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Allianz Annual Report 2013

C Group Management Report Management Discussion and Analysis 64 Business Environment 66 Executive Summary of 2013 Results 71 Property-Casualty Insurance Operations 78 Life/Health Insurance Operations 82 Asset Management 85 Corporate and Other 87 Outlook 2014 92 Balance Sheet Review 99 Liquidity and Funding Resources 104 Reconciliations Annual Report 2013    Allianz Group 89 Asset management industry outlook Increasing asset valuations for equities, as well as growing optimism about growth in certain developed markets, provide a potential tail- wind for the asset management industry in 2014. Nevertheless, con- siderable downside risks remain and could materialize if global growth fails to meet expectations. A reduction of the currently highly supportive monetary policy may also put the positive trends in finan- cial markets at risk. The further development of regulatory activities – particularly in the consumer protection and transparency fields – is anadditionalsourceofuncertaintyfortheassetmanagementindustry. Throughout 2013, investors demonstrated a growing risk appe- tite by, among other actions, shifting their asset allocation towards equities, multi-asset or solutions-oriented fixed income strategies. Although equities may remain vulnerable to setbacks in the near fu- ture due to the rising valuations, higher interest rates and global demographic trends on the other hand, will increase the attractive- ness of bonds. This holds true in particular for liability-driven inves- tors or for the growing number of retirees in the developed world looking for a stable stream of income. Improving economic conditions in certain developed markets as well as trends in client demand represent a positive environment for further asset management industry growth. At the same time, industry profitability is expected to remain challenged as asset flows intopassiveproductsandgrowingexpensesfromhigherdistribution or marketing costs put pressure on operating margins, and the effects of increased regulatory oversight and reporting take their toll. In such an environment a money manager’s ability to grow is dependent on providing innovative client-focused investment solu- tions, delivering above-benchmark investment results, offering com- prehensive investment products and services, its ability to prudently and holistically respond to client needs and upping the scale and efficiency of operations. Outlook for the ­Allianz Group As discussed earlier, the world economy is poised to pick up in 2014 and we look set to enter a period of moderate growth. Despite signs of a global recovery, however, there are clear risks for 2014. Geopoliti- cal tensions, a renewed flare-up of the European sovereign debt crisis in large industrialized countries and currency or trade wars all have the potential to send the world economy into a tailspin. However, the outlook provided here assumes the absence of such shocks. Overview: outlook and assumptions 2014 outlook 2014 ­­­Allianz Group Operating profit of € 10.0  bn, plus or minus € 0.5  bn. Protection of shareholders’ investments, while continuing to provide attractive returns and dividends. Selective profitable growth. Property-Casualty Growth in gross premiums written by more than 3.0 %. Operating profit in the range of € 5.1  bn to € 5.7  bn. Combined ratio below 96 % over the cycle. Pressure on operating investment income (net) due to reinvestments in a low interest rate environment. Life/Health Revenues in the range of € 52.0  bn to € 56.0  bn. Operating profit between € 2.7  bn and € 3.3  bn. Margin on reserves between 50 and 70 basis points. Pressure on investment income due to low interest rates and continued capital market uncertainty. Prioritizing profitability over growth, taking further product and pricing actions as necessary. Asset Management Slight growth in total assets under management due to positive equity but subdued fixed income product inflows. Operating profit in the € 2.5  bn to € 2.9  bn range. Cost-income ratio at or below 60.0 %. Assumptions Our outlook assumes no significant deviations from the following underlying assumptions: −− Accelerated global economic growth. −− Continued low interest rate environment. −− No dramatic interest rate movements. −− A 100 basis point increase or decrease in interest rates would, respectively, either raise or lower operating profits by approx- imately € 0.1  BN in the first year following the rate change. This does not include fair value changes in interest rate sensitive positions that are reported in our income statement. −− No disruptive fiscal or regulatory interference. −− Level of claims from natural catastrophes at expected average levels. −− Average U.S. Dollar to Euro exchange rate of 1.35. −− A 10 % weakening or strengthening of the U.S. Dollar versus our plannedexchangerateof1.35totheEurowouldhaveanegative orpositiveimpactonoperatingprofitsofapproximately€ 0.3 BN, respectively. We expect our business mix and profitability contributions to remain largely unchanged compared to 2013. Our Property-­Casualty busi- ness will carry on making up the majority of our operating profit. We anticipate that the Asset Management business segment will con- tinue to be a significant source of operating profit, even though at a

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