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Allianz Annual Report 2012

Corridor approach With defined benefit plans, differences come about between the actuarial gains and losses which, when the corridor approach is applied, are not immediately recognized as income or expenses as they occur. Only when the cumulative actuarial gains or losses fall outside the corridor is recognition made from the following year on- wards. The corridor is 10 % of the present value of the pension rights accrued or of the market value of the pension fund assets, if this is higher. Counter-Cyclical Premium (CCP) Under the current Solvency II guideline, a full spread risk calculation is required for all fixed ­income assets except government bonds in the European Economic Area. In recent developments it was recognized by regulatory authorities that this could create an artificial volatility for the risk- bearing funds as well as for the risk capital which does not truly reflect an insurer’s business model, where assets are usually held to maturity to a large extent and spread risk would only become relevant in case of forced sales of assets. There- fore, the counter-cyclical premium (CCP) was introduced (e.g. within the draft of the Level 2 implementing measures of Solvency II) as a means to counter the exposure to this spread volatility and thus to reduce the impact of distorted markets on the determination of the available financial resources due to illiquidity. Effectively, the CCP is considered as one component of the discount curve in the liability valuation. Cost-income ratio Represents operating expenses divided by oper- ating revenues. Credit risk The risk that one party to a contract will fail to discharge its obligations and thereby cause the other party to incur financial loss. Current employer service cost Net expense incurred in connection with a de- fined benefit plan less any contributions made by the beneficiary to a pension fund. D Deferred acquisition costs Expenses of an insurance company which are incurred in connection with the acquisition of new insurance policies or the renewal of existing poli- cies. They include commissions paid, underwriting expenses and policy issuance costs. Deferred tax assets/ liabilities The calculation of deferred tax is based on tax loss carry forwards, tax credit carry forwards and tem- porary differences between the carrying amounts of assets or liabilities in the published balance sheet and their tax base, and on differences aris- ing from applying uniform valuation policies for consolidation purposes. The tax rates used for the calculation are the local rates applicable in the countries of the enterprises included in the con- solidation; changes to tax rates already adopted on the balance sheet date are taken into account. Defined benefit plans For defined benefit plans, the participant is grant- ed a defined benefit by the employer or via an external entity. In contrast to defined contribution arrangements, the future cost to the employer of a defined benefit plan is not known with certainty in advance. To determine the expense over the period, accounting regulations require that actu- arial calculations are carried out according to a fixed set of rules. Defined contribution plans Defined contribution plans are funded through independent pension funds or similar organiza- tions. Contributions fixed in advance (e. g. based on salary) are paid to these institutions and the beneficiary’s right to benefits exists against the pension fund. The employer has no obligation beyond payment of the contributions and is not participating in the investment success of the contributions. Derivative financial instruments Financial contracts, the values of which move in relationship to the price of an underlying asset. Derivative financial instruments can be classified in relation to their underlying assets (e. g. interest rates, share prices, foreign currency exchange rates or prices of goods). Important examples of derivative financial instruments are options, futures, forwards and swaps. E Earnings per share (basic/ diluted) Ratio calculated by dividing the net income for the year attributable to share­holders by the weighted average number of shares outstanding. For calcu- lating diluted earnings per share the number of shares and the net income for the year attribut- able to shareholders are adjusted by the dilutive effects of any rights to subscribe for shares which have been or can still be exercised. Subscription rights arise in connection with participation cer- tificates and share based compensation plans. Equity consolidation The relevant proportion of cost for the investment in a subsidiary is set off against the relevant pro- portion of the shareholders’ equity of the subsidiary. Equity method Investments in joint ventures and associated com- panies are accounted for by this method. They are valued at the Group’s proportionate share of the net assets of the companies concerned. In the case of investments in companies which prepare consolidated financial statements of their own, the valuation is based on the sub-group’s consoli- dated net assets. The valuation is subsequently adjusted to reflect the proportionate share of changes in the company’s net assets, a propor- tionate share of the company’s net earnings for the year being added to the Group’s consolidated income. Expense ratio Represents acquisition and administrative ex- penses (net) divided by premiums earned (net). F Fair value The amount for which an asset could be ex- changed between knowledgeable, willing parties in an arm’s length transaction. Fair value options Options valued at market value. Annual Report 2012    Allianz Group E Further Information 369 Joint Advisory Council of the Allianz Companies 370 International Advisory Board 371 Mandates of the Members of the Supervisory Board 372 Mandates of the Members of the Board of Management 374 Glossary 379 Indexes 375