Please activate JavaScript!
Please install Adobe Flash Player, click here for download

Allianz Annual Report 2013

Annual Report 2013    Allianz Group116 We face the risk that underwriting profitability is lower than expected. The volatility of the underwriting profitability measured over one year defines our premium risk. property-casualty loss ratios 1 for the past ten years % 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Loss ratio 65.9 68.3 69.9 69.1 69.5 68.0 66.1 65.0 67.2 67.6 1 Represents claims and insurance benefits incurred (net) divided by premiums earned (net). Premium risk is subdivided into natural catastrophe risk, terror risk and non-catastrophe risk. We calculate premium risk based on actu- arial models that are used to derive loss distributions. Premium risk is actively managed by the ­Allianz Group and its local operating enti- ties. Assessing the risks as part of the underwriting process is a key element of our risk management framework. There are clear under- writing limits, and restrictions are centrally defined and in place across the Group. In addition to the centrally defined underwriting limits, the local operating entities have limits in place that take into account their business environments. In addition, risks are mitigated by external reinsurance agreements. All these measures contribute to the limitation of risk accumulation. Natural disasters, such as earthquakes, storms and floods, rep- resent a significant challenge for risk management due to their accu- mulation potential and occurrence volatility. In order to measure such risks and better estimate the potential effects of natural disas- ters, we use special modeling techniques in which we combine data about our portfolio (such as the geographic distribution and charac- teristics of insured objects and their values) with simulated natural disaster scenarios to estimate the magnitude and frequency of poten­ tial losses. Where such stochastic models do not exist, we use deter- ministic scenario-based approaches to estimate probable losses. The Group’s net exposure to natural catastrophes remained within our risk appetite in 2013. The top five perils contributing to the natural catastrophe risk capital were: European windstorm, U.S. hurri­ cane, German hail as well as Californian and German earthquakes as of December 2013. Reserve risk We estimate and hold reserves for past claims that have not yet been settled. If the reserves are not sufficient to cover claims to be settled in the future due to unexpected changes, we would experience losses. The volatility of past claims measured over a one-year time horizon defines our reserve risk. An indicator of this coverage is the amount of net surplus 1 compared to the initial reserves.2 In general, our operating entities constantly monitor the devel- opment of reserves for insurance claims on a line of business level.3 In addition, the operating entities generally conduct annual reserve uncertainty analyses based on similar methods used for reserve risk calculations. The ­Allianz Group performs regular independent reviews of these analyses and Group representatives participate in the local reserve committee meetings. Underwriting risk – Life/Health Underwriting risks of our Life/Health operations (biometric risks) include mortality, disability, morbidity and longevity risks. −− Mortality, disability, and morbidity risks are risks associated with the unexpected increase in the occurrence of death, dis- ability or medical claims on our traditional products including on our traditional life and health insurance products. −− Longevity risk is the risk that due to changing biometric assump- tions the reserves covering our portfolio of life annuities and group pension products might not be sufficient. Biometric assumptions, such as life expectancy, play a significant role. We measure these risks within our internal risk capital model by ­distinguishing between the different sub-components, whenever ­relevant or material: absolute level, trend, volatility around the best estimate assumptions and pandemic risks. Depending on the nature and complexity of the risk involved, our Health business is repre- sented in the internal model according to Property-Casualty or Life/ Health calculation methods and is therefore included in the relevant Property-Casualty and Life/Health figures accordingly. However, most of our Health business is attributable to the Life/Health busi- ness segment. Thanks to effective product design, the diversity of our products and the substantial level of policyholder participation in Western European countries, there were no significant concentra- tions of underwriting risks within our Life/Health business as of 31 December 2013.4 Underwriting risk arises from lower profitability than expected. As profitability calculations are based on several parameters, like historical loss information, assumptions on inflation or on mortality and morbidity, the realized parameters can differ from the ones used for the calculation. For example, higher inflation than that incorpo- rated in the calculations may lead to a loss. However, deviations can 1 Net surplus represents the cumulative surplus from re-estimating the reserves for loss and loss adjust- ment expenses for previous years’ claims and includes foreign currency translation adjustments. For further information, please refer to note 19 to the consolidated financial statements. 2 This figure is provided on a calendar year basis in note 19 to the consolidated financial statements. 3 For further information, please refer to note 19 to the consolidated financial statements. 4 For further information about insurance risk in the Life/Health business segment, please refer to note 20 to the consolidated financial statements.

Pages Overview