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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 115 Reinsurance recoverables by rating class1 € bn as of 31 December 2013 2012 AAA 0.02 0.02 AA+ to AA- 5.99 6.05 A+ to A- 3.38 3.50 BBB+ to BBB- 0.18 0.21 Non-investment grade – 0.02 Not assigned 2.08 2.72 Total 11.65 12.52 1 Represents gross exposure broken down by reinsurer. Credit risk – credit insurance Our credit insurance portfolio is modeled by Euler Hermes based on a proprietary model component, which is a local adaptation of the central internal credit risk module and is reviewed by Group Risk. The result is integrated in the Group’s internal credit risk capital to cap- ture the concentration and diversification effects. As of 31 December 2013,11.1 %(31 December2012:10.4 %)ofourtotalGrouppre-diversified internal credit risk capital is allocated to Euler Hermes credit insur- ance exposures. By thoroughly managing our credit risk on the basis of our limit management and the credit risk modeling frameworks, we have com- posed a well-diversified credit portfolio. Our long-term investment strategy to hold investments through the cycle to maturity enables us to keep our portfolio stable even under adverse market conditions. It also gives us the opportunity to earn planned excess returns throughout the entire holding period of the investments. In our cred- it insurance business proactive credit management actions offer opportunities to keep losses from single credit events below expected levels and therefore strongly support writing business that contrib- utes to a balanced Group credit portfolio. Underwriting risk Underwriting risk consists of premium and reserve risks in the Prop- erty-Casualty business segment as well as biometric risks in the Life/ Health business segment. For the Asset Management business seg- ment and our banking operations underwriting risks are not relevant. The table below presents the average pre-diversified internal risk capital calculated for underwriting risks stemming from our insur- ance business over the four quarters of 2013 versus 2012, as well as the high and low quarterly internal risk capital amounts calculated in both years. 1 1 Prioryearfigureschangedcomparedtolastyear'sreportduetoreportingonpre-diversifiedbasiscompared to Group-diversified in 2012. year-end, Average, high and low allocated internal underwriting risk capital by source of risk (total portfolio before non-controlling interests and before Group diversification)1  € mn Premium risk natural catastrophe Premium risk terror Premium risk non-catastrophe Reserve risk Biometric risk Total Group 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Quarterly results Year-end 427 353 24 21 3,809 3,790 5,834 6,040 525 913 10,619 11,117 Average 432 401 23 20 3,829 3,712 5,949 5,785 673 928 10,906 10,846 High 458 442 25 21 3,848 3,790 6,093 6,099 878 1,113 11,070 11,117 Low 420 353 19 20 3,809 3,648 5,835 5,186 502 731 10,619 10,254 1 As risks are measured by an integrated approach on an economic basis, internal risk capital takes reinsurance effects into account. As of 31 December 2013, underwriting risk slightly decreased mainly driven by slightly lower loss reserves decreasing our reserve risk. For biometric risk the biggest single driver for the reduction was the above mentioned model update in our Life/Health business segment. Underwriting risk – Property-Casualty Our Property-Casualty insurance businesses are exposed to premium risk related to the current year’s new and renewed business as well as reserve risks related to the business in force. Premium risk As part of our Property-Casualty business operations, we receive pre- miums from our customers and provide insurance protection in return. Changes in profitability over time are measured based on loss ratios and their fluctuations.2 2 Please refer to the section Property-Casualty Insurance Operations – Property-Casualty ­operations by ­reportable segments on page 76 for a regional breakdown of loss ratios over the past two years.

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