurance industry outlook 2019 is expected to become another challenging year for the insur- ance industry, for many reasons. First, the global economic momen- tum will be weaker. Second, risks – notably cyber and climate change – might easily increase. Third, old business models will be relentlessly re-engineered from the customers’ perspective; for that, new skills – data analytics and AI – are key. Fourth, political risks remain elevated, and the fractures of the old world order may become irreconcilable. Fifth, financial markets are in for a turbulent year as support from central banks is gradually withdrawn while economic uncertainty is on the rise. Nonetheless, absent an unexpected big shock, global insurance markets should grow also in 2019, the tenth consecutive year of growth since the financial crisis. In the non-life sector, a slight premium growth slowdown is expected, against the backdrop of cooling economies. As in previous years, emerging markets are the main driver of growth. Overall, we expect global premium growth of around 5 % in 2019 (in nominal terms and adjusted for foreign currency translation effects). As cata strophe losses may continue to be elevated and investment income to be impacted by volatile markets and still low yields, overall profit- ability is likely to remain under pressure. 1_The information presented in the sections “Economic outlook” and “Insurance industry outlook” is based on our own In the life sector, premium growth is expected to accelerate. The main reason: a rebound in China where the regulatory shock of 2018 is seen as a one-off effect. As a consequence, emerging markets are likely to return to double-digit growth. On the other hand, premium growth in advanced economies should remain more or less stable, albeit at a much lower level. Overall, we expect global premium growth to increase by about 5 % to 6 % in 2019 (in nominal terms and adjusted for foreign currency translation effects). Given the continued revamping of insurance and investment portfolios, global industry profitability could creep up, although the investment environment remains challenging. Business outlook Our outlook assumes no significant deviations from our underlying assumptions – specifically: − global economic growth to continue, albeit at a slower pace, − modest rise in interest rates, − no major disruptions in the 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: 1.17. 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 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 29. After several years of falling rates, the softening reinsurance cycle has stopped for categories which have suffered substantial losses or where performance was worsening, mainly catastrophe covers impacted by natural catastrophes in the last years. Despite natural catastrophe losses in 2018, reinsurance capacity remains abundant. For that reason, we expect prices to stay flat or slightly lower for claim free programs. estimates. 12 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE Allianz SE’s technical result largely depends on group-internal cessions resulting from 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 reserve in 2019. Based on our estimates, we expect an improved combined ratio for the property and casualty reinsurance in 2019. It should be noted that the actual result may vary significantly as the reinsurance business is, by nature, volatile in terms of frequency and severity of losses. For 2019, 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 slightly lower investment result. However, as things stand, this decrease is set to be more than offset by an increase of the other non-technical result. We are not currently planning a specific currency rate result, nor are we able to anticipate any net gains/losses from derivatives. This could considerably impact the net income of Allianz SE. Given the suscepti- bility of our non-technical result to adverse capital market develop- ments, we do not provide a precise outlook for net income. Neverthe- less, 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 use of the dividends of our subsidiaries, in particular those of Allianz Europe B.V., in order to generate net earnings for Allianz SE that match the dividend policy of Allianz Group. For more detailed information on our dividend the Allianz Group’s Annual Report 2018 and policy, see www.allianz.com/dividend. Management’s overall assessment of the current economic situation of Allianz SE Overall, at the date of issuance of this Annual Report and given current information regarding natural catastrophes and capital market trends – in particular foreign currencies, 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 This document includes forward-looking statements, such as prospects or expectations, that are based on management's current views and assumptions and subject to known and unknown risks and uncertainties. Actual results, performance figures, or events may differ significantly from those expressed or implied in such forward-looking statements. Deviations may arise due to changes in factors including, but not limited to, the following: (i) the general economic and competitive situation in the Allianz Group's core business and core markets, (ii) the performance of financial markets (in particular market volatility, liquidity, and credit events), (iii) the frequency and severity of insured loss events, including those resulting from natural catastrophes, and the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) particularly in the banking business, the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates, most notably the EUR/USD exchange rate, (ix) changes in laws and regulations, including tax regulations, (x) the impact of acquisitions including and related integration issues and reorganization measures, and (xi) the general competitive conditions that, in each individual case, apply at a local, regional, national, and/or global level. Many of these changes can be exacerbated by terrorist activities. No duty to update The Allianz Group assumes no obligation to update any information or forward-looking statement contained herein, save for any information we are required to disclose by law. Annual Report 2018 – Allianz SE 13 B _ Management Report of Allianz SE OPERATIONS BY REINSURANCE LINES OF BUSINESS Gross premiums written increased by 6.3 % to € 10,912 mn (2017: € 10,265 mn). All in all, 91.5 % (2017: 91.9 %) 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 2018 € mn 4,200 2,885 947 695 402 180 662 2017 € mn 3,780 2,687 865 680 412 160 569 1,269 1,206 408 382 312 287 258 111 799 445 365 297 302 245 105 832 10,912 10,265 Change %1 11.1 7.4 9.4 2.2 (2.5) 12.8 16.2 5.2 (8.4) 4.7 5.1 (5.0) 5.3 4.8 (3.9) 6.3 2018 % 102.0 97.6 93.4 86.4 86.3 85.3 128.5 102.8 61.9 79.6 93.6 n/a 97.9 n/a 104.1 98.7 2017 % 104.4 89.7 96.1 94.2 63.7 99.0 92.7 93.5 96.7 77.7 94.1 n/a 91.4 n/a 96.4 96.6 2018 € mn (72) (23) - (23) - - - 22 36 - (4) - (2) - 2017 € mn 26 (11) - (11) - - - (48) (53) (1) (8) - (20) - 203 160 (111) (226) 2018 € mn (176) 37 62 51 53 25 (154) (12) 150 79 15 26 3 (2) 171 289 2017 € mn (151) 243 33 22 145 1 42 33 (43) 77 7 31 1 (1) (84) 113 Motor Fire and property reinsurance thereof: Household and homeowner Fire Engineering Business interruption Other property reinsurance Liability Credit and bond Personal accident Marine and aviation Life Legal expenses Health Other lines Total 1_For lines of business on the basis of the accurate, non-rounded amount. Premiums written in motor reinsurance increased by 11.1 % to € 4,200 mn (2017: € 3,780 mn), mainly driven by higher premium volume from Allianz Benelux S.A. The combined ratio decreased to 102.0 % (2017: 104.4 %), mainly due to an improved accident year claims ratio of 74.7 % (2017: 77.8 %), partly offset by an increase in the expense ratio to 26.7 % (2017: 26.3 %). A strengthening of the equali- zation reserve by € 72 mn (2017: release of € 26 mn) led to a net technical result of € (176) mn (2017: € (151) mn). The household and homeowner reinsurance portfolio increased by 9.4 %, with gross premiums written of € 947 mn (2017: € 865 mn) mainly coming from the business with Allianz Versicherungs-AG. The combined ratio improved to 93.4 % (2017: 96.1 %), driven by a decline in the accident year claims ratio to 63.9 % (2017: 65.2 %) as well as in the expense ratio to 29.5 % (2017: 30.4 %). The net technical result increased to € 62 mn (2017: € 33 mn). The fire reinsurance portfolio increased by 2.2 % to € 695 mn (2017: € 680 mn) in gross premiums written, driven by internal business. The combined ratio improved to 86.4 % (2017: 94.2 %), driven by a decrease of the calendar year claims ratio to 63.3 % (2017: 67.1 %) due to a higher run-off result of € 194 mn (2017: € 122 mn) as well as a lower expense ratio of 23.1 % (2017: 27.1 %). After a further strength- ening of the equalization reserve of € 23 mn (2017: € 11 mn), a posi- tive net technical result of € 51 mn (2017: € 22 mn) was achieved. 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 rose by 16.2 % to € 662 mn (2017: € 569 mn) due to higher internal business volume. Driven by an increase of the accident year claims ratio to 102.2 % (2017: 65.3 %), the combined ratio deteriorated to 128.5 % (2017: 92.7 %). The net technical result amounted to € (154) mn (2017: € 42 mn). Premiums written for liability reinsurance rose by 5.2 % to € 1,269 mn (2017: € 1,206 mn), all driven by internal business. The combined ratio worsened to 102.8 % (2017: 93.5 %), mainly driven by an increase in calendar year claims ratio due to a higher accident year claims ratio of 61.6 % (2017: 57.0 %) as well as a negative run-off result of € (90) mn (2017: € (44) mn). Despite a release of the equali- zation reserve of € 22 mn (2017: strengthening of € 48 mn), the net technical result amounted to € (12) mn (2017: € 33 mn). Gross premiums written in credit and bond reinsurance de- creased by 8.4 % to € 408 mn (2017: € 445 mn). Driven by a higher run-off result of € 115 mn (2017: € 48 mn) and a lower expense ratio of 39.2 % (2017: 47.0 %), the combined ratio improved to 61.9 % (2017: 96.7 %). A release of the equalization reserve of € 36 mn (2017: strengthening of € 53 mn) led to a positive net technical result of € 150 mn (2017: € (43) mn). Engineering reinsurance premiums written slightly decreased to € 402 mn (2017: € 412 mn). The combined ratio deteriorated to 86.3 % (2017: 63.7 %), mainly driven by a decrease in the run-off result to € 25 mn (2017: € 103 mn). The net technical result declined to € 53 mn (2017: € 145 mn). The gross premium written in marine and aviation reinsurance increased by 5.1 % to € 312 mn (2017: € 297 mn), mainly driven by an increase of premium revenue with Allianz Versicherungs-AG. The combined ratio improved slightly to 93.6 % (2017: 94.1 %), mainly due to a lower expense ratio of 28.9 % (2017: 32.1 %) partly offset by an 14 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE increase in the calendar year claims ratio to 64.6 % (2017: 62.1 %). Despite a further strengthening of the equalization reserve, the net technical result was positive with € 15 mn (2017: € 7 mn). The premium revenue of personal accident insurance rose by 4.7 % to € 382 mn (2017: € 365 mn), driven by business with Allianz Versicherungs-AG. The combined ratio increased to 79.6 % (2017: 77.7 %), mainly due to a higher expense ratio of 35.4 % (2017: 33.9 %). The net technical result rose slightly to € 79 mn (2017: € 77 mn). In life reinsurance, the premium revenue declined to € 287 mn (2017: € 302 mn), mainly driven by Allianz Lebensversicherungs-AG. The expense ratio increased to 31.7 % (2017: 28.6 %). The net technical result declined to € 26 mn (2017: € 31 mn). The premium revenue of legal expenses reinsurance rose by 5.3 % to € 258 mn (2017: € 245 mn), driven by business with Allianz Versicherungs-AG. The combined ratio increased to 97.9 % (2017: 91.4 %) due to an increase in calendar year claims ratio to 61.9 % (2017: 54.4 %), resulting from a lower run-off result of € 8 mn (2017: € 24 mn). After a further strengthening of equalization reserve with an amount of € 2 mn (2017: strengthening of € 20 mn), a net technical result of € 3 mn was achieved (2017: € 1 mn). Other reinsurance lines include: − emergency assistance, − fidelity & political risk, − motor extended warranty, − other property and casualty business. Annual Report 2018 – 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 2018 2017 32 114,351 4,401 511 334 13 30 116,061 5,398 272 307 11 119,642 122,080 41,016 13,750 15,927 8,137 1,701 343 38,761 8 42,014 13,689 14,980 7,950 983 363 42,090 11 Total equity and liabilities 119,642 122,080 Investments € mn as of 31 December Real estate Investments in affiliated enterprises and participations Other investments Funds held by others under reinsurance business assumed 2018 252 76,322 27,886 9,891 2017 245 74,176 33,329 8,310 Total investments 114,351 116,061 The book value of investments in affiliated enterprises and participa- tions increased by € 2.1 bn to € 76.3 bn, driven by a higher book value of shares in affiliated enterprises (€ 2.0 bn). More details regarding this position are explained in note 5 to our financial statements. Other investments significantly decreased from € 33.3 bn to € 27.9 bn, reflecting declines in debt securities (€ 4.4 bn), deposits with banks (€ 0.6 bn), and loans (€ 0.4 bn). At the end of 2018, € 24.0 bn of other investments were invested in debt securities, of which € 8.3 bn were government bonds. We reduced our overall government bond exposure by € 1.3 bn compared to year-end 2017, thereby decreasing our investments in Italian government bonds from € 0.8 bn to € 0.3 bn while increasing our sovereign debt exposure in Spain from € 0.6 bn to € 0.8 bn. Funds held by others under reinsurance business assumed in- creased to € 9.9 bn (2017: € 8.3 bn). This increase reflects the de- velopment of reserves for loss and loss adjustment expenses. As of 31 December 2018, the fair value of investments amounted to € 125.8 bn (2017: € 127.1 bn), compared to a carrying amount of € 114.4 bn (2017: € 116.1 bn). Receivables Receivables decreased from € 5.4 bn to € 4.4 bn, driven by a decline of € 1.1 bn in other receivables, while the accounts receivable on reinsurance business grew slightly by € 0.1 bn. The decrease in other receivables mainly result from lower intra-group receivables of € 1.1 bn. Shareholders’ equity As of 31 December 2018, our shareholders’ equity amounted to € 41.0 bn (2017: € 42.0 bn), a decrease of € 1.0 bn over the course of the financial year. The reduction is caused by a buy-back of own shares at acquisition costs of € 3.0 bn. The shares were cancelled without reduction of the issued capital. This decrease was partly offset by a rise of € 2.0 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. Compared to 2017, net income rose by € 1.7 bn to € 5.4 bn, mainly due to higher dividend payments of Allianz SE’s subsidiaries. Thereof € 1.5 bn were transferred to revenue reserves. The Board of Management proposes to use the net earnings of € 4,544 mn for dividend payments in the amount of € 3,811 mn.1 The unappropriated earnings of € 733 mn will be carried forward. The disclosures concerning the treasury shares as required in our financial statements in accordance with § 160 (1) No. 2 AktG can be found in note 12. 16 Annual Report 2018 – Allianz SE 1_The proposal reflects the number of shares entitled to the dividend as of 31 December 2018. B _ Management Report of Allianz SE Development of shareholders’ equity and of issued shares as of 31 December 2017 Own shares: cancellation Own shares Own shares: realized gains Dividend payment for 2017 Net income Issued shares Issued capital Number 440,249,646 (15,789,985) - - - - € thou 1,169,920 - - - - - Mathematical value of own shares € thou (3,638) - 988 - - - Additional paid-in capital € thou 27,905,257 - - 44,284 - - Revenue reserves € thou 8,825,017 (2,999,999) 30,116 - - 1,500,000 Net earnings 31 December € thou 4,117,339 - - - (3,428,196) 3,855,011 € thou 42,013,894 (2,999,999) 31,104 44,284 (3,428,196) 5,355,011 as of 31 December 2018 424,459,661 1,169,920 (2,651) 27,949,540 7,355,135 4,544,153 41,016,097 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 As of 31 December 2018, Allianz SE had the following outstanding financial liabilities: 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 2018 3,412 10,337 13,750 1,848 2 35,516 1,394 38,761 2017 3,412 10,277 13,689 2,354 - 38,397 1,338 42,090 52,511 55,779 Of these financial liabilities, € 40.8 bn (2017: € 44.2 bn) were intra- group liabilities. Subordinated liabilities remained almost unchanged at € 13.7 bn (2017: € 13.7 bn). Details regarding this position are explained in note 13 to our financial statements. Liabilities from bonds issued to Group companies declined to € 1.8 bn (2017: € 2.4 bn). The redemption of bonds totaling € 1.7 bn was partly compensated for by the issuance of new bonds amounting to € 1.2 bn. Other intra-group financial liabilities decreased to € 35.5 bn (2017: € 38.4 bn) and were composed of the following positions: Other intra-group financial liabilities € mn as of 31 December Intra-group loans Cash pool liabilities Miscellaneous 2018 25,931 8,446 1,140 2017 23,292 13,981 1,124 Other intra-group financial liabilities 35,516 38,397 A significant decline of liabilities from intra-group cash pooling from € 14.0 bn to € 8.4 bn was partly offset by higher liabilities from intra- group loans which increased from € 23.3 bn to € 25.9 bn. In 2018, other third-party financial liabilities amounted to € 1.4 bn (2017: € 1.3 bn). This increase was driven by higher short- term funding through European commercial papers which grew by € 0.1 bn to € 1.0 bn. Annual Report 2018 – 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 share capital base ac- cording to authorizations provided by the AGM. The following table outlines Allianz SE’s capital authorizations as of 31 December 2018: Liquidity Resources and Uses 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. Capital authorizations of Allianz SE Capital authorization Authorized Capital 2018/I1 Authorized Capital 2018/II2 Conditional Capital 2010/20183 Nominal amount € 334,960,000 Expiry date of the authorization 8 May 2023 € 15,000,000 8 May 2023 € 250,000,000 1_For issuance of shares against contribution in cash and/or kind, with the authorization to exclude shareholders’ subscription rights. 2_For issuance of shares to employees with exclusion of shareholders’ subscription rights. 3_To cover convertible bonds, bonds with warrants, convertible participation rights, participation rights, and subordinated financial instruments, each with the authorization to exclude shareholders’ subscription rights. Funding Sources Allianz SE’s access to external funds depends on various factors such as capital market conditions, access to credit facilities, credit ratings and credit capacity. The financial resources available to Allianz SE are both equity and debt funding. Equity can be raised by issuing ordinary no-par value shares. The issuance of debt in various maturities as well as group-wide liquidity management are the main sources of our debt funding. SHARE CAPITAL As of 31 December 2018, the issued share capital registered at the Commercial Register was € 1,169,920,000. This was divided into 424,459,661 registered shares with restricted transferability. As of 31 December 2018, Allianz SE held 961,636 (2017: 1,369,131) own shares. For further details on Allianz SE’s authorized and conditional capital, please refer to note 12 to our financial statements. DEBT FUNDING The cost and availability of debt funding may be negatively affected by general market conditions, or by matters specific to the financial services industry or to Allianz SE. Our main sources of debt funding are senior and subordinated bonds. Among others, money market securities, lines allow letter-of-credit facilities and bank credit Allianz SE to fine-tune its capital structure. In 2018, we did not issue any new subordinated bonds. Subordi- nated liabilities remained stable at € 13.7 bn (2017: € 13.7 bn) at year-end. Other financial liabilities decreased to € 38.8 bn (2017: € 42.1 bn), mainly as a result of lower intra-group liabilities. For further details on Allianz SE’s financial liabilities, please refer to notes 13 and 16 to our financial statements. 18 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE RISK AND OPPORTUNITY REPORT Target and strategy of risk management Allianz SE aims to ensure that the entity is adequately capitalized 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. We closely monitor the capital position and risk concentrations of Allianz SE (solo) and apply regular stress tests (including standardized and historical stress test scenarios). This allows us to take appropriate measures to ensure our continued capital and solvency strength. Furthermore, the risk capital reflecting the risk profile and the cost of capital is an important aspect to be taken into account in business decisions. Risk governance system 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 (solo), 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 support effective capital manage- ment. Integration of risk considerations and capital needs into manage- ment and decision-making processes by attributing risk and allo- cating capital to the business units. − 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. Our Strategy Allianz SE’s main tasks are the ownership of legal entities, in particular subsidiaries, the provision of central financing functions, as well as the offering of reinsurance services to mostly internal but also external counterparties. To this end, Allianz SE’s business strategy is aligned with the strategy of Allianz Group. ALLIANZ GROUP’S BUSINESS ASPIRATIONS The Board of Management of Allianz SE has defined the following objectives for Allianz Group’s medium-term strategy: − Outperform: we seek to move ahead of our competitors, both traditional business and disruptors. − Transform: we seek to become simpler and deeply digital, and to make our business more scalable. − Rebalance: we seek to build dominant positions in large, profitable and fast-growing geographical markets as well as new areas of business. ALLIANZ GROUP’S BUSINESS STRATEGY To implement these strategic objectives, Allianz Group has defined a number of strategic priorities, and is implementing initiatives and programs to address the five dimensions of the Renewal Agenda also for Allianz SE: − True Customer Centricity: design intuitive products and processes to achieve loyalty leadership in our core markets, Our risk management system is based on the following four pillars: − Digital by Default: build legacy-free platforms with core pro- Risk identification and underwriting: A robust system of risk iden- tification and underwriting forms the foundation for adequate risk and management decisions. Supporting activities include standards for underwriting, valuation methods, individual transaction approvals, emerging-/operational-/top-risk assessments, and scenario analyses, among others. Risk strategy and risk appetite: Our risk strategy defines our risk appetite consistently with our business strategy. It ensures that re- wards 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 and risks quickly. For example, risk dashboards and limit consumption reports as well as scenario analyses and stress tests are regularly prepared and communicated. cesses automation, − Technical Excellence: move to data-driven product design, pricing and claims handling, − Growth Engines: systematically exploit new sources for profitable − growth, Inclusive Meritocracy: reinforce a culture where both people and performance matter. The Board of Management of Allianz SE has also defined a strategy for the management of risk. This risk strategy places particular emphasis on protecting the Allianz brand and reputation, remaining solvent even in the event of extreme adverse scenarios, maintaining sufficient liquidity to always meet financial obligations, and providing resilient profitability. OPPORTUNITIES Allianz Group’s and Allianz SE’s financial strength coupled with ongoing transformation makes us resilient and allows us to profit from new opportunities in a fast-changing business environment. Annual Report 2018 – Allianz SE 19 B _ Management Report of Allianz SE For example, by combining profound customer-understanding and evolving data-analytics techniques, Allianz SE provides superior reinsurance products and raises productivity. For further details on opportunities envisaged by Allianz SE, please refer to the section “Business Outlook”. Risk governance structure SUPERVISORY BOARD AND BOARD OF MANAGEMENT Allianz SE’s approach to 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 (solo) and group-wide responsibilities. The Board of Management formulates business objectives and a corresponding risk strategy; the core ele- ments of the risk framework are set out in the Allianz Group Risk Policy approved by the Board of Management, which together with the Allianz SE-specific appendix also serves as the master risk policy for Allianz SE (solo). The Supervisory Board advises, challenges, and supervises the Board of Management in the performance of its risk management 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. Furthermore, it focuses on risk-related developments as well as 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 by monitoring the Allianz Group’s and Allianz SE’s risk profiles as well as the availability of capital. The GFRC also ensures that an adequate relationship between return and risk is maintained. 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 sub-portfolio stra- tegic asset allocations. The GFRC is supported by the Allianz Re Risk Committee on topics relating to the reinsurance business of Allianz SE. OVERALL RISK ORGANIZATION AND ROLES IN RISK MANAGEMENT A comprehensive system of risk governance is achieved by setting standards related to organizational structure, risk strategy and appe- tite, limit systems, documentation, and reporting. These standards ensure the accurate and timely flow of risk-related information and a disciplined approach towards decision-making and execution. As a general principle, the “first line of defense” rests with busi- ness managers in the business units of Allianz SE (solo). They are responsible for both the risks and returns from their decisions. Our “second line of defense” is made up of independent oversight func- tions including Risk, Actuarial, Compliance, and Legal, which support the Board in defining the risk framework within which the business can operate. Audit forms the “third line of defense”, independently and regularly reviewing Allianz SE’s risk governance implementation, compliance with risk principles, performing quality reviews of risk processes, and testing 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 Management Function The functions of Chief Risk Officer for the Allianz Group and for Allianz SE are performed by the same person. Independent risk over- sight for Allianz SE is performed by risk control units within Group Risk and within the reinsurance department of Allianz SE. The risk manage- ment function supports the Board of Management of Allianz SE, including its committees, through the analysis and communication of risk management related information and in implementing commit- tee decisions. The risk management function also supports the Board of Man- agement in developing the risk management framework, which covers risk governance, risk strategy and appetite, and risk monitoring and reporting. The risk management function is operationally responsible for assessing risks and monitoring limits and accumulations of specific risks across business units and business lines, including natural and man- made disasters and exposures to financial markets and counterparties. Other functions and bodies In addition to the risk management function for Allianz SE, Allianz SE’s legal, compliance and actuarial functions constitute additional com- ponents of the “second line of defense”. Allianz SE’s legal and compliance functions seek to mitigate legal risks for Allianz SE with support from other departments. The objectives of both 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 – in conjunction with Legal and other experts involved – 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 moni- toring of technical provisions, technical actuarial assistance in busi- ness 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 business and regions to be a key element in managing our risks efficiently, 20 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE limiting the economic impact of any single event and contributing to relatively stable results. Our aim is to maintain a balanced risk profile without any disproportionately large risk concentrations and accumu- lations. 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. With Solvency II being the binding regulatory regime relevant 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 ratio in accordance with Solvency II, supplemented by ad-hoc scenarios, historical stress tests, and sensitivity analyses. By that we allow for a consistent view on risk steering and capi- talization according to the Solvency II framework. Allianz SE steers its portfolio using a comprehensive view of risk and return based on the internal risk model and including scenario analysis: Risk and concentrations are actively restricted by limits based on our internal model or other considerations. Furthermore, a comprehensive analysis of the return on risk capital1 (RoRC) is regularly conducted and translated for the underwriting of property and casualty reinsurance business. The RoRC allows us to identify profitable 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 (solo) holds and uses a broad range of financial instru- ments, which are reflected on our balance sheet as both assets and liabilities. 