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Allianz Annual Report 2013

Annual Report 2013    Allianz Group120 Overall risk organization and roles in risk management A comprehensive system of risk governance is achieved by setting standards related to organizational structure, risk strategy, written policies, limit systems, documentation and reporting. These stan- dards ensure the accurate and timely flow of risk-related information, as well as a disciplined approach towards decision-making and execution at both the global and local level. As a general principle, the “first line of defense” rests with busi- ness managers in the local operating entities and ­Allianz Investment Management units. They are responsible, in the first instance, for both the risks and returns of their decisions. Our “second line of defense” is made up of our independent, global oversight functions such as Risk, Compliance and Legal. Audit forms the “third line of defense”.Onaperiodicbasis,GroupAuditindependentlyreviewsrisk governance implementation, performs quality reviews of risk pro- cesses and tests adherence to business standards including the inter- nal control framework. Group Risk Group Risk is headed by the Group Chief Risk Officer and reports to the Board member responsible for Finance, Controlling and Risk. Group Risk supports the aforementioned ­Allianz Group committees responsible for risk oversight through the analysis and communica- tion of risk management related information and by facilitating the communication and implementation of committee decisions. For example, Group Risk is operationally responsible for moni- toring limits and accumulation of specific types of risks across busi- ness lines, such as natural disasters and exposures to financial mar- kets and counterparties. In addition, Group Risk independently supports the adequacy of the operating entity risk management through the development of a commonriskmanagementframeworkandbymonitoringadherence to Group minimum requirements for methods and processes. Group Risk strengthens and maintains the Group’s risk network through regular and close interaction with the operating entities’ management and key areas such as the local finance, risk, actuarial and investment departments. A strong risk network across the Group allows us to identify risks early and bring them to the attention of management. Operating entities Operating entities are responsible for their own risk management, including adherence to both external requirements (for example, thoseimposedbylocalregulators)andinternalGroup-widestandards. The operating entities’ Board of Management is responsible for setting and approving an operating entity risk strategy during the annual Strategic and Planning Dialogues with the Group and ensur- ing operating entity adherence to this risk strategy. All business line management functions with direct profit and loss responsibility (i.e. first line of defense, or “risk-taking units”) are in charge of active risk-return management through adherence to delegated limits and the operating entity policy framework. Second line of defense functions, where possible, support business functions in proactive risk management. A risk function that is independent from the business line man- agement is established by the operating entity. This function operates under the direction of the operating entity Chief Risk Officer who is responsible for overseeing the risk function. In addition, a local Risk Committee supports both the operating entity Board of Management and the Chief Risk Officer by acting as the primary risk controlling body. Group Risk is also represented on the local Risk Committees­ to enhance the risk dialogue between the Group and the operating entities. Other functions and bodies In addition to Group Risk and the operating entity Risk function, Legal and Compliance functions have been established at both Group and operating entity level, constituting additional compo- nents of the second line of defense. Group Legal and Compliance seeks to mitigate legal risks with support from other departments. Legal risks include legislative changes, major litigation and disputes, regulatory proceedings and contractual clauses that are unclear or construed differently by the courts. Compliance risk is the risk of legal or regulatory sanctions, material financial loss or loss to reputation that an undertaking may suffer as a result of not complying with applicable laws, regulations and administrative provisions. The objectives of Group Legal and Compliance are to ensure that laws and regulations are observed, to react appropriately to all impending legislative changes or new court rulings, to attend to legal disputes and litigation, and to provide legally appropriate solutions for transactions and business processes. Group Legal and Compliance is in addition responsible for integrity management–whichaimstoprotectthe­AllianzGroup,ouroperating entities and employees from regulatory risks. In order to adapt to a continually changing environment, the Global Issues Forum (GIF) supports the Group in the assessment of long-term trend changes in the risk landscape on a timely basis. As an active participant in the Emerging Risk Initiative of the Chief Risk Officer Forum, we monitor with other chief risk officers of major Euro- pean insurance companies and financial conglomerates the industry- wide risk landscape and raise awareness of major risks for the insur- ance industry.

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