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Allianz Annual Report 2012

DERECOGNITION OF FINANCIAL INSTRUMENTS A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the ­Allianz Group transfers the asset and substantially all of the risks and rewards of ownership. A financial liability is derecognized when it is extinguished. DERIVATIVE FINANCIAL INSTRUMENTS The ­Allianz Group uses derivative financial instruments such as swaps, options and futures to hedge against mar- ket risks (i.e. interest rates, equity prices or foreign ex- change rates) or credit risks in its investment portfolios. Derivative financial instruments that do not meet the cri- teria for hedge accounting are recognized at fair value as financial assets held for trading when the fair value is pos- itive or financial liabilities held for trading when the fair value is negative. Gains or losses from valuation at fair value are included in income from financial assets and li- abilities held for trading. This treatment is also applicable for bifurcated embedded derivatives of hybrid financial instruments. A component that meets the definition of a derivative must be separated from its host contract (bifurcated) and mea- sured as if it were a stand-alone derivative if its economic characteristics are not closely related to those of the host contract. For derivative financial instruments used in hedge transac- tions that meet the criteria for hedge accounting (account- ing hedges), the ­Allianz Group designates the derivative as a hedging instrument in a fair value hedge, cash flow hedge, or hedge of a net investment in a foreign entity. The ­Allianz Group documents the hedge relationship, as well as its risk management objective and strategy for entering into the hedge transaction. The ­Allianz Group assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative financial instruments that are used for hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items. Derivative fi- nancial instruments used in accounting hedges are recog- nized as follows: Fair value hedges Fair value hedges are hedges of a change in the fair value of a recognized financial asset or liability or a firm commit- ment due to a specified risk. Changes in the fair value of a derivative financial instrument, together with the change original cost basis, less any previously recognized impair- ments. Reversals of impairments of available-for-sale eq- uity securities are not recorded through the income state- ment but recycled out of other comprehensive income when sold. RECLASSIFICATION OF FINANCIAL INSTRUMENTS Once a financial instrument has been classified into a par- ticular category at initial recognition, transfers into or out of that category from or to another category are prohibited for some categories and are expected to be rare in all other circumstances. The 2008 amendments to IAS 39 permit an entity to reclas- sify certain non-derivative financial assets out of the “held for trading” (at fair value through income) category and out of the “available-for-sale” category if the following spe- cific conditions are met. −− Debt instruments, classified as “held for trading” (at fair value through income) or as “available for sale” may be reclassified to the “loans and receivables” category, if they meet the definition of loans and receivables at the reclassification date and where the ­­Allianz Group has the intent and ability to hold the assets for the foresee- able future or until maturity. −− Any other debt instrument and any other equity instru- ment, classified as “held for trading” (at fair value through income) may be reclassified to the “held-to- maturity” category (debt instruments) or to the “avail- able-for-sale” category in rare circumstances (e.g. dete- rioration of the world’s financial markets in 2008) and where the ­Allianz Group does not have the intention to sell or trade the assets in the short term. At the reclassification date, non-derivative financial assets have to be reclassified at their fair value, which becomes the new cost or amortized cost of the financial asset, as ap- plicable. Previously recognized gains and losses cannot be reversed. After the reclassification date, the existing re- quirements of IAS 39 for measuring financial assets at cost or at amortized cost apply. OFFSETTING OF FINANCIAL INSTRUMENTS Financial assets and liabilities are offset and the net amount reported in the balance sheet only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to real- ize the asset and settle the liability simultaneously. 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 233

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