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Allianz Annual Report 2013

assumptions in the Life/Health reserving process, the ­Allianz Group has designed a two-stage reserving process. In a first stage, Life/ Health reserves are calculated by qualified local staff experienced in the business of the subsidiaries. Actuaries in the local entities also conduct tests of the adequacy of the premiums and reserves to cover future claims and expenses (liability adequacy tests). The process follows Group-wide standards for applying consistent and plausible assumptions. The appropriateness of the reserves and compliance with the Group-wide standards is confirmed by the local actuary. In a second stage, the ­Allianz Group Actuarial Department regularly reviews the local reserving processes, including the appropriateness and consistency of assumptions, and analyzes the movements of reserves. Any adjustments to reserves and other insurance-related reporting items are reported to and analyzed together with the ­Allianz Group Reserve Committee. Property-Casualty reservesareparticularlydependentontheuse ofestimatesandjudgmentregardingthedevelopmentoflossreserves. Similar to Life/Health, a two-stage reserving process is in place. In a first stage, in each jurisdiction, reserves are calculated for individual lines of business, taking into consideration a wide range of local factors. This local reserving process begins with local reserv- ing actuaries gathering data, typically dividing reserving data into the smallest possible homogeneous segments, while maintaining sufficient volume to form the basis for stable projections. Once data is collected, they derive patterns of loss payment and emergence of claims based on historical data organized into development trian- gles arrayed by accident year versus development year. Loss payment and reporting patterns are selected based on observed historical development factors and also on the judgment of the reserving actu- ary using an understanding of the underlying business, claims pro- cesses, data and systems as well as the market, economic, societal and legal environment. Expected loss ratios are then developed, which are derived from the analysis of historical observed loss ratios, adjusted for a range of factors such as loss development, claims infla- tion, changes in premium rates, changes in portfolio mix and changes in policy terms and conditions. Using the development patterns and expected loss ratios described above, local reserving actuaries produce estimates of ulti- mate loss and allocated loss adjustment expenses using several methods, such as Loss Development or Chain-Ladder Method, Bornhuetter-Ferguson Method, or Frequency-Severity Methods. Using the above estimate of ultimate loss and LAE by accident year – with respect to the origin year of losses – subsidiaries of the ­Allianz Group directly estimate the total loss and LAE reserves by sub- tracting cumulative payments for claims and LAE through the rele- vant balance sheet date. Finally, local reserving actuaries calculate the relevant IBNR reserves as the difference between −− the total loss and LAE reserves, and −− the case reserves as established by claims adjusters on a case- by-case basis. Estimates for the current accident year determine the loss ratios and profitability of the business of the most recent year. For all prior acci- dent years the change in estimates is reported as a run-off – adverse or favorable – in the consolidated income statement. As loss reserves represent estimates of uncertain future events, the local reserving actuaries determine a range of reasonably possi- ble outcomes. To analyze the variability of loss reserve estimates, actuaries employ a range of methods and approaches, including simple sensitivity testing using alternative assumptions, as well as more sophisticated stochastic techniques. The ­Allianz Group’s reserving standards require that all local reserve committees in ­Allianz subsidiaries meet quarterly to discuss and document reserv- ing decisions as well as to select the best estimate of the ultimate amount of reserves within a range of possible outcomes and to docu- ment the rationale for that selection for the particular entity. In a second stage, the ­Allianz Group Actuarial department regu- larly reviews the local reserving processes, including the appropriate- nessandconsistencyofassumptions.Significantaspectsarereported to the ­Allianz Group Reserve Committee to initiate actions when necessary. For Life/Health and for Property-Casualty the central oversight process includes the following key components: Group-wide standards and guidelines: They define the reserving practices which must be conducted by each subsidiary including aspects of assumptions and estimates. This includes the organiza- tion and structure, data, methods, and reporting. The ­Allianz Group Actuarial Department monitors compliance with these standards and guidelines. Regular site visits: The ­Allianz Group Actuarial Department regu- larly visits ­Allianz subsidiaries in order to ensure that they apply the Group-wide standards and guidelines. The on-site review focuses on all significant changes in assumptions and methodologies as well as on procedures and professional practices relevant for the reserving process. Furthermore, these meetings are to update knowledge of the underlying local business developments. Regular quantitative and qualitative reserve monitoring: On a quarterly basis, the ­Allianz Group Actuarial Department monitors­ re­serve levels, movements and trends across the ­Allianz Group. This monitoring is conducted on the basis of quarterly data submitted by the subsidiaries as well as through frequent dialogue with local actu- aries. The oversight and monitoring of the ­Allianz Group’s reserves culminate in quarterly meetings of the ­Allianz Group Reserve Com- mittee, which is the supervising body that governs all significant reserves.Itparticularlymonitorskeydevelopmentsacrossthe ­Allianz Group affecting the adequacy of loss reserves. Annual Report 2013    Allianz Group144

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