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Allianz Annual Report 2013

Annual Report 2013    Allianz Group64 Business Environment Economic environment 2013 BRIGHTER ECONOMIC CONDITIONS during the YEAR After a subdued start to 2013 the world economy gained momentum starting in the second quarter, thanks mainly to an improved picture in industrialized countries. Particularly encouraging was the return to positive economic growth in the Eurozone following six negative quarters in a row. In the United States and the U.K., overall output picked up again after only tepid growth at the start of the year. In addition, the economic recovery in Japan continued on a broader footing thanks to expansionary monetary and fiscal policies. By con- trast, economic growth in most emerging markets remained fairly subdued, taking their pre-crisis growth rates as a yardstick. All in all, global economic output is likely to have grown by 2.3 % in 2013, well below the 10-year average of close to 3 %. Gross domestic product (GDP) in industrialized countries increased by about 1.1 % on average last year. While both the United States and Japan registered fairly solid growth of close to 2 %, real GDP in the Eurozone contracted on average by 0.4 % in 2013. As in previous years, economic performance varied widely within the currency area. Countries like Greece and Italy experienced a strong contraction, while Austria, Belgium and the Slovak Republic registered positive, albeit weak, growth. The economic impact emanating from the Euro- pean debt crisis continued to exert a dampening effect on the Ger- man economy. Following an already moderate expansion of 0.7 % in 2012, real GDP grew only 0.4 % in 2013. Emerging markets expanded by 4.4 % on average, with economic growth in emerging Asian markets coming in at 6.2 %. The primary drivers on the financial markets in 2013 were once again the ultra-loose monetary policy of major central banks and the gradual easing of the European sovereign debt crisis. The financial markets took a hefty knock in the summer months after the Federal Reserve sketched out a possible timetable for a gradual phasing-out of its bond-purchasing program. This not only pushed up yields in the United States, but above all exerted downward pressure on the currencies of those emerging markets with a poor economic score- card. Countries with yawning current account deficits like India and Turkey proved particularly vulnerable. In December, the Federal Reserve finally announced the first step towards a gradual normal- ization of its monetary policy – a reduction in the volume of its monthly bond purchases by USD10 BN to USD 75 BN from January 2014. On the other side of the Atlantic, the European Central Bank lowered its key interest rate in two steps from 0.75 % to 0.25 % over the course of 2013 and continued to signal its readiness to lower key interest rates further and even offer, yet again, exceptionally long terms for financ- ing operations. Yields on 10-year German government bonds ended the year at 1.9 %, an increase of about 60 basis points compared with a year earlier. Despite this increase, spreads on debt-ridden Economic and Monetary Union (EMU) countries narrowed considerably. Buoyed not least by the ongoing low interest rate environment, stock markets rallied. Following an initial depreciation against the U.S. Dollar in the first quarter of 2013, the Euro gained in strength over the remainder of the year. Progress in solving the European sovereign debt crisis and the economic stabilization of the Eurozone have been key factors in shoring up confidence in the Euro. Business environment 2013: insurance and asset management industry 2013 was another challenging year for the insurance industry. With economic growth remaining subdued, overall premium growth was more or less stagnant. But this stability conceals considerable differ- ences between markets. For example, German premiums strength- ened, along with moderate improvements in economic activity, whereas parts of southern Europe were still in the doldrums. Emerging markets, too, witnessed a rather turbulent year, with highly volatile capital flows and exchange rates. But despite the economic slow- down in many of these markets, overall premium growth proved remarkably resilient, mainly driven by an increase in life growth. Low interest rates and financial market volatility were still a major challenge. As a result, investment returns stayed rather low, putting the sector’s profitability under pressure. Furthermore, regu- latory developments continued to have a significant impact. Most importantly, the final agreement on Solvency II in November 2013 paved the way for its introduction on 1 January 2016 and reduced somewhat the regulatory uncertainty that has beleaguered the industry in recent years. Although 2013 had its fair share of natural disasters, from typhoons and earthquakes in Asia to flooding in Europe, catastrophe losses remained rather low for a second consecutive year – at least in aglobalcontext–duetotheweakpenetrationinmanyofthemarkets that were hit by natural catastrophes. This bolstered underwriting profitability. The big exception was the German market, which had to contend not only with floods in June but with big storms thereafter, triggering large insurance losses.

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