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Allianz Annual Report 2012

Financial liabilities within the scope of IAS 39 are either classified as −− financial liabilities carried at fair value through income, −− liabilities to banks and customers, −− investment contracts with policyholders, −− derivative financial instruments used for hedging, −− financial liabilities for puttable equity instruments, −− certificated liabilities, or −− participation certificates and subordinated liabilities. Furthermore, financial liabilities comprise financial liabil- ities for unit-linked contracts. The classification depends on the nature and purpose of the financial instrument and is determined at initial rec- ognition. Financial instruments are initially recognized at fair value plus, in the case of financial instruments not carried at fair value through income, directly attributable transaction costs. Financial instruments are generally recognized and derec- ognized on trade date, i.e. when the ­Allianz Group commits to purchase or sell securities or incur a liability. Fair value of financial instruments The­AllianzGroupappliestheIAS39fairvaluemeasurement rules to determine the fair value of financial instruments. Active markets – Quoted market price – Fair value Level 1: The fair values of financial instruments that are traded in active markets are based on quoted market prices or dealer price quotations on the last exchange trading day prior to and at the balance sheet date. The quoted market price used for a financial asset held by the ­Allianz Group is the current bid price; the quoted market price used for finan- cial liabilities is the current ask price. No active markets – Valuation techniques – Fair value Level 2: If the market for a financial instrument is not active, the fair value is determined by using valuation techniques. The valuation techniques used are based on market observable inputs when available. Such market inputs include refer- ences to formerly quoted prices for identical instruments from an active market, quoted prices for identical instru- ments from an inactive market, quoted prices for similar instruments from active markets and quoted prices for Any foreign currency translation differences, including those arising from the equity method, are recorded directly in other comprehensive income, as foreign currency trans- lation adjustments. CASH AND CASH EQUIVALENTS Cash and cash equivalents include balances with banks payable on demand, balances with central banks, cash on hand, treasury bills to the extent they are not included in financial assets held for trading, as well as checks and bills of exchange which are eligible for refinancing at central banks, subject to a maximum term of three months from the date of acquisition. REAL ESTATE HELD FOR INVESTMENT Real estate held for investment (i.e. real estate and rights equivalent to real property and buildings, including build- ings on leased land) is carried at cost less accumulated depreciation and impairments. Real estate held for invest- ment is depreciated on a straight-line basis over its esti- mated life, with a maximum of 50 years. At each reporting date or whenever there are any indications that the carry- ing amount may not be recoverable, real estate is tested for impairment by determining its fair value using discounted cash flow methods. Subsequent costs are capitalized if they extend the useful life or increase the value of the asset; oth- erwise they are expensed as incurred. FINANCIAL INSTRUMENTS Classification, recognition and initial measurement Financial assets within the scope of IAS 39 are either classi- fied as −− financial assets carried at fair value through income, −− available-for-sale investments, −− held-to-maturity investments, −− loans and advances to banks and customers, or −− derivative financial instruments used for hedging. Furthermore, financial assets include funds held by others under reinsurance contracts assumed and financial assets for unit-linked contracts. Annual Report 2012    Allianz Group D Consolidated Financial Statements 219 Consolidated Balance Sheets 220 Consolidated Income Statements 221 Consolidated Statements of Comprehensive Income 222 Consolidated Statements of Changes in Equity 223 Consolidated Statements of Cash Flows 226 Notes to the Consolidated Financial Statements 229

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