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Allianz Annual Report 2012

As of 31 December 2012, the ­­­Allianz Group recorded a provi- sion of € 83 mn (2011: € 25  mn) in other liabilities for the un- exercised SAR. Restricted stock units The RSU granted to a plan participant obligate the ­­­Allianz Group to pay in cash the average market price of an ­­­Allianz SE share in the ten trading days preceding the vesting date or to issue one ­­­Allianz SE share, or other equivalent equity instrument, for each unit granted. The RSU vest after five years. The ­­­Allianz Group will exercise the RSU on the first stock exchange day after their vesting date. On the exercise date, the ­­­Allianz Group can choose the settlement method for each unit. In addition, upon death of a plan participant, a change of control or notice for operational reasons, the RSU vest im- mediately and will be exercised by the company. The RSU are virtual stocks without dividend payments. The fair value is calculated by subtracting the net present value of expected future dividend payments until maturity of the RSU from the prevailing share price as of the valuation date. The following table provides the assumptions used in cal- culating the fair value of the RSU at grant date: Assumptions of RSU plans D 138 % 2010 Average interest rate 1.4 Average dividend yield 5.5 The RSU are accounted for as cash settled plans as the ­­­Allianz Group intends to settle in cash. Therefore, the ­­­Allianz Group accrues the fair value of the RSU as a compen- sation expense over the vesting period. During the year ended 31 December 2012, the ­­­Allianz Group recognized a compensation expense related to the non-vested RSU of € 80 mn (2011: € 29 mn; 2010: € 58 mn). As of 31 December 2012, the ­­­Allianz Group recorded a provi- sion of € 141 mn (2011: € 106  mn) in other liabilities for the non-vested RSU. ­­ −− during their contractual term, the market price of the ­­­Allianz SE share has outperformed the Dow Jones Eu- rope STOXX Price Index at least once for a period of five consecutive trading days; and −− the ­­­Allianz SE market price is in excess of the reference price by at least 20 % on the exercise date. In addition, upon death of a plan participant, a change of control or notice for operational reason, the SAR vest im- mediately and will be exercised by the company provided the above market conditions have been attained. Upon the expiration date, any unexercised SAR will be exer- cised automatically if the above market conditions have been attained. The SAR are forfeited if the plan participant ceases to be employed by the ­­­Allianz Group or if the exer- cise conditions are not attained by the expiration date. The fair value of the SAR at grant date is measured using a Cox-Ross-Rubinstein binomial tree option pricing model. Volatility was derived from observed historical market prices. In the absence of historical information regarding employee stock appreciation exercise patterns (especially all plans issued between 2006 and 2008 are significantly “out of the money”), the expected life has been estimated to equal the term to maturity of the SAR. The following table provides the assumptions used in esti- mating the fair value of the SAR at grant date: Assumptions of SAR plans D 137 2010 Expected volatility % 29.0  Risk-free interest rate % 2.7 Expected dividend rate % 5.6 Share price € 88.09 Expected life (years) 7 The SAR are accounted for as cash settled plans by the ­­­Allianz Group. Therefore, the ­­­Allianz Group accrues the fair value of the SAR as a compensation expense over the vest- ing period. Upon vesting, any changes in the fair value of the unexercised SAR are recognized as a compensation ex- pense. During the year ended 31 December 2012, the ­­­Allianz Group recognized compensation expenses related to the unexercised SAR of € 59 mn (2011: income of € 10 mn; 2010: expenses of € 5 mn). 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 345

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