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 and benefits to our cedents. In addition, we also invest shareholders’ capital, which is required to support the underwritten risks and the holding activities. Our market risk from liabilities primarily relates to fixed-income instruments held for fi- nancing, 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. Asset/liability management (ALM) decisions are taken based on the internal model, considering both the risks and the returns on the financial markets. As the fair values of our assets and liabilities depend on changes on the financial markets, we are exposed to the risk of adverse finan- cial market developments. Allianz SE’s most important market risk results from changes in the value of its participations in Group com- panies. The long-dated internal pension liabilities of German Group companies on Allianz SE’s balance sheet contribute to interest rate risk, in particular as they cannot be fully matched by available 1_The return on risk capital is defined as the discounted present value of future real world profits on the capital require- ment (including a buffer to regulatory requirements). To measure these market risks, real-world stochastic models for the relevant risk factors are calibrated using historical time series 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 port- folio 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 allocation benchmarks are defined for several sub-portfolios of the investment 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 ex- posure limits. Limits are closely monitored and, if a breach occurs, countermeasures are implemented which may include the escalation and/or closing of positions. Finally, guidelines are in place regarding certain investments, new investment products, and the use of derivatives. EQUITY RISK Allianz SE’s equity risk predominantly results from the performance of our strategic insurance participations. Other material risk exposures reflect listed and unlisted equities, equity derivatives, own shares, and management 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 partici- pations and other equity investments. In 2018, Allianz SE had in place profit-and-loss transfer agree- ments with twelve German subsidiaries. These are listed in the ap- pendix on page 79. 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 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. By contrast, opportunities may arise when interest rates increase. Interest rate risk is managed within our asset/liability management process and controlled via an interest rate sensitivity limit. 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. Annual Report 2018 – Allianz SE 21 B _ Management Report of Allianz SE Inflation assumptions are taken into account in our reinsurance underwriting. However, unexpected inflation increases both future claims and expenses, leading to greater liabilities; conversely, if future inflation rates were to be lower than assumed, liabilities would be lower 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 results 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 Allianz SE's perspective; at the same time, however, the capital requirements in Euro will decrease, partially mitigating the total impact on the capitalization of Allianz SE. An additional important source of currency risk is the planned dividend income from non-Euro subsidiaries. Allianz SE’s currency risk is monitored and 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 would result from either changes in the credit quali- ty of our counterparties (“migration risk”) or the inability or unwilling- ness of a counterparty 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 receivables, whose value may decrease depending on the credit quality of the obligor. 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 parts of Allianz SE’s reinsurance business are retroceded to external rein- surance companies to mitigate risks. Credit risk arises from potential losses from non-recoverability of reinsurance receivables, or due to default on benefits under in-force reinsurance treaties. Our rein- surance partners are carefully selected by a dedicated team. Besides focusing on companies 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 major 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. It is based on long-term ratings from rating agencies, which are dynamically adjusted using market-implied ratings and the most recent qualita- tive information available. 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, a credit VaR limit is 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. 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 in the current year’s new and renewed business, as well as to 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 business in the current year develop adversely relative to expected claims ratios. Premium risk is subdivided into three categories: natural catas- trophe risk, terror risk, and non-catastrophe risk including man-made catastrophes. Allianz SE actively manages premium risk. The assessment of risks as part of the underwriting process is a key element of our risk management framework. There are clear underwriting guidelines, limits, and restrictions in place. Excessive risks are mitigated by exter- nal retrocession 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 catastrophes and from man-made catastrophes such as terror or large industrial 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 risks are modelled using attritional loss models for frequency losses, as well as frequency and 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 occurrence volatility. For natural catastrophe risks, we use special modelling techniques which com- bine portfolio data (geographic location, characteristics of insured objects, and their values) with simulated natural disaster scenarios to 22 Annual Report 2018 – Allianz SE 1_Credit Risk Platform. B _ Management Report of Allianz SE estimate the magnitude and frequency of potential losses. For signifi- cant exposures where such stochastic models do not exist, we use deterministic, scenario-based approaches to estimate potential losses. Similar approaches are used to evaluate risk concentrations for terror and man-made catastrophes including losses from cyber incidents and industrial concentrations. These loss distributions are then used within the internal model to calculate potential losses with a predefined confidence level of 99.5 %. Reserve risk represents the risk of adverse developments in 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. In case of unexpected developments, we will experience a reserve gain or loss dependent on the assumptions applied for the estimate. 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 actuarial models. The reserve distributions derived are then used within the internal model to calculate potential losses based on a predefined 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 persons. Life/Health underwriting risk arises from profitability being lower than expected. As profitability calculations are based on several parameters – such as historical loss information and assumptions on inflation, mortality or morbidity – parameters realized may differ from the ones used for the calculation of pension liabilities and for under- writing. For example, higher-than-expected inflation may lead to higher medical claims in the future. On the other hand, there may also be beneficial deviations; such as, for example, a lower morbidity rate than expected 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. − − 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 the professional obligations, or from the design of transactions. Examples include anti-trust behavior, data protection, sanctions and embargoes. These losses can have a high financial impact. “Other operational risks”, including for example internal and external fraud, financial misstatement risk, a cyber security incident causing business disruption or fines, a potential failure at our out- sourcing partners causing a disruption to our working environment, etc. 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 approach based on expert judgment as well as internal and external opera- tional loss data. The estimates for frequency and severity of potential loss events for each material operational risk category are assessed 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. An important component of this framework is the Integrated Risk and Control System (IRCS), which ensures that effec- tive controls or other risk mitigation activities are in place for all significant operational risks. 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 weak- nesses via a dialog with the “first line of defense”, and in close inter- action with both the other “second line of defense” functions at Allianz SE and with the audit function. In the IRCS approach, risk identification, assessment and controls vary between the different operational risk sources reporting, com- pliance and operations. 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 Agree- ments, and by Business Continuity and Crisis Management programs to protect critical business functions from these events. Cyber risks are mitigated through investments in cyber security and a variety of ongoing control activities. Operational risk events are reported in a central database. 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. OPERATIONAL RISK Operational risks represent losses resulting from inadequate or failed internal processes, human errors, system failures, and external events, and can stem from a wide variety of sources, for example: 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. − “Execution, delivery and process management” losses arising from transaction or process management failures. Examples in- clude interest and penalties from non-payment or underpayment 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 judgement. Annual Report 2018 – Allianz SE 23 B _ Management Report of Allianz SE 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 not considered in the internal risk capital model. For the identification, analysis, assessment, monitoring, and management of these risks, we also use a systematic approach, with risk assessment generally based on qualitative criteria or scenario analyses. The most important of these other risks are strategic, liquidity and reputational risk. STRATEGIC RISK Strategic risk is the risk of a decrease in the company’s value arising from adverse management decisions on business strategies and their implementation. Strategic 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. risks are The most important strategic risks are directly addressed through Allianz’s Renewal Agenda, which focuses on True Customer Centricity, Digital by Default, Technical Excellence, Growth Engines and Inclusive Meritocracy. Progress on mitigating strategic risks and meeting the Renewal Agenda objectives are monitored 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 can arise 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 our liquidity planning process, we reconcile liquidity sources (e.g. cash from invest- ments and premiums) and liquidity needs (e.g. payments due to reinsurance claims and expenses) under a best-estimate plan, as well as under 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. 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 ad- verse conditions. Major contingent liquidity requirements include non-availability of external capital markets, combined market and catastrophe risk scenarios for subsidiaries, as well as lower-than- expected profit transfers and dividends from subsidiaries. In order to protect the Allianz Group against the liquidity impact of adverse risk events beyond those covered by the capital and liquidity buffers at our subsidiaries, Allianz SE holds a strategic liquidity reserve. Strategic liquidity planning for Allianz SE covering time horizons of twelve months and three years is regularly reported to the Board of Management and aims to achieve a target level for the strategic liquidity reserve portfolio. REPUTATIONAL RISK Allianz SE’s reputation as a well-respected and socially aware holding and reinsurance company is influenced by our behavior in a range of areas, such as financial performance, quality of reinsurance under- writing and customer service, corporate governance, employee rela- tions, intellectual capital, and corporate responsibility. Reputational risk is the risk of an unexpected drop in the value of the Allianz share price, the value of the in-force business, or the value of 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 Responsibility assesses reputational risk for Allianz SE based on a group-wide methodology. Since 2015, Allianz SE has embedded conduct risk triggers for fair contracts and services into the reputational risk management process. The identification and assessment of reputational risks is part of the annual Top Risk Assessment process. During this process, senior management decides on a risk management strategy for the most significant risks facing the company, including those with a potentially severe reputational impact. This annual process is supplemented by quarterly updates. 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. It forms the basis for determining our Solvency II regulatory capitalization. On a quarterly basis, we calculate internal risk capital for Allianz SE in total, as well as for all contributing business units. We also project risk capital requirements on a bi-weekly basis during periods of financial market turbulence. GENERAL APPROACH 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- 24 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE 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 liabilities, including risk mitigating measures like retrocession or derivatives, under each scenario. The required risk capital is defined as the difference between the current portfolio value and the portfolio value under adverse condi- tions at the 99.5 % confidence level. As we simultaneously consider the impact of a negative or positive event on all covered businesses, diversification effects across products and regions are taken into account. The results of our Monte Carlo simulation allow us to analyze our exposure to each source of risk, both separately and in aggregate. We also analyze several pre-defined stress scenarios, representing historical events and adverse scenarios relevant for our portfolio. Furthermore, we conduct ad-hoc stress tests to reflect current political and financial developments and to analyze specific non-financial risks more closely. COVERAGE OF THE RISK CAPITAL CALCULATIONS Allianz SE’s internal risk capital model to calculate the Solvency Capital Requirement (SCR) covers the activities of Allianz SE as the holding company for Allianz Group, as well as its activities as a reinsurer. Whereas the model treats most subsidiaries as participations, the very closely linked activities of several subsidiaries are covered on a granular level. The risk capital model covers all relevant assets (including fixed- income instruments, equities, real estate, and derivatives) and liabilities (including the run-off of all technical provisions, as well as deposits, 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 strategic, liquidity, and reputational risks. 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 deter- mining and discounting future cash flows. We apply the methodology provided by the European Insurance and Occupational Pensions Authority (EIOPA) within the technical documentation (EIOPA BoS-15/035) for the extrapolation of the risk-free interest rate curves beyond the last liquid tenor.1 In addition, we adjust the risk-free yield curves by a volatility adjustment (VA) for most markets where a volatility adjustment is defined by EIOPA and approved by BaFin. This is done to better reflect the underlying economics of our business. The advantage of being a long-term investor 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. Being a long-term investor mitigates much of the risk of forced selling of debt instruments at a loss prior to maturity. 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. We therefore take account of this by applying volatility adjust- ment to mitigate the credit spread risk, which we consider to be less meaningful for long term investors than the default risk. Allianz SE also models the volatility adjustment dynamically within our approved internal model, which differs from the static EIOPA concept for volatility adjustments applied in the standard model. For risk capital calculations, we assume a dynamic movement of the volatility adjustment broadly consistent with the way the VA would react in practice; however, we base the movement on our own portfolio rather than the EIOPA portfolio. To account for this deviation, Allianz SE applies a more conservative, reduced application ratio for the dynamic volatility adjustment. DIVERSIFICATION AND CORRELATION ASSUMPTIONS Our internal model considers concentration, accumulation, and corre- lation effects when aggregating results for Allianz SE. The resulting diversification reflects the fact that not all potential worst-case losses are likely to materialize at the same time. Diversification typically occurs when looking at combined risks that are not, or only partly, interdependent. Important diversification factors include regions (for example windstorm in Australia versus windstorm in Germany), risk categories (for example market risk versus underwriting risk), and subcategories within the same risk category (for example equity risk versus interest rate risk). Ultimately, diversifica- tion is driven by the specific features of the investments or reinsurance transactions in question and their respective risk exposures. For example, an operational risk event at the Allianz SE branch in Singapore can be considered to be highly independent of a change in the credit spread for a French government 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. In case historical data or other portfolio-specific obser- vations are insufficient or unavailable, correlations are set by the Allianz Group Correlation Setting Committee, which combines the expertise of risk and business experts in 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. ACTUARIAL ASSUMPTIONS Our internal model also includes assumptions on claims trends, liability inflation, mortality, morbidity, longevity, 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. Annual Report 2018 – Allianz SE 25 B _ Management Report of Allianz SE MODEL LIMITATIONS As the internal model is based on a 99.5 % confidence level, there is a low statistical probability of 0.5 % that actual losses could exceed this threshold at the 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 example in an unprecedented crisis, our VaR approach may be too conservative 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. Since the internal 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 – notably in distressed financial markets – to either obtain a current market price or to apply a meaning- ful mark-to-market approach. For such assets we apply a mark-to- model approach. For some of our liabilities, the accuracy of their values additionally depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed. While the aggregate risk capital is exactly modelled, the whole account stop loss construction leads to the use of approximations when reporting contributory risk capital figures for the sub-categories of underwriting risk as the individual contributions have to be approxi- mated based on the underlying distributions. MODEL CHANGES IN 2018 In 2018, our internal model has been adjusted based on regulatory developments, validation results for our model, and feedback received by Allianz Group during the ongoing consultations with the regulator. For the sake of clarity, model changes1 and resulting impacts are presented within this section, based on data as of 31 December 2017. Overall, the model changes implemented in 2018 did not have a significant net impact on the Solvency II risk capital of Allianz SE (less than € 0.5 mn). In the subsequent sections, the risk figures for 2017 after model changes will form the basis for the analysis of the changes in our risk profile in 2018. 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 Total Allianz SE 20171 22,898 568 3,217 37 847 (3,871) 23,696 20172 22,898 568 3,216 37 847 (3,870) 23,696 1_2017 risk profile figures recalculated based on model changes in 2018. 2_2017 risk profile figures as reported previously. The changes to our internal model affected the risk categories as follows: MARKET RISK The effect of model changes on market risk was immaterial (less than € 0.5 mn). CREDIT RISK In 2018, the total impact of model changes on credit risk was a marginal increase (roughly € + 0.1 mn). UNDERWRITING AND BUSINESS RISK Underwriting risk slightly increased (approximately € 1 mn) as a result of the implementation of several immaterial model changes OPERATIONAL RISK No model change has been applied for operational risk in 2018. IMPACT OF MODEL CHANGES ON ELIGIBLE OWN FUNDS The change in cash flow modelling for the AVK internal pension scheme marginally increased Allianz SE’s eligible own funds by € 2 mn. 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 risk profile represented by all of 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 pension obligations. The risk profile and relative contributions have changed in 2018, predominantly due to changes in the market environment and man- agement actions. 1_As per the Allianz Standard for Model Changes (ASMC). 26 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE − 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 2018. − Allianz SE is well positioned to withstand potentially adverse future events – in part, due to our strong internal limit framework, stress testing, internal model, and risk management practices. − Allianz SE has a conservative investment profile and disciplined business practices in the reinsurance business, leading to sustainable 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 consistent with the economic principles of Solvency II.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_2017 risk profile figures as reported previously. € bn € bn % 2018 83.9 24.3 345 20171 84.2 23.7 355 As of 31 December 2018, the Solvency II capitalization of the legal entity Allianz SE is at 345 %. The decrease by 10 percentage points in 2018 was caused by a € 0.6 bn increase risk capital, combined with € 0.3 bn decrease 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 model, which measures the potential adverse developments of Own Funds. The results provide an overview of how our risk profile is distributed over different risk categories, and determines the regulatory capital requirements in accordance with Solvency II. The pre-diversified risk figures reflect the diversification effects within each modeled risk category (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. POTENTIAL RISKS IN THE FINANCIAL MARKETS AND IN OPERATING ENVIRONMENT Financial markets are characterized by historically low interest rates and risk premiums, prompting some investors to look for higher- yielding – and potentially higher-risk – investments. In addition to sustained low interest rates, the challenges of implementing long- term structural reforms in key Eurozone countries, the uncertainty about future monetary and fiscal policies, rising populism, and in- creased trade tensions may lead to higher 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. We therefore continue to closely monitor political and financial developments – such as the Brexit in the United Kingdom, the potential rise of Euroscepticism, and the global trade situation – in order to manage our overall risk profile to specific event risks. Political risk is the risk that returns could suffer as a result of politi- cal changes or instability in a country, a region, or globally, for example Brexit (i.e. the withdrawal of the United Kingdom from the European Union). Allianz SE is exposed to Brexit through reinsurance renewals with UK reinsurers, derivative contract continuity risk, and the impact on earnings and solvency. Based on our assessments, Allianz SE is well prepared for the Brexit and comfortable that it will have only minimal direct impact. This is because our reinsurance and investment management departments have taken actions to ensure that they are in the position to handle various Brexit scenarios, for example: − Allianz SE has a very limited exposure of outward cessions to UK- based reinsurers including replacement options. − For inwards reinsurance, the Allianz SE reinsurance department will be able to use legal possibilities such as Temporary Permis- sion or Run off Regimes and to make use of Allianz Group Branch solutions, depending on the respective business case. − No issues are expected regarding derivatives, since all outstanding derivatives will be valid for at least one year post-Brexit and new and rolled derivatives will be placed to minimize the implications. Even under conservative assumptions (i.e., in case of adverse financial market developments), Allianz SE will remain well capitalized. REGULATORY DEVELOPMENTS With Solvency II becoming effective, our approved internal model has been applied since the beginning of 2016. In addition, future Solvency II capital requirements might change depending on the outcome of the 2020 review of the Solvency II framework by EIOPA. 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 both, the challenges of a rapidly changing environment as well as of day-to-day business needs. This confidence is based on several factors: 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 25. Annual Report 2018 – Allianz SE 27 B _ Management Report of Allianz SE The Allianz SE diversified risk is broken down as follows: Allianz SE: Allocated risk according to the risk profile € mn INFLATION RISK The € 199 mn increase in the relief that inflation risk provides to market risk in 2018 mainly results from improved diversification. as of 31 December Market risk Credit risk Underwriting risk Business risk Operational risk Diversification Total Allianz SE 2018 23,264 567 3,282 39 744 (3,608) 24,288 2017 22,898 568 3,217 37 847 (3,871) 23,696 EQUITY RISK In 2018, Allianz SE’s equity risk increased by € 702 mn, reflecting, among others, a change in the value of participations in Allianz Group companies due to M&A transactions and the business evolution. As of 31 December 2018, our investment assets that are sensitive to changing equity markets would have lost € 336 mn in value, assuming equity markets declined by 30 %. CREDIT SPREAD RISK Allianz SE’s credit spread risk is € 88 mn higher than in 2017. As of 31 December 2018, Allianz SE’s diversified risk capital amounted to € 24.3 bn (2017: € 23.7 bn). This represents a slight reduction in the diversification benefit of 1.1 % to 12.9 %. The increase in the Solvency II capital requirement was mainly due to higher market risk, driven by M&A transactions and business evolution. This increase was partially offset by a decrease in operational risk capital. 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 accordingly. REAL ESTATE RISK As of 31 December 2018, real estate risk for Allianz SE is minor (€ 95 mn). The € 16 mn increase in 2018 among others reflects higher real estate values. CURRENCY RISK Allianz SE’s € -115 mn currency risk at year-end 2018 results from net open positions in several currencies, dominated by the U.S. Dollar. The € 189 mn reduction is mainly caused by diversification effects. MARKET RISK RESULTS The following table presents the market risk of Allianz SE related to the source of risk: CREDIT RISK Credit risk of the legal entity Allianz SE marginally decreased by € 1 mn in 2018. 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 2018 70 (385) 447 23,152 95 (115) 2017 123 (186) 359 22,450 79 74 Total Allianz SE 23,264 22,898 For the legal entity Allianz SE, the pre-diversified market risk as of end 2018 shows an increase of € 366 mn driven by equity risk. INTEREST RATE RISK In 2018, our interest rate risk decreased by € 53 mn, mainly reflecting stronger diversification effects. As of 31 December 2018, Allianz SE’s interest-rate-sensitive in- vestment assets amounting to a market value of € 40.7 bn would have gained € 2.1 bn or lost € 1.9 bn in value, in the event of interest rates changing by -100 and + 100 basis points, respectively. UNDERWRITING RISK The following table presents the pre-diversified risk calculated for underwriting risks stemming from our reinsurance business and internal pensions:1 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 2018 368 1,576 1,283 55 2017 289 1,759 1,074 95 3,282 3,217 For the legal entity Allianz SE, the pre-diversified underwriting risk showed an increase of € 65 mn, driven by an increase in reserve risk, which was partially counterbalanced by a reduction in both non- catastrophe and terror premium risk as well as biometric risks. 1_Impact of whole account stop loss reinsurance contract between Allianz SE and Allianz Re Dublin dac on pre-diversified insurance risks: For premium natural catastrophe risk rose of € 30 mn (2017: € 57 mn), for premium non-catastrophe and terror risk rose of € 179 mn (2017: € 245 mn). 