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Allianz Annual Report 2013

D Consolidated Financial Statements 127 Consolidated Balance Sheets 128 Consolidated Income Statements 129 Consolidated Statements of Comprehensive Income 130 Consolidated Statements of Changes in Equity 131 Consolidated Statements of Cash Flows 134 Notes to the Consolidated Financial Statements Annual Report 2013    Allianz Group 141 RESERVES FOR INSURANCE AND INVESTMENT CONTRACTS Reserves for insurance and investment contracts include aggregate policy reserves, reserves for premium refunds and other insurance reserves. Aggregate policy reserves The aggregate policy reserves for participating life insurance con- tracts are calculated using the net level premium method based on assumptions for mortality, morbidity and interest rates that are guar- anteed in the contract or used in determining the policyholder divi- dends (or premium refunds). For traditional long-duration insurance contracts, such as tradi- tional life and health products, aggregate policy reserves are com- puted using the net level premium method based on best estimate assumptions adjusted for a provision for adverse deviation for mor- tality, morbidity, expected investment yields, surrenders and expen- ses at the policy inception date, which remain locked in thereafter unless a premium deficiency occurs. The aggregate policy reserves for universal life-type insurance contracts are equal to the account balance, which represents premi- ums received and investment return credited to the policy less deductions for mortality costs and expense charges. The aggregate policy reserve for universal life-type contracts includes insurance reserves for unit-linked insurance contracts and investment con- tracts with discretionary participation features as well as liabilities for guaranteed minimum death and similar mortality and morbidity benefits related to non-traditional contracts with annuitization options. Universal life-type and investment-type insurance contracts fea- tures which are not closely related to the underlying insurance con- tracts are bifurcated from the insurance contracts and accounted for as derivatives in line with IFRS 4 and IAS 39. The assumptions used for aggregate policy reserves are deter- mined using current and historical client data, industry data, and in the case of assumptions for interest reflect expected earnings on assets, which back the future policyholder benefits. The information used by the ­Allianz Group’s actuaries in setting such assumptions includes, but is not limited to, pricing assumptions, available experi- ence studies, and profitability analyses. The interest rate assump- tions used in the calculation of deferred acquisition costs and aggre- gate policy reserves were as follows: Interest rate assumptions Traditional long-duration insurance contracts Participating life insurance contracts Deferred acquisition costs 2.5 – 6.0 % 2.2 – 5.0 % Aggregate policy reserves 2.5 – 6.0 % 0.8 – 4.3 % The ­Allianz Group has recognized all rights and obligations related to issued insurance contracts according to its accounting policies, and thus has not separately recognized an unbundled deposit com- ponent in respect of any of its insurance contracts. Non-unit-linked investment contracts without discretionary participating features are accounted for under IAS 39. The aggregate policy reserve for those contracts is initially recognized at fair value, or the amount of the deposit by the contract holder, net of the trans- action costs that are directly attributable to the issuance of the con- tract. Subsequently, those contracts are measured at amortized cost using the effective interest rate method. Please refer to note 3, where the processes and controls for ensuring an appropriate use of estimates and assumptions are explained. Reserves for premium refunds Reserves for premium refunds include the amounts allocated under therelevantlocalstatutoryorcontractualregulationstotheaccounts of the policyholders and the amounts resulting from the differences between these IFRS-based financial statements and the local finan- cial statements (latent reserve for premium refunds), which will reverse and enter into future profit participation calculations. Unre- alized gains and losses recognized for available-for-sale investments are recognized in the latent reserve for premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual regulations when they are real- ized, based on and similar to shadow accounting. The profit partici- pation allocated to participating policyholders or disbursed to them reduces the reserve for premium refunds. FINANCIAL LIABILITIES FOR UNIT-LINKED CONTRACTS The fair value of financial liabilities for unit-linked contracts is equal to the fair value of the financial assets for unit-linked contracts. DEFERRED TAX LIABILITIES Deferred tax liabilities are recognized for temporary differences be- tween the ­Allianz Group’s carrying amounts of assets or liabilities in its consolidated balance sheet and their tax bases. OTHER LIABILITIES Otherliabilitiesprimarilyconsistofpayables,provisionsforpensions and similar obligations, employee-related provisions, deposits retained for reinsurance ceded, and financial liabilities for puttable equity instruments. Pensions and similar obligations For defined benefit plans, the ­Allianz Group uses the projected unit credit method to determine the present value of its defined benefit obligations and the related service cost and, where applicable, past service cost. All actuarial gains and losses are recognized immedi-

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