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Allianz Annual Report 2012

Annual Report 2012    Allianz Group Economic outlook 1 World economy to regain some momentum Following a subdued economic performance in the winter of 2012/2013, the world economy is likely to regain some momentum as the year progresses. This view is supported, inter alia, by the improvement in leading economic indica­ tors, such as purchasing managers’ indices in both indus­ trialized and emerging markets. Global output is expected to grow moderately by 2.6 % in 2013 and by 3.2 % in 2014 (2012: 2.3 %).OnbothsidesoftheAtlantic,publicandprivate sector efforts to adjust to high debt levels will continue to restraineconomicactivity.Monetarypolicy,however,isstill very accommodative in the United States, Japan and Europe and generally favorable financing conditions are providing economic impetus for both private households and the cor­ porate sector. Emerging markets remain a key driver of global growth, although future GDP growth rates will be lower than in the years before 2008. We expect these markets to grow by 5.3 % in 2013 and 5.4 % in 2014 (2012: 4.5 %). Given modestworldwidegrowthprospectsandtakingintoaccount the problematic unemployment situation in many indus­ trialized countries, which dampens wage pressure, inflation should remain subdued on a global level both in 2013 and 2014. Given the need to rein in the federal budget deficit, U.S. ­annualeconomicgrowthwillprobablyremainmoderatein 2013 and 2014, at 1.8  % and 2.4  %, respectively. In the Euro­ zone, we expect to see a stabilization in 2013 and modest growth in 2014. The arguments in favor of recovery include, first and foremost, the political progress in addressing the crisis, which has boosted confidence levels among eco­ nomicplayers.Thesecondreasonisthesubstantialsupport provided by the European Central Bank’s monetary policy and the low interest rate environment. Nevertheless, budget­ ary consolidation will continue to exert a drag on the Euro­ zone’s economy. In addition, economic conditions still vary considerably from country to country. Real GDP in the Euro­ zone as a whole is expected to grow by a paltry 0.2 % in 2013 and a more respectable 1.5 % in 2014. The German economy will continue to outperform the Eurozone average, thanks to robust domestic demand, a fairly stable labor market and relatively low public sector consolidation needs. Follow­ ing an estimated real GDP growth of 1.2 % in 2013, we expect a 2.2 % increase in 2014. 1 The information presented in the sections Economic outlook, Insurance industry outlook and Asset management industry outlook is based on our own estimates. Political risks still linger – especially in countries with up­ coming elections – which could trigger fluctuations in the financial markets. However, we consider it unlikely that the European debt crisis will continue to keep the markets on edge on the scale it has done to date, assuming Southern Europe continues with its reforms. With the debt crisis gradually receding, the flight into the “safe havens” of Ger­ man and U.S. government bonds is likely to ease, pushing up yields in these markets moderately. However, both the Federal Reserve Bank and the European Central Bank can be expected to stick to their loose policy stance, above all leaving key rates unchanged. With short-term rates close to zero, there are limited prospects of a sharp rise in yields on longer-term bonds. We expect yields on 10-year German and U.S. government bonds to climb merely into a range of 2.0 – 2.5  %. Besides a possible renewed escalation of the sovereign debt crisis, there are other risks that could severely dampen the economic outlook. This holds true, in particular, for the polit­ ical situation in North Africa and the Middle East regions, where we assume no dramatic escalation, although the political situation will remain tense. Insurance industry outlook Over the next two years, global economic activity is set to improve, albeit only slightly. In particular, the expected slow recovery in Europe should be positive for the insur­ ance industry. World premium growth should accelerate modestly, with fairly robust growth in emerging markets outpacing that of advanced markets – although growth will be not as strong as in the years prior to the financial crisis. At the same time, interest rates are expected to stay at low levels to support fragile economies and financial markets are likely to remain volatile. Against this backdrop, we fore­ castamutedearningsgrowthoutlookfortheindustry–espe­ cially in the life sector – which is likely to be impacted by further expected investment derisking. While balance sheets for the most part should remain relatively strong, they will continue to be affected by financial market volatil­ ity. However, in the longer term there is the potential for growth and improved earnings, should interest rates and yields increase. In the property-casualty sector, we anticipate slightly higher premium growth in 2013 and 2014 as the uptick in economic activity bolsters demand for insurance coverage. In partic­ ular, there are no signs that strong growth in emerging 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 155