28 Annual Report 2018 – Allianz SE PROPERTY-CASUALTY Premium risk In 2018, Allianz SE’s natural catastrophe risk increased by € 79 mn, especially influenced by an increase in risks from European group- internal quota shares. The top five scenarios contributing to the natural catastrophe risk of Allianz SE as of 31 December 2018 were a windstorm in Europe, a tropical cyclone in Australia, a tropical cyclone in Japan, a flood in Germany, and an earthquake in Australia. The non-catastrophe and terror premium risk of Allianz SE was reduced by € 183 mn in 2018, among others reflecting lower risk from group-internal European quota shares. Reserve risk Among others, the € 209 mn increase in Allianz SE’s reserve risk in 2018 reflects the building up of reserves in group-internal quota shares. B _ Management Report of Allianz SE LIFE/HEALTH In 2018, Allianz SE’s biometric risk is € 40 mn lower than in 2017. One of the main factors is a reduction in longevity risk from internal pension obligations. BUSINESS RISK The € 2 mn increase in business risk is immaterial. OPERATIONAL RISK The decrease of € 103 mn shown in the operational risk is driven by the annual update of local parameters, mainly reflecting a reassess- ment of IT project failure risks and a better consideration of available insurance cover for cyber risk. LIQUIDITY RISK Detailed information regarding Allianz SE’s liquidity risk exposure, liquidity, and funding – including changes in cash and cash equiva- lents – are provided in the chapter Liquidity and Funding Resources from page 18. As inferred from the section on the management of liquidity risks, they are quantified and monitored through regular stress test reporting and properly managed but are not quantified for risk capital purposes. Annual Report 2018 – Allianz SE 29 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 (hereinafter referred to as the “Code”). The Declaration of Conformity with the recommendations of the Code, issued by the Board of Management and the Supervisory Board on 12 December 2018, 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 35. Corporate Constitution of the European Company (SE) As a European Company, Allianz SE is subject to special European SE regulations and (“SE- in addition to the German SE Employee Ausführungsgesetz”) Involvement Act (“SE-Beteiligungsgesetz”). However, the main features of a German stock corporation – in particular the two-tier board system (Board of Management and Supervisory Board) and the principle of equal employee representation on the Supervisory 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 ten members. It is responsible for setting business objectives and the strategic direction, for coordinating and supervising the operating entities, and for implementing and overseeing an efficient risk management system. The 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 respon- sible 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 include the Finance, Risk Management and Controlling Functions, Investments, Operations – including 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. latter 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 makes decisions by a simple majority of participating members. In the event of a tie, the Chairman casts the deciding vote. The Chairman can also veto decisions, but he cannot impose any decisions against the majority vote. BOARD OF MANAGEMENT AND GROUP COMMITTEES In the financial year 2018, the following Board of Management committees were in place: Board Committees Board committees Responsibilities GROUP FINANCE AND RISK COMMITTEE Giulio Terzariol (Chairman), Niran Peiris, Dr. Günther Thallinger, Dr. Axel Theis. GROUP IT COMMITTEE Dr. Christof Mascher (Chairman), Niran Peiris, Giulio Terzariol, Dr. Günther Thallinger, Dr. Axel Theis. GROUP MERGERS AND ACQUISITIONS COMMITTEE Dr. Helga Jung (Chairwoman), Oliver Bäte, Jacqueline Hunt, Giulio Terzariol. As of 31 December 2018 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 external IT contracts and business- related IT contracts with strategic and group relevance. 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 Management of Allianz SE, submitting proposals for resolutions, and ensuring a smooth flow of information within the Group. In the financial year 2018, 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 Board members of Allianz SE and Allianz Group executives. Designing, monitoring, and improving group-wide compensation systems in line with regulatory requirements and sub- mitting an annual report on the monitoring results, along with proposals for improvement. 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. As of 31 December 2018 The Allianz Group runs its operating entities and business segments via an integrated management and control process. First, the Holding and the operating entities define the business strategies and goals. 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 38. 30 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE The Board of Management reports regularly and comprehen- sively to the Supervisory Board on business development, the company’s financial position and earnings, planning and achieve- ment 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 activities. The Supervisory Board discusses recommendations for improvements and adopts appropriate measures on the basis of the Standing Committee. The self- recommendations assessment also includes an evaluation of the fitness and propriety of the individual members. from Important decisions of the Board of Management require approval by the Supervisory Board. These requirements are stipulated by law, by the Statutes, or in individual cases by decisions of the Annual General Meeting (AGM). Supervisory Board approval is required, for example, for certain capital transactions, intercompany agreements, and the launch of new business segments or the closure of existing ones. Approval is also required for acquisitions of companies and holdings in companies, as well as for divestments of Group companies that exceed certain threshold levels. The Agreement concerning the Participation of Employees 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. in Allianz SE, 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 regulations are implemented in the Statutes and via 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 in the specific procedure for their appointment SE Agreement. This agreement stipulates that the six employee representatives must be allocated in proportion to the number of Allianz employees in the different countries. The Supervisory Board currently in office comprises four employee representatives from Germany and one each from France and 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. laid down is 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, determining their overall remuneration, succession planning for the Board of Management, and reviewing Allianz SE’s and the Allianz Group’s annual financial statements. The Supervisory Board’s activities in the 2018 financial year are described in the Supervisory Board Report starting on page 2. in The Supervisory Board takes all decisions based on a simple majority. The special requirements for appointing members to the Board of Management, as stipulated 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 at the employee representatives’ proposal. 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 (Jürgen Lawrenz, Jean-Claude Le Goaër) 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-Claude Le Goaër, 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, Frank Kirsch) PERSONNEL COMMITTEE 3 members – Chairman: Chairman of the Supervisory Board (Michael Diekmann) – One further shareholder representative (Herbert Hainer) – One employee representative (Gabriele Burkhardt-Berg) 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, Jürgen Lawrenz) As of 31 December 2018 – 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 Annual Report 2018 – Allianz SE 31 B _ Management Report of 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) Christine Bosse Dr. Friedrich Eichiner Godfrey Hayward Frank Kirsch (Member as of 1 September 2018) Presence % Jürgen Lawrenz (Member until 31 August 2018) Presence % 2/2 2/2 2/2 2/2 1/1 1/1 2/2 2/2 2/2 2/2 1/1 1/1 100 100 100 100 100 100 100 100 100 100 100 100 TECHNOLOGY COMMITTEE Jim Hagemann Snabe (Chairman) Gabriele Burkhardt-Berg Michael Diekmann Dr. Friedrich Eichiner Jürgen Lawrenz (Member as of 1 September 2018) Rolf Zimmermann (Member until 31 August 2018) The Nomination Committee did not convene any meetings in the 2018 financial year. PLENARY SESSIONS OF THE SUPERVISORY BOARD Michael Diekmann (Chairman) Gabriele Burkhardt-Berg (Vice Chairwoman as of 1 September 2018) Jim Hagemann Snabe (Vice Chairman) Sophie Boissard Christine Bosse Jean-Jacques Cette (Member until 31 July 2018) Dr. Friedrich Eichiner Jean-Claude Le Goaër (Member as of 1 August 2018) Martina Grundler Herbert Hainer Godfrey Hayward Frank Kirsch (Member as of 1 September 2018) Jürgen Lawrenz Rolf Zimmermann (Vice Chairman and Member until 31 August 2018) STANDING COMMITTEE Michael Diekmann (Chairman) Jean-Claude Le Goaër (Member as of 1 September 2018) Gabriele Burkhardt-Berg (Member until 31 August 2018) Herbert Hainer Jürgen Lawrenz Jim Hagemann Snabe PERSONNEL COMMITTEE Michael Diekmann (Chairman) Gabriele Burkhardt-Berg (Member as of 1 September 2018) Herbert Hainer Rolf Zimmermann (Member until 31 August 2018) AUDIT COMMITTEE Dr. Friedrich Eichiner (Chairman) Sophie Boissard Jean-Jacques Cette (Member until 31 July 2018) Michael Diekmann Jean-Claude Le Goaër (Member from 1 August 2018) Martina Grundler 6/6 6/6 6/6 6/6 6/6 3/3 6/6 3/3 6/6 6/6 6/6 2/2 6/6 4/4 5/5 2/2 3/3 5/5 5/5 5/5 6/6 3/3 6/6 3/3 5/5 5/5 2/3 5/5 2/2 5/5 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 67 100 100 100 32 Annual Report 2018 – Allianz SE 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 set out below. In addition to the skills profile for the overall Supervisory Board, also to be established due to a new recommendation of the Code, the diversity concept in accordance with the legislation regarding the implementation of the E.U. guideline as regards the disclosure of non-financial and diversity information (CSR Directive) is also included: Objectives of Allianz SE’s Supervisory Board regarding its composition “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 are 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 of each 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 the 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 the 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 fields of insurance and financial services; – 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.” Annual Report 2018 – Allianz SE 33 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 and eight male Supervisory Board members, the current legislation for equal participation of women and men in leadership positions (statutory gender quota of 30 %) is being met. In addition, the Super- visory 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 transactions involving shares or debt securities of Allianz SE or financial derivatives or other instruments based on them, as soon as the value of the securities acquired or divested by the member amounts to five thousand Euros or more within a calendar year. These disclosures are published on our website at www.allianz.com/ directorsdealings. Annual General Meeting Shareholders exercise their rights at the Annual General Meeting. When adopting resolutions, each share carries one vote. Shareholders can follow the AGM’s proceedings on the internet and be represented by proxies. These proxies exercise voting rights exclusively on the basis of instructions given by the shareholder. Shareholders are also able to cast their votes via the internet in the form of online voting. Allianz SE regularly promotes the use of internet services. The AGM elects the shareholder representatives of the Super- visory Board and approves the actions taken by the Board of Management and the Supervisory Board. It decides on the use of profits, capital transactions, the approval of intercompany agree- ments, the remuneration of the Supervisory Board, and changes to the company’s Statutes. In accordance with European regulations and the Statutes, changes to the Statutes require a two-thirds majority of votes cast in case less than half of the share capital is represented in the AGM. Each year, an ordinary AGM takes place at which the Board of Management and the Supervisory Board give an account of the preceding financial year. For special decisions, the German Stock Corporation Act provides for the convening of an extraordinary AGM. Accounting and auditing The Allianz Group prepares its accounts according to § 315e of the German Commercial Code (“Handelsgesetzbuch – HGB”) on the basis of the International Financial Reporting Standards (IFRS) adopted by the European Union. The annual financial statements of Allianz SE are prepared in accordance with German law, in particular the HGB. the annual In compliance with special legal provisions that apply to insurance companies, financial the auditor of 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 consolidated financial statements of the Allianz Group. To ensure maximum transparency, we inform our shareholders, financial analysts, the media, and the general public about the company’s situation on a regular basis and in a timely manner. The annual financial statements of Allianz SE, the Allianz Group’s consolidated financial statements, and the respective management reports are published within 90 days of the end of each financial year. Additional information is provided in the Allianz Group’s half-yearly financial reports and quarterly statements. Information is also made available at the AGM, at press and analysts’ conferences, and on the Allianz Group’s website. Our website also provides a financial calendar listing the dates of major publications and events, such as annual reports, half-yearly financial reports and quarterly statements, AGMs, and analyst conference calls as well as financial press con- ferences. You can find the 2019 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 also important. Specifically, they include the establishment and further design of significant control functions (risk management, actuarial function, compliance, and internal audit) as well as general principles for a sound business organization. The regulatory requirements are applicable throughout the Group in principle and have been implemented using written guidelines issued by the Board of Management of Allianz SE. Since the 2016 financial year, a market value balance sheet has to be prepared at solo and group level, which has to be examined and reported on separately by the auditors. Details on the implementation of the regulatory requirements for corporate governance by Allianz SE and by the Allianz Group can be found in the Solvency and Financial Condition Report of Allianz SE and of the Allianz Group, which are published on our website at www.allianz.com/sfcr. 34 Annual Report 2018 – Allianz SE 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. Declaration of Conformity with the German Corporate Governance Code On 12 December 2018, 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) Since the last Declaration of Conformity as of December 14, 2017, Allianz SE has complied with all recommendations of the German Corporate Governance Code in the version of February 7, 2017 and will comply with them in the future. Munich, December 12, 2018 Allianz SE For the Management Board: 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 internal 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 comprehensive risk and control management system regularly also assesses the effectiveness and appropriateness of the internal control system as part of the System of Governance. For further information on our risk organization and risk principles, please refer to   page 19. Information on the internal “Controls over Financial Reporting” you will find on   page 57. In addition, the quality of our internal control system is assessed by the Internal Audit Function. This function conducts independent, objective assurance and consulting activities, analyzing the structure and efficiency of the internal control systems as a whole. In addition, it also examines the potential for additional value and improvement of our organization’s operations. Fully compliant with all international auditing principles and standards, Internal Audit contributes to the evaluation and improvement of the effectiveness of the risk man- agement, control, and governance processes. Therefore, internal audit activities are geared towards helping the company to mitigate risks, and further assist in strengthening its governance processes and structures. COMPLIANCE MANAGEMENT SYSTEM Integrity is at the core of our compliance program and the basis to safeguard Allianz’ reputation as a trusted financial services provider. The compliance function promotes, in partnership with management and business, a culture of integrity and compliance by: F − Advising on business conduct that is lawful, ethical, and in the interest of our customers, shareholders, business partners and col- leagues; − Preventing and detecting violations of laws and regulations through identifying and managing compliance risks; − Advocating Allianz’ compliance positions with regulators. Compliance with all applicable laws, rules, and regulations in all countries in which Allianz SE and Allianz Group operate, as well as with internal policies and guidelines, is key. The global compliance program coordinated by Allianz SE’s central Group Compliance function supports our employees, managers and executive board members to act responsibly and with integrity in all situations. We participate in the United Nations Global Compact, the world’s largest and most important initiative for responsible corporate leadership, and respect the Guidelines of the Organization for Economic Cooperation and Development (OECD Guidelines) for Multinational Enterprises in that we integrate sustainability and corporate responsibility into our business. By accepting and complying with European and interna- tional standards and applicable laws related to relevant compliance risk areas, Allianz aims to avoid the risks that arise from non- compliance. To enhance our understanding of compliance issues and share best practices, we work with organizations such as the German Institute for Compliance (DICO), the Global Insurance Chief Compli- ance Officers Forum (CCO Forum) and the S20 – The Sponsors’ Voice. Moreover, Allianz SE’s central Group Compliance function is responsible – in close cooperation with local compliance functions – for ensuring the effective implementation and monitoring of the compliance program within the Allianz Group, as well as for investi- gating potential compliance infringements. As a key governance Annual Report 2018 – Allianz SE 35 B _ Management Report of Allianz SE function, the compliance function further conducts the advisory, risk identification and assessment, monitoring and early warning tasks required under the Solvency II regime. CODE OF CONDUCT Our Code of Conduct for Business Ethics and Compliance and the internal Compliance policies and guidelines derived from it provide all employees, managers and executive board members with clear and practical guidance, enabling them to act in line with the values of the Allianz Group. The standards of conduct established by the Code of Conduct are binding for all employees worldwide and build the basis for our compliance programs. The Code of Conduct is available on our website at www.allianz.com/corporate-governance. COMPLIANCE PROGRAMS Allianz SE’s central Group Compliance function has set up internal guidelines for the following identified compliance risk areas: anti- bribery and anti-corruption, anti-money laundering and anti-terrorism financing, economic sanctions compliance, capital markets compli- ance, sales compliance/customer protection, antitrust compliance, internal fraud, data privacy, and US Foreign Account Tax Compliance Act (FATCA). For further information on these compliance risk areas, please refer to the Combined Separate Non-Financial Report for Allianz Group and Allianz SE on   page 48 of the Allianz Group’s Annual Report 2018 and the Sustainability Report on our website at www.allianz.com/sustainability. WHISTLEBLOWING A major component of the Allianz Group’s compliance program is a whistleblower system that allows employees and third parties to alert the relevant compliance department confidentially about irregularities. No employee voicing concerns about irregularities in good faith needs to fear retribution, even if the concerns later turn out to be unfounded. Third parties can contact the compliance department via an electronic mailbox on our website at www.allianz.com/complaint-system. COMPLIANCE TRAINING In order to transmit the principles of the Code of Conduct and the internal compliance programs based on these principles, Allianz has implemented interactive training programs around the world. These provide practical guidelines that enable employees to make their own decisions based on the values of the Allianz Group. Training pro- grams comprise in-person and e-learning trainings and are delivered in several languages. An anti-corruption training is compulsory for all Allianz employees worldwide. Moreover, in 2018 we deployed a mandatory data privacy and protection training to all Allianz companies worldwide. This training includes the topic of binding corporate rules which are an EU-developed standard in data privacy and protection for international personal data transfers within corporate groups outside the European Economic Area. Further trainings exist for all relevant compliance risk areas. DESCRIPTION OF THE FUNCTIONS OF THE BOARD OF MANAGEMENT AND THE SUPERVISORY BOARD AND OF THE COMPOSITION AND FUNCTIONS OF THEIR COMMITTEES A description of the composition of the Supervisory Board and its committees can be found on page 5 and 7 of the Annual Report. A description of the composition of the Board of Management can page 8, while the composition of the Committees of be found on the Board of Management is described in the Corporate Governance Report starting on page 30. 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 30, 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 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 %) and eight men (67 %). In August 2017, and based on a Management Board comprising nine members, the Supervisory Board resolved on a target for the percentage of women on Allianz SE’s Board of Management at 22 % up until 31 December 2018 and 30 % up until 31 December 2021. As the Board of Management has been extended by the appointment of Mr. de la Sota in April 2018 as an additional member, the percentage of women on Allianz SE’s Board of Management amounted to 20 % as of 31 December 2018. As regards the proportion of women on the first and second management levels below the Board of Manage- ment, the Board of Management of Allianz SE has set a target of 20 % and 25 %, respectively, to be met by 31 December 2018. As of 31 December 2018, this target was met for the second management level with a percentage of women of 28 %, but could not be met on the first level with a percentage of 15 %. The first management level below the Board of Management comprises a very small compara- tive group of executives. No suitable female candidates could be identified for the very few positions that became vacant in the period considered. In the longer term, Allianz aims to place women in at least 30 % of the positions at these two management levels throughout the Group. 36 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE 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 for the 2018 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 a connection to the regions in which Allianz Group is operating; − 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 proce- dure for members of the Board of Management by the Supervisory Board. It is ensured that lists of successors will comprise an appropri- ate percentage of female candidates as well as candidates with inter- national experience. The Personnel Committee takes this into consid- eration especially in succession planning. The share of women on the Management Board is currently 20 %. Six members of the Manage- ment Board have international backgrounds. There is an adequate degree of variety as regards educational and professional back- ground. 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 objec- page 33). tives for the composition of the Supervisory Board on 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 po- tential influence to the selection of employee representatives. The Supervisory Board is currently composed in accordance with the diversity concept. For details please see the Corporate Governance Report on page 30. Annual Report 2018 – Allianz SE 37 B _ Management Report of 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 is linked to the 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. The Remuneration Report is subject to approval by the Supervisory Board. 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 variable component does not exceed the base salary, so the total target variable compen- sation is three times the base salary. BASE SALARY The base salary is not performance-based. It is paid in twelve monthly 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. 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- sponsibilities, individual quantitative targets comprise operating 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 common standard ("People Letter") designed to drive necessary change across the Allianz Group, and comprises customer orienta- tion, collaborative leadership, entrepreneurship, and trust (e.g. with regard to sustainability, corporate social responsibility, and diversity as well as integrity). 38 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE A multi-rater process supports the assessment of the individual qualitative behavioral targets: For each member of the Board of Management, feedback is collected from his or her fellow Board members and his or her direct reports as well as the Chief Executive Officers of the most important operating entities he or she is in charge of. Furthermore, they perform a self-assessment. Based on the 2018 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 109 % to 124 % of the target bonus, while the average bonus award amounts to 118 % 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 equity1, − 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. The Supervisory Board has assessed the sustainability of the tar- get performance of the members of the Management Board during the MTB cycle 2016 – 2018 (sustainability assessment). As a result of this assessment, the final MTB target achievement has been collec- tively increased by 10 percentage points for each member of the current Management Board. By this adjustment, the Supervisory Board recognizes the sustainable management team performance reflected, amongst others, in a sustainable solvency ratio develop- ment and improved sensitivities to risk scenarios. ILLUSTRATION OF THE PROCESS AND THE UNDERLYING TIMELINE OF THE MTB CYCLE, FROM TARGET SETTING TO FINAL PERFORMANCE ASSESSMENT1 € thou 1 1_Represents net income attributable to shareholder divided by the average shareholders’ equity excluding unrealized gains/losses on bonds (net of shadow accounting – see note 2 to the Consolidated Financial Statements) at the beginning and the end of the period. Annual Report 2018 – Allianz SE 39 1_Example based on target values of a regular member of the Board of Management with an annual target of €750 thou. The accrual is only a notional indication.2_Actual accrual for the MTB usually equals the annual bonus payout of the respective financial year. Since the performance assessment and the final payout occurafter completion of the performance cycle this value is only a notional indication.3_Final payout is subject to the sustainability assessment of the Supervisory Board and may vary between 0% –150% of the cumulative target values independent of the notional accruals. Year 1Year2Year3Sustainability criteria settingPerformance periodSustainability assessment & payoutDec 201520162201722018220193Notional accrualsSustainability criteriasetting for the three-yearperformance periodTotal 2,250Initial accruedamounts±Sustainabilityassessment=Final payoutMin: 00%Max: 3,375150%Target:2,250Accrual:730Accrual:620Accrual:900Accrual:730Accrual:620Accrual:900 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 2018 The following remuneration disclosure, which is based on and com- pliant with the German Corporate Governance Code, shows the individual board members’ remuneration for 2017 and 2018 including fixed and variable remuneration and pension service cost. The “Grant” column below shows the remuneration at target, minimum, and maximum levels. The “Payout” column discloses the 2017 and 2018 payments. The base salary, annual bonus, and perquisites are linked to the reported performance years, 2017 and 2018, whereas the Group Equity Incentive (GEI) and Allianz Equity Incentive (AEI) payouts result from grants related to the performance years 2010, 2013 and 2014. To enhance transparency of the remuneration related to the performance year 2017 and 2018, the additional column “Actual grant” includes the 2017 and 2018 fixed compensation, the annual bonus paid for 2017 and 2018, the MTB 2016 – 2018 tranche accrued for the performance year 2017 and 2018 and the fair value of the RSU grant value for the performance year 2017 and 2018. The 2018 payout is significantly higher than in 2017, due to the fact that the payout of the MTB 2016 – 2018 is disclosed. This comprises pay- ments for three performance years in total. 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 respective target levels. If performance is rated at 0 % no variable component will be granted. Consequently, the minimum total direct compensation for a regular member of the Board of Management will equal the base salary of € 750 thou (excluding perquisites and pension contributions), while the maximum total direct compensation (excluding perquisites and pension contributions) is € 4,125 thou: a € 750 thou base salary plus € 3,375 thou (i.e., 150 % of the sum of all three variable compen- sation components at target level). The Chairman of the Board’s maximum total direct compensation (excluding perquisites and pension contributions) is € 7,219 thou: a € 1,313 thou base salary plus € 5,906 thou (150 % of the sum of all three variable compensation components at target level). B _ Management Report of Allianz SE 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 value of an RSU at the time of grant. The fair value is calculated based on the ten-trading-day aver- age Xetra closing price of the Allianz stock for the ten days following the annual financial press conference. As RSUs are virtual stock with- out 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 discounted 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 pay- out level is capped at 200 % of the grant price.2 Outstanding RSU holdings are forfeited, should a Board member leave at his/her own request or be terminated 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 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 Management 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 participated in Allianz Versorgungskasse VVaG (AVK), a contribution- based pension plan, and in Allianz Pensionsverein e.V. (APV); both these plans were closed for new entries on 1 January 2015. 1_In addition, the fair value of the RSUs is subject to a small reduction of a few Euro cents due to the 200 % cap on the RSU payout. This reduction is calculated based on a standard option pricing formula. 2_The relevant share price used to determine the final number of RSUs granted and the 200 % cap is available only after sign-off by the external auditors. 