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Allianz Annual Report 2013

C Group Management Report Risk and Opportunity Report and Financial Control 105 Risk and Opportunity Report 123 Controls over Financial Reporting and Risk Capital Annual Report 2013    Allianz Group 107 As part of the long-term financial strength rating, Standard & Poor’s hasaratingforEnterpriseRiskManagement(ERM).In2013,Standard & Poor’s assigned ­Allianz its highest possible rating – “very strong” – for the ERM capabilities of our insurance operations. This indicates that Standard & Poor’s regards it as “unlikely that ­Allianz Group will expe- rience major losses outside its risk tolerance”. Standard & Poor’s stated that the assessment is based on our strong risk management culture, strong controls for the majority of key risks and strong stra- tegic risk management. In addition, Standard & Poor’s reviewed our internal capital model in 2012 and has given further credit to the capital position of the ­Allianz Group since 4Q 2012 by taking our inter- nal model results into account when determining the capital require- ments in order to meet specific rating classes. Internal capital adequacy The ­Allianz Group’s available capital is based on shareholders’ equi- ty adjusted to reflect the full economic capital base available to absorb unexpected economic losses.1 Our objective is to maintain available capital at the Group level that is significantly above the minimum indicated requirements as determined by our internal risk capital model. We consistently steer the risk at the operating entity level based on the same internal model framework. Allocated internal risk capital (total portfolio before non-controlling interests) € mn Pre-diversified (before tax) Group-diversified Market risk Credit risk Underwriting risk Business risk Operational risk Diversification Total as of 31 December 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Property-Casualty 3,669 3,933 1,881 2,144 9,627 9,848 992 1,020 1,268 1,287 (6,437) (7,319) 11,000 10,913 Life/Health 11,653 13,404 3,591 4,127 801 1,089 3,743 3,424 917 914 (6,448) (7,084) 14,257 15,874 Asset Management 685 559 169 119 – – – – 586 576 (1) – 1,439 1,254 Corporate and Other 1,987 1,519 277 671 191 180 – – 385 249 (532) (512) 2,308 2,107 Total 17,994 19,415 5,918 7,061 10,619 11,117 4,735 4,444 3,156 3,026 (13,418) (14,915) 29,004 30,148 Tax impact (5,367) (5,386) Total Group 23,637 24,762 Detailed discussions of risk capital movements are provided in the sections that follow. Available capital and internal risk capital € Bn as of 31 December 2013 2012 Available capital 52.4 49.3 Internal risk capital 23.6 24.8 Capital ratio 222 % 199 % Overall, our internal model solvency ratio increased from 199 % to 222 %. This strong growth was attributable to two effects. First, an increase in our available capital – which was mostly driven by accu- mulated net income and the increasing present value of future profits. Second, to a decrease of € 1.2  bn in our required internal risk capital. This was mainly due to positive market effects, in particular, rising interest rates, rating improvements as well as reduced credit risk exposure. This Risk and Opportunity Report provides the Group’s internal risk capital results based on pre-diversified risk capital and diversifi- cation effects. Pre-diversified internal risk capital reflects the diversi- fication effect within each risk category (i.e. market, credit, under- writing, business and operational risk) but does not include the diversification effect across categories. Group-diversified internal risk capital also captures the diversification effect across all risk cat- egories. Pre-diversified internal risk capital is used to measure con- centration risks. As of 31 December 2013, the Group-diversified internal risk capi- tal before non-controlling interests of € 23.6  bn (2012: € 24.8  bn) repre- sented a diversification benefit of approximately 32 %2 (2012: 33 %) across risk categories and segments. Group-diversified internal risk capital is broken down as follows: 1 Available capital is calculated under consideration of liquidity premium and yield curve extension for the Life/Health business segment as described in the section Yield curve and liquidity premium assumptions. on page 108. 2 Diversification before tax.

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