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Allianz Annual Report 2012

looming increase in capital requirements under Solvency II –whichwillintroduceamongotherthingssubstantialcapital requirement increases for more risky assets – insurance companies generally continued to de-risk their balance sheets. It is expected that the implementation of Solvency II will be further delayed and as such, adoption in 2014 is no longer guaranteed. On the other hand, some positive developments occurred. After the annus horribilis of 2011 with its record-high losses, catastrophe-related claims fell significantly in 2012 – even taking into account the multi-billion Euro effect of Storm Sandy. In particular, catastrophe losses were fairly low in Europe and emerging markets. Intheproperty-casualtysector,marketconditionscontinued to improve in 2012. Premium growth in advanced markets, where it occurred, was mainly driven by rate increases – for example in Germany and U.S. commercial lines. However, with the Eurozone in recession and despite rate increases, premiumgrowthturnednegativeinsomeEuropeanmarkets such as Spain and Italy. Supported by increased economic activity, premium growth in emerging markets generally proved robust, albeit slightly below the previous year’s level. Emerging Asia remained the strongest region. Overall, according to our own market estimates and based on pre- liminary figures, global premiums grew around 4 % in 2012 (adjusted for foreign currency translation effects). Although positive pricing momentum continued into 2012, there are recent signs that this has started to tail off, par- ticularly in Europe. This is despite the need for further in- creases to offset the impact of persistently low interest rates. As a result, the overall profitability benefited from a lower level of natural catastrophes while the underlying profitability remained subdued, with return on equity in the 10 – 16 % range. In the life sector, global premium income growth remained slow. In emerging markets however, it recovered as the big- gest market, China, stabilized after the regulatory shocks of 2011. Latin America continued to post strong growth as well. However, premium growth in advanced markets stalled or evencontracted,withsomeEuropeanmarkets–forexample, France, Italy, and Spain – among the hardest hit due to harsh economic conditions and increased competition with banks fighting for deposits. By contrast, premium growth in Germany was flat as the earlier decline in single premiums sales lost pace. The U.S. market had a mixed per- formance: annuity sales dropped as a result of low returns and dwindling guarantees, but other life sales continued to recordpositivegrowth.Intotal,accordingtoourownmarket estimates and based on preliminary figures, global premi- umsgrewbyaround2 %in2012(adjustedforforeigncurrency translation effects). The persistent low-yield environment coupled with modest economic growth depressed new business profitability for traditional life business, for which we estimate the return on equity to be in the 8 – 10 % range. Overall, demand for life insurance savings products was rather weak as many cus- tomers were hesitant to commit to long-term savings con- tracts. However, risk protection products fared better. These included not only traditional mortality, but also health in- surance products such as disability and long-term care insurance – which grew strongly in many markets, for ex- ample Germany and the United States. 2012 provided a slightly more favorable market environ- ment for the asset management industry compared to 2011, with market volatility receding and investor concerns about the European sovereign debt crisis easing over the courseof theyear.Asaresult,revenuegrowth intheindustry as a whole picked up moderately, while profitability was under pressure due to rising costs resulting from the trend towards more localized distribution, higher marketing and branding expenses as well as increasing regulatory require­ ments. As opposed to the previous year, the asset management industryin2012wascharacterizedbyapositiveflowdevelop­ ment across most asset classes, with only money market funds experiencing major redemptions. In Europe, equity mutual funds continued to see outflows while other asset classes recorded inflows. In the United States, redemptions of money market funds continued but were more than compensated by strong net inflows into other asset classes. Similar to 2011, Asia recorded robust inflows across all asset classes – except for some minor outflows from balanced funds. On a global scale, fixed income again absorbed the majority of the new money invested, accounting for close to 90 % of the total net inflows into long-term mutual funds. C Group Management Report Management Discussion and Analysis 122 Business Environment 124 Executive Summary of 2012 Results 132 Property-Casualty Insurance Operations 140 Life/Health Insurance Operations 148 Asset Management 152 Corporate and Other 154 Outlook 2013 and 2014 166 Balance Sheet Review 175 Liquidity and Funding Resources 182 Reconciliations Annual Report 2012    Allianz Group 123