40 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE Individual remuneration: 2018 and 2017 € 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 2019/RSU3 AEI 2018/RSU3 AEI 2014/RSU3 AEI 2013/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 2019/RSU3 AEI 2018/RSU3 AEI 2014/RSU3 AEI 2013/RSU3 GEI 2010/SAR4 Total Pensions service cost5 Total Oliver Bäte (Appointed: 01/2008; CEO since 05/2015) 2017 Target 1,125 32 1,157 Grant 2018 Target 1,313 17 1,329 Min 1,313 17 1,329 Max 1,313 17 1,329 Actual grant Payout1 2017 2018 2017 2018 1,125 32 1,157 1,313 17 1,329 1,125 32 1,157 1,313 17 1,329 1,125 1,313 1,125 - 1,125 - - - 4,532 622 5,154 1,313 1,313 - - - - 5,267 696 5,963 - - - - - - - 1,329 696 2,025 1,969 1,384 1,614 1,384 1,614 1,969 1,969 - - - - 7,235 696 7,931 1,384 - 1,384 - - - 5,308 622 5,930 1,614 1,614 - - - - 6,172 696 6,868 - - - - 1,820 - 4,361 622 4,828 - - 1,862 - - 9,634 696 4,983 10,330 2017 Target Grant 2018 Target 750 22 772 750 750 - 750 - - - 750 40 790 750 750 750 - - - - Min 750 40 790 - - - - - - - 3,022 374 3,396 3,040 360 3,400 790 360 1,150 Sergio Balbinot (Appointed: 01/2015) Actual grant Payout1 2017 2018 2017 2018 Max 750 40 790 1,125 1,125 1,125 - - - - 4,165 360 4,525 750 22 772 932 932 - 932 - - - 750 40 790 932 932 932 - - - - 750 22 772 932 - - - - - - 3,568 374 3,942 3,586 360 3,946 1,704 374 2,078 750 40 790 932 3,071 - - - - - 4,793 360 5,153 1_In accordance with the German Corporate Governance Code, the annual bonus disclosed for performance year 2018 is paid in 2019 and for performance year 2017 in 2018. The payments for equity-related deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment was made. To reconcile to the Corporate Accounting Standard 17, the total as shown in column “payout” should be adjusted by including the accrual for the AEI 2019/RSU and excluding any payouts from AEI 2013/RSU, AEI 2014/RSU or GEI 2010/SAR, as applicable. 2_The MTB figure included in the Actual Grant column shows the annual accrual before adjustment by the sustainability assessment. The payout 2018 figure includes the 2018 allocation and the accruals from the performance years 2016 and 2017, as adjusted by the sustainability assessment. The MTB 2016 – 2018 is paid out in spring 2019. 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 from 2009, the vesting period was four years and the exercise period three years. SARs can be exercised on the condition that the price of the Allianz SE stock is at least 20 % above the strike price at the time of grant. During the term of the plan, at least once on five consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points ahead of the appreciation of the Dow Jones EURO STOXX Price Index (600). 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. Annual Report 2018 – Allianz SE 41 B _ Management Report of Allianz SE Individual remuneration: 2018 and 2017 € 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 2019/RSU3 AEI 2018/RSU3 AEI 2014/RSU3 AEI 2013/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 2019/RSU3 AEI 2018/RSU3 AEI 2014/RSU3 AEI 2013/RSU3 GEI 2010/SAR4 Total Pensions service cost5 Total 2017 Target Grant 2018 Target 750 18 768 750 750 - 750 - - - 750 11 761 750 750 750 - - - - Min 750 11 761 - - - - - - - 3,018 317 3,335 3,011 317 3,328 761 317 1,078 Jacqueline Hunt (Appointed: 07/2016) Actual grant Payout1 2017 2018 2017 2018 Max 750 11 761 1,125 1,125 1,125 - - - - 4,136 317 4,453 750 18 768 923 923 - 923 - - - 750 11 761 904 904 904 - - - - 750 18 768 923 - - - - - - 3,536 317 3,853 3,472 317 3,789 1,691 317 2,008 750 11 761 904 2,470 - - - - - 4,135 317 4,452 2017 Target Grant 2018 Target 750 14 764 750 750 - 750 - - - 750 1726 922 750 750 750 - - - - Min 750 1726 922 - - - - - - - 3,014 431 3,445 3,172 441 3,612 922 441 1,362 Dr. Helga Jung (Appointed: 01/2012) Actual grant Payout1 2017 2018 2017 2018 Max 750 1726 922 1,125 1,125 1,125 - - - - 4,297 441 4,737 750 14 764 866 866 - 866 - - - 750 1726 922 866 866 866 - - - - 3,363 431 3,794 3,520 441 3,961 750 14 764 866 - - - - 1,649 - 3,279 431 3,710 750 1726 922 866 2,846 - - 1,679 - - 6,313 441 6,753 1_In accordance with the German Corporate Governance Code, the annual bonus disclosed for performance year 2018 is paid in 2019 and for performance year 2017 in 2018. The payments for equity-related deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment was made. To reconcile to the Corporate Accounting Standard 17, the total as shown in column “payout” should be adjusted by including the accrual for the AEI 2019/RSU and excluding any payouts from AEI 2013/RSU, AEI 2014/RSU or GEI 2010/SAR, as applicable. 2_The MTB figure included in the Actual Grant column shows the annual accrual before adjustment by the sustainability assessment. The payout 2018 figure includes the 2018 allocation and the accruals from the performance years 2016 and 2017, as adjusted by the sustainability assessment. The MTB 2016 – 2018 is paid out in spring 2019. 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 from 2009, the vesting period was four years and the exercise period three years. SARs can be exercised on the condition that the price of the Allianz SE stock is at least 20 % above the strike price at the time of grant. During the term of the plan, at least once on five consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points ahead of the appreciation of the Dow Jones EURO STOXX Price Index (600). 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. 6_Helga Jung received a payment of € 156 thou in 2018 for 25 years of service to Allianz. 42 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE Dr. Christof Mascher (Appointed: 09/2009) Actual grant Payout1 2017 2018 2017 2018 Max 750 8 758 1,125 1,125 1,125 - - - - 4,133 432 4,565 750 11 761 829 829 - 829 - - - 750 8 758 819 819 819 - - - - 3,247 428 3,675 3,216 432 3,648 750 11 761 829 - - - - 1,619 645 3,854 428 4,282 750 8 758 819 2,743 - - 1,669 - - 5,989 432 6,421 Niran Peiris (Appointed: 01/2018) Actual grant Payout1 2017 2018 2017 2018 Max 750 1056 855 1,125 1,125 1,125 - - - - 4,230 317 4,547 - - - - - - - - - - - - - 750 1056 855 866 866 866 - - - - 3,454 317 3,771 - - - - - - - - - - - - - 750 1056 855 866 941 - - - - - 2,662 317 2,980 2017 Target Grant 2018 Target 750 11 761 750 750 - 750 - - - 750 8 758 750 750 750 - - - - Min 750 8 758 - - - - - - - 3,011 428 3,439 3,008 432 3,440 758 432 1,190 2017 Target Grant 2018 Target 750 1056 855 750 750 750 - - - - Min 750 1056 855 - - - - - - - 3,105 317 3,422 855 317 1,172 - - - - - - - - - - - - - Individual remuneration: 2018 and 2017 € 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 2019/RSU3 AEI 2018/RSU3 AEI 2014/RSU3 AEI 2013/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 2019/RSU3 AEI 2018/RSU3 AEI 2014/RSU3 AEI 2013/RSU3 GEI 2010/SAR4 Total Pensions service cost5 Total 1_In accordance with the German Corporate Governance Code, the annual bonus disclosed for performance year 2018 is paid in 2019 and for performance year 2017 in 2018. The payments for equity-related deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment was made. To reconcile to the Corporate Accounting Standard 17, the total as shown in column “payout” should be adjusted by including the accrual for the AEI 2019/RSU and excluding any payouts from AEI 2013/RSU, AEI 2014/RSU or GEI 2010/SAR, as applicable. 2_The MTB figure included in the Actual Grant column shows the annual accrual before adjustment by the sustainability assessment. The payout 2018 figure includes the 2018 allocation and the accruals from the performance years 2016 and 2017, as adjusted by the sustainability assessment. The MTB 2016 – 2018 is paid out in spring 2019. 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 from 2009, the vesting period was four years and the exercise period three years. SARs can be exercised on the condition that the price of the Allianz SE stock is at least 20 % above the strike price at the time of grant. During the term of the plan, at least once on five consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points ahead of the appreciation of the Dow Jones EURO STOXX Price Index (600). 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. 6_Niran Peiris received a one-time payment of € 50 thou to reimburse him for relocation cost. Annual Report 2018 – Allianz SE 43 B _ Management Report of Allianz SE Individual remuneration: 2018 and 2017 € thou (total might not sum up due to rounding) 2017 Target Grant 2018 Target Base salary Perquisites Total fixed compensation Annual variable compensation Annual bonus Deferred compensation MTB (2016 – 2018)2 AEI 2019/RSU3 AEI 2018/RSU3 AEI 2014/RSU3 AEI 2013/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 2019/RSU3 AEI 2018/RSU3 AEI 2014/RSU3 AEI 2013/RSU3 GEI 2010/SAR4 Total Pensions service cost5 Total Iván de la Sota (Appointed: 04/2018)6 Actual grant Payout1 2017 2018 2017 2018 Min 563 717 633 - - - - - - - Max 563 717 633 848 848 848 - - - - 2,328 266 2,594 633 266 899 3,176 266 3,442 - - - - - - - - - - - - - 563 717 633 639 639 639 - - - - 2,549 266 2,815 - - - - - - - - - - - - - 563 717 633 639 695 - - - - - 1,967 266 2,233 2017 Target Grant 2018 Target Min 750 27 777 - - - - - - - Giulio Terzariol (Appointed: 01/2018) Actual grant Payout1 2017 2018 2017 2018 Max 750 27 777 1,125 1,125 1,125 - - - - 4,152 304 4,455 - - - - - - - - - - - - - 750 27 777 885 885 885 - - - - 3,432 304 3,735 - - - - - - - - - - - - - 750 27 777 885 960 - - - - - 2,622 304 2,925 3,027 304 3,330 777 304 1,080 563 717 633 565 565 565 - - - - 750 27 777 750 750 750 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1_In accordance with the German Corporate Governance Code, the annual bonus disclosed for performance year 2018 is paid in 2019 and for performance year 2017 in 2018. The payments for equity-related deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment was made. To reconcile to the Corporate Accounting Standard 17, the total as shown in column “payout” should be adjusted by including the accrual for the AEI 2019/RSU and excluding any payouts from AEI 2013/RSU, AEI 2014/RSU or GEI 2010/SAR, as applicable. 2_The MTB figure included in the Actual Grant column shows the annual accrual before adjustment by the sustainability assessment. The payout 2018 figure includes the 2018 allocation and the accruals from the performance years 2016 and 2017, as adjusted by the sustainability assessment. The MTB 2016 – 2018 is paid out in spring 2019. 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 from 2009, the vesting period was four years and the exercise period three years. SARs can be exercised on the condition that the price of the Allianz SE stock is at least 20 % above the strike price at the time of grant. During the term of the plan, at least once on five consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points ahead of the appreciation of the Dow Jones EURO STOXX Price Index (600). 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. 6_Iván de la Sota joined the Allianz SE Board of Management on 1 April 2018. He received a pro-rated base salary, annual bonus, MTB tranche, and equity-related compensation. The different pro-rated amounts for base salary and target amounts result from different pro-rating methodologies, which are generally applied. 7_Iván de la Sota received a one-time payment of € 50 thou to reimburse him for relocation cost. 44 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE Dr. Günther Thallinger (Appointed: 01/2017) Actual grant Payout1 2017 2018 2017 2018 Max 750 4 754 1,125 1,125 1,125 - - - - 4,129 395 4,524 750 2 752 857 857 - 857 - - - 750 4 754 904 904 904 - - - - 750 2 752 857 - - - - - - 3,323 318 3,641 3,465 395 3,860 1,609 318 1,927 750 4 754 904 1,911 - - - - - 3,568 395 3,963 2017 Target Grant 2018 Target 750 2 752 750 750 - 750 - - - 750 4 754 750 750 750 - - - - Min 750 4 754 - - - - - - - 3,002 318 3,320 3,004 395 3,399 754 395 1,149 2017 Target Grant 2018 Target 750 27 777 750 750 - 750 - - - 750 32 782 750 750 750 - - - - Min 750 32 782 - - - - - - - 3,027 501 3,528 3,032 510 3,542 782 510 1,292 Dr. Axel Theis (Appointed: 01/2015) Actual grant Payout1 2017 2018 2017 2018 Max 750 32 782 1,125 1,125 1,125 - - - - 4,157 510 4,667 750 27 777 885 885 - 885 - - - 750 32 782 932 932 932 - - - - 750 27 777 885 - - - - - - 3,432 501 3,933 3,578 510 4,087 1,662 501 2,163 750 32 782 932 3,015 - - - - - 4,729 510 5,238 Individual remuneration: 2018 and 2017 € 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 2019/RSU3 AEI 2018/RSU3 AEI 2014/RSU3 AEI 2013/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 2019/RSU3 AEI 2018/RSU3 AEI 2014/RSU3 AEI 2013/RSU3 GEI 2010/SAR4 Total Pensions service cost5 Total 1_In accordance with the German Corporate Governance Code, the annual bonus disclosed for performance year 2018 is paid in 2019 and for performance year 2017 in 2018. The payments for equity-related deferred compensation (GEI and AEI), however, are disclosed for the year in which the actual payment was made. To reconcile to the Corporate Accounting Standard 17, the total as shown in column “payout” should be adjusted by including the accrual for the AEI 2019/RSU and excluding any payouts from AEI 2013/RSU, AEI 2014/RSU or GEI 2010/SAR, as applicable. 2_The MTB figure included in the Actual Grant column shows the annual accrual before adjustment by the sustainability assessment. The payout 2018 figure includes the 2018 allocation and the accruals from the performance years 2016 and 2017, as adjusted by the sustainability assessment. The MTB 2016 – 2018 is paid out in spring 2019. 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 from 2009, the vesting period was four years and the exercise period three years. SARs can be exercised on the condition that the price of the Allianz SE stock is at least 20 % above the strike price at the time of grant. During the term of the plan, at least once on five consecutive trading days the Allianz SE stock must relatively appreciate at least 0.01 percentage points ahead of the appreciation of the Dow Jones EURO STOXX Price Index (600). 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. Annual Report 2018 – Allianz SE 45 B _ Management Report of Allianz SE GERMAN ACCOUNTING STANDARD 17 DISCLOSURE Under the German Accounting Standard 17, the total remuneration to be disclosed for 2018 (2017 in parentheses) is defined differently as compared to the German Corporate Governance Code: It is com- posed of the base salary, perquisites, the annual bonus, the fair value of the RSU grant and the payout of the MTB 2016 – 2018. However, it excludes the pension service cost. The information on remuneration for 2017 (in parentheses) does not include the notional accruals for the MTB 2016 – 2018: EQUITY-RELATED REMUNERATION In accordance with the approach described earlier, in March 2019 a number of RSUs were granted to each member of the Board of Management, which will vest and be settled in 2023. Grants and outstanding holdings under the Allianz Equity Program Board members RSU Number of RSU granted on 1/3/20191 Number of RSU held at 31/12/20181 Oliver Bäte € 9,386 (3,925) thou, Sergio Balbinot € 5,725 (2,636) thou, Jacqueline Hunt € 5,038 (2,613) thou, Dr. Helga Jung € 5,500 (2,497) thou, Dr. Christof Mascher € 5,140 (2,419) thou, Niran Peiris € 3,529 (–) thou, Iván de la Sota € 2,605 (–) thou, Giulio Terzariol € 3,507 (–) thou, Dr. Günther Thallinger € 4,472 (2,466) thou, Dr. Axel Theis € 5,661 (2,547) thou. The sum of the total remuneration of the Board of Management for 2018, including the payments of the MTB 2016 – 2018 and excluding the pension service cost, amounts to € 51 mn (2017 excluding the no- tional accruals for the MTB 2016 – 2018: € 24 mn). The corresponding amount, including pension service cost, equals € 55 mn (2017 excluding the notional accruals for the MTB 2016 – 2018: € 28 mn). Oliver Bäte Sergio Balbinot Jacqueline Hunt Dr. Helga Jung Dr. Christof Mascher Niran Peiris Iván de la Sota Giulio Terzariol Dr. Günther Thallinger Dr. Axel Theis Total 11,038 6,372 6,179 5,923 5,603 5,923 4,366 6,051 6,179 6,372 39,845 47,464 9,341 25,465 27,201 14,402 12,679 11,844 14,078 27,164 64,006 229,483 1_The relevant share price used to determine the fair 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 2017, the equity-related grant in 2018 was made to participants as part of their 2017 remuneration. The disclosure in the Annual Report 2017 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 2 March 2018 under the Allianz Equity Incentive are as follows: Oliver Bäte: 8,887, Sergio Balbinot: 5,985, Jacqueline Hunt: 5,924, Dr. Helga Jung: 5,563, Dr. Christof Mascher: 5,322, Dr. Günther Thallinger: 5,503, Dr. Axel Theis: 5,684. 46 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE 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 with pension rights in the frozen defined-benefit plan, the above contribution rates are reduced by 19 % of the expected annual pension Individual pensions: 2018 and 2017 € thou (total might not sum up due to rounding) from that frozen plan. The Allianz Group paid € 4 mn (2017: € 4 mn) to increase reserves for pensions and similar benefits for active members of the Board of Management. As of 31 December 2018, reserves for pensions and similar benefits for active members of the Board of Management amounted to € 31 mn (2017: € 41 mn). 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 Niran Peiris Iván de la Sota Giulio Terzariol Dr. Günther Thallinger Dr. Axel Theis Expected annual pension payment4 SC5 DBO6 SC5 - - - - - - 62 62 - - - - 14 - 19 - - - 120 120 - - - - - - 60 59 - - - - - - 14 - - - 108 114 - - - - - - 1,498 1,429 - - - - 303 - 289 - - - 2,930 3,332 54 45 - 14 - - 26 19 25 26 - - - - 6 - 31 27 33 16 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 DBO6 3,087 3,149 28 28 - - 1,841 1,863 3,139 3,208 - - 34 - 486 - 1,266 1,311 2,415 2,537 SC5 595 536 357 357 317 317 345 345 357 357 317 - 266 - 269 - 357 284 334 334 DBO6 2,028 1,385 1,351 961 820 472 1,301 924 1,409 1,018 322 - 268 - 486 - 949 570 1,254 889 SC5 DBO6 6 6 2 3 - - 9 8 6 5 - - - - 14 - 7 7 11 11 41 36 7 6 - - 221 204 47 42 - - 96 - 238 - 37 32 306 283 SC5 41 36 - - - - - - 44 40 - - - - - - - - DBO6 890 675 - 1 - - - - 717 646 - - - - - - - - 24 25 727 768 SC5 696 622 360 374 317 317 441 431 432 428 317 - 266 - 304 - 395 318 510 501 DBO6 6,045 5,245 1,386 995 821 472 4,861 4,421 5,312 4,914 322 - 701 - 1,500 - 2,252 1,914 7,633 7,810 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 for the frozen defined benefits pension plan, excluding current pension plan. 5_SC = service cost. Service costs are calculatory costs for the DBO related to the reported business year. 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. Annual Report 2018 – Allianz SE 47 B _ Management Report of Allianz SE In 2018, former members of the Board of Management and their dependents received remunerations and other benefits totaling € 7 mn (2017: € 7 mn), while reserves for current pension obligations and accrued pension rights totaled € 146 mn (2017: € 131 mn). 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: 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. 1. Arrangements for termination of service including retirement are as follows: 2. is determined based on the previous year’s annual base salary plus 50 % of the target variable remuneration (annual bonus, annualized MTB, and equity-related remuneration: For a board member with a fixed base salary of € 750 thou, the annual com- pensation would amount to € 1,875 thou. Hence, he/she would receive a maximum severance payment of € 3,750 thou) and 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, severance 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 members are also allowed to accept a limited number of non-executive super- visory roles in appropriate external organizations. In these cases, 50 % of the remuneration received is paid to Allianz SE. Only if the Allianz SE Supervisory Board classifies the appointment as a personal one, the respective board member will retain the full remuneration for that position. Any remuneration paid by external organizations will be itemized in those organizations’ annual reports; its level is deter- mined by the governing body of the relevant organization. 2. 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. Severance payments made to board members in case of early termination comply with the German Corporate Governance Code. 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 other shareholders, holds more than 50 % of voting rights in Allianz SE). 3. 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 payment amounts are offset against it. 48 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE REMUNERATION OUTLOOK FOR 2019 The Board of Management’s remuneration policy has remained stable for nine years; it was last presented to the Annual General Meeting in 2010. In anticipation of the upcoming new legislation resulting from Directive (EU) 2017/828 (Shareholder Rights Directive II), the Supervisory Board of Allianz SE conducted a comprehensive review and comparison against compensation-related market trends. Based on this review, the Supervisory Board of Allianz SE decided to implement structural changes to the remuneration system of the Board of Management of Allianz SE. The new structure became SIGNIFICANT CHANGES FROM 2018 TO 2019 effective on 1 January 2019 and will be put to vote in the Annual Shareholder Meeting of Allianz SE on 8 May 2019. The previous remuneration system supported sustainable per- formance and was aligned with the business strategy as well as shareholders’ interests and applicable laws. The new structure con- tinues to follow these principles and additionally integrates further stakeholder demands which have emerged over time, such as reduced complexity, as well as increased shareholder alignment and pay for performance. 1_The allocation value is used to determine the number of restricted stock units (RSU) and is described in detail in the LTI section “Allianz share price performance” on page 51. Annual Report 2018 – Allianz SE 49 TopicPay mixComponentsPay mixProportion (based on allocation value) Annual bonusEquity-relatedlong-term compensationCapsMalus and clawbackShareholding requirements2018Base salary + 3 variable components:•Short-term: annual bonus•Mid-term: mid-term bonus (MTB)•Long-term: equity-related compensationBase salary: 25%•Short-term: 25%•Mid-term: 25%•Long-term: 25%•50% Group financial targets (operating profit andnet income, equally weighted)•50% individual targetsShare priceCaps on all componentsMalusBase salary + 2 variable components:•Short-term: annual bonus•Long-term: equity-related compensationBase salary: 30%•Short-term: 25%•Long-term1: 45%•100% Group financial targets (operating profitand net income, equally weighted)•Individual contribution considered through a contribution factor with a range from 0.8 –1.2Share price and relativetotal shareholder return (TSR)Caps on all componentsandoverall compensation capMalus and clawback2019NoYes B _ Management Report of Allianz SE NEW TOTAL TARGET DIRECT COMPENSATION AND REMUNERATION STRUCTURE In order to foster market alignment and to simplify the remuneration structure, the mid-term bonus (MTB) is discontinued and variable compensation now consists of only two components. The weighting of the compensation components is therefore adjusted in order to allocate the discontinued MTB target amount, which had a weighting of 25 % of total target compensation (without pension) and in line with regulatory requirements for deferred variable compensation: − Base salary: increase by 5 percentage points from 25 % to 30 % − Annual bonus: stable at 25 % − Long-term incentive (LTI): increase of equity component by 20 percentage points from 25 % to 45 % based on target allocation value. BASE SALARY Starting in 2019, the non-performance-related base salary amounts to € 1,706 thou for the Chairman of the Allianz SE Board of Management ANNUAL BONUS The LTI percentage of the total target compensation for 2019 as well as the target amount of € 2,559 thou for the Chairman of the Allianz SE Board of Management (CEO) and of € 1,463 thou for a regular board member (RBM) are based on the target allocation value (as described in detail in the LTI section “Allianz share price performance” on page 51). This differs from the percentages based on IFRS fair value. Based on IFRS fair values, the equity-related compensation (which is allocated in the form of Restricted Stock Performance Units, “RSU”) would be higher (assuming that the fair value is higher than the allocation value). and € 975 thou for a regular board member and is paid in twelve equal monthly installments. With the new annual bonus structure, the number of parameters driving the annual bonus have been reduced significantly, which supports simplicity and transparency. From 2019 onwards, the annual bonus is based on the achievement of Group financial targets, adjusted by the individual contribution factor, which takes into account business division and individual performance. The 2019 remuneration report will show the performance corridor for the Group financial target achievement as well as the overall individual target achievement per board member. 50 Annual Report 2018 – Allianz SE CEO: 1,706RBM:97530%fix70%variable64%deferred36%cash25%Annual bonus45%Long-termincentive(LTI)%oftarget30%Base salaryCEO: 1,422RBM:813CEO:2,559RBM:1,463Targetin€thou•Malus(up to 100%)•Clawback(up to 3 years)Othercomponents Shareholding requirement•CEO:2 x Base salary•RBM:1 x Base salaryModifierfor target level•FixIndividual contribution factorGroup result4-year relative performance(peer index)4-yearshare price performanceSustainability check (100% down to 0%)%of targetTargetin €thouAnnual bonuskey features25%Annual bonusCEO: 1,422RBM:81350%Group net income50%Group operating profit•Payout adjusted by individual contribution factor: +/-20%•Annual bonus capped at 150% of target B _ Management Report of Allianz SE Group financial targets Group financial performance targets are comprised of IFRS operating profit and IFRS net income attributable to shareholders, equally weighted. Operating profit and net income are the key performance indicators and steering parameters for the Allianz Group and of high relevance to investors and analysts. Operating profit is used to evaluate the performance of the reportable segments as well as of the Allianz Group as a whole. It highlights the portion of income before income taxes that is attributable to the ongoing core operations of the Allianz Group. As net income is the basis of the dividend and return on equity, the two indicators reflect the overall financial performance appropriately. Individual contribution factor (ICF) (NEW) The Group financial target achievement may be adjusted by the individual contribution factor (ICF). The ICF has a limited range of 0.8 to 1.2 and will be multiplied with the Group financial target achieve- ment. It is an overall discretionary assessment by the Allianz SE Supervisory Board and takes into account the results of the business division and the individual contribution. Thereby the ICF assessment balances between the financial performance and the health targets (i.e. non-financial targets). For board members with business-related division responsibilities, the financial performance considers various profitability (e.g. operating profit and net income) and productivity (e.g. expense ratio) indicators for the business division. For board members with functional focus, division-specific performance targets are determined based on their key responsibilities. Health targets take into account customer satisfaction (e.g. NPS), employee en- gagement (e.g. Allianz Engagement Survey) and leadership quality, including strategic priorities. The assessment of the individual leader- ship contributions also includes a review of behavioral aspects, com- prising customer orientation, collaborative leadership, entrepreneur- ship, and trust (e.g. with regard to sustainability, corporate social responsibility, and diversity as well as integrity). To enhance transparency, the individual contribution factor assessment will be disclosed per board member. Annual bonus cap The annual bonus is subject to a limit and capped at 150 % of the target amount. LONG-TERM INCENTIVE (LTI) To foster shareholder alignment, the proportion of the equity-related compensation component within the total target compensation is significantly increased to 45 %. Also, annual target amounts are increased to € 2,559 thou for the Chairman of the Allianz SE Board of Management and € 1,463 thou for a regular board member. The proportion and the respective target amounts are based on target allocation values as described below in the section “Allianz share price performance”. The equity-related LTI introduces a new performance measure- ment for relative total shareholder return (relative TSR) which is objective and transparent and permits multi-year assessment of performance amongst peers. A sustainability review at the end of the performance period allows for a potential downward adjustment with the risk of no payout. The Allianz share price performance, the relative TSR, and the sustainability check adjustments are multiplicatively linked. Allianz share price performance Through the grant of restricted stock units (RSUs), the LTI continues to be equity-related and linked to the absolute share price development. The LTI allocation amount for the grant of RSUs is derived by multiply- ing the annual bonus target achievement factor with the LTI target amount. The LTI allocation amount is capped at 150 % of the respec- tive LTI target level. The number of RSUs allocated is derived by dividing the LTI allocation amount by the RSU allocation value at the time of grant. The RSU allocation value is calculated as the refer- ence share price at grant minus the net present value of the divi- dends during the vesting period. The IFRS accounting value of the RSUs, however, deviates from the allocation value, as it is based on the fair value concept, which is more complex, since it is based on an Annual Report 2018 – Allianz SE 51 %of targetTargetin €thouLTI key features45%Long-termincentive (LTI)CEO:2,559RBM:1,4634-year relative performance:•LTI payout subject to relative 4-year total shareholder return (TSR), benchmarkedto peer group (index), capped at 200%4-year share price performance:•LTI granted in form of Restricted Stock Units (RSUs)with a pay-out after four years, capped at 200%LTI allocation amount = LTI target amount multiplied with annual bonus target achievement factor, capped at 150%Sustainability check (100% down to 0%) B _ Management Report of Allianz SE option pricing model and additional market parameters1. The pro- posed simplified allocation value concept aims to increase transpar- ency and traceability of the number of RSU allocated to the benefi- ciaries. The allocation value and the fair value of the RSUs at grant will be disclosed in the annual remuneration report. 