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Allianz Annual Report 2013

Annual Report 2013    Allianz Group226 In addition, upon the death of a plan participant, a change of control or notice for operational reason, the SAR vest immediately and will be exercised by the company provided the above market conditions have been attained. Upon the expiration date, any unexercised SAR will be exercised automatically if the above market conditions have been attained. The SAR are forfeited if the plan participant ceases to be employed by the ­Allianz Group or if the exercise conditions are not attained by the expiration date. The fair value of the SAR at grant date is measured using a Cox- Ross-Rubinstein binomial tree option pricing model. Volatility was derived from observed historical market prices. In the absence of historical information regarding employee stock appreciation exer- cise patterns (especially all plans issued in 2007 and 2008 are signifi- cantly “out of the money”), the expected life has been estimated to equal the term to maturity of the SAR. The SAR are accounted for as cash settled plans by the ­Allianz Group. Therefore, the ­Allianz Group accrues the fair value of the SAR as a compensation expense over the vesting period. Upon vesting, any changes in the fair value of the unexercised SAR are recognized asacompensationexpense.Duringtheyearended31 December2013, the ­Allianz Group recognized compensation expenses related to the unexercised SAR of € 62 mn (2012: € 59 mn). As of 31 December 2013, the ­Allianz Group recorded a provision of € 86 mn (2012: € 83 mn) in other liabilities for the unexercised SAR. Restricted stock units The RSU granted to a plan participant obligate the ­Allianz Group to pay in cash the average market price of an ­Allianz SE share in the ten trading days preceding the vesting date or to issue one ­Allianz SE share, or other equivalent equity instrument, for each unit granted. The RSU vest after five years. The ­Allianz Group will exercise the RSU on the first stock exchange day after their vesting date. On the exer- cise date, the ­Allianz Group can choose the settlement method for each unit. In addition, upon death of a plan participant, a change of control or notice for operational reasons, the RSU vest immediately and will be exercised by the company. The RSU are virtual stocks without dividend payments. The fair value is calculated by subtracting the net present value of expected future dividend payments until maturity of the RSU from the prevailing share price as of the valuation date. The RSU are accounted for as cash settled plans as the ­Allianz Group intends to settle in cash. Therefore, the ­Allianz Group accrues the fair value of the RSU as a compensation expense over the vesting period. During the year ended 31 December 2013, the ­Allianz Group recognized a compensation expense related to the non-vested RSU of € 58 mn (2012: € 80 mn). As of 31 December 2013, the ­Allianz Group recorded a provision of € 141 mn (2012: € 141 mn) in other liabilities for the non-vested RSU. ­­Allianz Equity Incentive Plan Since the 2011 grant year, the ­Allianz Equity Incentive Plan (AEI) has replaced the GEI plans. The AEI is granted in the form of restricted stock units (RSU) and is part of a new variable compensation compo- nent for the plan beneficiaries. The RSU granted to a plan participant obligate the ­Allianz Group to pay in cash the average closing price of an ­Allianz SE share on the last day of the vesting period and the prior nine trading days or to convert one RSU into one ­Allianz SE share. The payout is capped at a 200 % share price growth above the grant price. The RSU are subject to a vesting period of four years and will be released on the last day of the vesting period. The ­Allianz Group can choose the settlement method for each unit. In addition, upon the death of a plan participant, a change of control or notice for operational reason, the RSU vest immediately and will be exercised by the company. The RSU are virtual stocks without dividend payments and a capped payout. The fair value is calculated by subtracting the net present value of expected future dividend payments until maturity and the fair value of the cap from the prevailing share price as of the valuation date. The cap is valued as a European short call option, using prevailing market data as of the valuation date. The following table provides the assumptions used in calculating the fair value of the RSU at grant date: Assumptions of AEI plans 20141 2013 2012 Share price € 124.55 110.40 88.29 Average dividend yield % 4.4 4.6 5.3 Average interest rate % 0.5 0.5 1.2 Expected volatility % 20.6 20.9 22.0 1 The RSU 2014 are deemed to have been granted to participants as part of their 2013 remuneration. Consequently, the assumptions for RSU grants delivered in March 2014 are based on best estimation. The RSU are accounted for as cash settled plans as the ­Allianz Group intends to settle in cash. Therefore, the ­Allianz Group accrues the fair value of the RSU as a compensation expense over the service period of one year and afterwards over the vesting period. During the year ended 31 December 2013, the ­Allianz Group recognized a compensa- tion expense related to the AEI plans of € 132 mn (2012: € 79 mn). As of 31 December 2013, the ­Allianz Group recorded a provision of € 248 mn (2012: € 117 mn) for these RSU in other liabilities.

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