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Allianz Annual Report 2012

Annual Report 2012    Allianz Group As a general principle, the “first line of defense” rests with business managers in the local operating entities and ­Allianz Investment Management units. They are responsible in the first instance for both the risks and returns of their decisions. Our “second line of defense” is made up of our independent, global oversight functions such as Risk, Com- pliance and Legal. Audit forms the “third line of defense”. On a periodic basis, Group Audit independently reviews risk governance implementation, performs quality reviews of risk processes and tests adherence to business stan- dards. Group Risk GroupRiskisheadedbytheGroupChiefRiskOfficer(Group CRO) and reports to the Board member responsible for ­Finance, Controlling and Risk. Group Risk supports the aforementioned ­Allianz Group committees responsible for risk oversight, through (i) the analysis and communi­cation of risk management related information and (ii) by facili- tating the communication and implementation of com- mittee decisions. For example, Group Risk is operationally responsible for monitoring limits and accumulation of specific types of risks across business lines, such as natural disasters and exposures to financial markets and counterparties. In addition, Group Risk independently supports the ade- quacy of the operating entity risk management (i) through the development of a common risk management frame- work and (ii) by monitoring adherence to Group minimum requirements for methods and processes. Group Risk strengthens and maintains the Group’s risk net- work through regular and close interaction with the operat- ing entities’ management and key areas such as the local finance, risk, actuarial and investment departments. A strong risk network across the Group allows us to identify risks early and bring them to the attention of management. Operating entities Operating entities are responsible for their own risk man- agement, including adherence to both external require- ments (for example, those imposed by local regulators) and internal Group-wide minimum standards. The operating entities’ Board of Management is responsible for (i) setting and approving an OE risk strategy during the annual Strategic and Planning Dialogues with the Group and (ii) ensuring operating entity adherence to this risk strategy. All business line management functions with a direct profit and loss responsibility (i.e. first line of defense, or “risk tak- ing units”) are in charge of active risk-return management through adherence to delegated limits and the OE policy framework. They also support, where applicable, the risk assessment and management activities carried out by the second and third lines of defense. A risk function that is independent from the business line management has to be established by the operating entity. This function operates under the direction of the operating entity CRO who is responsible for overseeing the risk func- tion. In addition, a local Risk Committee supports both the operating entity Board of Management and the CRO by act- ing as the primary risk controlling body. Group Risk is also represented on the local Risk Committees to enhance the risk dialogue between the Group and the operating entities. Other functions and bodies In addition to Group Risk and the OE Risk function, Actu- arial, Legal and Compliance functions have been estab- lished at both the Group and OE level, constituting addi- tional components of the second line of defense. Group Legal and Compliance seeks to mitigate legal risks with support from other departments. Legal risks include legislative changes, major litigation and disputes, regula- tory proceedings and contractual clauses that are unclear or construed differently by the courts. The objectives of Group Legal and Compliance are to ensure that laws and regulations are observed, to react appropriately to all im- pending legislative changes or new court rulings, to attend to legal disputes and litigation, and to provide legally appro- priate solutions for transactions and business processes. Group Legal and Compliance is in addition responsible for integrity management – which aims to protect the ­Allianz Group, our operating entities and employees from regula- tory risks. 212