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Allianz Annual Report 2012

its fair value; any net unrealized gains and losses accumu- lated in other comprehensive income are recognized in the consolidated income statement (i.e. recycled) when the planned transaction affects the consolidated income state- ment. After a hedge of a net investment in a foreign entity is discontinued, the ­Allianz Group continues to report the derivative financial instrument at its fair value and any net unrealized gains or losses accumulated in other compre- hensive income remain there until the disposal of the for- eign entity. DISCLOSURES RELATING TO FINANCIAL INSTRUMENTS IFRS 7, Financial Instruments: Disclosures, requires the grouping of financial instruments into classes that are ap- propriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. The scope of IFRS 7 includes recognized and unrecognized financial instruments. Recognized financial instruments are those financial assets and financial liabil- ities within the scope of IAS 39. Unrecognized financial in- struments, such as loan commitments, are financial in- struments that are outside of the scope of IAS 39 but within the scope of IFRS 7. The classes of financial instruments within the ­Allianz Group are mainly in line with the catego- ries according to IAS 39. Certain risk disclosure requirements of IFRS 7 are reflected in the following sections within the Risk Report in the Group Management Report: −− Internal Risk Capital Model including all subsections other than Assessment of assumptions, −− Limitations, −− Concentration of risks, −− Quantifiable risks including all subsections other than Business risk and Operational risk, −− Liquidity risk. in fair value of the hedged item attributable to the hedged risk, are recognized in income from financial assets and liabilities carried at fair value through income (net). Cash flow hedges Cash flow hedges offset the exposure to variability in ex- pected future cash flows that is attributable to a particular risk associated with a recognized asset or liability or a fore- casted transaction. Changes in the fair value of a derivative financial instrument that represent an effective hedge are recorded in unrealized gains and losses (net) in other com- prehensive income, and are transferred to the consolidated income statement when the offsetting gain or loss associ- ated with the hedged item is recognized. Any ineffective- nessofthecashflowhedgeisrecognizeddirectlyinincome from financial assets and liabilities carried at fair value through income (net). Hedges of a net investment in a foreign entity Hedge accounting may be applied to derivative financial instruments used to hedge the foreign currency risk associ- ated with a net investment in a foreign entity. The propor- tion of gains or losses arising from valuation of the deriva- tive financial instrument, which is determined to be an effective hedge, is recognized in foreign currency transla- tion adjustments in other comprehensive income, while any ineffectiveness is recognized directly in income from financial assets and liabilities carried at fair value through income (net). For all fair value hedges, cash flow hedges, and hedges of a net investment in a foreign entity, the derivative financial instruments are included in other assets or other liabilities. The ­Allianz Group discontinues hedge accounting prospec- tively when it is determined that the derivative financial instrument is no longer highly effective, when the deriva- tive financial instrument or the hedged item expires, or is sold, terminated or exercised, or when the ­Allianz Group determines that designation of the derivative financial in- strument as a hedging instrument is no longer appropriate. After a fair value hedge is discontinued, the ­Allianz Group continues to report the derivative financial instrument at its fair value with changes in fair value recognized in the consolidated income statement, but changes in the fair value of the hedged item are no longer recognized in the consolidated income statement. After hedge accounting for a cash flow hedge is discontinued, the ­Allianz Group continues to record the derivative financial instrument at Annual Report 2012    Allianz Group234

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