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Allianz Annual Report 2012

Annual Report 2012    Allianz Group Scope By design, our internal risk capital model takes into account the following sources of risk, classified as risk categories per segment: internAL Risk Capital model C 087 Risk Category Insurance Asset Manage- ment Corporate and other Description Example manage­ment levers Market risk ◼ Possible losses caused by changes in interest rates, equity prices and real estate values or their volatilities as well as by changes in credit spreads and foreign exchange rates. Strategic asset allo­c­ ation benchmarks, equity and interest rate sensitivity limits – interest rate including volatility ◼ ◼ – credit spread ◼ ◼ – equity including volatility ◼ ◼ – real estate including volatility ◼ ◼ – currency ◼ ◼ Credit risk ◼ ◼ ◼ Possible losses in the market value of the portfolio due to deterioration in the credit quality of counter­parties including their failure to meet payment obligations or due to non- performance of instruments (i. e. overdue payment). Country limits, single counterparty concen­tra­tion limits Underwriting risk Unexpected financial losses due to the inadequacy of premiums for natural catas­ trophe, terror and non-catastrophe risks, due to the inadequacy of reserves or due to the unpredictability of mortality, disability, mor- biditiy or longevity. Minimum under- writing standards, natural catas­trophe limits, reinsurance programs – premium natural catastrophe ◼ – premium terror ◼ – premium non-catastrophe ◼ – reserve ◼ ◼ – biometric ◼ Business risk Possible losses resulting from unexpected changes in business assump­tions and unanti­ cipated earnings fluctuations due to a decline in income without corresponding decrease in expenses, as well as changes in policyholder behavior related to early termination of con- tracts and unanticipated use of options such as renewals and annuitization. Internal controls, business continuity management, adequate product design – cost ◼ ◼ – lapse ◼ Operational risk ◼ ◼ ◼ Possible losses resulting from inadequate or failed internal processes, from personnel and systems, or from external events such as inter- ruption of business operations due to a break- down of electricity or a flood, damage caused by employee fraud or the losses caused by court cases; includes legal and compliance risk. Internal controls, business continuity management, adequate product design 1 1 The premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model is also covered here, as this type of risk is a special form of credit risk. C Group Management Report Risk Report and Financial Control 184 Risk Report 214 Controls and Procedures 191