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Allianz Annual Report 2013

Annual Report 2013    Allianz Group208 Fair value hierarchy Assets and liabilities measured or disclosed at fair value in the con- solidated financial statements are measured and classified in ­accordance with the fair value hierarchy inIFRS 13, which categorizes the inputs to valuation techniques used to measure fair value into three levels. In general, the subsidiaries assume responsibility for assessing fair values and hierarchies of assets and liabilities. This is consistent with the decentralized organizational structure of the ­Allianz Group and reflects market insights of local managers. Estimates and assumptions are particularly significant when determining the fair value of financial instruments for which at least one significant input is not based on observable market data (classified within level 3 of the fair value hierarchy). The availability of market information is determined by the relative trading levels of identical or similar instru- ments in the market, with emphasis placed on information that represents actual market activity or binding quotations from brokers or dealers. If no sufficient market information is available, manage- ment’s best estimate of a particular input is used to determine the value. Quoted prices in active markets – Fair value level 1: The level 1 inputs of financial instruments that are traded in active markets are based on unadjusted quoted market prices or dealer price quotations on the last exchange trading day prior to or at the balance sheet date, if the latter is a trading day. Valuation techniques – Market observable inputs – Fair value level 2: At the end of 2013, the Institute of Public Auditors in Germany (IDW) published a new interpretation of IFRS 13 (IDW RS HFA 47). For prices providedbythirdparties;HFA47statesthatcompositepricesgen­erally have to be classified in level 2 of the fair value hierarchy and only single (unadjusted) quotes could qualify for level 1. As the ­Allianz Group uses prices provided by service agencies on a consensus level, the ­Allianz Group shifted most fixed income securities from level 1 to level 2 due to this new interpretation. However, the interpretation is still subject to discussion and, depending on the final outcome, re- transfers are possible in subsequent reporting periods. Furthermore, level 2 applies if the market for a financial instru- ment is not active or when the fair value is determined by using valu- ation techniques based on observable input parameters. Such market inputs are observable substantially over the full term of the asset or liabilityandincludereferencestoformerlyquotedpricesforidentical instruments from an active market, quoted prices for identical instruments from an inactive market, quoted prices for similar instruments from active markets and quoted prices for similar instruments from inactive markets. Market observable inputs also include interest rate yield curves, volatilities and foreign currency exchange rates. Valuation techniques – Non-market observable inputs – Fair value level 3: Where observable market inputs are not available, the fair value is based on valuation techniques using non-market observable inputs. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which observable market prices exist and other valuation models. Appropriate adjustments are made for credit risks. In particular, when observable market inputs are not available, the use of estimates and assumptions may have a high impact on the valuation outcome. FAIR VALUE MEASUREMENT ON A RECURRING BASIS The following financial assets and liabilities are carried at fair value on a recurring basis: −− Financial assets and liabilities held for trading, −− Financial assets and liabilities designated at fair value through income, −− Available-for-sale investments, −− Financial assets and liabilities for unit-linked contracts, −− Derivativefinancialinstrumentsandfirmcommitmentsincluded in other assets and other liabilities and −− Financial liabilities for puttable equity instruments.

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