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Allianz Annual Report 2012

GOODWILL As of 31 December 2012, the ­Allianz Group reported total goodwill of € 11,679 mn, of which: 1 −− € 2,164 mn related to the Property-Casualty business −− € 2,175 mn related to the Life/Health business −− € 6,937 mn related to the Asset Management business −− € 403 mn related to the business segment Corporate and Other Goodwill represents the excess of the cost of a business over the fair value of net assets acquired. Upon acquisition, goodwill is allocated to the cash generating units (CGU) that are expected to benefit from the acquisition. Since goodwill is not amortized, the ­Allianz Group must evaluate at least annually whether the carrying value per CGU is deemed recoverable. This is assumed as long as the carry- ing value is not in excess of the unit’s estimated recover- able amount (present value of expected cash flows). If it is not deemed recoverable, the excess goodwill will need to be impaired. The determination of a CGU’s recoverable amount requires significant judgment regarding the selec- tion of appropriate valuation techniques and assumptions. These assumptions include selection of appropriate dis- count rates, planning horizons, capitalization require- ments and the expected future business results. Assump- tions may need to change as economic, market and business conditions change. As such, the ­Allianz Group continuously evaluates external conditions and the operat- ing performances of the CGUs. The ­Allianz Group’s processes and controls around the es- timation of recoverable amounts are generally applied at the ­Allianz Group level and are designed to minimize sub- jectivity. For example, the assumptions used are required to be consistent with the parameters of the well defined planning and controlling processes. The recoverable amountsofall cashgenerating unitsaredeterminedonthe basis of value in use calculations. Important input factors for those calculations are the business plan, the estimate of the sustainable returns and eternal growth rates as is further explained in note 15. The ­Allianz Group also per- forms sensitivity tests with regard to key value drivers, such as projected long-term combined ratios or discount rates. Furthermore, the ­Allianz Group reviews market-based business transaction multiples where available. This infor- mation is used to assess reasonableness since directly 1 Please refer to note 2 Summary of significant accounting policies, and note 15 Intangible assets, for further details. comparable market value information is not generally available. Although the ­Allianz Group believes short-term fluctuations in the market capitalization do not reflect the long-term value of the aggregate of the CGUs, the market capitalization is also compared to the aggregate of the CGU’s recoverable amounts as a high level test of the entire process. The ­Allianz Group believes that the controls over assessing the recoverability of goodwill ensure both consis- tent and reliable results. DEFERRED TAX ASSETS As of 31 December 2012, the ­Allianz Group reported de- ferred tax assets of € 1,270 mn. The deferred tax assets be- fore netting with deferred tax liabilities amounted to € 13,139 mn. € 1,834 mn thereof resulted from tax losses which are carried forward to future periods.2 Deferred taxes are determined based on tax loss carry for- wards, unused tax credits and on temporary differences between the ­Allianz Group’s carrying amounts of assets and liabilities in its consolidated balance sheet and their tax bases. Deferred tax assets are recognized only to the extent it is probable that sufficient future taxable income will be available for their realization. Assessments as to the recoverability of deferred tax assets require the use of judg- ment regarding assumptions related to estimated future taxable profits. This includes the character and amounts of taxable future profits, the periods in which those profits are expected to occur as well as the availability of tax planning opportunities. The analysis and forecasting required in this process, and in result the determination of the deferred tax assets, is performed for individual jurisdictions by qualified local tax and financial professionals. Given the potential signifi- cance surrounding the underlying estimates and assump- tions, Group-wide policies and procedures have been de- signed to ensure consistency and reliability around the recoverability assessment process. Forecasted operating results are based upon approved business plans which are themselves subject to a well defined process of control. As a matter of policy, especially strong evidence supporting the recognition of deferred tax assets is required if an en- tity has suffered a loss in either the current or preceding period. 2 Please refer to note 2 Summary of significant accounting policies, and note 42 Income taxes, for further details. 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 247