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. Relative TSR performance measurement (NEW) To foster relative performance against peers, a relative performance measure, TSR, was introduced: − The Allianz TSR will be benchmarked to the TSR of the STOXX Europe 600 insurance performance index, which represents a rel- evant peer group in the insurance industry. − The relative TSR performance factor is determined using the outperformance methodology, and calculated as follows: The TSR of the index is deducted from the TSR of the Allianz share; the result is multiplied by the factor 2 and, for calculation of the payout, applied as a factor to the RSU share price at vesting, e.g. 1 percentage point outperformance results in a relative TSR performance factor of 102 %. In order to avoid incentivizing excessive risk taking, the relative TSR performance factor is capped at 200 % which reflects 50 % outperformance. In addition, the payout of the RSU is set to zero if the relative TSR underperformance is below 50 % after four years. − Sustainability check (downward adjustment) (NEW) The payout of the LTI will be subjected to a sustainability check which may result in a LTI payout between 0 % and 100 %. It compares the development of the annual bonus KPIs in the grant year with the payout year of the LTI, taking into account extraordinary events and balance sheet strength. Following the end of the four-year vesting period, the company makes a cash payment based on the relevant share price of the RSUs at vesting, as adjusted by the relative TSR measure and sustainability check as described above. The relevant share price, which is capped at twice the share price at grant, is calculated based on the ten-day average Xetra closing price of the Allianz stock following the annual financial media conference in the year of expiry of the respective RSU plan. Overall LTI cap The LTI payout is subject to a limit and capped at 600 % of the target amount based on the allocation value as described in the LTI section “Allianz share price performance” on page 51. PENSIONS AND SIMILAR BENEFITS Pension contribution remains unchanged at 50 % of annual base salary. For further information regarding “Pensions and similar bene- fits”, please refer to page 40. 1_The fair value of the index-linked-RSUs is calculated as the present value of the expected future payout, taking into account the link between share performance and relative performance compared to the index as well as the relevant caps and thresholds as defined in the payout formula. The expected future payout is determined on the basis of observable market data as of the valuation day, and market standard simulation techniques. The most relevant market parameters for this estimation are the assumptions for the volatility of the Allianz stock, for the volatility of the index, for their correlation, the term structure of interest rates, and the expected dividends. TERMINATION OF SERVICE – DETAILS OF PAYMENT ARRANGEMENTS In the future, severance payments to Board members in case of early termination, including the case of a change of control, will be limited uniformly to twice the annual compensation (consisting of base salary and 100 % of the variable target compensation). SHAREHOLDING REQUIREMENTS (NEW) The members of the Board of Management are obliged to build up share ownership within three years. − Chairman of the Board: two times base salary, i.e. € 3,412 thou − Regular board member: one time base salary, i.e. € 975 thou. Holding is required for the entire term of service on the Board of Management. Shares will be acquired through mandatory pay component conversion to avoid insider trading. The holding obligation ceases with the end of the mandate. MALUS/CLAWBACK (NEW) Variable remuneration components may not be paid, or payment may be restricted, in the case of a significant breach of the Allianz Code of Conduct or regulatory Solvency II policies or standards, including risk limits. In the same way, for three years after payout, variable remuneration components already paid may be subject to a clawback. Additionally, a reduction or cancellation of variable remunera- tion may occur if the supervisory authority (BaFin) requires this in accordance with its statutory powers. TOTAL TARGET COMPENSATION AND OVERALL CAP (NEW) The review of the current remuneration system also revealed the need to adapt the compensation levels for the Board of Management of Allianz SE. The horizontal benchmark, with the relevant peer group consisting of DAX companies and international competitors, demon- strated that the compensation levels for both regular board members and the Chairman of the Board no longer reflect Allianz’s overall position, given relative size, complexity, and sustained performance. Moreover, the remuneration levels for regular board members have remained unchanged since their last adjustment in 2014. Therefore, the Supervisory Board deemed an increase of the total target com- pensation (without pension) necessary to maintain its attractiveness to talents. Specifically, the amount 2 for regular board members 2_Based on the allocation value as described in detail in the LTI section “Allianz share price performance” on page 51. 52 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE increased from € 3,000 thou to € 3,251 thou; the amount 1 for the Chairman of the Board increased from € 5,250 thou to € 5,687 thou. The ratio of the Chairman of the Board’s compensation against regular board members’ compensation remained at 1.75. In return to the increase, an overall cap was introduced which will limit the total payout significantly: The compensation relating to the relevant performance year, including pension contributions, will be capped at € 10,000 thou for the Chairman of the Board of Management and € 6,000 thou for a regular member of the Board of Management. The previous system did not include explicit overall payout caps. The calculatory overall payout caps that resulted from the individual caps of the compensations components amounted to € 11,800 thou for the Chairman of the Board of Management and € 6,750 thou for a regular member of the Board of Management. Remuneration of the Supervisory Board The remuneration of the Supervisory Board is governed by the Statutes of Allianz SE and the German Stock Corporation Act. The structure of the Supervisory Board’s remuneration is regularly reviewed with regard to its compliance with German, European, and international 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 2018 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 pro rata temporis after the end of the respective quarter of the business year for services rendered over that period. In 2018 each regular Supervisory Board member received a fixed com- pensation amounting to € 125 thou per year. Each Vice Chairperson received € 187.5 thou, the Chairperson received € 250 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 Committee1 Personnel Committee, Standing Committee, Risk Committee, Technology Committee Audit Committee 1_Members of the Nomination Committee do not receive an additional remuneration. Chair Member 50 100 25 50 ATTENDANCE FEES AND EXPENSES In addition to the fixed and committee-related remuneration, members of the Supervisory Board receive an attendance fee of € 1,000 for each Supervisory Board or committee meeting they attend. Should several meetings be held on the same or consecutive days, the 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 2018 The total remuneration for all Supervisory Board members, including attendance fees, amounted to € 2,684 thou (2017: € 2,179 thou). The following table shows the individual remuneration for 2018 and 2017: 1_Based on the allocation value as described in detail in the LTI section “Allianz share price performance” on page 51. Annual Report 2018 – Allianz SE 53 B _ Management Report of Allianz SE Individual remuneration: 2018 and 2017 € thou (total might not sum up due to rounding) Members of the Supervisory Board Michael Diekmann2 (Chairman) Jim Hagemann Snabe (Vice Chairman) Gabriele Burkhardt-Berg (Vice Chairwoman)7 Sophie Boissard8 Christine Bosse Jean-Jacques Cette10 Dr. Friedrich Eichiner Jean-Claude Le Goaër12 Martina Grundler Herbert Hainer14 Godfrey Robert Hayward15 Frank Kirsch16 Jürgen Lawrenz Rolf Zimmermann20 Total22 A M M M3 M M M10 M C C11 M12 M M Committees1 P C C M5 N C C M M M M9 M M M20 M R C C M M M M M M M16 M17 M S C C M M4 M6 M M13 M M M M19 M21 T M M C C M M M M M18 M20 M Fixed remune- ration Committee remune- ration Attendance fees Total remune- ration 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 250.0 133.3 187.5 133.3 145.8 100.0 125.0 66.7 125.0 100.0 72.9 100.0 125.0 100.0 52.1 - 125.0 100.0 125.0 66.7 125.0 66.7 41.7 - 125.0 100.0 125.0 150.0 225.0 120.0 75.0 56.7 50.0 33.3 50.0 26.7 25.0 28.3 29.2 40.0 150.0 86.7 29.2 - 50.0 40.0 50.0 26.7 25.0 13.3 8.3 - 50.0 33.3 33.3 41.7 9.0 3.7 6.0 4.5 7.0 3.8 8.0 3.7 6.0 4.5 3.0 5.3 8.0 6.0 4.0 - 8.0 5.3 7.0 3.0 6.0 3.0 2.0 - 6.0 4.5 4.0 4.5 484.0 257.0 268.5 194.5 202.8 137.1 183.0 97.1 156.0 132.8 105.1 145.3 283.0 192.7 85.3 - 183.0 145.3 182.0 96.4 156.0 83.0 52.0 - 181.0 137.8 162.3 196.2 2018 2017 1,750.0 1,445.9 850.0 671.7 84.0 61.5 2,684.0 2,179.1 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 3 May 2017. 4_Since 3 May 2017. 5_Since 1 September 2018. 6_Until 31 August 2018. 7_Since 1 September 2018. 8_Since 3 May 2017. 9_Since 3 May 2017. 10_Until 31 July 2018. 11_Since 3 May 2017. 12_Since 1 August 2018. 13_Since 1 September 2018. 14_Since 3 May 2017. 15_Since 3 May 2017. 16_Since 1 September 2018. 17_Until 31 August 2018. 18_Since 1 September 2018. 19_Since 3 May 2017. 20_Until 31 August 2018. 21_Until 3 May 2017. 22_The total reflects the remuneration of the full Supervisory Board in the respective year. REMUNERATION FOR MANDATES IN OTHER ALLIANZ COMPANIES AND FOR OTHER FUNCTIONS As remuneration for their membership in the Supervisory Board of Allianz Deutschland AG, Ms. Gabriele Burkhardt-Berg (three months in 2018) received € 15.9 thou for the financial year 2018 and Mr. Frank Kirsch received € 43.6 thou for the financial year 2018. Mr. Jürgen Lawrenz did not receive any remuneration for his service on the Supervisory Board of Allianz Technology SE. All current em- ployee representatives of for Ms. Martina Grundler, are employed by Allianz Group companies and receive a market-based remuneration for their services. the Supervisory Board, except 54 Annual Report 2018 – Allianz SE 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 2018 they were overseen by five board members. The following divisions focus on Group functions, along with business-related responsibilities: Chairman of the Board of Man- agement; Finance, Controlling and Risk; Investment Management; Operations; Human Resources, Legal, Compliance and M&A; and Business Transformation1.. For further information on Board of Management members and their responsibilities, please refer to Mandates of the Members of the page 8. Board of Management on 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 Remuneration Report starting on page 38. We continuously monitor our business performance against these targets through monthly reviews – which cover key opera- tional and financial metrics – to ensure we can move quickly and take appropriate measures in the event of negative developments. The Allianz Group uses operating profit and net income as key financial performance indicators across all its business segments. Other indicators include segment-specific figures, such as the com- bined ratio for Property-Casualty, return on equity2 for Life/Health, and the cost-income ratio for Asset Management. To steer and control new business in our business segments Property-Casualty and Life/Health, we use Return on Risk Capital (RoRC)3. 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 Default, and Inclusive Meritocracy. Examples include the Allianz Engagement Survey and Net Promoter Score (NPS4) results and diversity development. For further information on non-financial KPIs, please refer to the Combined Separate Non-Financial Report for the Allianz Group and Allianz SE (according to § 289b (3) in conjunction with § 298 (2) of the HGB) on page 41 of the Allianz Group’s Annual Report 2018. Branches In 2018, Allianz SE operated its business from Munich and from branch offices in Casablanca (Morocco), Singapore, Labuan (Malaysia), Wallisellen (Switzerland) 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 2018, the share capital of Allianz SE was € 1,169,920,000. It was divided into 424,459,661 registered and fully paid-up shares with no-par value. All shares carry the same rights and obligations. Each no-par value share carries one vote. RESTRICTIONS ON VOTING RIGHTS AND SHARE TRANSFERS; EXERCISE OF VOTING RIGHTS IN CASE OF EMPLOYEE EQUITY PARTICIPATIONS Shares may only be transferred with the consent of the company. An approval duly applied for may only be withheld if this is deemed necessary in the company’s interest on exceptional grounds. The applicant will be informed of the reasons. Shares acquired by employees of the Allianz Group as part of the employee stock purchase plan are subject to a lock-up period which used to be one year in general and was extended to three years in general under the plan for the fiscal year 2018. This serves the employee stock purchase plan’s aims of tying employees to the company and letting them benefit from the performance of the share price. During the lock-up period, employees can exercise their voting rights or have them exercised. 1_This member of the Board of Management also oversees Insurance Iberia & Latin America and Allianz Partners. 2_Excluding unrealized gains/losses on bonds net of shadow accounting. 3_The return on risk capital is defined as the present value of future real world profits on the capital requirement (including buffer to regulatory requirements) held at local level. 4_NPS is a measurement of customers’ willingness to recommend Allianz. Top-down NPS is measured regularly according to global cross-industry standards and allows benchmarking against competitors in the respective markets. Annual Report 2018 – Allianz SE 55 B _ Management Report of Allianz SE INTERESTS IN THE SHARE CAPITAL EXCEEDING 10 % OF THE VOTING RIGHTS We are not aware of any direct or indirect interests in the share capital of Allianz SE that exceed 10 % of the voting rights. SHARES WITH SPECIAL RIGHTS CONFERRING POWERS OF CONTROL There are no shares with special rights conferring powers of control. LEGAL AND STATUTORY PROVISIONS APPLICABLE TO THE APPOINTMENT AND REMOVAL OF MEMBERS OF THE BOARD OF MANAGEMENT AND TO AMENDMENTS OF THE STATUTES The Supervisory Board appoints the members of Allianz SE’s Board of Management for a maximum term of five years (Articles 9 (1), 39 (2) and 46 of the SE Regulation, §§ 84, 85 AktG and § 5 (3) of the Statutes). Reappointments, for a maximum of five years each, are permitted. A simple majority of the votes cast in the Supervisory Board is required to appoint members of the Board of Manage- ment. In the case of a tie vote, the Chairperson of the Supervisory Board, who pursuant to Article 42 of the SE Regulation must be a shareholder representative, shall have the casting vote (§ 8 (3) of the Statutes). If the Chairperson does not participate in the vote the Vice Chairperson shall have the casting vote, provided he or she is a shareholder representative. A Vice Chairperson who is an employee representative has no casting vote (§ 8 (3) of the Statutes). If one of the required members 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 already a manager of two other insurance undertakings, pension funds, insurance holding companies, or insurance special-purpose vehicles. However, the supervisory authority may permit more than two such mandates if they are held within the same group (§ 24 (3) of the German Insurance Supervision Act (“Versicherungsaufsichtsgesetz – VAG”)). The Federal Financial Services Supervisory Authority (“Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin”) must be notified of the intention of appointing a Board of Management member pursuant to § 47 No. 1 VAG. Amendments to the Statutes must be adopted by the General Meeting. § 13 (4) of the Statutes of Allianz SE stipulates that, unless this conflicts with mandatory law, changes to the Statutes require a two-thirds majority of the votes cast, or, if at least one half of the share capital is represented, a simple majority of the votes cast. The 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 relocation 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 8 May 2023, with the approval of the Supervisory Board, by issuing new registered no-par value shares against contributions in cash and/or in kind, on one or more occasions: − Up to a total of € 334,960,000 (Authorized Capital 2018/I): In case of a capital increase against cash contribution, the Board of 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 € 15,000,000 (Authorized Capital 2018/II): The shareholders’ subscription rights are excluded. New shares may only be issued to employees of Allianz SE and its Group compa- nies. The company’s share capital is conditionally increased by up to € 250,000,000 (Conditional Capital 2010/2018). This conditional capital increase will only be carried out to the extent that the holders of convertible bonds, bonds with warrants, convertible participation rights, participation rights, and subordinated financial instruments issued against cash by Allianz SE or its subsidiaries, based on the authorizations granted by the General Meeting on 5 May 2010 or 9 May 2018, exercise their conversion or option rights, or that conver- sion obligations from such bonds are fulfilled, and to such extent that treasury shares or shares from authorized capital are not used for such purpose. The Board of Management may buy back and use Allianz shares for other purposes until 8 May 2023 as per authorization of the General Meeting of 9 May 2018 (§ 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 purpos- es, 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 deriva- tives 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 8 May 2023. The total number of shares acquired 56 Annual Report 2018 – Allianz SE B _ Management Report of Allianz SE remuneration plus the variable remuneration, with this basis being limited, however, to the amount paid for the last fiscal year. This applies accordingly if, within twelve months of a change of control, a mandate in the Board of Management comes to an end and is not extended: The one-off payment will then be granted for the period between the end of the mandate and the end of the two- year period following the change of control. For further details, please refer to the Remuneration Report starting on page 38. is directly or Under the Allianz Sustained Performance Plan (ASPP), Re- stricted Stock Units (RSUs) – i.e. virtual Allianz shares – are granted to senior management of the Allianz Group worldwide as a stock- based remuneration component. The conditions for these RSU contain change-of-control clauses, which apply when a majority of in Allianz SE the voting share capital indirectly acquired by one or more third parties who do not belong to the Allianz Group, and which provide for an exception from the usual vesting and exercise periods. In line with the relevant general condi- tions, the company will release the RSUs to plan participants on the day of the change of control, without observing any vesting period that would otherwise apply. The cash amount payable per RSU must equal the average market value of the Allianz share and be equal to or above the price offered per Allianz share in a preceding tender offer. By providing for the non-application of the vesting period in the event of a change of control, the terms take into account the fact that the conditions influencing the share price are substantially different when there is a change of control. Controls over Financial Reporting The following information is provided 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 structure 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 is part of the Integrated Risk and Control System (IRCS) of Allianz SE and is regularly reviewed and updated. Our internal control system is split into controls on the system of governance (Entity-Level Control Assessment Process – ELCA) and controls at process levels (IRCS). IT controls, which are part of the IRCS framework, cover areas such as access rights management and IT project and change management, among others. 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 authorization procedures. Internal controls are embedded in the accounting processes to safeguard the accuracy, completeness, and consistency of the infor- mation provided in our financial statements. 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 subsidiaries of various car manufacturers relating to the distribution of car in- surance 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 acqui sition 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 agreements with members of the Board of Management and certain employees, providing for the event of a takeover bid: A change-of-control clause in the service contracts of the members of Allianz SE’s Board of Management provides that, if within twelve months after the acquisition of more than 50 % of the company’s share capital by one shareholder or several sharehold- ers 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 agree- ment, or if the Management board member resigns because his or her responsibilities as a board member are significantly reduced through no fault of the board member, he or she shall receive his or her contractual remuneration for the remaining term of the service contract, but for the purpose hereof limited to two years, in the form of a one-off payment. The one-off payment is based on the fixed Annual Report 2018 – Allianz SE 57 B _ Management Report of Allianz SE 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 IRCS Guideline. During the scoping process, both materiality and susceptibility to a misstatement are considered simultaneously. In addition to the quantitative calculation, we also consider qualitative 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 re- porting risks have been put in place to reduce the likelihood and impact of financial misstatements. If a potential risk materializes, actions are taken to reduce the impact of the financial misstate- ment. Given the strong dependence of financial reporting pro- cesses on information technology systems, we also implement IT controls. − Finally, we ensure that controls are appropriately designed and effectively executed to mitigate risk. We conduct an annual as- sessment of our control system to maintain and continuously enhance its effectiveness. Internal audit ensures that the overall quality of our control system is subjected to regular control-testing, to assure reasonable design and operating effectiveness. 58 Annual Report 2018 – Allianz SE FINANCIAL STATEMENTS OF ALLIANZ SE C Annual Report 2018 – Allianz SE 59 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 III. Advance payments made 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: € 376,373 thou (2017: € 280,343 thou) thereof from participations¹: € 4,657 thou (2017: € 1,197 thou) II. Other receivables thereof from affiliated enterprises: € 3,317,797 thou (2017: € 4,430,597 thou) thereof from participations¹: € 1,181 thou (2017: € 541 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 interest 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 2018 2018 2017 1, 2 1, 3 – 6 30,722 1,458 61 251,549 76,321,527 27,886,256 9,891,301 32,240 29,187 1,146 - 30,333 245,401 74,176,435 33,329,072 8,310,276 114,350,633 116,061,184 670,538 528,244 7 3,730,741 4,869,995 14,269 283,557 212,813 276,273 57,303 8 9 10 4,401,278 5,398,239 15,150 234,138 22,835 272,123 237,273 70,072 307,345 10,811 510,638 333,577 13,163 119,641,530 122,080,035 60 Annual Report 2018 – Allianz SE C _ Financial Statements of Allianz SE Note 2018 2018 2018 2017 12 1,169,920 2,651 41,016,097 13,749,596 1,167,269 27,949,540 7,355,135 4,544,153 1,599,704 612,654 11,283,419 26,606 2,380,716 23,600 1,229 7,353,906 1,661,911 62,207 640,625 27,971 13,969,041 2,685,623 29,361 2,755 23,600 1,169,920 3,638 1,166,282 27,905,256 1,229 8,823,789 8,825,017 4,117,339 42,013,894 13,689,227 1,641,405 65,197 1,576,208 709,801 27,661 682,140 12,092,668 1,964,574 10,128,094 22,551 31 22,520 2,541,167 30,154 30,154 15,926,698 14,980,283 8,136,545 1,701,367 7,949,981 983,272 342,595 362,729 1,848,356 2,374 36,910,351 2,353,545 490 39,735,524 39,103,676 42,452,289 7,550 11,091 119,641,530 122,080,035 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 reserve 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: € 147,546 thou (2017: € 214,528 thou) thereof to participations¹: € 253 thou (2017: € 325 thou) II. Bonds thereof to affiliated enterprises: € 1,848,356 thou (2017: € 2,353,545 thou) III. Liabilities to banks IV. Miscellaneous liabilities including taxes of: € 17,760 thou (2017: € 21,445 thou) thereof to affiliated enterprises: € 35,516,467 thou (2017: € 38,397,220 thou) thereof to participations¹: € 101 thou (2017: € 266 thou) G. Deferred income Total equity and liabilities 1_Companies in which we hold a participating interst. Annual Report 2018 – Allianz SE 61 C _ Financial Statements of Allianz SE INCOME STATEMENT € thou I.Technical account 1. Premiums earned (net) a) Gross premiums written b) Ceded premiums written c) Change in gross unearned premiums d) Change in ceded unearned premiums Premiums earned (net) 2. Allocated interest return (net) 3. Other underwriting income (net) 4. Loss and loss adjustment expenses (net) a) Claims paid aa) Gross 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 14. Unappropriated earnings carried forward 15. Transfer to revenue reserves To other revenue reserves Notes 2018 2018 2018 2017 18 10,912,145 (840,958) (20,948) (3,348) 10,071,186 (24,296) 19 20 21 22 (5,323,299) (473,171) (1,823,073) 673,464 (5,796,470) (1,149,609) 5,932,524 (20,044) 1,989,069 (3,346,618) 23 24 7,579,253 (1,646,728) 25 26 (129,995) 634,888 10,265,435 (777,449) 9,487,986 (50,839) (3,712) (54,550) 10,046,890 9,433,436 19,116 17 20,849 19,249 (6,076,163) 421,733 (5,654,430) (776,415) 169,179 (607,236) (6,946,079) (6,261,666) 53,693 (4,140) 20,093 11,123 (3,018,242) (2,884,228) (23,195) 128,060 (19,771) 339,084 160,451 (225,797) 288,511 113,287 5,647,514 (1,934,808) 3,712,706 (21,819) 5,912,480 3,690,886 3,158,500 (3,425,921) (1,357,549) (267,421) 4,554,932 3,423,465 4,843,443 3,536,752 504,893 6,675 511,568 (392,665) 514,930 122,265 12,401 134,666 5,355,011 3,671,418 689,142 445,920 (1,500,000) (1,500,000) - - 16. Net earnings 27 4,544,153 4,117,339 62 Annual Report 2018 – 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. The annual financial statements of Allianz SE and the consoli- dated financial statements of the Allianz Group are published digital- ly in the Federal Gazette (“Bundesanzeiger”). 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 acquisition 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 2018, or in some cases as the difference between acquisition cost and the net asset value. Wherever the market value at the balance sheet date was higher than the previous year’s valuation, the value is written up to no more than the historical acquisition cost. LOANS IN AFFILIATED ENTERPRISES AND PARTICIPATIONS These items are normally recorded at cost less impairments in 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. 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. ASSETS TO MEET LIABILITIES RESULTING FROM RETIREMENT PROVISION COMMITMENTS These assets are recorded 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. Group life insurance contracts are recorded at asset value. If the liabilities exceed the fair value, the exceeding amount will be shown under other provisions. If the fair value of the assets Annual Report 2018 – Allianz SE 63 C _ Financial Statements of Allianz SE exceeds the liabilities, the exceeding amount is shown as an excess of plan assets over pension and similar obligations. The accounting and valuation method of the excess of plan as- sets over pension and similar obligations is the same as described in the section „Other provisions”. TANGIBLE FIXED ASSETS, INVENTORIES, AND MISCELLANEOUS ASSETS These items are recorded at acquisition cost less depreciation. Low- value assets worth up to € 250 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 € 250 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 actuarial techniques. Insurance reserves in the ceded reinsurance business are cal- culated 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 generally recorded according to the amounts in the cedent’s statements. Reserves for loss and loss adjustment expenses are established for the payment of losses and loss adjustment expenses on claims that have occurred but are not yet settled. Reserves for loss and loss adjustment expenses fall into two categories: case reserves for reported claims and reserves for incurred but not 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. Other obligations such as provisions for jubilee payments, birthday pay- ments and phased-in early retirement benefits are also calculated in accordance with actuarial principles. According to § 253 (2) sentence 1 of the German Commercial Code (HGB), the discount rate used for calculating the pension obligations has to be derived from a 10-year-average, for calculating other obligations it has to be derived from a 7-year-average. § 253 (6) sentence 2 of the German Commercial Code states that a positive difference resulting from the calculation of the pension obligations with the discount rate of 7-year-average versus 10-year- average is earmarked for profit distribution. Apart from that, with respect to the discount rate, the simplifica- tion option set out in § 253 (2) sentence 2 of the German Commercial Code has still been applied (duration of fifteen years). The effect resulting from the change in the discount rate is reported under other non-technical result. For further information regarding the accounting for pensions and similar obligations, please refer to note 15 to our financial state- ments. 