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Allianz Annual Report 2012

Regular site visits: The ­Allianz Group Actuarial Department regularly visits ­Allianz subsidiaries in order to ensure that they apply the Group-wide standards and guidelines. The on-site review focuses on all significant changes in as- sumptions and methodologies as well as on procedures and professional practices relevant for the reserving pro- cess. Furthermore, these meetings are to update knowl- edge of the underlying local business developments. Regular quantitative and qualitative reserve monitoring: On a quarterly basis, the ­Allianz Group Actuarial Department monitors reserve levels, movements and trends across the ­Allianz Group. This monitoring is conducted on the basis of quarterly data submitted by the subsidiaries as well as through frequent dialogue with local actuaries. The oversight and monitoring of the ­Allianz Group’s re- serves culminate in quarterly meetings of the ­Allianz Group Reserve Committee, which is the supervising body that governs all significant reserves. It particularly moni- tors key developments across the ­Allianz Group affecting the adequacy of loss reserves. FAIR VALUE AND IMPAIRMENTS OF FINANCIAL INSTRUMENTS As of 31 December 2012, the ­Allianz Group reported finan- cial instruments carried at fair value of:1 −− € 266,915 mn of the financial assets and € 71,949 mn of the financial liabilities carried at fair value are classified within Level 1 of the fair value hierarchy (quoted prices in active markets) −− € 185,448 mn of the financial assets and € 3,997 mn of the financial liabilities carried at fair value are classified within Level 2 of the fair value hierarchy (valuation tech- nique with observable market inputs) −− € 9,872 mn of the financial assets and € 5,413 mn of the fi- nancial liabilities carried at fair value are classified within level 3 of the fair value hierarchy (valuation tech- nique with significant input being non-observable). Level 3 financial assets represent less than 2 % of the ­Allianz Group’s total financial assets carriedat fair value 1 Please refer to the consolidated financial statements note 2 Summary of significant account- ing policies, note 37 Impairments of investments (net), and note 44 Financial instruments, for further details regarding financial instruments and impairments. Estimates and assumptions are particularly significant when determining the fair value of financial instruments for which at least one significant input is not based on ob- servable market data (classified within Level 3 of the fair value hierarchy). The availability of market information is determined by the relative trading levels of identical or similar instruments in the market, with emphasis placed on information that represents actual market activity or binding quotations from brokers or dealers. When appro- priate, values are adjusted on the basis of available market information including pricing, credit-related factors, vola- tility levels, and liquidity considerations. If sufficient mar- ket information is unavailable, management’s best esti- mate of a particular input is used to determine the value. The evaluation of whether a financial debt security is im- paired requires analysis of the underlying credit of the rel- evant issuer and involves significant management judg- ment. In particular, current publicly available information relating to the issuer and the particular security is consid- ered relating to factors including, but not limited to, evi- dence of significant financial difficulty of the issuer and breach of contractual obligations of the security, such as a default or delinquency on interest or principal payments. The ­Allianz Group also considers other factors which could provide objective evidence of a loss event, including the probability of bankruptcy and the lack of an active market due to financial difficulty. The presence of either a decline in fair value below amortized cost or the downgrade of an issuer’s credit rating does not by itself represent objective evidence of a loss event, but may represent objective evi- dence of a loss event when considered with other available information. In general, the subsidiaries assume responsibility for as- sessing fair values and evaluating impairments of financial instruments. This process is consistent with the decentral- ized organizational structure and reflects the fact that local managers are often best suited to analyze securities trading in local markets. Nevertheless, the subsidiaries are respon- sible for adhering to the ­Allianz Group’s internal control policy regarding impairment assessment, measurement and disclosure. Subsidiaries must report all impairment decisions on debt securities to the ­Allianz Group Account- ing department, which then reviews them for consistency and resolves discrepancies. Annual Report 2012    Allianz Group246