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Allianz Annual Report 2012

Themeasurementofarestructuringprovisionincludesonly the direct expenditures arising from the restructuring, i.e. those amounts that are both necessarily entailed by the re- structuring and not associated with the ongoing activities of the entity. The income statement line item restructuring charges includes additional restructuring related expendi- tures that are necessarily entailed by the restructuring and not associated with the ongoing activities of the entity but whicharenotincludedintherestructuringprovisions,such as impairments of assets affected by restructuring. Please refer to note 3, where the processes and controls for ensuring an appropriate use of estimates and assumptions are explained. 3 – Use of estimates and assumptions The preceding note 2 describes the accounting policies that the ­Allianz Group follows in preparing its consolidated fi- nancial statements. The section below describes how cer- tain reported figures can be significantly affected by the use of estimates and assumptions, and the processes the ­Allianz Group has in place to control the judgments which are made. Both sides of the ­Allianz Group’s balance sheet have a high degree of estimation and numerous assumptions embed- ded in the valuation of assets and liabilities. The estimation process and selection of appropriate assumptions requires significant judgment to be applied and management deci- sions to be taken in order to establish appropriate values for these assets and liabilities. Any change in the assump- tions and estimates could, in certain circumstances, sig- nificantly affect the reported results and values because the range of reasonable judgment in some cases may be very large. The ­Allianz Group understands the degree of impact that these judgments may have and has estab- lished a strong system of governance as well as controls, procedures and guidelines to ensure consistency and soundness over these judgments. Subsidiaries of the ­Allianz Group are required to establish controls which promote a culture of good judgment and sound decision-making around accounting estimates. These include providing training programs, hiring people with the right background for the job (i.e., certified or expe- rienced accountants, actuaries and finance professionals), andprovidingformalizedpoliciesandproceduresmanuals for accounting and internal controls. At the ­Allianz Group level, processes and committees have beenestablishedtoensuresoundjudgmentandconsistent application of the ­Allianz Group’s standards. Furthermore, the ­Allianz Group has a culture that is strongly committed to reliability, encourages open and transparent discus- sions, provides a venue for asking questions and admitting mistakes, recognizes experts and expertise, and respects the four eyes principle of review. Committees, none of which are chaired by the CFO of the ­Allianz Group, ensure that judgmental decisions and selection of assumptions are discussed in an open setting among experts and that inconsistencies are identified and resolved. Complex accounting areas that are especially sensitive to the estimates and assumptions are described in the follow- ing sections. RESERVES FOR LOSS AND LOSS ADJUSTMENT EXPENSES, INSURANCE AND INVESTMENT CONTRACTS AND DEFERRED ACQUISITION COSTS As of 31 December 2012, the ­Allianz Group reported:1 −− reserves for loss and loss adjustments expenses of € 72,540 mn mainly for the Property-Casualty operations, including run-off business and reinsurance business assumed, −− reserves for insurance and investment contracts of € 390,987 mn mainly for the Life/Health operations and −− deferred acquisition costs of € 19,452 mn for both insur- ance operations. Life/Health reserves are dependent on estimates and as- sumptions, especially on the life expectancy of an insured individual (mortality and longevity risk) and on the devel- opment of interest rates and investment returns (asset-li- ability mismatch risk). These assumptions also have an impact on the presentation of costs arising from the origi- nation of insurance business (acquisition costs and sales inducements) and the value of acquired insurance busi- ness (PVFP). To ensure consistency in the application of 1 Please refer to note 2 Summary of significant accounting policies. For further details, please refer to note 12 Deferred acquisition costs, note 19 Reserves for loss and loss adjustment expenses, and note 20 Reserves for insurance and investment contracts. Annual Report 2012    Allianz Group244