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Allianz Annual Report 2012

MCEV. For the calculation of the Traditional Embedded Value a discount rate based on 10-year government bonds plus 4.5 % Equity Risk Premium was used. For the valuation of the Traditional Embedded Value the underlying govern- ment bonds were consistently used for the valuation of starting asset values as well as for the projection of the cash flows. The following table provides an overview of the dis- count rates for the CGU in the Life/Health segment: reference rate and risk Discount rate for the cgu in the life/health segment D 063 Cash generating unit in the Life/Health segment Reference rate for entities with Appraisal Value based on MCEV and risk discount rate for entities with Appraisal Value based on Traditional Embedded Value (TEV) German Speaking Countries MCEV: EUR swap curve minus 10 bps credit risk adjustment plus 33 bps illiquidity premium CHF swap curve minus 10 bps credit risk adjustment plus 2 bps illiquidity premium Health Germany MCEV: EUR swap curve minus 10 bps credit risk adjustment plus 33 bps illiquidity premium Insurance Western & Southern Europe MCEV: EUR swap curve minus 10 bps credit risk adjustment plus 33 bps illiquidity premium TEV: 9.56 % for Allianz S.p.A. Asia-Pacific and Middle East MCEV: Local swap curve minus 10 bps credit risk adjustment plus 0 bps illiquidity premium TEV: 5.76 % for Allianz Taiwan Insurance USA TEV: 6.24 % The new business value calculation is based on a best-esti- mate of one year of value of new business, multiplied by a factor (multiple) to capture expected future new business. The best-estimate of new business is generally derived from the achieved value of new business. The new business multiple accounts for the risk and growth associated with future new business in analogy to the discount rate and the growth rate in a capitalized earnings method. For all CGU in the Life/Health segment, a multiple of not more than ten times value of new business is applied. For entities included in the CGU of the Asset Management segment, key assumptions include assets under manage- ment growth, cost-income ratio and risk capital. The key assumptions are based on the current market environ- ment. The discount rate is 9.0 % and the eternal growth rate is 1.0 % for the CGU Asset Management. For the CGU Selecta AG, the discount rate applied to deter- mine the value in use is 8.0 %. The value in use results from the discounted expected sales proceeds, assuming a sale to occur in the mid-term future. The sale proceeds are esti- mated by using a multiple valuation. The multiple is de- rived from industry peer companies and management judgment and is applied to projected results derived from the internal business plan, which is mainly based on ex- pectations regarding future economic developments of Selecta’s core markets. Sensitivity analysis Sensitivity analyses were performed with regard to dis- count rates and key value drivers of the business plans. For the CGU in the segments Property-Casualty and Asset Management, sensitivity analyses were performed in re- spect to the long-term sustainable combined ratios and cost income ratios. For all CGU excluding Property-Casualty Asia-Pacific and Middle East as well as Property-Casualty Central and Eastern Europe, capitalized earnings value sensitivities still exceeded their respective carrying values. An increase of more than 0.5 % points in the discount rate or the combined ratio may result in the recoverable amount for the CGU Central and Eastern Europe getting close to its carrying value. The recoverable amount of the CGU Asia- Pacific and Middle East may decline to its carrying value as a result of an increase in the combined ratio of more than 1.5 % points. In the Life/Health segment, for life entities where the Ap- praisal Value is based on MCEV, sensitivity analyses were performed based on MCEV sensitivity testing on the refer- ence rate. For life entities where the Appraisal Value is based on Traditional Embedded Value, sensitivity analyses were performed with respect to the risk discount rate. For the CGU Insurance USA, any increase in the risk discount rate would lead to the Appraisal Value not exceeding its car- rying value assuming ten times the new business value. For the CGU Asia-Pacific and Middle East, an increase in the risk discount rate in Taiwan of 100 basis points would lead to the Appraisal Value still exceeding its carrying value as- suming seven times the new business value. It has to be noted, however, that these sensitivity analyses for the Traditional Embedded Value with an adverse varia- tion in the risk discount rate were performed on a ceteris paribus basis. Investment income and the respective as- sociated profits underlying the Traditional Embedded Val- ues were not adjusted correspondingly. Annual Report 2012    Allianz Group286

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