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Allianz Annual Report 2012

Annual Report 2012    Allianz Group The main goal of planning and managing ­Allianz SE’s liquid- ity position is to ensure that we are always able to meet payment obligations. To comply with this objective, the li- quidity position of ­Allianz SE is monitored and forecasted on a daily basis. Strategic liquidity planning over time hori- zons of 12 months and 3 years is reported to the Board of Management regularly. The main tools to meet unforeseen liquidity requirements are committed credit lines from banks, commercial paper facilities, medium-term debt ­issuance programs, a centrally managed, highly-liquid bond portfolio with direct access to the market of sale and repurchase agreements (the so-called “Repo market”), as well as internal resources in the form of intra-group loans and an international cash pooling infrastructure. The accumulated short-term liquidity forecast is updated daily and is subject to an absolute minimum strategic cushion amount and an absolute minimum liquidity target. Both are defined for the ­Allianz SE cash pool in order to be protected against short-term liquidity crises. As part of our strategic planning, contingent liquidity requirements and sources of liquidity are taken into account to ensure that ­Allianz SE is able to meet any future payment obligations even under adverse conditions. Major contingent liquidity requirements include non-availability of external capital markets, combined market and catastrophe risk scenarios for subsidiaries as well as lower than expected profits and dividends from subsidiaries. Liquidity risk relating to our banking operations is deemed to be insignificant at the Group level. This is because of the smallsizeanddefensiveriskprofileof­Allianzbanksreflected in risk-weighted assets and total assets (as of 31 December 2012, € 9.3 bn and € 21.5 bn, respectively). Our insurance operating entities manage liquidity risk lo- cally, using asset-liability management systems designed toensurethatassetsandliabilitiesareadequatelymatched. Thisdecentralizedapproachensuressufficientflexibilityin providing liquidity. Liquidity risk in our Property-casualty and Life/Health seg- ments is a secondary risk following external events, such as natural disasters, lapse, renewal rates, or costs that are generally reflected in our internal risk capital model. There- fore, limiting and monitoring the associated primary risks (such as through the use of reinsurance) also helps limit our liquidity risk related to such events. The local investment strategies particularly focus on the quality of investments and ensure a significant portion of liquid assets (e. g. government bonds or covered bonds) in the portfolios. This helps us to meet high liquidity require- ments in the case of unlikely events. Furthermore, in the case of an extraordinary event, a portion of the applicable payments may be made with a certain time lag, which reduces the risk that short-term current payment obligations cannot be met. We employ actuarial methods for estimating our liabilities arising from insurance contracts. In the course of standard liquidity planning we reconcile the cash flows from our in- vestment portfolio with the estimated liability cash flows. These analyses are performed at the operating entity level and aggregated at the Group level. Regarding our Asset Management business, forecasting and managing liquidity is a regular process, designed to meet both regulatory requirements and Group standards. This process is supported by the liquidity management framework implemented in ­Allianz Asset Management. Reputational risk ­Allianz’s reputation rests on our behavior in a range of areas – such as product quality, corporate governance, fi- nancial performance, customer service, employee rela- tions, intellectual capital and corporate responsibility. Reputational risk is the risk of an unexpected drop in the value of ­Allianz’s share price, the value of the in-force busi- ness or the value of future business caused by a decline in the reputation of ­Allianz. Direct reputational risk can be caused by any ­Allianz behavior which might have a nega- tive impact on the perception of ­Allianz by important stake- holders. Indirect reputational risk is caused by a risk event in one of the other major risk categories (i.e. operational, strategic, cost, insurance, liquidity, credit or market risk), whichcouldtriggeranadditionallossin­Allianz’svaluedue to the damage to our reputation. With the support of Group Communications, Group Risk defines sensitive business areas and applicable risk guide- lines, for example for defense-related activities, which are mandatory for all our operating entities. The guidelines are regularly updated and are aligned with the ­Allianz ESG C Group Management Report Risk Report and Financial Control 184 Risk Report 214 Controls and Procedures 209