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Allianz Annual Report 2012

Corporate bonds classified as Level 3 consist of various portfolios for which different valuation techniques with non-observable inputs, including broker quotes and pric- ing services, are used. While in total the effect of changing the valuation assumptions to reasonable possible alterna- tive values might have a significant impact on the fair val- ues, when considered individually for each portfolio, the impact would not be significant. Financial liabilities held for trading include € 4.5 bn of em- bedded derivative financial instruments relating to annu- ity products. Internal discounted cash flow models are used to determine the present value of the under­lying in- surance benefits and expenses. Sensitivity analyses of the fair value with regard to changes in input parameters to reasonable possible alternative assumptions are calculat- ed by varying policyholder assumptions, such as annuitiza- tions and surrenders that impact future projected benefits, by plus or minus 10 %. Assumption changes made to in- crease future projected benefits would increase the fair value by € 314 mn, whereas assumption changes made to decrease future projected benefits would decrease the fair value by € 339 mn. Significant transfers of financial instruments carried at fair value between Level 1 and Level 2 Transfers between level 1 and level 2 D 122 € mn 2012 Financial assets transferred from Level 1 to Level 2 Available-for-sale – Government and government agency bonds 1,182 Available-for-sale corporate bonds 2,005 Financial assets transferred from Level 2 to Level 1 Available-for-sale – Government and government agency bonds 645 Available-for-sale corporate bonds 2,649 Certain available-for-sale government and government agency as well as corporate bonds were transferred from Level 1 to Level 2 during the year ended 31 December 2012. These transfers were mainly due to decreased liquidity, trade frequency and activity of certain markets in which those bonds are traded, as well as refinements in policy. Additionally, available-for-sale government and govern- mentagencybondsaswellascertaincorporatebondswere transferred from Level 2 to Level 1 during the year ended 31 December 2012 due to changes in the assessment of the li- quidity of these bonds. Level 3 portfolios The fair value of certain financial instruments is deter- mined using valuation techniques with significant non- market observable input parameters (Level 3). Equity securities within financial assets designated at fair value through income and available-for-sale investments classified as level 3 mainly comprise private equity fund investments of the ­­Allianz Group. Fund manager priced private equity fund investments are usually calculated on a net asset value basis with material non-public informa- tion about the respective private equity companies. The ­­Allianz Group has only limited access to this company- specific data. The fund asset manager prices the underly- ing single portfolio companies generally on discounted cash flow or multiple approaches. 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 331

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