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Allianz Annual Report 2013

Annual Report 2013    Allianz Group118 assessment and monitoring. In general, the risk assessment is based on qualitative criteria or scenario analyses. The most important of these other risks include strategic, liquidity and reputational risk. Strategic risk Strategic risk is the risk of an unexpected negative change in the com- pany’svaluearisingfromtheadverseeffectofmanagementdecisions regarding business strategies and their implementation. This risk is evaluated and analyzed quarterly in the same way as reputational risk, as described below. To ensure proper implementa- tion of strategic goals in the current business plan, strategic controls are carried out by monitoring respective business targets. We also constantly monitor market and competitive conditions, capital mar- ket requirements, regulatory conditions, etc. to decide whether to make strategic adjustments. In addition, strategic decisions are dis- cussed in various Board of Management level committees (e. g. Group Capital Committee, Group Risk Committee, Group Finance Commit- tee).Theassessmentoftheassociatedrisksisafundamentalelement in these discussions. Liquidity risk Liquidity risk is defined as the risk that short-term, current or future payment obligations cannot be met or can only be met on the basis of adversely altered conditions. Liquidity risk can arise primarily if there are mismatches in the timing of cash payments and funding obligations. Detailed information regarding ­Allianz Group’s liquidity risk exposure, liquidity and funding – including changes in cash and cash equivalents – is provided in the chapter Liquidity and Funding Resources from    page 99  onwards and in notes 17, 23, 24 and 43 to the consolidated financial statements. The main goal of planning and managing ­Allianz SE’s liquidity position is to ensure that we are always able to meet payment obliga- tions. To comply with this objective, the liquidity position of ­Allianz SE is monitored and forecasted on a daily basis. Strategic liquidity ­planning over time horizons of 12 months and three years is reported to the Board of Management regularly. The accumulated short-term liquidity forecast is updated daily and is subject to an absolute minimum strategic cushion amount and an absolute minimum liquidity target. Both are defined for the ­Allianz SE cash pool in order to be protected against short-term liquidity crises. As part of our strategic planning, contingent liquidity requirements and sources of liquidity are taken into account to ensure that ­Allianz SE is able to meet any future payment obligations even under adverse conditions. Major contingent liquidity require- ments include non-availability of external capital markets, combined market and catastrophe risk scenarios for subsidiaries as well as lower than expected profits and dividends from subsidiaries. Our insurance operating entities manage liquidity risk locally, using asset-liability management systems designed to ensure that assets and liabilities are adequately matched. This decentralized approach guarantees sufficient flexibility in providing liquidity. The local investment strategies particularly focus on the quality of invest- ments and ensure a significant portion of liquid assets (e. g. govern- ment bonds or covered bonds) in the portfolios. This helps us to meet high liquidity requirements in the case of unlikely events. We employ actuarial methods for estimating our liabilities arising from insur- ance contracts. In the course of standard liquidity planning we recon­ cile the cash flows from our investment portfolio with the estimated liability cash flows. These analyses are performed at the operating entity level and aggregated at Group level. Regarding our Asset Management business, forecasting and managing liquidity is a regular process designed to meet both regula- tory requirements and Group standards. This process is supported by the liquidity management framework implemented in ­Allianz Asset Management. Reputational risk Allianz’s reputation as a well-respected and socially aware provider of financial services is influenced by our behavior in a range of areas such as product quality, corporate governance, financial performance, customer service, employee relations, intellectual capital and corpo- rate responsibility. Reputational risk is the risk of an unexpected drop inthevalueofthe­Allianzshareprice,thevalueofthein-forcebusiness or the value of future business caused by a decline in our reputation. With the support of Group Communications, Group Compliance and the ESG Office 1, Group Risk defines sensitive business areas and applicable risk guidelines, which are mandatory for all operating enti- ties in the ­Allianz Group. All affected Group and operating entity func- tions cooperate in the identification of reputational risk. Group Com- munications is responsible for the risk assessment, based on a Group-wide methodology. Single reputational risk management decisions are integrated in the overall risk management framework and reputational risks are identified and assessed as part of a quar- terly Top Risk Assessment, during which senior management also decides on a risk management strategy and related actions. In addi- tion, reputational risk is managed on a case-by-case basis. Single caseswith a potentialimpact onotheroperating entitiesortheGroup have to be reported to ­Allianz SE for pre-approval. 1 The ­Allianz Environmental, Social, Governance (ESG) Board and ESG office are constituted as advisor to the Board of Management of ­Allianz SE and will further elevate environmental, social and governance aspects in corporate governance and decision-making processes of ­Allianz Group.

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