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Allianz Annual Report 2012

Unearned premiums For short-duration insurance contracts, like most of the property and casualty contracts, premiums to be earned in future years are recorded as unearned premiums accord- ing to the insurance accounting provisions of US GAAP. These premiums are earned in subsequent periods in rela- tion to the insurance coverage provided. Amounts charged as consideration for origination of cer- tain long-duration insurance contracts (i.e. initiation or front-end fees) are reported as unearned revenue which are included in unearned premiums. According to the in- surance accounting provisions of US GAAP, these fees are recognized using the same amortization methodology as DAC. Unbundling Certain insurance contracts contain both an insurance component and a deposit component. The ­Allianz Group has recognized all rights and obligations related to issued insurance contracts according to its accounting policies. As a result, the ­Allianz Group has not separately recognized an unbundled deposit component in respect of any of its insurance contracts. Bifurcation Some of the ­Allianz Group’s universal life-type and invest- ment-type insurance contracts contain features, which are not closely related to the underlying insurance contracts. These features are bifurcated from the insurance contracts andaccountedforasderivativesinlinewithIFRS4andIAS39. Reserves for loss and loss adjustment expenses Reserves are established for the payment of losses and loss adjustment expenses (LAE) on claims which have occurred but are not yet settled. Reserves for loss and loss adjust- ment expenses fall into two categories: case reserves for reported claims and reserves for incurred but not reported losses (IBNR). Case reserves for reported claims are based on estimates of future payments that will be made with respect to claims, including LAE relating to such claims. Such estimates are made on a case-by-case basis, based on the facts and cir- cumstances available at the time the reserves are estab- lished. The estimates reflect the informed judgment of claims personnel based on general insurance reserving The value of an insurance business or an insurance portfo- lio acquired is measured by the PVFP, which is the present value of net cash flows anticipated in the future from insur- ance contracts in force at the date of acquisition. It is am- ortized over the life of the related contracts. PVFP was deter- mined using discount rates ranging from 8.0 % to 12.0 %. Interest accrues on the PVFP balance based upon the policy liability rate or contract rate. Interest currently accrues on PVFP at rates between 2.0 % and 6.5 %. Sales inducements on insurance contracts that meet the following criteria are generally deferred and amortized us- ing the same methodology and assumptions used for am- ortized deferred acquisition costs: −− recognized as part of reserves for insurance and invest- ment contracts, −− explicitly identified in the contract at inception, −− incremental to amounts the ­Allianz Group credits on similar contracts without sales inducements, and −− higher than the contract’s expected ongoing crediting rates for periods after the inducement. Please refer to note 3, where the processes and controls for ensuring an appropriate use of estimates and assumptions are explained. Shadow Accounting For insurance contracts and investment contracts with dis- cretionary participation features, shadow accounting is applied to DAC, PVFP and deferred sales inducements. The ­Allianz Group uses EGPs or EGMs, which include realized gains and losses in measuring these assets. Shadow ac- counting is applied in order to include the effect of unreal- ized gains or losses in the measurement of these intangible assets in the same way as it is done for realized gains or losses. Accordingly, the assets are adjusted with corre- sponding charges or credits recognized directly in other comprehensive income as a component of the related un- realized gain or loss. When the gains or losses are realized, they are recorded in the income statement through recy- cling and prior adjustments due to shadow accounting are reversed. 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 237