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 recorded at present value. PREPAID EXPENSES AND DEFERRED INCOME Accrued interest and rent are valued at nominal amounts. Premiums and discounts carried forward as prepaid income and expenses are amortized over the remaining life of the related financial instruments. CURRENCY TRANSLATION Transactions are generally recorded in the original currency and converted into Euros at the relevant daily rate (middle forex spot rate). 64 Annual Report 2018 – Allianz SE C _ Financial Statements of Allianz SE Loans to affiliated enterprises denominated in foreign currencies are converted into Euros using the middle forex spot rate as of the reporting date and applying the strict lower of cost or market value principle. The valuation of foreign currency shares in affiliated enterprises and participations, stocks, interests in funds, and other variable and fixed-income securities is 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 currency are valued at the middle forex spot rate as of the reporting date. Exchange rate differences resulting from this valuation of foreign currency positions are reflected in the other non-technical result. VALUATION UNITS Allianz SE made use of the option of forming valuation units as defined in § 254 of the German Commercial Code. This option is used for derivative contracts in which Allianz SE acts as an intra-group clearing agency. In this function, Allianz SE enters into derivative transactions 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 positions 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 More details regarding derivative transactions com- bined into valuation units are explained in note 17 to our financial statements. Annual Report 2018 – Allianz SE 65 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 3. Advance payments made Subtotal A. B.I. Real estate, real estate rights, and buildings, including buildings on land not owned by Allianz SE B.II. Investments in affiliated enterprises and participations 1. Shares in affiliated enterprises 2. Loans to affiliated enterprises 3. Participations 4. Loans to participations Subtotal B.II. B.III. Other investments 1. Stocks, interests in funds and other variable-income securities 2. Debt securities and other fixed-income securities 3. Other loans a) Registered bonds b) Loans and promissory notes 4. Bank deposits Subtotal B.III. Subtotal B.I. – B.III. Total 2 _ Intangible assets Values stated as of 1 January 2018 € thou 29,187 1,146 - 30,333 245,401 69,999,251 3,659,363 513,821 4,000 74,176,435 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 The book value of intangible assets totaled € 32 mn (2017: € 30 mn) and mainly consists of internally generated software. In 2018, the research and development costs of Allianz SE amounted to € 5 mn. The total sum represents development costs for internally generated software. 3 _ Market value of investments Fair values and carrying amounts 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 2018 0.3 73.6 24.0 6.0 0.6 9.9 2017 0.2 71.6 28.4 6.3 1.2 8.3 2018 0.8 84.1 24.3 6.1 0.6 9.9 2017 0.7 81.3 28.8 6.8 1.2 8.3 2018 0.5 10.5 0.3 0.1 - - 2017 0.5 9.7 0.4 0.5 - - 114.4 116.1 125.8 127.1 11.4 11.1 66 Annual Report 2018 – Allianz SE C _ Financial Statements of Allianz SE Additions (+) € thou 4,519 945 61 5,525 12,532 3,599,241 112,022 32,460 1,000 3,744,723 295,706 22,998,854 1,597,676 54,328 - 24,946,564 28,703,819 28,709,344 Transfers € thou (189) 189 - - - (26,850) - 26,850 - - - - - - - - - - Disposals (-) € thou Revaluation (+) € thou Depreciation (-) € thou - - - - - - - - - - 1,680,938 115,442 15,744 6,831 - - - - 1,703,513 115,442 289,858 27,273,050 2,070,439 29,714 598,382 30,261,443 31,964,956 31,964,956 - 31,965 - - - 31,965 147,407 147,407 2,795 822 - 3,618 6,384 408 - 11,152 - 11,560 - 159,903 - - - 159,903 177,846 181,464 Net additions (+) Net disposals (-) Values stated as of 31 December 2018 € thou 1,535 312 61 1,908 6,148 2,006,487 96,278 41,327 1,000 € thou 30,722 1,458 61 32,240 251,549 72,005,738 3,755,641 555,149 5,000 2,145,092 76,321,527 5,849 (4,402,134) 1,069,810 23,969,823 (472,763) 24,614 (598,382) (5,442,816) (3,291,576) 1,895,493 338,817 612,315 27,886,256 104,459,332 (3,289,669) 104,491,572 % 0.2 68.9 3.6 0.5 - 73.1 1.0 22.9 1.8 0.3 0.6 26.7 100.0 VALUATION METHODS USED TO DETERMINE THE MARKET VALUE REAL ESTATE Land and buildings are valued using the Discounted Cash Flow method 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 generally measured by the stock exchange price quoted on the last trading day of 2018. 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 transac- tion prices were used. 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. DETAILS IN ACCORDANCE WITH § 285 NO. 18 OF THE GERMAN COMMERCIAL CODE ON INVESTMENTS WHERE THE BOOK VALUE EXCEEDS THE MARKET VALUE We disregarded market value declines of € 0.6 mn for loans with a book value of € 209 mn. Based on the expected development of market conditions, the decline in market value is not expected to be of an enduring nature. We intend to hold loans until maturity in order to ensure a repayment at par value. DEBT SECURITIES These items are measured at the stock exchange value quoted on the last trading day of 2018 or, if there is no active market, at the prices obtained from brokers or pricing services. 4 _ Real estate, real estate rights and buildings The book value of own property for own use amounted to € 140 mn (2017: € 136 mn). 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. In exceptional cases, the carrying amount is used as fair value. Annual Report 2018 – Allianz SE 67 C _ Financial Statements of Allianz SE 5 _ Investments in affiliated enterprises and participations € bn as of 31 December Shares in affiliated enterprises Loans to affiliated enterprises Participations Total 2018 72.0 3.8 0.6 76.3 2017 70.0 3.7 0.5 74.2 Change 2.0 0.1 - 2.1 7 _ Other receivables As of 31 December 2018, other receivables amounted to € 3,731 mn (2017: € 4,870 mn). They mainly comprise receivables from profit transfer agreements amounting to € 2,633 mn (2017: 3,365 mn), receicables from cash pooling (€ 579 mn (2017: € 803 mn)) and tax receivables of € 348 mn (2017: € 443 mn). 8 _ Miscellaneous assets The book value of shares in affiliated enterprises went up by € 2.0 bn to € 72.0 bn (2017: € 70.0 bn). This increase resulted from the following: At the end of the fiscal year, this position mainly included variation margins paid in connection with financial derivative transactions (€ 201 mn). − the acquisition of all outstanding shares in Euler Hermes Group S.A. for a purchase price of € 1.1 bn, increasing the Allianz Group participation in Euler Hermes to 100 %, − a book value increase of € 0.1 bn due to purchase of Janashakthi − General Insurance Limited in Sri Lanka, intra-group acquisitions of shares in our Turkish subsidiary Allianz Sigorta A.S. (€ 0.4 bn) and AllSecur Deutschland AG (€ 0.1 bn) − various capital increases and decreases of Group companies − amounting to € 1.6 bn and € 1.4 bn, respectively, the reversal of impairment attributable to our subsidiary Allianz China Life Insurance Co. Ltd., Shanghai, raising the book value by € 0.1 bn. 6 _ Interests in investment funds Details on interests in investment funds in accordance with § 285 (26) of the German Commercial Code: € thou Equity funds Allianz Global AC Equity Insights Fund Allianz Global Emerging Markets Equity Dividend Fund Subtotal equity funds Bond funds Book value Fair value Valuation reserve Dividend distribution 3,939 3,000 6,939 3,971 3,331 7,302 32 331 363 - 83 83 Allianz RE Asia Fund 1,022,360 1,043,308 20,948 17,892 Allianz Fixed Income Macro Fund Allianz SE – PD Fund Subtotal bond funds Total 4,035 35,855 4,063 38,015 1,062,250 1,085,386 28 2,160 23,136 1,069,189 1,092,688 23,499 - - 17,892 17,975 Allianz SE holds more than 10.0 % of the respective shares of these investment funds. The fund shares can be redeemed each trading day. 9 _ Deferred charges and prepaid expenses This item includes accrued interests in the amount of € 276 mn (2017: € 237 mn), which mainly result from our investments in debt securities and loans, as well as other deferred charges and prepaid expenses amounting to € 57 mn (2017: € 70 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 group life insurance contracts and other plan assets. 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. 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. This results in the disclosure of an excess of plan assets over pension and similar obligations of € 13 mn (2017: € 11 mn). 11 _ Collateral Assets amounting to € 0.6 bn (2017: € 0.6 bn), of which € 0.6 bn (2017: € 0.6 bn) were in favor of affiliated enterprises, were pledged as collateral for liabilities. 68 Annual Report 2018 – Allianz SE C _ Financial Statements of Allianz SE SUPPLEMENTARY INFORMATION ON EQUITY AND LIABILITIES 12 _ Shareholders’ equity ISSUED CAPITAL Issued capital as of 31 December 2018 amounted to € 1,169,920.0 thou, divided into 424,459,661 fully paid 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 2018, Allianz SE had authorized capital with a notional amount of € 334,960.0 thou for the issuance of new shares until 8 May 2023 (Authorized Capital 2018/I). The shareholders’ sub- scription rights can be excluded for capital increases against 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 pro- vide for mandatory conversion. The subscription rights for new shares from the Authorized Capital 2018/I and the Conditional Capital 2010/2018 may only be excluded for the proportionate amount of the share capital of up to € 116,992.0 thou (corresponding to 10 % of the share capital at year-end 2018). In addition, Allianz SE has authorized capital (Authorized Capital 2018/II) for the issuance of new shares against contributions in cash until 8 May 2023. The shareholders’ subscription rights are excluded. The new shares may only be offered to employees of Allianz SE and its Group companies. As of 31 December 2018, the Authorized Capital 2018/II amounted to € 15,000.0 thou. CONDITIONAL CAPITAL As of 31 December 2018, Allianz SE had conditional capital totaling € 250,000.0 thou (Conditional Capital 2010/2018). This conditional capital increase will only be carried out if conversion or option rights attached to convertible bonds, bonds with warrants, convertible participation rights, participation rights, and subordinated financial instruments which Allianz SE or its Group companies have issued against cash payments according to the resolutions of the Annual General Meeting (AGM) on 5 May 2010 or 9 May 2018, are exercised or the conversion obligations under such bonds are fulfilled, and only to the extent that the conversion or option rights or conversion obli- gations 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 convertible notes have been excluded with the consent of the Super- visory 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 2010/2018. On or before 31 December 2018, there was no conver- sion of any such notes into new shares. CHANGES IN THE NUMBER OF ISSUED SHARES OUTSTANDING Number of issued shares outstanding 2018 2017 Number of issued shares outstanding as of 1 January 438,879,929 455,067,737 Changes in number of treasury shares Cancellation of issued shares 408,081 562,546 (15,789,985) (16,750,354) Number of issued shares outstanding as of 31 December 423,498,025 438,879,929 Treasury shares1 961,636 1,369,717 Total number of issued shares 424,459,661 440,249,646 1_Thereof 961,636 (2017: 1,369,131) 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 € 4,544,152,898.54 for the 2018 fiscal year shall be appropriated as follows: − Distribution of a dividend of € 9.00 per no-par share entitled to a dividend: € 3,811,482,225.00 − Unappropriated earnings carried forward: € 732,670,673.54 The proposal for appropriation of net earnings reflects the 961,636 treasury shares held directly and indirectly by the company as of 31 December 2018. 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 € 9.00 per each share entitled to dividend. TREASURY SHARES As of 31 December 2018, Allianz SE held 961,636 (2017: 1,369,131) treasury shares. Of these, 761,636 (2017: 343,102) were held for covering future subscriptions by employees in Germany and abroad in the context of Employee Stock Purchase Plans, whereas 200,000 (2017: 1,026,029) were held as a hedge for obligations from the Allianz Equity Incentive Program. In 2018, 826,029 treasury shares with the original purpose of hedging obligations from the Allianz Equity Incentive Program were rededicated to covering subscriptions by employees in the context of Employee Stock Purchase Plans. In 2018, 407,495 (2017: 562 546) treasury shares were sold to employees of Allianz SE as well as its subsidiaries in Germany and abroad in the context of the Employee Stock Purchase Plan. These Annual Report 2018 – Allianz SE 69 C _ Financial Statements of Allianz SE shares were taken from the stock of treasury shares dedicated to this purpose. In 2018, as in the previous year, no capital increase for the purpose of Employee Stock Purchase Plans was undertaken. Employees of the Allianz Group purchased shares at prices ranging from € 137.57 (2017: € 108.04) to € 153.94 (2017: € 158.72) per share. As of 31 December 2018, the remaining treasury shares of Allianz SE held for covering subscriptions by employees in the context of the Employee Stock Purchase Plan of Allianz SE and its subsidiaries in Germany and abroad amounted to 761,636 shares. In the year ending 31 December 2018, the total number of treasury shares of Allianz SE decreased by 407,495 (2017: decrease of 562,546), which corresponds to € 1,123,161.03 (2017: € 1,494,910.50) or 0.10 % (2017: 0.13 %) of issued capital as of 31 December 2018. The treasury shares of Allianz SE and its subsidiaries represented € 2,651 thou (2017: € 3,638 thou) or 0.23 % (2017: 0.31 %) of the issued capital as of 31 December 2018. SHARE BUY-BACK PROGRAMS 2018 In the year ending 31 December 2018, Allianz SE executed two share buy-back programs with a total volume of € 3 bn: SHARE BUY-BACK PROGRAM 2018/I In its meeting on 9 November 2017, the Board of Management of Allianz SE resolved to carry out a share buy-back program in an amount of up to € 2 bn within a period of six months (Share Buy- Back Program 2018/I) based on the authorization granted by the Annual General Meeting on 7 May 2014. In the period between 3 January 2018 and 3 May 2018, a total of 10,373,863 treasury shares with a market value of € 1,999,999,143.43 were acquired for an aver- age price of € 192.79. SHARE BUY-BACK PROGRAM 2018/II In its meeting on 2 July 2018, the Board of Management of Allianz SE resolved to carry out a share buy-back program in an amount of up to € 1 bn within a period between 4 July 2018 and 30 September 2018 (Share Buy-Back Program 2018/II) based on the authorization granted by the Annual General Meeting on 9 May 2018. In the period between 4 July 2018 and 4 September 2018, a total of 5,416,122 treasury shares with a market value of € 999,999,881.83 were acquired for an average price of € 184.63. All of the treasury shares acquired within the Share Buy-Back Pro- gram 2018/I and within the Share Buy-Back Program 2018/II have been redeemed according to the simplified procedure without reduc- tion of the share capital. Additional paid-in capital € thou As of 31 December 2017 Own shares: realized gains As of 31 December 2018 27,905,256 44,284 27,949,540 Revenue reserves € thou as of 31 December 1. Statutory reserve 2. Other revenue reserves2 Total 2017 1,229 8,823,789 8,825,017 Own shares exceeding mathematical value - 30,116 30,116 Own shares: cancellation1 - (2,999,999) (2,999,999) Transfer to revenue reserves - 1,500,000 1,500,000 2018 1,229 7,353,906 7,355,135 1_Share buy-back program 2018: Acquisition costs of the repurchased and cancelled shares of Allianz SE. 2_Thereof reserves for own shares € 2,651 thou (2017: € 3,638 thou). RESTRICTIONS ON DIVIDEND PAYOUT The unappropriated reserves plus the unappropriated earnings carried forward are not fully available for the distribution of a dividend due to legal restrictions. The unappropriated reserves of Allianz SE correspond to the other revenue reserves. Of the unappropriated reserves plus the unappropriated earnings carried forward, a total of € 1,045,224 thou (2017: € 936,623 thou) is exempt from dividend distribution. Of this amount, € 1,010,582 thou (2017: € 896,687 thou) are due to the legal requirement for discounting pension obligations according to § 253 (2) sentence 1 in connection with § 253 (6) of the German Commercial Code. Another € 30,722 thou (2017: € 29,187 thou) account for inter- nally generated intangible assets according to § 268 (8) sentence 1 of the German Commercial Code and € 1,269 thou (2017: € 7,111 thou) account for the surplus of the fair value of pension plan assets and phased-in early retirement plan assets compared to the acquisition costs according to § 268 (8) sentence 3 of the German Commercial Code. Another, € 2,651 thou (2017: € 3,638 thou) relate to the mathe- matical value of own shares deducted from issued capital according to § 272 (1a) of the German Commercial Code. 13 _ Subordinated liabilities Subordinated liabilities remained at € 13.7 bn in 2018 (2017: € 13.7 bn). € 10.3 bn (2017: € 10.3 bn) were external subordinated liabilities resulting from bonds directly issued by Allianz SE. Further, liabilities amounting intra-group subordinated to € 3.4 bn (2017: € 3.4 bn) were attributable to subordinated bonds issued by Allianz Finance II B.V., an affiliated enterprise that usually transfers the proceeds from these issues to Allianz SE via intra-group loans. Allianz SE provides a financial guarantee for the total amount of bonds issued by Allianz Finance II B.V. 70 Annual Report 2018 – Allianz SE 14 _ Insurance reserves € thou as of 31 December 2018 Motor Fire and property reinsurance Liability Credit and bond Personal accident Marine and aviation Life Legal expenses Health Other lines Total Unearned premiums Aggregate policy reserves 520,728 474,069 227,226 23,984 37,539 22,174 39,442 48,211 4,320 202,012 1,599,704 - - - - 39,317 - 571,560 - 1,778 - C _ Financial Statements of Allianz SE Reserves for loss and loss adjustment expenses 3,445,206 2,069,950 3,600,242 345,596 525,050 429,588 150,682 305,765 10,696 400,644 Reserves for premium refunds Claims equalization and similar reserves Other insurance reserves - 3,647 1,647 20,420 793 - - - - 99 373,232 634,146 418,330 457,058 3,275 78,065 - 40,666 - 375,944 6,857 6,257 2,659 437 2,046 429 784 1,627 29 2,476 Total 4,346,024 3,188,068 4,250,103 847,494 608,019 530,256 762,468 396,269 16,822 981,175 612,654 11,283,419 26,606 2,380,716 23,600 15,926,698 The development of the insurance reserves was mainly driven by increased reserves for loss and loss adjustment expenses due to the overall portfolio growth. AGGREGATE POLICY RESERVES Aggregate policy reserves declined by € 69 mn to € 613 mn, which was entirely attributable to the Life/Health reinsurance. RESERVES FOR LOSS AND LOSS ADJUSTMENT EXPENSES Reserves for loss and loss adjustment expenses increased by 11.4 % to € 11,283 mn, largely due to the growth of the portfolio. CLAIMS EQUALIZATION AND SIMILAR RESERVES In 2018, claims equalization and similar reserves decreased by € 160 mn to € 2,381 mn, mainly resulting from other reinsurance lines (€ 203 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 Provision 1 January 2018 6,418,175 858,0832 269,102 404,6212 7,949,981 Use (-) 271,980 100,964 140,715 192,829 706,488 Release1 (-) 100,800 372,192 81,442 16,316 570,749 Additions1 (+) 148,434 53,638 302,056 274,730 778,858 Reversal of Discounting Provision (+) 31 December 2018 680,364 - 1,942 2,638 6,874,193 438,565 350,943 472,844 684,945 8,136,545 1_Including currency translation effects. 2_Effective from 2018 onwards, interest on taxes are reported under the position “Remaining provisions” instead of “Tax provisions”. Therefore, the previous year figures were adjusted respectively. The total of other provisions rose by € 187 mn. This growth resulted mainly from a net increase of pension liabilities by € 456 mn which was partially offset by a decrease of tax provisions by € 420 mn. Miscellaneous provisions went up by € 150 mn, driven by rises in both, the provisions for anticipated losses (€ 82 mn) and the remaining provisions (€ 68 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 2018 – Allianz SE 71 C _ Financial Statements of Allianz SE The following table shows a breakdown of pension provisions: was installed in 2010 and reviewed and revised in 2018. The retire- ment age applied is the contractual or legal retirement age. Settlement amount of the offset liabilities € thou as of 31 December 2018 2017 Supplementary information € thou Old pension promises of the German subsidiaries 1,925,634 1,854,607 as of 31 December Pension promises of Allianz SE Vertreterversorgungswerk old pension promises to employees contribution-based pension plans deferred compensation Total 4,947,730 4,576,550 216,919 218,073 117,866 202,381 202,858 100,848 7,426,221 6,937,244 The settlement amount is calculated on the basis of the projected unit credit method and/or reported as the present value of the entitlements 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 between the tied agents and Allianz SE, and since Allianz Beratungs- und Vertriebs-AG no longer reimburses any costs, the pension obligations 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) 2018 3.21 2.32 1.70 3.25 2017 3.68 2.81 1.50 3.25 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. The mortality tables used are the RT2005G-tables of Heubeck, which have been adjusted with respect to mortality, disability and labor turnover to reflect company-specific circumstances. The adjustment Historical costs of the offset assets Settlement amount of the offset liabilities (-) Fair value of the offset assets 2018 563,936 2017 522,640 7,426,221 565,111 6,937,244 529,751 Net amount of pension provisions and excess of plan assets over pension and similar obligations 6,861,110 6,407,493 For a part of the pension promises, the option under § 67 (1) introduc- tion law of the German Commercial Code (EGHGB) is exercised. The resulting surplus as of 31 December 2018 amounted to € 14 mn. Allianz SE has obligations resulting from jubilee payments, birthday payments, and phased-in early retirement, which are reported under remaining provisions. The obligations resulting from a long term credit account are shown under provisions for pensions and similar liabilities. These obligations are basically calculated in the same way as the pension obligations, using the same actuarial assumptions (except for the discount rate). Offsettable plan assets are held at Methusalem Trust e.V. to secure the phased-in early retirement and long-term credit account obligations. The asset value/market value is used as the fair value. The following table shows a breakdown of the offset assets and liabilities resulting from the phased-in early retirement and long-term credit account obligations. Information on the offset assets and liabilities € thou as of 31 December Historical costs of the offset assets Settlement amount of the offset liabilities1 Fair value of the offset assets 2018 20,915 20,929 21,009 2017 19,740 19,783 20,755 1_Effective from 2018, only provisions with plan assets are reported. The previous year figure was adjusted respectively. 72 Annual Report 2018 – Allianz SE 16 _ Maturity of financial liabilities The residual terms of subordinated liabilities, bonds issued, and miscellaneous liabilities are as follows: Maturity table as of 31 December 2018 € 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 Term 1 – 5 years Term > 5 years - 1,500,000 1,500,000 - - 3,300,000 8,713,153 12,013,153 1,546,000 - 1,614,404 100,000 Term < 1 year 112,136 124,307 236,443 302,356 2,374 Total 3,412,136 10,337,461 13,749,596 1,848,356 2,374 6,784,610 28,731,857 1,670,207 15,993,567 3,500,000 12,638,290 35,516,467 17,663,774 16,138,290 1,714,404 1,393,884 36,910,351 1,393,884 19,057,657 - - 16,138,290 1,714,404 52,510,678 19,598,831 17,638,290 15,273,557 1_As of 31 December 2018, “Other intra-group liabilities” due within one year amounted to € 16.0 bn. Thereof, cash pool and intra-group loans accounted for € 8.4 bn and € 6.6 bn, respectively. Upon maturity, intra-group loans are rolled forward by Allianz SE on a regular basis. 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 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 amounted to € 20.7 bn. Thereof, cash pool and intra-group loans accounted for € 14.0 bn and € 5.7 bn, respectively. Upon maturity, intra-group loans are rolled forward by Allianz SE on a regular basis. Of the total financial liabilities, other intra-group liabilities with a resi- dual term of less than one year amounting to € 0.8 bn (2017: € 0.8 bn) were secured by assets pledged as collateral as of 31 December 2018. Annual Report 2018 – Allianz SE 73 C _ Financial Statements of Allianz SE 17 _ Information about derivative financial instruments Options dealing in shares and share indices as of 31 December 2018 Class Long call Short call Long put Short put Nominal € thou 53,036 53,036 134,136 134,136 Fair value Book value Underlying Balance sheet position € thou 3,023 (3,023) 1,741 (1,741) € thou 5,348 5,348 1,115 1,115 Share index Share index Share index Share index Assets D.III. Liabilities F.IV. Assets D.III. Liabilities F.IV. The options on stock indices are held in the context of hedging activities of Allianz Companies with Allianz SE. Allianz SE hedged these positions by entering into countertrades at the market. Both intra-group and group-external positions were combined to valuation units (“Bewer- tungseinheiten”). The average remaining term of the call options is nine years, the remaining term of the put options less than one year. the closing price on the valuation date. Yield curves are derived from the swap rates prevailing on the valuation date. The future dividend yield is estimated on the basis of market information on the valuation date. Volatility is estimated based on currently traded implicit volatility, taking into account the residual term and the ratio between the strike price and the prevailing share price. European-type options are valued using the Black Scholes model and American-type options using the binomial model, both based on Forward contracts in shares, share indices and hedge RSU as of 31 December 2018 Class Long forward Long forward Long forward Short forward Short forward Hedge RSU Nominal Fair value Book value Underlying Balance sheet position € thou 552,815 323,066 287,946 323,066 287,946 289,322 € thou (33,905) (103,706) (26,738) 103,706 (26,738) (363,824) € thou 33,905 – – – – 365,048 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 – – – – 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 underlying with Allianz SE. Allianz SE hedged these positions by entering into countertrades at the market. Both intra-group and group-external positions were combined to valuation units (“Be- wertungseinheiten”). The remaining term of these forwards is less than one year. The fair value of a forward contract is determined as the difference between the underlying closing price on the valuation date and the discounted forward price. The net present value of dividend payments due before maturity of the forward contract is also taken into account, unless the dividends are subject to a pass-through agreement. Liabilities from hedge RSU, which the Group companies acquire from Allianz SE in order 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 dividends due before maturity of the respective hedge RSU. Applicable discount rates are derived from interpolated swap rates. Forward contracts in bonds as of 31 December 2018 Class Long forward Short forward Nominal € thou 168,041 168,041 Fair value Book value Underlying Balance sheet position € thou (277) 277 € thou – – Bonds Bonds – – For the purpose of hedging the interest rate risk of investments, Allianz Benelux N.V. entered into forward transactions on bonds with Allianz SE. Allianz SE hedged these positions by entering into counter- trades at the market. Both intra-group and group-external positions were combined to valuation units (“Bewertungseinheiten”). The re- maining term of these forwards is less than one year. The fair value of a forward bond contract is determined as the difference between the market price of the underlying bond (including accrued interest) on the valuation date and the discounted forward price, taking into account the net present value of all interest pay- ments occurring between the valuation date and the expiry date of the forward contract. 74 Annual Report 2018 – Allianz SE C _ Financial Statements of Allianz SE Forward currency contracts as of 31 December 2018 Class Long forward Short forward Nominal € thou Fair value € thou 8,168,233 60,173 Book value € thou 25,211 11,829,454 (189,735) 243,523 Underlying Balance sheet position AED, AUD, BRL, CAD, CHF, CNY, COP, CZK, DKK, GBP, HKD, HUF, JPY, KRW, NOK, PLN, QAR, SEK, SGD, TRY, USD AED, AUD, BRL, CAD, CHF, COP, CZK, DKK, GBP, HKD, HUF, ILS, JPY, KRW, MYR, NOK, NZD, PLN, QAR, SAR, SEK, SGD, TRY, TWD, USD Liabilities D. Liabilities D. Allianz SE holds long and short positions in various currencies in order to manage foreign exchange risk within Allianz SE and other entities of the Allianz Group. The fair value of a forward currency contract is the difference between the discounted forward price and the spot rate in Euros. The discounted forward price is calculated by applying the Euro interest rate as a discount rate and the foreign currency interest rate as a compound interest rate. Long forwards and short forwards with a nominal value of € 3.5 bn and a fair value of € 21.3 mn, respectively, were aggregated to valuation units (“Bewertungseinheiten”), each comprising intra-group positions offset by countertrades at the market. The average remaining term of the forwards in valuation units is less than one year. Swap contracts as of 31 December 2018 Class Receiver swap EUR Nominal € thou 1,500,000 Fair value Book value € thou 18,478 € thou – Underlying Balance sheet position Long-term interst rate positions – Allianz SE holds a EUR receiver swap in order to hedge interest rate risk arising from interest rate positions of Allianz SE. The fair value of an interest rate swap is the aggregate net pre- sent value of all expected incoming and outgoing cash flows of the respective swap transaction. Within the financial participations there are put and call options on company shares, which are linked to certain conditions. Due to the lack of quoted prices on active markets for these financial participa- tions and the uncertainty regarding the occurrence of the option conditions it is not possible to reliably determine the fair value of such options. Wherever feasible, contractual arrangements including the option agreements were taken into account when determining the fair value of the financial participation. However, no stand-alone valuation of the options as derivative financial instruments was performed. Annual Report 2018 – Allianz SE 75 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 2018 10,514,438 397,706 2017 9,857,787 407,648 10,912,145 10,265,435 € thou Gross Ceded Net 2018 2017 (3,191,149) (2,930,442) 172,907 46,213 (3,018,242) (2,884,228) Gross premiums written increased by 6.3 % to € 10,912 mn. This increase was driven by the lines of business motor reinsurance (€ 420 mn), other property reinsurance (€ 92 mn), household and homeowner reinsurance (€ 81 mn) and liability reinsurance (€ 63 mn). The increase of underwriting expenses (net) was mainly influenced by the premium development. The expense ratio (net) decreased to 30.0 % (2017: 30.6 %), driven by a lower commission ratio of 29.0 % (2017: 29.6 %). 