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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 121 Risk management priorities for 2014 In addition to maintaining our high standards and practices in day- to-day risk management and control, we have set the following pri- orities for 2014. Our first priority is to continue to refine and improve our busi- ness steering frameworks in light of the lessons learned from the financial market uncertainty. This addresses in particular the Euro- pean sovereign debt crisis and a sustained low interest rate environ- ment. In addition we will reorganize our committee structure to further strengthen our risk governance and to foster efficient risk management decisions. In particular, we will merge the Group Risk Committee and Group Finance Committee into a new Group Finance and Risk Committee (GFRC). Furthermore, the Group Capital Com- mittee will be strengthened to speed up decision processes. Our second priority is to prepare for the Solvency II internal model application process. To this end, we will continue to actively participate in the pre-approval process for Solvency II with the rele- vant European supervisors. However, given the remaining uncer- tainty surrounding the final implementation measures and their interpretation, we will need to adapt our internal risk capital frame- work and risk processes as necessary to comply with the evolving Solvency II standards. In particular, we anticipate reviewing our transferability and fungibility restrictions, replacing the illiquidity premium with a so-called “volatility adjustment” for the valuation of life technical provisions, reviewing our credit and credit spread risk approach as well as our aggregation approach, each of which may have an impact on our internal model solvency ratio. Our third priority is to ensure that we also meet the emerging requirements being defined for G-SIIs, focusing especially in 2014 on developing a Recovery Plan. CLIMATE change and societal challenges Global warming threatens to change our climate. We are well aware that climate change could result in a range of compound risks and opportunities that affect our entire business. We have been imple- menting a Group-wide strategy covering climate-related risks and opportunities for our business and our customers. We finance and insure low-carbon energy projects, such as wind and solar, offer cus- tomers Green Solutions and provide them with advice on weather- related risk reduction. We incorporate environmental, social and governancefactorsintoourassetmanagementandreduceandoffset our own carbon emissions. Demographic changes are creating both opportunities and chal- lenges for financial services providers. While the urban populations of Asia and Africa are expanding and their middle classes growing, Western populations are aging and their workforces shrinking. With more people over 60 years old than ever before, and declining birth rates, social security systems are under pressure and demand is growing for additional pension provisions. We are responding to these trends through integrated asset management and insurance solutions. Our solid market position in continental Europe and the United States, as well as our strong brand and well-diversified product portfolio put us in an excellent position to further benefit from pro- viding products and services for old-age, health care and assistance. In emerging economies, the need for formal social security sys- tems is growing due to the weakening of traditional family ties and supportnetworks.Fromlifetohealthandcropinsurance,ourgrowing microinsurance portfolio helps low-income families in developing countries to protect themselves against and better manage the risks in life to build a more secure future. Although financial returns from microinsurance are much lower than from traditional products, we believe that satisfied microinsurance policyholders will bring a mid- to long-term return on investment as many of them move up the economicladderandgraduatetowardsmoreregular­Allianzproducts. The evolution of the digital world has dramatically changed the way customers consume media, search for information or recom- mendations and buy products. Social networks and other online channels are gaining in importance. In parallel, expectations of ser- vice levels are increasing. We are continuously adapting to this new digital lifestyle to stay connected with our stakeholders and improve customer service. In the framework of the ­Allianz Digital Target Picture program we leverage the opportunities that changing customer pref- erences provide. For more information, please refer to the chapter Progress in Sustainable Development from    page 59  onwards. Further future challenges and opportunities1 The success of our business is heavily affected by a variety of global, long-term issues. To ensure our sustainable and profitable growth, our strategy places a high priority on monitoring, analyzing and responding to the challenges and opportunities these issues present, today and tomorrow. By consistently following our Group strategy, we are confident that the ­Allianz Group is in a privileged position to build on this trust and deal with the challenges and opportunities ahead. Key challenges and opportunities, as we see them, are outlined below. 1 For further information on the Cautionary note regarding forward-looking statements, please refer to the chapter Outlook 2014 from page 87 onwards.

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