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Allianz Annual Report 2012

Annual Report 2012    Allianz Group PROPERTY-CASUALTY insurance In 2012, gross premiums written increased by 4.7 % on a nominal basis. The rise was attributable to an internal growth of 2.5 % fueled by both positive price and volume ­effects, favorable foreign currency translation effects, and the effect of our recent acquisitions of the activities of Gan Eurocourtage in France and Mensura in Belgium. In 2013, revenues are expected to increase within a range of 2.5 % to 3.5 % on a nominal basis. We believe this moderate growth will be supported by favorable price and volume ef­ fects and the impact of our above-mentioned acquisitions, which will add approximately € 0.9 bn to our top line. This growth will more than offset expected reductions in our crop business in the United States. For 2014, we expect the growth in gross premiums written to increase further. The anticipated upswing in 2013 will be mainly driven by our global insurance lines, the Anglo markets, emerging countries in Latin America and Asia, as well as by improve­ ments in some of our core markets such as Germany, Italy and France. Growth in our mature markets will be also supported by our acquisitions of the brokerage portfolio-related activi­ ties of Gan Eurocourtage – which will allow us to strengthen our position in the profitable commercial lines segment in France – and the insurance activities of Mensura, which will help ­Allianz Belgium to increase scale by re-entering the worker’s accident business and offering our commer­ cial lines clients a full product range. We expect that the overall slow rise in prices we witnessed in 2012 will continue, contributing to the expected growth in our gross premiums. However, consistent with previous years,wewillkeepfocusingontheproductionofoutstanding underwriting results by adhering to our strict underwriting discipline and will be willing to accept a lower top line if target margins cannot be achieved. In 2012, operating profit in Property-Casualty increased to € 4.7 bn, driven by an improvement in the combined ratio – whichfinishedat96.3 %comparedto97.8 %in2011.Theresult benefited from lower natural catastrophe claims, which ­decreased to €  715 Mn after two consecutive years of extra­ ordinarily high losses (€  1.8 bn and €  1.3 bn for 2011 and 2010, respectively). Despite the high volatility of natural catastro­ phes in recent years, we anticipate such claims in 2013 and 2014 to be more in line with their expected average level. We plan to make further progress towards our combined ratio target of 96  % over the cycle. This rests on our expecta­ tion that the aggregate effect of improvements in pricing, claims management and productivity gains will more than compensateforunderlyingclaimsinflation.A1.0percentage point change in the combined ratio would have an impact of around € 0.4 bn on our 2013 operating result. As the low interest rate environment is expected to persist, investment income will remain under pressure due to the rather short duration of the investments in the Property- Casualty segment. We will continue to take measures to adapt our investment strategy to current market conditions. Overall, we expect our 2013 operating profit to be in the range of € 4.3 bn to € 5.1 bn. For 2014, we aim to further strengthen our operating profit level compared to 2013. Life/Health insurance Revenuesremainedstableat€  52.3 bnin2012.Onaninternal basis, premiums decreased by 2.6 %, driven in particular by declines in Italy, the United States and Asia-Pacific. Low in­ terest rates and stiffer competition from banks continued toexertanegativeeffectonrevenues.Furthermore,ourfocus on achieving adequate margins resulted in lower volumes in some regions, and in some cases even withdrawal from themarket–forexampleinJapan.Wewillcontinuetoprior­ itizeprofitabilityovergrowthin2013.Asweexpectcontinued pressure from volatile financial markets in the near term, weanticipatethe2013revenueleveltoremainrelativelysta­ ble at between € 50 – 53 bn, with the potential for a modest increase depending on interest rate developments and the competitivelandscape.Ouroutlookfor2014isformoderate growth as the insurance market continues to rationalize, though competition with banks may remain a challenge. In 2012, our operating profit of € 3.0 bn exceeded our target range of € 2.2 bn to € 2.8 bn. Results were supported by sig­ nificantly lower impairments and by a high level of realized gains, driven to a large extent by portfolio rebalancing to lengthen duration, particularly in Germany. For 2013, we expect operating profit in our Life/Health segment to be between €  2.5 bn and € 3.1 bn, supported by growth in our underlyingassetbase.Thedeclineintheoutlookcompared to 2012 actual operating profit is due to the expected normal­ ization of our investment result, which was extraordinarily elevatedduetothehighnetharvestingresultandwillremain under pressure in the expected low interest rate environ­ ment. Our outlook equates to a margin on reserves ranging 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 159

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