19 _ Allocated interest return (net) 23 _ Investment income The amount of interest income transferred from the non-technical section to the technical section was calculated in accordance with § 38 RechVersV and reduced to € 19 mn (2017: € 21 mn). 20 _ Run-off result In 2018, the positive run-off result in Property-Casualty amounted to € 276 mn (2017: € 343 mn) and was primarily owed to the positive development of the lines of business fire reinsurance (€ 194 mn), credit and bond reinsurance (€ 115 mn), and marine and aviation reinsurance (€ 51 mn), partly offset by liability reinsurance (€ (90) mn). 21 _ Change in other insurance reserves (net) € thou a) Income from affiliated enterprises and participations thereof from affiliated enterprises: € 4,564,423 thou (2017: € 1,052,491 thou) b) Income from other investments thereof from affiliated enterprises: € 258,784 thou (2017: € 464,023 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 € thou Change in aggregate policy reserves (net) Other insurance reserves (net) Total 2018 47,158 6,535 2017 17,954 2,139 53,693 20,093 bb) Income from other investments Debt securities Loans to affiliated enterprises Funds held by others under reinsurance business assumed Receivables from intra-group cash pooling Interests in funds Other Total The change in aggregate policy reserves (net) was mainly driven by increased business volume from Allianz Benelux S.A. The other insurance reserves (net) mostly include reserves for credit and bond reinsurance and motor reinsurance. 2018 2017 4,586,715 1,098,617 12,196 602,430 147,407 119,263 9,443 850,142 10,450 653,231 2,111,242 3,025,630 7,579,253 5,647,514 2018 2017 295,386 151,434 87,182 41,863 22,076 4,489 314,979 386,536 79,852 20,473 39,808 8,494 602,430 850,142 76 Annual Report 2018 – Allianz SE 24 _ Investment expenses 25 _ Other non-technical result € thou a) Expenses for the management of investments, interest, and other investment-related expenses aa) Interest expenses (see below) (1,000,771) (1,000,900) 2018 2017 € thou Other Income Gains on derivatives Currency gains ab) Other b) Depreciation and impairments of investments c) Realized losses d) Expenses from losses taken over Total 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 (71,574) (177,846) (119,955) (276,582) (92,073) (266,668) (130,532) (444,635) Income from the release of other provisions Other service revenues from group companies Intercompany income Service revenues from pensions charged to group companies (1,646,728) (1,934,808) Interest and similar income1 Income due to adjustment of cost allocation contract 2018 2017 Other (408,160) (223,107) (406,622) (226,162) Total other income Other expenses Currency losses (200,196) (104,193) (35,959) (20,000) (9,156) (208,861) (107,023) (24,637) (12,996) (14,599) Interest and similar expenses Expenses for derivatives Anticipated losses on derivatives Other administrative expenses2 Other HR-related expenses Other service expenses to group companies (1,000,771) (1,000,900) Pension expenses The depreciation and impairments of investments include unscheduled write-downs of € 0.4 mn (2017: € 8 mn) on holdings in affiliated enter- prises. Service expenses from pensions charged to group companies Expenses for financial guarantees Other Total other expenses Other non-technical Result 1_Effective from 2018, interest and similar income are no longer reported under the position “Other”. Therefore, the previous year figures were adjusted respectively. 2_Effective from 2018, other administrative expenses are no longer reported under the position “Other”. Therefore, the previous year figures were adjusted respectively. C _ Financial Statements of Allianz SE 2018 2017 930,700 610,189 193,405 185,610 36,617 15,939 12,102 - 4,506 1,099,634 1,569,244 53,928 214,088 31,788 23,394 911 153,454 12,058 1,989,069 3,158,500 (811,659) (731,425) (566,503) (298,588) (290,206) (283,064) (185,610) (157,894) (15,939) - (5,728) (904,962) (567,124) (895,723) (147,198) (223,877) (352,071) (214,088) (78,613) (23,394) (15,366) (3,503) (3,346,618) (3,425,921) (1,357,549) (267,421) Annual Report 2018 – Allianz SE 77 C _ Financial Statements of Allianz SE The result from currency translation amounted to € (201) mn after € 664 mn in the previous year. This considerable deterioration was mainly driven by the currency translation of liabilities denominated in USD. After substantial gains in 2017 due to a significantly weakening USD, we recorded currency translation losses on these liabilities owing to the USD regaining some strength in 2018. Allianz SE has a joint liability for a large part of the pension provisions of its German subsidiaries (see note 15 for more details). Expenses incurred in this context are recognized as service expenses from pension plans charged to group companies, as they are reim- bursed by the German subsidiaries according to the cost allocation contract and result in corresponding service revenues. Compared to the previous year, the income from the release of other provisions increased mainly due to the revised adjustment of the mortality tables, leading to an income from the release of pension provisions of € 101 mn in 2018. The growth of pension expenses by € 79 mn was mainly caused by the increase in the pension trend parameter from 1.5 % p.a. to 1.7 % p.a. which led to higher pension expenses of € 118 mn. This increase was mitigated by compensatory effects. Furthermore, the other income/expenses include the following offset income and expenses: € thou 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 2018 2017 Pensions and similar obligations Other obligations Pensions and similar obligations Other obligations1 (15,123) 248,512 446,974 680,363 (270) 313 11 54 (17,136) 256,598 294,911 534,373 (145) 225 9 90 1_Effective from 2018, only interest for provisions with plan assets are reported. Therefore, the previous year figures were adjusted respectively. FEES TO THE AUDITOR On 8 March 2018, the Allianz SE Supervisory Board elected Pricewa- terhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (PwC GmbH) as the external auditing firm for the Allianz Group and successor to KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG AG). On 14 May 2018, the Supervisory Board’s Audit Committee en- gaged PwC GmbH as external auditor, starting from the fiscal year 2018. Audit services by primarily relate to services rendered for the audit of the Allianz Group’s consolidated financial statements, the audit of the statutory financial statements of Allianz SE and its subsidiaries, the audit of the Allianz Group’s solvency balance sheet as well as the solvency balance sheets of Allianz SE and its subsidiaries. In addition, reviews of interim financial statements were performed. Tax services primarily refer to tax compliance and personal tax compliance services. The greatest differences between accounting and tax-based valuation concern the balance sheet items pension accruals, reserves for loss and loss adjustment expenses, and provisions for anticipated losses resulting in deferred tax assets. In addition, the existing corporate tax loss increases the surplus of deferred tax assets. The valuation of the domestic deferred taxes is based on the following tax rates: − 31.0 % differences in balance sheet items, − 15.8 % corporate tax losses, − 15.2 % trade tax losses. 27 _ Net earnings Other services primarily refer to consulting services. Details of the fees to the auditor for services to Allianz SE, pursuant to § 285 (17) of the German Commercial Code, can be found in the notes to the Allianz Group’s consolidated financial statements. € thou Net income Unappropriated earnings carried forward Transfer to other revenue reserves Net earnings 26 _ Income taxes In 2018, our tax income, most of which relates to our net operating income, increased to € 505 mn (2017: € 122 mn). As the controlling company (“Organträger”) of the tax group, Allianz SE files a consolidated tax return with most of its German affiliated enterprises. As long as the corporate income tax loss carried forward is not fully utilized, the tax compensation payments as of € 635 mn (2017: € 515 mn) received from members of the tax group result in a tax income. 2018 5,355,011 689,142 (1,500,000) 2017 3,671,418 445,920 - 4,544,153 4,117,339 78 Annual Report 2018 – Allianz SE C _ Financial Statements of Allianz SE 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 Climate Solutions GmbH, − Allianz Deutschland AG, − Allianz Finanzbeteiligungs GmbH, − Allianz Global Corporate & Specialty SE, − Allianz Global Health GmbH, − Allianz Investment Management SE, − Allianz Real Estate GmbH, − Allianz Technology SE, − AZ-Arges Vermögensverwaltungsgesellschaft mbH, − IDS GmbH-Analysis and Reporting Services. OTHER FINANCIAL COMMITMENTS Advertising agreements incurred financial obligations of € 588 mn. Security deposits for rental contracts amounted to € 0.1 mn in financial commitments. LITIGATION Allianz SE is involved in legal, regulatory, and arbitration proceedings. Such proceedings arise in the ordinary course of business, including, amongst others, Allianz SE’s activities as a reinsurance company, employer, investor and taxpayer. It is not feasible to predict or determine the ultimate outcome of the pending or threatened proceedings. Management does not believe that the outcome of these proceedings, including the one discussed below, will have a material adverse effect on the financial position and the results of Allianz SE, after consideration of any applicable provisions. On 24 May 2002, pursuant to a statutory squeeze-out procedure, the general meeting of Dresdner Bank AG resolved to transfer shares from its minority shareholders to Allianz as the principal 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 higher amount as an appropriate cash settlement, this would affect all of the approximately 16 mn shares that were transferred to Allianz. OTHER INFORMATION Contingent liabilities, other financial commitments, and litigation 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 € 11.8 bn, of which € 3.3 bn were on a subordinated basis, − commercial papers issued by Allianz Finance Corporation. As of 31 December 2018, USD 0.2 bn in commercial papers were issued 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 Compañía 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.). Because of the sharp decrease of the discount rate as of 31 December 2018, the plan assets of the support funds are less than the liabilities pension obliga- tions. As of 31 December 2018, the resulting deficit amounts to € 8 mn (2017: € 0 mn). Allianz SE has a joint liability of € 466 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. In addition, Allianz SE has issued guarantees to various Allianz Group companies totaling € 553 mn. OTHER GUARANTEES TO THIRD PARTIES A contingent indemnity agreement has been entered into with respect to securities issued by HT1 Funding GmbH, in case HT1 Funding GmbH cannot serve the agreed coupon of the bond in part or in total. Allianz SE expects not to be obliged to make a payment in the 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 2018, other guarantee commitments given by Allianz SE amounted to € 7 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. Annual Report 2018 – Allianz SE 79 C _ Financial Statements of Allianz SE 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 2018, the Board of Management was comprised of ten 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 remuneration (long-term). In 2018, the equity-related remuneration was comprised of 63,9422 (2017: 53,7533) Restricted Stock Units (RSU). Board of Management remuneration € thou Base salary Annual bonus MTB 2016 – 2018 Perquisites Subtotal Base salary, Annual bonus, MTB and Perquisites Fair value of RSU at grant date Subtotal equity-related remuneration Total 2018 (7,875) (9,361) (23,481) (485) (41,202) (9,361) (9,361) 2017 (7,125) (8,370) - (205) (15,700) (8,370) (8,370) (50,563) (24,070) BENEFITS TO RETIRED MEMBERS OF THE BOARD OF MANAGEMENT In 2018, remuneration and other benefits of € 7 mn (2017: € 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 2018 124,056 124,056 128,576 4,520 2017 105,768 105,768 109,498 3,730 The asset value of the group life insurance contracts is taken as a basis for the fair value of the offset assets. Supervisory Board remuneration4 Fixed remuneration Committee-related remuneration Attendance fees Total 2018 2017 € thou (1,750) (850) (84) % 65.2 31.7 3.1 € thou (1,446) (672) (61) % 66.4 30.8 2.8 (2,684) 100.0 (2,179) 100.0 Average number of employees The total remuneration of the Board of Management of Allianz SE for 2018 (including the pay-out from the MTB 2016 – 2018) amounted to € 50,563 thou (2017, excluding the relevant MTB 2016 – 2018 tranche: € 24,070 thou). 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 military/ federal voluntary service. EQUITY-RELATED REMUNERATION The remuneration system as of 1 January 2010 only awards RSUs. For 2018, the fair value of the RSUs at the date of grant was € 9,361 thou (2017: € 8,370 thou). Full-time staff Part-time staff Total 2018 1,444 223 2017 1,409 231 1,667 1,640 1_For detailed information regarding the Board of Management remuneration, please refer to the Remuneration Report starting on page 38. 2_The relevant share price to determine the final number of RSUs 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 2017 was based on a best estimate of the RSU grants. The figure shown here for 2017 now includes the actual fair value as of the grant date (2 March 2018), including the Board members who left as of 31 December 2017. The value therefore differs from the value disclosed last year. 4_For detailed information regarding the Supervisory Board remuneration, please refer to the Remuneration Report starting on page 38. 80 Annual Report 2018 – Allianz SE C _ Financial Statements of Allianz SE Staff expenses Information pursuant to § 160 (1) No. 8 AktG 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 2018 2017 (314,304) (380,643) (25,297) (22,466) (24,701) (26,501) (362,067) (431,845) Events after the balance sheet date In March 2019, Allianz SE has started a new share buy-back program with a volume of up to € 1.5 bn. For further information, please refer to the section “Expected dividend development” of the chapter Outlook 2019 within the Group Management Report. 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. The following major shareholdings were reported pursuant to § 20 (1) or (4) AktG or pursuant to §§ 33ff. WpHG: By way of a letter dated 5 November 2018, BlackRock Inc., Wilmington, Delaware, United States of America, notified in the course of a voluntary group notification due to change in group structure with triggered threshold on subsidiary level its voting rights pur- suant to §§ 33, 34 WpHG as of 15 August 2018 amounting to 7.03 % (representing 30,208,723 shares), its holdings in instruments pursuant to § 38 (1) No. 1 WpHG as of 15 August 2018, amounting to 0.01 % (representing 39,596 voting rights absolute), and its holdings in instruments pursuant to § 38 (1) No. 2 WpHG as of 15 August 2018, amounting to 0.04 % (representing 192,501 voting rights absolute). The total position notified on 5 November 2018 amounted to 7.08 %. By way of a letter dated 10 July 2018, Harris Associates L.P., Wilmington, Delaware, United States of America, notified that its voting rights pursuant to §§ 33ff. WpHG have fallen as of 5 July 2018 below 3 % and amounted to 2.95 % (representing 12,685,605 shares). Declaration of Conformity with the German Corporate Governance Code On 12 December 2018, the Board of Management and the Super- visory 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. Annual Report 2018 – Allianz SE 81 C _ Financial Statements of Allianz SE LIST OF PARTICIPATIONS OF ALLIANZ SE, MUNICH AS OF 31 DECEMBER 2018 ACCORDING TO § 285 NO. 11 AND 11B HGB IN CONJUNCTION WITH § 286 (3) NO. 1 HGB Owned1 % Equity € thou Net Earnings € thou 100.0 5,682 (29) 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 GmbH, Munich Allianz Capital Partners Verwaltungs GmbH, Munich Allianz Deutschland AG, Munich Allianz Finanzbeteiligungs GmbH, Munich 100.0 79.6 100.0 2 32,843 6,860 20,393 100.0 2 28,638 100.0 2 22,655 94.8 100.0 2 100.0 2 100.0 100.0 2 100.0 2 100.0 100.0 2 100.0 2 398,486 4,480,556 3,308,358 409,394 8,605 27,388 28,282 7,524,341 824,678 Allianz Global Corporate & Specialty SE, Munich 100.0 2,3 1,144,237 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 100.0 2 100.0 3 100.0 2 100.0 2 100.0 2 100.0 2 100.0 2 100.0 2 100.0 100.0 100.0 2 100.0 100.0 100.0 2 100.0 2 100.0 2,3 100.0 3 99.5 100.0 2,3 307,814 30,477 5,882 166,095 450,147 32,893 3,087,235 40,321 2,456,344 806,406 5,493 57,049 271,827 31,323 387,731 21,237 17,228 170,235 328,396 Allianz Versicherungs-Aktiengesellschaft, Munich 100.0 2 1,137,570 Allianz X GmbH, Munich AllSecur Deutschland AG, Munich APK Infrastrukturfonds GmbH, Munich APK-Argos 75 Vermögensverwaltungsgesellschaft mbH, Munich APK-Argos 85 Vermögensverwaltungsgesellschaft mbH, Munich 100.0 100.0 100.0 100.0 100.0 2 2 2 2 34,738 44,831 7,340 17,826 32,648 27,883 919 - - - 10,657 - - (62) - - 17,332 - - 71,781 - 5,307 - - - - - - 692,000 30,878 - 963 31,615 - - - 1,520 3,907 - - 22,315 - - - - APKV Direkt Infrastruktur GmbH, Munich APKV Infrastrukturfonds GmbH, Munich APKV Private Equity Fonds GmbH, Munich APKV-Argos 74 Vermögensverwaltungsgesellschaft mbH, Munich APKV-Argos 84 Vermögensverwaltungsgesellschaft mbH, Munich ARE Funds APKV GmbH, Munich ARE Funds AZL GmbH, Munich ARE Funds AZV GmbH, Munich atpacvc Fund GmbH & Co. KG, Munich Atropos Vermögensverwaltungsgesellschaft mbH, Munich AWP Service Deutschland GmbH, Aschheim AZ-Arges Vermögensverwaltungsgesellschaft mbH, 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 AZV-Argos 72 Vermögensverwaltungsgesellschaft mbH, Munich 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 & Magdeburger Agrar AG, Munich PIMCO Deutschland GmbH, Munich REC Frankfurt Objekt GmbH & Co. KG, Hamburg Seine GmbH, Munich Spherion Objekt GmbH & Co. KG, Stuttgart Owned1 % 100.0 2 100.0 2 100.0 2 Equity € thou 44,092 68,986 517,026 100.0 2 51,797 100.0 2 100.0 2 100.0 2 100.0 2 100.0 100.0 100.0 3 98,486 123,850 1,152,709 9,657 7,988 447,884 10,118 100.0 2 172,158 100.0 2 269,453 100.0 2 100.0 2 100.0 2 100.0 2 100.0 2 100.0 2 716,961 42,935 39,786 78,248 30,538 664,890 100.0 2 29,024 100.0 2 59,025 100.0 2 94.8 100.0 2 100.0 3 78,650 82,626 44,991 113,326 Net Earnings € thou - - - - - - - - (2,792) 6,415 1,623 - - - - - - - - - - - 3,366 - 7,574 100.0 6,070 (6) 100.0 4,5 148,289 (179,129) 100.0 4,5 100.0 2,3 100.0 2 80.0 100.0 100.0 5,155 7,686 35,030 296,097 24,869 70,622 - - - 10,307 (1,055) 3,416 44 1,224 852 1,536 2,003 2,667 1,868 5,262 Volkswagen Autoversicherung AG, Braunschweig 100.0 2 108,561 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 49.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 112,720 21,619 10,125 23,888 46,773 12,308 29,526 82 Annual Report 2018 – Allianz SE Windpark Eckolstädt GmbH & Co. KG, Sehestedt Windpark Freyenstein-Halenbeck GmbH & Co. KG, Sehestedt Windpark Kesfeld-Heckhuscheid GmbH & Co. KG, Sehestedt Windpark Kirf GmbH & Co. KG, Sehestedt Windpark Kittlitz GmbH & Co. KG, Sehestedt Windpark Pröttlin GmbH & Co. KG, Sehestedt Windpark Quitzow GmbH & Co. KG, Sehestedt Windpark Redekin-Genthin GmbH & Co. KG, Sehestedt Windpark Schönwalde GmbH & Co. KG, Sehestedt Windpark Waltersdorf GmbH & Co. KG Renditefonds, Sehestedt Windpark Werder Zinndorf GmbH & Co. KG, Sehestedt Owned1 % 100.0 3 Equity € thou 37,075 Net Earnings € thou 2,547 100.0 3 20,628 1,938 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 22,368 5,333 8,271 15,824 15,498 25,935 17,578 345 392 536 1,632 1,575 1,218 902 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 100.0 3 10,456 752 Allianz Colombia S.A., Bogotá D.C. 100.0 3 26,413 3,075 Joint ventures Dealis Fund Operations GmbH, Frankfurt am Main 50.0 32,914 903 Associates Autobahn Tank & Rast Gruppe GmbH & Co. KG, Bonn AV Packaging GmbH, Munich T&R Real Estate GmbH, Bonn Verimi GmbH, Frankfurt am Main Other participations below 20 % voting rights EXTREMUS Versicherungs-Aktiengesellschaft, Cologne FC Bayern München AG, Munich GDV Dienstleistungs-GmbH, Hamburg La Famiglia Fonds I GmbH & Co. KG, Munich MLP AG, Wiesloch N26 GmbH, Berlin Protektor Lebensversicherungs-AG, Berlin Sana Kliniken AG, Ismaning FOREIGN ENTITIES Affiliates 490 Lower Unit LP, Wilmington, DE Aero-Fonte S.r.l., Catania 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 Allianz Asset Management U.S. Holding II LLC, Dover, DE Allianz Australia Insurance Limited, Sydney Allianz Australia Limited, Sydney Allianz Ayudhya Assurance Public Company Limited, Bangkok Allianz Bank Bulgaria AD, Sofia Annual Report 2018 – Allianz SE 25.0 3 51.0 25.0 3 14.8 3 16.0 3 8.3 3 18.9 3 5.9 3 9.7 3 5.7 3 10.0 3 14.5 3 100.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 3 100.0 100.0 3 100.0 100.0 3 100.0 3 100.0 100.0 100.0 100.0 100.0 62.6 3 99.9 371,387 (106,819) 17,059 140,827 35,670 (337) (15) (4,493) 63,940 445,819 26,529 10,986 404,935 10,054 105,796 824,767 132,852 13,239 1,164,349 163,672 239,205 87,761 9,655 200 33,245 (515) 1,066 27,796 (32,046) 384 95,327 4,735 4,927 37,712 8,826 8,196 (13,075) (27) 1,014,545 197,878 45,396 6,870 113,372 21,927 (1,004) 3,485 62,697 13,817 615,106 1,368,928 6,270,986 1,679,483 238,213 1,610,208 1,590,773 418,920 113,227 66,446 317,832 313,365 42,925 15,089 Allianz Compañía de Seguros y Reaseguros S.A., Madrid Allianz Cornhill Information Services Private Ltd., Trivandrum Allianz Côte d'Ivoire Assurances SA, Abidjan Allianz Côte d'Ivoire Assurances Vie SA, Abidjan 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 Allianz Europe Ltd., Amsterdam Allianz Finance II B.V., Amsterdam Allianz Finance II Luxembourg S.à r.l., Luxembourg Allianz Finance VII Luxembourg S.A., Luxembourg Allianz Finance VIII Luxembourg S.A., Luxembourg Allianz Fire and Marine Insurance Japan Ltd., Tokyo Allianz France Investissement OPCI, Paris la Défense Allianz France Real Estate Invest SPPICAV, Paris la Défense Allianz France Richelieu 1 S.A.S., Paris la Défense Allianz France S.A., Paris la Défense Allianz France US REIT LP, Wilmington, DE Allianz Fund Investments 2 S.A. (Compartment), Luxembourg Allianz Fund Investments Inc., Wilmington, DE Allianz General Insurance Company (Malaysia) Berhad p.l.c., Kuala Lumpur Allianz General Laos Ltd., Vientiane Allianz Global Corporate & Specialty do Brasil Participações Ltda., Rio de Janeiro Allianz Global Corporate & Specialty of Africa (Proprietary) Ltd., Johannesburg Allianz Global Corporate & Specialty South Africa Ltd., Johannesburg Allianz Global Investors Asia Pacific Ltd., Hong Kong Allianz Global Investors Distributors LLC, Dover, DE Allianz Global Investors Holdings Ltd., London Allianz Global Investors Japan Co. Ltd., Tokyo Allianz Global Investors Singapore Ltd., Singapore Allianz Global Investors Taiwan Ltd., Taipei Allianz Global Investors U.S. Holdings LLC, Dover, DE Allianz Global Investors U.S. LLC, Dover, DE Allianz Global Life dac, Dublin C _ Financial Statements of Allianz SE Owned1 % 100.0 3 100.0 100.0 66.2 100.0 3 75.4 3 100.0 3 100.0 100.0 50.0 3 51.0 3 100.0 Equity € thou 245,438 117,663 814,704 59,706 17,096 13,230 12,408 5,671 179,838 51,841 37,230 94,199 Net Earnings € thou 4,341 4,212 155,201 20,215 (3,773) 4,653 (519) 165 15 3,071 27,600 (2,636) 99.9 889,090 51,456 100.0 3 74.1 71.0 100.0 20,002 6,311 7,106 6,230 3,094 3,387 204,078 (4,864) 100.0 212,790 11,740 100.0 100.0 3 100.0 100.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 438,338 130,132 86,054 4,196 13,573 1,939 157,114 (10,639) 45,603,578 3,468,911 3,679,838 5,144 3,777,592 1,597,885 481,755 27,511 7,383 2,886 52,638 3,944 (62) 2,048 100.0 135,066 5,385 100.0 3 1,780,401 488,520 61,363 22,728 100.0 100.0 100.0 100.0 100.0 3 100.0 3 51.0 3 6,257,887 840,254 117,572 672 47,579 262,266 392,421 9,401 29,849 11,622 41,509 2,037 100.0 3 240,458 8,447 100.0 3 8,065 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 3 8,214 42,694 32,454 29,594 14,677 15,501 39,866 111,188 46,674 135,281 470 466 17,151 3,168 395 3,167 2,281 21,794 81,910 74,807 15,020 83 C _ Financial Statements of Allianz SE 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 of Kenya Limited, Nairobi 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 Jewel Fund ICAV, Dublin Allianz Leasing Bulgaria AD, Sofia Allianz Leben Real Estate Holding I S.à r.l., Luxembourg 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., Hamilton Owned1 % Equity € thou Net Earnings € thou 100.0 3 89.0 3 100.0 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 3 100.0 3 1,541,119 200,796 18,906 145,882 376,886 2,456,879 9,051,856 61,516 1,706,434 137,850 368,050 4,880 (7,612) 3,312 410,990 314,523 20,006 256,682 62,132 (2,379) Allianz México S.A. Compañía de Seguros, Mexico City Allianz Nederland Groep N.V., Rotterdam Allianz Nederland Levensverzekering N.V., Rotterdam Allianz New Europe Holding GmbH, Vienna Allianz New Zealand Limited, Auckland Allianz Nigeria Insurance plc, Lagos Allianz of America Inc., Wilmington, DE Allianz p.l.c., Dublin Allianz Partners S.A.S., Saint-Ouen 2,097,839 317,523 Allianz Pensionskasse Aktiengesellschaft, Vienna Allianz penzijní spolecnost a.s., Prague 100.0 3 223,977 9,565 Allianz PNB Life Insurance Inc., Makati City 100.0 3 84,004 100.0 3 84,188 100.0 3 2,300,668 100.0 3 480,285 (8) 246 (23) (63) Allianz pojistovna a.s., Prague Allianz Polska Services Sp. z o.o., Warsaw Allianz Popular Asset Management SGIIC S.A., Madrid Allianz Popular Pensiones EGFP S.A., Madrid Allianz Popular S.L., Madrid Allianz Popular Vida Compañía de Seguros y Reaseguros S.A., Madrid 100.0 3 3,370,576 45,800 Allianz Presse US REIT LP, Wilmington, DE 100.0 3 124,936 4,554 100.0 3 52,055 2,953 Allianz Properties Limited, Guildford Allianz Re Dublin dac, Dublin Allianz Real Estate France SAS, Paris Allianz Reinsurance America Inc., Los Angeles, CA 100.0 3 11,231 (1,082) Allianz Renewable Energy Partners I LP, London 100.0 3 95.0 3 100.0 3 100.0 100.0 8,013 9,908 42,742 1,144,003 5,748 (1,231) 3,290 6,138 52,789 92 100.0 7,494 1,945 100.0 3 100.0 100.0 3 100.0 51.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 5,046 36,184 1,184,389 152,905 5,527 1,110,334 7,606 37,026 31,151 48,363 52,652 11,671 6,800 7,250 906 - 1,328 13,127 (275) 7,244 100.0 3 270,189 9,816 Allianz Renewable Energy Partners II Limited, London Allianz Renewable Energy Partners III LP, London Allianz Renewable Energy Partners IV Limited, London Allianz Renewable Energy Partners of America 2 LLC, Wilmington, DE Allianz Renewable Energy Partners of America LLC, Wilmington, DE Allianz Renewable Energy Partners V plc., London Allianz Renewable Energy Partners VI Limited, London Allianz Renewable Energy Partners VIII Limited, London Allianz Risk Transfer (Bermuda) Ltd., Hamilton Allianz Risk Transfer AG, Schaan Allianz Risk Transfer Inc., New York, NY Allianz S.p.A., Trieste Allianz Saúde S.A., São Paulo Allianz Saudi Fransi Cooperative Insurance Company, Riyadh Allianz Seguros de Vida S.A., Bogotá D.C. Allianz Seguros S.A., Bogotá D.C. Allianz Seguros S.A., São Paulo 100.0 3 139,042 (2,630) Allianz Sénégal Assurances SA, Dakar 100.0 3 100.0 3 100.0 3 100.0 75.0 3 100.0 3 98.9 3 99.9 3 6,942,191 6,284 541,204 (2,089) 185,823 92,777 216,306 10,737 145,963 23,524 19,748 17,441 15,752 34 9,448 7,352 Allianz Services (UK) Limited, London Allianz Sigorta A.S., Istanbul Allianz SNA s.a.l., Beirut Allianz Société Financière S.à r.l., Luxembourg Allianz South America Holding B.V., Amsterdam Allianz Strategic Investments S.à r.l., Luxembourg Allianz Suisse Lebensversicherungs-Gesellschaft AG, Wallisellen Allianz Suisse Versicherungs-Gesellschaft AG, Wallisellen Owned1 % 100.0 100.0 3 100.0 3 100.0 100.0 99.1 3 100.0 100.0 100.0 3 100.0 100.0 3 51.0 3 100.0 3 100.0 3 100.0 100.0 60.0 100.0 100.0 100.0 100.0 100.0 3 100.0 100.0 100.0 98.8 Equity € thou 150,932 278,686 252,856 814,725 34,104 12,518 Net Earnings € thou 21,507 25,517 29,404 185,281 2,623 (2,213) 13,756,504 1,710,802 396,368 165,817 11,714 35,906 30,666 206,862 17,641 6,065 19,954 32,161 14,045 104 1,674 2,514 - 2,044 18,530 17,635 888,881 129,558 69,901 51,720 216,298 80,056 (450) 9,418 1,032,686 333,592 5,160 543,564 154,814 132,192 137,946 4,350 22,484 10,022 421 7,139 98.8 703,186 24,715 100.0 170,697 (5,129) 100.0 100.0 708,364 650,191 (37,858) 16,393 100.0 671,090 10,462 100.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 51.0 3 100.0 100.0 100.0 83.2 100.0 3 96.2 3 100.0 3 100.0 3 100.0 3 100.0 3 254,558 41,639 473,786 58,446 4,060 13,574 1,541 692 2,549,878 684,203 47,741 968 55,759 59,267 42,253 201,842 5,441 6,413 497,928 53,357 1,500,910 472,743 41,877 8,238 2,036 (2,523) (3,609) 799 193 139,275 8,167 22,417 (27) 7,962 100.0 788,342 87,318 100.0 659,460 350,698 84 Annual Report 2018 – Allianz SE 286,837 Chicago Insurance Company Corp., Chicago, IL Owned1 % 99.7 3 100.0 3 100.0 100.0 100.0 3 100.0 3 100.0 3 100.0 100.0 3 52.2 Equity € thou Net Earnings € thou 259,986 (17,816) 7,061 10,874 23,313 35,485 7,392 15,814 68,959 43,298 188,353 2,009 3,709 3,329 (23) 2,796 11 (4,739) 1,494 28,888 100.0 18,482 10,139 100.0 3 61,243 100.0 100.0 100.0 100.0 80.0 3 83.2 3 51.0 100.0 99.6 1,809,250 1,863,664 2,703,874 29,361 104,433 134,390 25,141 45,642 276,735 1,632 (8,412) (8,530) 5,930 51,704 15,131 9,982 4,105 76,938 100.0 3 64,981 675 100.0 3 100.0 3 100.0 100.0 57.6 3 100.0 3 100.0 3 100.0 100.0 100.0 3 100.0 100.0 3 100.0 3 100.0 3 100.0 3 95.