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Allianz Annual Report 2012

Annual Report 2012    Allianz Group Management Assessment The ­Allianz Group’s management feels comfortable with the Group’s overall risk profile and has confidence in the effectiveness of its risk management framework to meet the challenges of a rapidly changing environment as well as day-to-day business needs. This confidence is based on several factors which are outlined in more detail in the sec- tions that follow and which are summarized here: −− The ­Allianz Group is well capitalized and is comfortably meeting its internal and regulatory solvency targets as of 31 December 2012. Standard & Poor’s affirmed our AA ratings in January 2012, while reducing the outlook to “negative” due to the impact of capital market develop- ments in the second half of 2011. Nonetheless, with this rating, ­Allianz remains one of the highest-rated insur- ance groups in terms of its creditworthiness. −− The Group’s management also believes that ­Allianz is well positioned to deal with potential future adverse events,inpartduetoourinternallimitframeworkdefined by the Group’s risk appetite and risk management prac- tices.TheGroup’smanagementisconfidentthat,through our risk appetite and management practices, we have achieved an appropriate balance between potential earnings, earnings volatility and solvency consider- ations. −− The Group has a conservative investment profile and disciplined business practices in the Property-Casualty, Life/Health and Asset Management segments, leading to sustainable operating earnings with a well-balanced risk/return profile. −− Finally, the Group has the additional advantage of being well diversified, both geographically and across a broad range of products. Capitalization For the benefit of shareholders and policyholders alike, our aim is to ensure that the ­Allianz Group is adequately capi- talized at all times and that all operating entities meet their respective capital requirements. Furthermore, risk capital and cost of capital are important aspects for making busi- ness decisions. Our internal risk capital model plays a significant role in themanagementofcapital.Inaddition,wetakeintoaccount theexternalrequirementsofregulatorsandratingagencies. While capital requirements imposed by regulators consti- tute a binding constraint, meeting rating agencies’ capital requirements and maintaining strong credit ratings are strategic business objectives of the ­Allianz Group. These capital requirements are imposed at the level of the ­Allianz Group’s operating entities and the Group as a whole. We closely monitor the capital positions of the Group and operating entities and apply regular stress tests based on standard adverse scenarios. This allows us to take appro- priate measures to ensure our continued capital and sol- vency strength. As a consequence of our effective capital management, the ­Allianz Group is well capitalized and met its internal and regulatory solvency targets as of 31 December 2012. The capital management framework is supplemented by an effective liquidity management framework, which is de- signed to retain our financial flexibility by maintaining a strong liquidity position and access to a range of capital markets.1 Regulatory capital adequacy The ­Allianz Group is a financial conglomerate within the scope of the E.U. Financial Conglomerates Directive and the related German law in force since 1 January 2005. The law requires that a financial conglomerate calculates the capital available to meet its solvency requirements on a consoli- dated basis, which we refer to as “eligible capital”. Currently, the requirements for our insurance business with regard to conglomerate solvency are based on Solvency I. These cap- ital requirements, as well as the definition and calculation of eligible capital, will be replaced by the Solvency II rules, once the new regulation becomes binding. 1 For detailed information regarding liquidity management, please refer to Other risks – Liquidity risks from page 208 and the chapter Liquidity and Funding Resources from page 175 onwards. C Group Management Report Risk Report and Financial Control 184 Risk Report 214 Controls and Procedures 185