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Allianz Annual Report 2013

Annual Report 2013    Allianz Group88 Economic outlook 1 The improvement in the global purchasing managers’ index for the manufacturingsectorduringthesecondhalfof2013hasraisedhopes that the pickup in economic activity will continue or even intensify well into 2014. It is particularly encouraging that the more upbeat mood is now broadly spread across all regions. Given the expected acceleration in growth in the industrialized world, global output is likely to expand by slightly more than 3 % in 2014, following an increase of 2.3 % in 2013. Fears that economic development in emerg- ing markets would deteriorate substantially now look unfounded. Nevertheless, they have lost steam since 2012 and will not return to their pre-crisis growth rates. However, with an expected real GDP increase of 4.6 % in 2014, growth in these countries will still be consid- erably higher than in the industrialized world. In the Eurozone, the economy is also starting to get back on its feet in crisis-ridden mem- ber states, narrowing the “north-south divide”. Both sentiment indi- ces and hard economic indicators such as industrial production data suggest the economic recovery is set to continue, albeit at a moderate pace. For 2014 as a whole, we expect real GDP growth of 1.5 %. Sup- ported by brighter economic conditions in the Eurozone, the German economy could expand by about 2 % in 2014. Inflation is likely to remain subdued on a global level, not least due to the dire unemploy- ment situation in many industrialized countries, which keeps the lid on wages. Financial markets will probably remain under the spell of mon- etary policy in 2014. We expect to see a gradual exit from crisis mode, led by the U.S. central bank reining in its asset purchases. Neverthe- less, given its concerns about money market rates, banking liquidity and lending growth, the European Central Bank might actually slightly ease further – despite the recovery in the Eurozone – before eventually starting to exit from its very expansionary policy stance in late 2014. Even though monetary policy would still remain highly accommodative, the first steps towards an exit could well be accom- panied by pronounced swings in the equity, bond and currency mar- kets. Although the sovereign debt crisis in the Eurozone is not yet over, we expect it to continue to gradually abate. With short-term rates close to zero, there are limited prospects of markedly higher yields on longer-term bonds. We expect yields on 10-year German and U.S. government bonds to climb only modestly to 2.4 % and 3.3 %, respectively, by the end of 2014. With growth in the United States set to outpace that in the Euro- zone, the U.S. Dollar is likely to appreciate against the Euro. 1 TheinformationpresentedinthesectionsEconomicoutlook,InsuranceindustryoutlookandAssetmanage- ment industry outlook is based on our own estimates. Insurance industry outlook Global economic expansion is set to accelerate over 2014. Therefore, the macroeconomic environment will be supportive of world pre- mium growth. As in previous years, premium growth in emerging markets will outpace that of advanced markets, although the latter’s recovery will be more pronounced. On the other hand, the outlook for profitability remains challenging, as investment returns are expected to stay low and the regulatory environment continues to become more demanding in terms of capital and reserve requirements. In the property-casualty sector, we anticipate higher premium growth in 2014 as the increase in economic activity bolsters demand for insurance coverage. In particular, the expected recovery in Europe should pave the way for a return to positive premium growth in all parts of the region. Emerging markets should display stable growth rates – although against the backdrop of a tougher economic envi- ronmentinsomeofthesemarkets,theexpansionmightbemoderate by their historical standards. The increase in premium rates on the other hand may rather slow down in 2014. Overall, we expect global premium revenue to rise in the 4.5 % – 5.0 % range in 2014 (adjusted for foreign currency translation effects). Overall profitability for the property-casualty sector – although benefiting from a continuing gradual market hardening – is expected to remain stable in 2014, with low yields working their way through to earnings, prices increasing modestly and reserve releases dwin- dling somewhat but helped by the benign inflationary environment. In the life sector, we expect premium growth to recover, too. In mature markets, better economic prospects and a new product mix will help to lift top-line growth. In emerging markets strong growth will be mainly driven by rising incomes and social security reforms. All in all, we expect that global premium revenue will rise in the 3.5 % – 4.5 % range in 2014 (adjusted for foreign currency translation effects). With interest rates remaining at low levels, companies will con- tinue to adapt their business models to the challenging environment. Besides a stronger focus on the protection business – including health – new and more flexible guarantee concepts are set to come to the forefront in the savings business. At the same time, insurers will continue to look for new, long-term investment opportunities, paying special attention to infrastructure investments. But despite progress on these fronts, profitability will remain under pressure, not least because of more stringent capital and reserve requirements.

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