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 97.6 3 100.0 3 100.0 3 100.0 55.0 3 100.0 3 100.0 36,966 13,749 104,195 280,870 976,433 142,082 139,952 29,681 5,461 74,965 5,268 8,733 7,165 5,787 16,994 26,162 427,213 26,780 395,783 27,123 14,207 18,550 270,043 3,457,272 292,084 140,256 3,135,574 323,354 105,334 27,016 510,053 11,664 (146) 984 (246) (178) - 984 2,869 386 4,807 601 3,171 5,793 - (1,435) 13,781 10,171 39,035 14,028 49,180 2,882 1,328 4,906 (19) 67,084 12,081 1,980 (412) (947) (581) 7,625 - (694) Beleggingsmaatschappij Willemsbruggen B.V., Rotterdam Beykoz Gayrimenkul Yatirim Insaat Turizm Sanayi ve Ticaret A.S., Ankara 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 Langres Sud S.à r.l., Versailles CEPE de Mont Gimont 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 CIC Allianz Insurance Ltd., Sydney Climmolux Holding SA, Luxembourg 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 dac, Dublin Deeside Investments Inc., Wilmington, DE Delta Technical Services Ltd., London Diamond Point a.s., Prague Dresdner Kleinwort Pfandbriefe Investments II Inc., Minneapolis, MN Eolica Erchie S.r.l., Lecce Euler Hermes Acmar SA, Casablanca Euler Hermes Collections North America Company, Owings Mills, MD Euler Hermes Collections Sp. z o.o., Warsaw Euler Hermes Crédit France S.A.S., Paris la Défense Euler Hermes Group SA, Paris la Défense Euler Hermes Korea Non-life Broker Company Limited, Seoul Euler Hermes Luxembourg Holding S.à r.l., Luxembourg 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 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 Allianz Taiwan Life Insurance Co. Ltd., Taipei Allianz Technology (Thailand) Co. Ltd., Bangkok Allianz Technology AG, Wallisellen Allianz Technology GmbH, Vienna Allianz Technology International B.V., Amsterdam Allianz Technology of America Inc., Wilmington, DE Allianz Technology S.C.p.A., Milan Allianz Technology S.L., Barcelona Allianz Technology SAS, Paris Allianz Tiriac Asigurari SA, Bucharest Allianz Tiriac Pensii Private Societate de administrare a fondurilor de pensii private S.A., Bucharest Allianz Underwriters Insurance Company Corp., Burbank, CA Allianz US Investment LP, Wilmington, DE Allianz US Private REIT LP, Wilmington, DE 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 Appia Investments S.r.l., Milan 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 UK Ltd., London AWP Australia Holdings Pty Ltd., Toowong AWP Australia Pty Ltd., Toowong AWP Business Services Co. Ltd., Beijing 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.A., Luxembourg AZ Jupiter 10 B.V., Amsterdam AZ Jupiter 11 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 Annual Report 2018 – Allianz SE C _ Financial Statements of Allianz SE Owned1 % Equity € thou Net Earnings € thou 100.0 3 88,640 2,030 100.0 3 100.0 100.0 100.0 100.0 93.2 100.0 100.0 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 64.8 100.0 3 50.0 3 50.0 3 100.0 3 50.1 100.0 3 100.0 3 100.0 3 100.0 3 55.0 3 100.0 100.0 3 100.0 3 100.0 3 144,514 10,710 138,756 73,112 30,433 183,048 59,409 7,985 21,888 12,317 13,713 9,111 6,293 55,379 28,634 76,617 6,195 147,936 70,979 88,990 508,238 303,641 60,299 10,373 12,444 599,999 7,428 6,053 5,635 24,719 104,745 15,011 287 2,943 1,501 (2,906) 3,014 3,622 (1,995) 359 (4,051) (8,120) (4,305) (2,935) (213) 2,489 2,123 1,598 (2,669) 18,947 4,083 47,536 58,323 13,939 (567) 755 12,599 1,727 945 547 757 5,634 1,672,585 168,383 100.0 252,506 77,832 100.0 3 109,588 (9) 100.0 176,584 2,715 100.0 100.0 3 100.0 3 60.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 3 100.0 3 100.0 100.0 199,967 268,273 61,055 204,704 14,552 873,048 785,565 16,529 9,686 13,539 6,638 5,758 6,521 6,201 22,976 25,189 - 3,444 7,888 181,357 102,264 8,132 8,488 6,502 1,154 (1,230) 2,544 865 85 C _ Financial Statements of Allianz SE 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 Ferme Eolienne des Jaladeaux S.à r.l., Versailles Fireman's Fund Indemnity Corporation, Liberty Corner, NJ Fireman's Fund Insurance Company Corp., Los Angeles, CA Fragonard Assurance S.A., Paris Franklin S.C.S., Luxembourg 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 ICON Immobilien GmbH & Co. KG, Vienna ICON Inter GmbH & Co. KG, Vienna Immovalor Gestion S.A., Paris la Défense ImWind AO GmbH & Co. KG, Pottenbrunn ImWind GHW GmbH & Co. KG, Pottenbrunn Insurance CJSC “Medexpress”, Saint Petersburg Interstate Fire & Casualty Company, Chicago, IL Investitori Real Estate Fund, Milan 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 Kohlenberg & Ruppert Premium Properties S.à r.l., Luxembourg Kuolavaara-Keulakkopään Tuulipuisto Oy, Oulu LAD Energy GmbH & Co. KG, Pottenbrunn LLC “IC Euler Hermes Ru“, Moscow Lloyd Adriatico Holding S.p.A., Trieste Medi24 AG, Bern Mombyasen Wind Farm AB, Halmstad 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 Chateau Garnier 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 PIMCO (Schweiz) GmbH, Zurich PIMCO Asia Ltd., Hong Kong PIMCO Asia Pte Ltd., Singapore PIMCO Australia Management Limited, Sydney PIMCO Australia Pty Ltd., Sydney PIMCO Canada Corp., Toronto, ON 86 Owned1 % 100.0 3 100.0 3 100.0 100.0 3 100.0 100.0 3 Equity € thou 36,635 7,773 49,996 9,436 34,780 7,205 Net Earnings € thou 501 (400) 1,405 807 9,648 (502) 100.0 3 12,445 (172) PIMCO Europe Ltd., London PIMCO Global Advisors (Ireland) Ltd., Dublin PIMCO Global Advisors (Resources) LLC, Dover, DE PIMCO Global Advisors LLC, Dover, DE PIMCO Global Holdings LLC, Dover, DE PIMCO Investments LLC, Dover, DE PIMCO Japan Ltd., Road Town POD Allianz Bulgaria AD, Sofia Protexia France S.A., Paris la Défense 87,761 20,519 7,442 487 2,962 PT Asuransi Allianz Life Indonesia p.l.c., Jakarta PT Asuransi Allianz Utama Indonesia Ltd., Jakarta PTE Allianz Polska S.A., Warsaw Q207 S.C.S., Luxembourg Questar Capital Corporation, Minneapolis, MN 683,989 Real Faubourg Haussmann SAS, Paris la Défense 100.0 3 100.0 3 94.5 100.0 3 52.5 100.0 3 100.0 3 100.0 100.0 100.0 100.0 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 3 100.0 3 100.0 3 100.0 3 99.9 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 3 100.0 3 95.7 100.0 3 100.0 3 100.0 3 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1,155,384 94,694 10,331 112,511 73,017 349,727 5,527 20,599 207,175 10,361 8,404 9,361 6,805 13,143 58,363 362,075 19,824 19,589 54,767 9,741 9,608 58,073 148,033 30,903 101,011 20,855 9,231 11,653 21,987 5,419 5,191 61,464 14,354 118,580 9,228 18,467 (330) 2,690 4,016 (11) 4,173 1,522 1,152 1,229 (328) 17,867 8,506 (2,649) 5,762 (1,033) (421) 11,460 49,563 1,495 778 (2,923) 1,463 4,609 - 3,179 (3,978) (141) 9,569 4,236 897 1,931 460,609 1,746,104 7,287 5,332 5,883 6,376 107,981 254,867 13,286 26,966 19,137 5,158 32,189 22,642 (1,047) (1,564) 79 1,210 (34) 16,666 4,671 (2,490) 9,120 568 22,876 18,383 Real FR Haussmann SAS, Paris la Défense SA Carène Assurance, Paris SA Vignobles de Larose, Saint-Laurent-Médoc Saarenkylä Tuulipuisto Oy, Oulu 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 Prony, Paris la Défense SAS Allianz Rivoli, Paris la Défense SAS Allianz Serbie, Paris la Défense SAS Angel Shopping Centre, Paris la Défense SAS Madeleine Opéra, Paris la Défense SAS Passage des princes, Paris la Défense Sättravallen Wind Power AB, Strömstad SC Tour Michelet, Paris la Défense SCI 46 Desmoulins, Paris la Défense SCI Allianz ARC de Seine, Paris la Défense SCI Allianz Immobilier Durable, 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 Société Foncière Européenne B.V., Amsterdam Société Nationale Foncière S.A.L., Beirut Sofiholding S.A., Brussels South City Office Broodthaers SA, Brussels Stam Fem Gångaren 11 AB, Stockholm StocksPLUS Management Inc., Dover, DE TFI Allianz Polska S.A., Warsaw The American Insurance Company Corp., Cincinnati, OH The Annuity Store Financial & Insurance Services LLC, Sacramento, CA Three Pillars Business Solutions Limited, Guildford Top Immo A GmbH & Co. KG, Vienna Top Immo Besitzgesellschaft B GmbH & Co. KG, Vienna Owned1 % 100.0 100.0 100.0 100.0 100.0 100.0 100.0 65.9 100.0 99.8 3 97.8 3 100.0 3 94.0 100.0 3 100.0 3 100.0 3 100.0 100.0 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 90.0 100.0 100.0 100.0 3 100.0 100.0 100.0 100.0 100.0 100.0 79.9 100.0 75.0 100.0 100.0 100.0 3 100.0 3 94.8 100.0 3 100.0 3 66.0 3 100.0 100.0 100.0 100.0 100.0 100.0 3 100.0 3 100.0 100.0 Equity € thou 206,497 31,047 5,207 431,947 34,663 85,447 33,348 30,588 45,192 370,147 58,272 49,265 86,924 10,569 72,816 64,606 13,744 37,063 9,183 114,614 109,055 241,421 693,620 275,332 76,258 100,372 338,056 286,049 639,923 194,404 8,867 54,646 112,978 213,719 14,960 432,459 220,169 72,721 45,043 105,703 250,810 178,123 6,417 67,475 330,612 36,390 1,208,210 6,816 18,586 52,482 173,707 5,176 7,276 55,524 18,998 5,201 5,942 Net Earnings € thou 182,984 15,364 15 269,362 19,747 248,668 35,526 8,058 13,748 19,463 (2,567) 4,818 2,930 (6,207) 443 1,541 1,058 599 (1,570) 4,563 787 7,363 9,867 18,233 (142) 3,950 11,065 3,320 19,104 2,711 (1,275) 1,564 4,180 7,218 (49) 1,475 3,361 (689) 3,013 2,438 8,992 7,288 972 3,958 34,609 178 845 274 1,021 1,525 361 38 2,151 (756) (560) (14) 645 100.0 8,926 1,070 Annual Report 2018 – Allianz SE Owned1 % 100.0 Equity € thou 17,801 Net Earnings € thou (1,341) 100.0 3 21,362 301 SES Shopping Center FP 1 GmbH, Salzburg 50.0 3 105,103 Owned1 % Equity € thou C _ Financial Statements of Allianz SE Net Earnings € thou 3,162 5,537 1,986 5,153 (1,372) 4,109 14,011 4,084 50.0 3 49.5 3 49.9 3 50.0 3 50.0 3 30.0 3 49.0 3 106,430 164,703 220,604 9,081 208,881 35,743 331,524 40.0 3 70,315 (984) 28.6 3 23.3 3 31.6 3 26.0 26.0 34.3 3 116,709 81,719 139,581 559,631 1,155,036 574,213 (30,240) (102) (5,502) 114,128 88,716 - 24.9 3 62,071 (6,287) 25.0 3 49.9 3 22.9 3 36.6 3 30.0 3 28.6 3 49.0 3 45.0 3 11.3 3 49.0 25.0 3 38.4 49.0 3 16.7 3 33.3 3 49.0 49.0 25.8 3 49.0 49.0 49.0 30.0 3 19.5 3 10.0 3 6,890 191,071 75,737 830,092 757,449 26,844 430,780 70,814 1,352 42,918 (24,126) 19,380 79,014 2,162 16,898 (6,811) 1,471,195 194,818 855,756 151,032 14,291 59,989 119,582 5,280,234 112,416 257,008 41,818 14,792 29,551 20,948 13,504 252,603 467,744 6,830 8,781 (1,121) 7,722 254,388 (8,337) 1,932 7,848 1,052 2,044 4,295 3,136 (43) 11,725 (1,044) Solunion Compañía Internacional de Seguros y Reaseguros SA, Madrid The FIZZ Student Housing Fund S.C.S., Luxembourg The State-Whitehall Company LP, Dover, DE TopTorony Ingatlanhasznosító Zrt., Budapest VGP European Logistics S.à r.l., Senningerberg VISION (III) Pte Ltd., Singapore Waterford Blue Lagoon LP, Wilmington, DE Associates 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 Blue Vista Student Housing Select Strategies Fund L.P., Dover, DE Brunei National Insurance Company Berhad Ltd., Bandar Seri Begawan Chicago Parking Meters LLC, Wilmington, DE CPIC Allianz Health Insurance Co. Ltd., Shanghai Daiwater Investment Limited, London 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 Takaful B.S.C.(c), Manama MFM Holding Ltd., London OeKB EH Beteiligungs- und Management AG, Vienna Quadgas Holdings Topco Limited, Saint Helier 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 Other participations below 20 % voting rights 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 Vanilla Capital Markets S.A., Luxembourg VertBois S.à r.l., Luxembourg Viveole SAS, Versailles Vordere Zollamtsstraße 13 GmbH, Vienna WFC Investments Sp. z o.o., Warsaw Windpark AO GmbH, Pottenbrunn Windpark GHW GmbH, Pottenbrunn Windpark Ladendorf GmbH, Vienna Windpark Les Cent Jalois SAS, Versailles Windpark PL GmbH, Pottenbrunn Windpark Zistersdorf GmbH, Pottenbrunn YAO NEWREP Investments S.A., Luxembourg Yorktown Financial Companies Inc., Minneapolis, MN ZAD Allianz Bulgaria Zhivot, Sofia ZAD Allianz Bulgaria, Sofia ZAD Energia, Sofia ZiOst Energy GmbH & Co. KG, Pottenbrunn Joint ventures 114 Venture LP, Wilmington, DE 1515 Broadway Realty LP, Dover, DE 1800 M Street 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 Columbia REIT - 333 Market Street LP, Wilmington, DE Columbia REIT-University Circle LP, Wilmington, DE Companhia de Seguro de Créditos S.A., Lisbon CPIC Fund Management Co. Ltd., Shanghai Dundrum Car Park Limited Partnership, Dublin Dundrum Retail Limited Partnership, Dublin Enhanzed Reinsurance Ltd., Hamilton ESR India Logistics Fund Pte. Ltd., Singapore Euromarkt Center d.o.o., Ljubljana Fiumaranuova S.r.l., Genoa 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 Podium Fund HY REIT Owner LP, Wilmington, DE Porterbrook Holdings I Limited, London Queenspoint S.L., Madrid RMPA Holdings Limited, Colchester SC Holding SAS, Paris SES Shopping Center AT1 GmbH, Salzburg 289 23,692 12,563 (326) 898 (515) 505 (6,479) (499) (347) (404) 23 (273) 692 (73) 1 500 7,719 4,754 1,975 4,350 730 920 5,016 11,636 2,860 31,327 40,581 11,337 6,676 8,059 8,081 4,938 3,738 100.0 100.0 100.0 100.0 3 100.0 100.0 3 100.0 87.5 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 100.0 3 93.2 3 43,604 274,853 101,290 144,186 19,963 17,244 72,809 230,440 12,491 7,635 7,307 5,461 7,046 7,398 66,489 100.0 3 140,904 37,442 44,517 15,483 11,724 169,851 916,140 365,297 167,590 104,249 89,514 338,796 283,462 149,211 418,565 454,550 42,838 65,405 34,017 99.0 87.4 51.0 100.0 3 49.5 3 49.6 3 42.8 3 50.0 3 50.0 3 75.0 55.6 3 80.0 3 80.0 3 44.7 3 44.7 3 50.0 3 49.0 3 50.0 50.0 24.9 50.0 50.0 3 50.1 3 50.0 3 50.0 3 45.0 3 45.0 3 45.0 3 50.0 3 50.0 3 44.3 3 30.0 3 50.0 3 56.0 3 50.0 3 50.0 3 1,140,306 43,289 24,641 39,219 36,574 153,149 48,429 25,911 296,933 26,728 37,365 228,717 181,070 787,468 1,260,969 110,272 8,597 10,517 220,501 481 1,660 7,990 5,993 8,287 4,744 6,934 1,779 (1,325) 62,116 51,375 2,355 81,654 11,868 13,456 869 10,182 1QB Information Technologies Inc., Vancouver, BC 4.9 3 20,171 - 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 American Well Corporation, Wilmington, DE Autostrade per l’Italia S.p.A., Rome Catch a Car AG, Luzern China Pacific Insurance (Group) Co. Ltd., Shanghai Cofinimmo S.A., Brussels Commercial Bank of Cameroon LC, Douala 5.6 3 18.0 3 19.9 6.9 3 6.9 3 19.5 3 3.3 3 2.2 10.0 3 13,359 24,588 5,341 61,950 977 2,497 (15) (22,902) 2,737,792 1,041,470 11,261 (2,500) 17,583,651 1,921,065 1,903,159 121,056 20,122 2,136 Annual Report 2018 – Allianz SE 87 C _ Financial Statements of Allianz SE 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 Nauto Inc., Paolo Alto, CA Oddo et Cie SCA, Paris PERILS AG, Zürich Pollen Inc., Wilmington, DE Portima SCRL, Bruxelles Rothschild & Co SCA, Paris Equity € thou Net Earnings € thou 1,092,800 (17,700) Owned1 % 5.0 3 5.4 3 16.7 3 2,292,083 209,978 26,973 159,430 273,012 859,926 77,590 116,990 770,600 8,692 9,664 9,713 19,485 188,842 (24,893) 82,399 17,464 49,644 7,232 (18,717) 68,328 890 (18,778) 2,181 1,666,456 121,764 4.9 3 7.6 5.8 3 5.8 3 6.7 2.2 3 2.2 3 10.0 3 7.7 3 10.9 2.5 3 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 UniCredit S.p.A., Milan Zagrebacka banka d.d., Zagreb 16.3 3 114,187 18,167 7.3 3 200,743 60,406 14.3 3 196,605 12,083 6.0 3 1.0 3 34,817 3,633 59,331,000 19,619,000 11.7 3 2,108,741 112,470 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 2017. 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. 88 Annual Report 2018 – Allianz SE FURTHER INFORMATION D Annual Report 2018 – Allianz SE 89 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, 12 February 2019 Allianz SE The Board of Management Oliver Bäte Sergio Balbinot Jacqueline Hunt Dr. Helga Jung Dr. Christof Mascher Niran Peiris Iván de la Sota Giulio Terzariol Dr. Günther Thallinger Dr. Axel Theis 90 Annual Report 2018 - Allianz SE INDEPENDENT AUDITOR’S REPORT To Allianz SE, Munich Report on the Audit of the Annual Financial Statements and of the Management Report AUDIT OPINIONS We have audited the annual financial statements of Allianz SE, Munich, which comprise the balance sheet as at 31 December 2018, and the income statement for the financial year from 1 January to 31 December 2018, and notes to the financial statements, including the presentation of the recognition and measurement policies. In addition, we have audited the management report of Allianz SE for the financial year from 1 January to 31 December 2018. In accordance with the German legal requirements, we have not audited the con- tent of those parts of the management report listed in the “Other Information” section of our auditor’s 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 and give a true and fair view of the assets, liabilities and fi- nancial position of the Company as at 31 December 2018 and of its financial performance for the financial year from 1 January to 31 December 2018 in compliance 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 audit opinion on the management report does not cover the content of those parts of the management report listed in the “Other Information” section of our auditor’s report. Pursuant to § 322 (3) sentence 1 HGB of the German Commercial Code (“Handelsgesetzbuch – HGB”), we declare that our audit has not led to any reservations relating to the legal compliance of the annual financial statements and of the management report. BASIS FOR THE AUDIT OPINIONS We conducted our audit of the annual financial statements and of the management report in accordance with § 317 HGB and the EU Audit Regulation (No. 537/2014, referred to subsequently as “EU Audit Regulation”) and in compliance with German Generally Ac- cepted 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 to 31 December 2018. These matters were addressed in the context of our audit of the annual financial statements as a whole, and in forming our opinion thereon; we do not provide a separate audit opinion on these matters. In our view, the matters of most significance in our audit were as follows: − Measurement of shares in affiliated enterprises − Measurement of reserves for loss and loss adjustment expenses Our presentation of these key audit matters has been structured in each case as follows: − Matter and issue − Audit approach and findings − Reference to further information Hereinafter, we present the key audit matters: MEASUREMENT OF SHARES IN AFFILIATED ENTERPRISES Matter and issue In the annual financial statements of the Company, shares in affiliated enterprises amounting to € 72,006 mn (60 % of total assets) are re- ported under the “Investments in affiliated enterprises and participa- tions” balance sheet item. Shares in affiliated enterprises are measured at the lower of cost and fair value in accordance with German commercial law. The fair values of the material shares in affiliated enterprises are generally calculated using earnings model or appraisal values for life and health companies. Expectations relating to future market devel- opments and assumptions about the development of macroeconom- ic factors are also taken into account. The discount rate used for earnings models is the individually determined cost of capital for the relevant financial investment. For certain shares in affiliated enter- prises, the fair values are calculated using valuation models. On the basis of the values determined and supplementary documentation, a write-down totalling € 0.4 mn and a reversal totalling € 115 mn were required for the financial year. The outcome of this valuation is dependent to a large extent on the estimates made by the executive directors of the future earnings D – Further Information and cash flows, and on the respective discount rates and rates of growth. The valuation is therefore subject to material uncertainties. Against this background and due to the highly complex nature of the valuation and its material significance for the Company's assets, liabilities and financial performance, this matter was of particular significance in the context of our audit. Audit approach and findings As part of our audit, we assessed the methodology used for the pur- poses of the valuation, among other things. In particular, we assessed whether the fair values of the material shares in affiliated enterprises had been appropriately determined using adequate models in compliance with the relevant measure- ment standards. We based our assessment, among other things, on a comparison with general and sector-specific market expectations as well as on the executive directors‘ detailed explanations regarding the key value drivers underlying the expected cash flows. Where the Company used alternative valuation models for individual shares in affiliated enterprises, we examined whether the application of these valuation models was sufficiently documented and substantiated. With the knowledge that even relatively small changes in the discount rate applied can have a material impact on the value of the entity calculated in this way, we focused our testing in particular on the parameters used to determine the discount rate applied, and assessed the calculation model. In our view, taking into consideration the information available, the valuation methods and parameters and underlying assumptions used by the executive directors are appropriate overall for the pur- pose of appropriately measuring the shares in affiliated enterprises. Reference to further information The Company's disclosures on the measurement of shares in affiliated enterprises are included in the sections Accounting, valuation, and calculation methods and “3 – Market value of investments” of the notes to the financial statements. MEASUREMENT OF RESERVES FOR LOSS AND LOSS ADJUSTMENT EXPENSES Matter and issue In the annual financial statements of the Company, technical provisions (so called “claims provisions”) amounting to € 11,283 mn (9.4 % of total assets) are reported under the “Reserves for loss and loss adjustment expenses” balance sheet item. Of this amount, € 11.121 mn is attributable to the Property-Casualty Insurance business segment. Insurance companies are required to recognize technical provi- sions to the extent necessary in accordance with reasonable business judgment to ensure that they can meet their obligations from insur- ance contracts on a continuous basis. Defining assumptions for the purpose of measuring the technical provisions requires the Compa- ny's executive directors, in addition to complying with the require- ments of commercial and regulatory law, to make estimations of future events and to apply appropriate measurement methods. The gross provision is generally determined on the basis of the cedents' information or, in the case of outstanding settlements, on the basis of an estimate. The Company reviews the appropriateness of the cedents' information and, if necessary, makes appropriate increases to the amounts. The methods used to determine the amount of the claims provi- sions and the calculation parameters are based on judgments and assumptions made by the executive directors. In particular the lines of products with long claims settlement periods, low loss frequency or high individual losses are usually subject to increased estimation uncertainties and usually require a high degree of judgment by the Company's executive directors. Minor changes to those assumptions and to the methods used may have a material impact on the measurement of the claims provi- sions. Due to the material significance of the amounts of these provi- sions in relation to the assets, liabilities and financial performance of the Company as well as the considerable scope for judgment on the part of the executive directors and the associated uncertainties in the estimations made, the measurement of the claims provisions was of particular significance in the context of our audit. Audit approach and findings As part of our audit, we evaluated the appropriateness of selected controls established by the Company for the purpose of selecting actuarial methods, determining assumptions and making estimates for the measurement of provisions for unsettled claims in property- casualty insurance. With the support of our property-casualty insurance valuation specialists, we have compared the respective actuarial methods applied and the material assumptions with generally recognized actuarial practices and industry standards and examined to what extent these are appropriate for the valuation. Our audit also included an evaluation of the plausibility and integrity of the data and as- sumptions used in the valuation and an analysis of the claims settle- ment processes and the reconciliation of the information provided by the cedents. Furthermore, we recalculated the amount of the provisions for selected lines of products, in particular lines of products with large reserves or increased estimation uncertainties. For these lines of products we compared the recalculated provisions with the provisions calculated by the Company and evaluated any differences. Based on our audit procedures, we were able to satisfy ourselves that the estimates and assump-tions made by the executive directors are appropriate overall for measuring the technical provisions in property-casualty insurance. Reference to further information The Company's disclosures on the measurement of provisions for unsettled claims are contained in section “Accounting, valuation, and calculation methods” in the notes to the financial statements. OTHER INFORMATION The executive directors are responsible for the other information. The other information comprises the following non-audited parts of the management report: − − the statement on corporate management pursuant to § 289f HGB included in section Statement on Corporate Management pursuant to § 289f of the HGB of the management report the Corporate Covernance Report pursuant to No. 3.10 of the German Corporate Governance Code 92 Annual Report 2018 - Allianz SE − the separate non-financial report pursuant to § 289b (3) HGB and § 315b (3) HGB The other information comprises further the remaining parts of the annual report – excluding cross-references to external information – with the exception of the audited annual financial statements, the audited management report and our auditor’s report. Our audit opinions on the annual financial statements and on the management report do not cover the other information, and consequently we do not express an audit opinion or any other form of assurance conclusion thereon. In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other infor- mation − 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 THE EXECUTIVE DIRECTORS AND THE SUPERVISORY BOARD FOR THE ANNUAL FINANCIAL STATEMENTS AND THE MANAGEMENT REPORT The executive directors are responsible for the preparation of the annual financial statements that comply, in all material respects, with the requirements of German commercial law, and that the annual financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Company in compliance with German Legally Required Accounting Principles. In addition, the executive directors are responsible for such internal control as they, in accordance with German Legally Required Ac- counting Principles, have determined necessary to enable the prepa- ration of annual financial statements that are free from material misstatement, whether due to fraud or error. In preparing the annual financial statements, the executive di- rectors are responsible for assessing the Company's ability to contin- ue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting, provided no actual or legal circumstances conflict therewith. Furthermore, the executive directors are 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, consistent with the annual financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, the execu- tive directors are responsible for such arrangements and measures (systems) as they have considered necessary to enable the prepara- tion of a management report that is in accordance with the applica- ble 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 audit 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 § 317 HGB and the EU Audit Regulation and in compliance with German Gener- ally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a mate- rial misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these 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 audit opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may in- volve 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 audit opinion on the effectiveness of these systems of the Company. − Evaluate the appropriateness of accounting policies used by the executive directors and the reasonableness of estimates made by the executive directors and related disclosures. − Conclude on the appropriateness of the executive directors's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw atten- tion in the auditor's report to the related disclosures in the annual financial statements and in the management report or, if such disclosures are inadequate, to modify our respective opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or condi- tions may cause the Company to cease to be able to continue as a going concern. D – Further Information − 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 the executive directors 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 audit opinion on the prospective in- formation and on the assumptions used as a basis. There is a sub- stantial 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 statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the related safeguards. From the matters communicated with those charged with govern- ance, 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 disclosure about the matter. 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 on 8 March 2018. We were engaged by the audit committee of the supervisory board on 14 May 2018. We have been the auditor of the Allianz SE, Munich, without interruption since the financial year 2018. We declare that the audit opinions expressed in this auditor's report are consistent with the additional report to the audit committee pursu- ant 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 Richard Burger. Munich, 25 February 2019 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft Richard Burger Julia Unkel Wirtschaftsprüfer (German Public Auditor) Wirtschaftsprüferin (German Public Auditor) 94 Annual Report 2018 - Allianz SE This page intentionally left blank. Allianz SE – Königinstrasse 28 – 80802 Munich – Germany – Phone + 49 89 3800 0 – info@allianz.com – www.allianz.com Front page design: hw.design GmbH – Photography: Andreas Pohlmann – Typesetting: Produced in-house with firesys – Printing: G. Peschke Druckerei GmbH Annual Report on the internet: www.allianz.com/annualreport – Date of publication: 8 March 2019 This is a translation of the German Annual Report of Allianz SE. In case of any divergences, the German original is legally binding. 

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