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Allianz Annual Report 2012

Annual Report 2012    Allianz Group Premium risk is actively managed by the ­Allianz Group and its local operating entities. Assessing the risks as part of the underwriting process is a key element of our risk manage- ment framework. There are clear underwriting limits and restrictions are centrally defined and in place across the Group. Specialty lines risk carriers such as ­Allianz Global Corporate & Specialty pool specific risks which require ex- pert knowledge. In addition to the centrally defined under­ writing limits, the local operating entities have limits in place that take into account their business environments. Premium risk relative to the underlying exposures is posi- tively affected by the diversification effect between differ- ent lines of business at the local operating entity level, or different markets at the Group level. In addition, risks are mitigated by external reinsurance agreements. Natural disasters, such as earthquakes, storms and floods, represent a significant challenge for risk management due to their accumulation potential and occurrence volatility. In order to measure such risks and better estimate the poten­ tial effects of natural disasters, we use special modeling techniques in which we combine data about our portfolio (such as the geographic distribution and characteristics of insured objects and their values) with simulated natural disaster scenarios to estimate the magnitude and frequency of potential losses. Where such stochastic models do not exist (e. g. flood risk in Italy), we use deterministic scenario- based approaches to estimate probable losses. The Group’s net exposure to natural catastrophes remained within our risk appetite in 2012. About 30 % of the pre-diver- sified internal premium risk capital allocated to natural catastrophe risk was borne by our top 5 perils: Europe Windstorm, U.S. Hurricane, Germany Flood, Germany Earthquake and Germany Hail as of December 2012. Our largest exposures to natural catastrophes are provided in the following table. The five largest single accumulation scenarios: Loss potential net of reinsurance for individual events, measured at a probability level of one loss in 250 years (99.6 % confidence level) C 101 € mn As of 31 December 2012 Loss potential1 Europe Windstorm 756 U.S. Hurricane 653 Germany Flood 528 Germany Earthquake 520 Germany Hail 520 1 Based on most recent estimates, exposures are calculated using either vendor or propri- etary models developed by in-house experts. All models are subject to uncertainty arising from scientific assumptions and underlying data. Reserve risk We estimate and hold reserves for past claims that have not yet been settled. If the reserves are not sufficient to cover claims to be settled in the future due to unexpected changes, we would experience losses. The volatility of past claims measured over a one-year time horizon defines our reserve risk. An indicator for this coverage is the amount of net sur- plus 1 compared to the initial reserves.2 The future uncertainty regarding potential losses is signifi- cantly driven by the risks underwritten. In general, our oper­ ating entities constantly monitor the development of re- serves for insurance claims on a line of business level.3 Results are discussed by local reserve committees at least on a quarterly basis. If necessary, we re-estimate reserves in line with actuarial standards. In addition, the operating entities generally conduct annual reserve uncertainty anal- yses. The approaches applied are similar to the methods used for reserve risk calculations. The ­Allianz Group per- forms regular independent reviews of these analyses and Group representatives participate in the local reserve com- mittee meetings. Similar to premium risk, reserve risk at the Group level is positively affected by the diversification effect between different lines of business at the local level and different markets at the Group level. 1 Net surplus represents the cumulative surplus from re-estimating the reserves for loss and loss adjustment expenses for previous years’ claims and includes foreign currency transla- tion adjustments. For further information, please refer to note 19 to the consolidated finan- cial statements. 2 This figure is provided on a calendar year basis in note 19 to the consolidated financial statements. 3 For further information, please refer to note 19 to the consolidated financial statements. C Group Management Report Risk Report and Financial Control 184 Risk Report 214 Controls and Procedures 205

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