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Allianz Annual Report 2012

Annual Report 2012    Allianz Group Impact on internal risk capital Confidence level The forthcoming capital requirement imposed by Sol­ vency II is designed to represent the worst-case loss within a 99.5 % confidence level. In order to align ourselves with this standard, we now disclose the results of our internal risk capital model based on the 99.5 % confidence level, as opposed to the 99.97 % we used before. The change from a 99.97 % to a 99.5 % confidence level leads to a decrease in our internal risk capital by € 7.8 bn (from € 34.5 bn to € 26.7 BN). Further internal capital model updates Withrespecttoourinternalriskcapitalmodel,theaggregate impact of all other model changes leads to an additional reduction in risk capital at the 99.5 % confidence level of € 3.5 bn – from € 26.7 bn to € 23.2 bn – based on 2011 year-end. The reduction can be allocated to risk categories as follows: Business risk and operational risk model Business risk and operational risk were the areas most ­affected by the model changes, with a net reduction in in- ternal risk capital of € 3.1 BN. This is primarily due to the full integration of our internal operational risk model (repre- sented now as a separate risk category) taking diversifica- tion into account. This is in contrast to the past where we applied a conservative undiversified add-on in line with the requirements of the current Solvency II standard model. In addition and in line with the forthcoming Solvency II framework we changed our risk allowance for Asset Man- agement. We integrate Asset Management now on the basis of the sectoral regulatory capital requirement and allocate it to market, credit and operational risk based on an internal exposure assessment (previously allocated to business risk). In the Life/Health segment, we have implemented a new life non-market risk framework which introduces clearer segmentation of risks in both business and underwriting modules. The inclusion of previously non-modeled busi- ness risks such as cost inflation and mass lapse partially compensated the impacts above. Market risk model Changes to our market risk models contributed € 1.3 bn to the decrease in our internal risk capital. In particular, we included a change in the yield curve modeling, following the latest guidance of Solvency II, which was more than off- set by the recognition of the risk mitigating effects of the Counter-Cyclical Premium for our life business affecting spread risk of fixed income positions. This approach is based on the fact that the cash flows of our insurance lia- bilities are to a large degree predictable. This limits the risk that we will be forced to sell these bonds prior to maturity at a loss and allows us to keep the bonds as a long-term investor till the maturity date. Underwriting risk models The new life non-market risk framework models mortality, longevity, and morbidity risks as independent risk types instead of bundling them into a single source of risk in the past. The increase in risk capital due to these new methods has been compensated by parameter changes in other under­writing risk types. In total, the internal risk capital has decreased by € 0.1 bn. Credit risk model Credit risk capital increased by € 0.6 bn due to some updates ofparametersandmodels.Themainmethodologyupdates are related to Exposure-at-Default calculations for deriva- tives and reinsurance that now include potential future exposure (PFE) in addition to the current exposure, and refinements in rating assessments. Tax impact The tax impact decreased by € 0.4 bn as a direct consequence of the model changes (i.e. a lower risk capital before tax). Group-diversified allocated internal risk capital by risk category and business segment (total portfolio before non-controlling interests) C 089 € mn as of 31 December 2011 Under internal model as used in 2011 Under internal model after 2012 updates Confidence level 99.97 % 99.5 % 99.5 % By risk category Market risk 16,790 15,555 14,219 Credit risk 6,498 3,322 3,929 Underwriting risk 10,756 7,160 7,012 Business risk 6,374 2,336 1,150 Operational risk – 3,461 1,583 Tax impact (5,913) (5,141) (4,723) Total Group 34,505 26,693 23,170 By business segment Property-Casualty 17,122 12,456 10,915 Life/Health 17,364 13,885 13,422 Asset Management 2,648 2,648 1,231 Corporate and Other 3,284 2,845 2,325 Tax impact (5,913) (5,141) (4,723) Total Group 34,505 26,693 23,170  375  Counter-Cyclical Premium 194