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Allianz Annual Report 2012

Certificated liabilities, participation certificates and sub- ordinated liabilities: The fair value of certificated liabilities, participation cer- tificates and subordinated liabilities is determined using quoted market prices, if available. If quoted prices are not available, for short-term liabilities the carrying amount represents a reasonable estimate of the fair value. For long- term instruments the fair value is determined by discount- ing the remaining contractual future cash flows at a dis- count rate at which the ­­Allianz Group could issue debt with a similar remaining maturity. The fair value determination reflects current market interest rates and considers the credit rating of the ­­Allianz Group. Determination of fair value for financial instruments carried at fair value For the following financial instruments, carried at fair val- ue in the consolidated balance sheets, the fair value is de- termined as described in note 2 – Summary of significant accounting policies: −− Financial assets and liabilities held for trading −− Financial assets and liabilities designated at fair value through income −− Available-for-sale investments −− Financial assets and liabilities for unit-linked contracts −− Derivative financial instruments and firm commit- ments included in other assets and other liabilities −− Investment contracts with policyholders −− Financial liabilities for puttable equity instruments −− Assets and liabilities held in trust Fair value hierarchy of financial instruments IFRS 7 requires that financial instruments carried at fair value in the consolidated balance sheets are classified into a three-level hierarchy (“the fair value hierarchy”) depend- ing on the valuation techniques used and whether the in- puts to those valuation techniques are observable in the market. For a further explanation of the levels in the fair value hier- archy, please refer to note 2 – Summary of significant ac- counting policies. Determination of fair value for financial instruments not carried at fair value The determination of the fair value for financial instru- ments that are not carried at fair value in the consolidated balance sheet, but for which a fair value has to be disclosed under IFRS 7, is described below: Cash and cash equivalents: Cash and cash equivalents comprises cash and demand deposits with banks together with short-term highly liquid investments that are readily convertible to known amounts of cash and subject to insignificant risk of change in value. They are carried at nominal value, which represents a rea- sonable estimate of the fair value for these short-term fi- nancial instruments. Held-to-maturity investments: The fair value of held-to-maturity investments is deter- mined using the quoted market price as of the balance sheet date. Loans and advances to banks and customers: For loans and advances to banks and customers, quoted market prices are not available as there are no active mar- kets in which these instruments are traded. The fair value is determined using generally accepted valuation tech- niques with current market parameters. For short-term loans, the carrying amount represents a reasonable esti- mate of the fair value. For long-term loans, the fair value is estimated by discounting future contractual cash flows using risk-adjusted discount rates. Liabilities to banks and customers: For short-term liabilities, the carrying amount represents a reasonable estimate of the fair value. For long-term ins­ truments, the fair value is determined by discounting fu- ture cash flows using risk specific interest rates. Annual Report 2012    Allianz Group328

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