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Allianz Annual Report 2013

Annual Report 2013    Allianz Group90 lower level mainly due to lower expected performance fees and lower average assets under management. In the Life/Health business seg- ment, operating profitability will remain under pressure due to low yields. However, we expect an increase compared to the 2013 results, which were burdened by negative one-off effects. Although the global economy is showing signs of a recovery, investment results are likely to remain under pressure due to low interest rates and the continued uncertainty surrounding the Euro- peansovereigndebtcrisis.Theseresultswillbepartlyoffsetbyabetter operational performance in the business segments and a growth- driven increase in our operating asset base. Management’s assessment of expected revenues and earnings for 2014 In 2013, our total revenues amounted to € 110.8  BN, representing a 4.1 % and a 4.7 % increase on a nominal and internal basis, respectively, compared to last year. We expect a rather flat development in 2014, with Property-Casualty experiencing positive internal growth, while Life/Health volumes and Asset Management revenues are likely to be under pressure due to our selective focus on profitable growth and the uncertain financial market outlook, respectively. Asourproductandserviceofferingsdifferfromcountrytocountry, information about the development of our sales markets and modifi- cations to our product portfolio also varies. Overall, we expect our mar- ketandproductmixtoremainrelativelyunchangedin2014.IntheLife/ Healthbusinesssegment,inlinewithexpectedmarkettrends,wecould see a fall in premiums from life insurance products with guarantees. In 2013, we exceeded our operating profit target, reaching € 10.1  BN. In 2014, we envisage operating profit of € 10.0  BN, plus or minus € 0.5  BN, as we expect a lower level of performance fees and lower average assets under management in the Asset Management businesssegment,partiallycompensatedforbyanexpectedincrease in the Life/Health business segment. Our net income increased substantially, reaching € 6.3 BN in 2013. Consistent with our disclosure practice in the past and given the sus- ceptibility of our non-operating results to adverse capital market developments, we do not provide a precise outlook for net income. However, since our outlook presumes no major disruptions of capital markets, we anticipate a rather stable net income for 2014. PROPERTY-CASUALTY insurance We expect our revenues to increase by more than 3.0 % in 2014 (2013: (0.7) %) on a nominal basis. We believe this moderate growth will be supported by favorable price and volume effects, the impact of our recent acquisition of Yapı Kredi Sigorta in Turkey and the reclassifica- tion of our International Health business in France from the Life/ Health to the Property-Casualty business segment, which combined will add approximately €  0.8  BN to our top line. Premium growth in 2014 will be mainly driven by our global insurance lines, the Anglo markets, emerging countries in Latin America and Asia, as well as by improvements in some of our core markets such as Germany, Italy and France. We believe the overall slow rise in prices we witnessed in 2013 to continue in 2014, contributing to the expected growth in our gross premiums. However, as in previous years, we will keep focusing on achieving outstanding underwriting results by adhering to our strict underwriting discipline and will be willing to accept a lower top line if target margins cannot be achieved. For 2014, we anticipate keeping the combined ratio below 96 % over the cycle (2013: 94.3 %). This rests on our expectation that the aggregate effect of improvements in pricing, claims management and productivity will more than compensate for underlying claims inflation. Despite the high volatility of natural catastrophes in recent years, we assume such claims will be in line with their expected aver- age level in 2014. As the low interest rate environment is likely to persist, invest- ment income will remain under pressure due to the rather short duration of investments in the Property-Casualty business segment. We will continue to take measures to adapt our investment strategy to ongoing market conditions. Overall, we expect our 2014 operating profit to be in the range of € 5.1  BN to € 5.7 BN (2013: € 5.3 BN). Life/Health insurance We will continue to prioritize profitability over growth in 2014. We ex- pect revenues to be in the range of € 52.0 BN and € 56.0  BN, slightly below the 2013 level of € 56.8  BN, which represented significant growth com- pared to the prior year and included revenues of € 0.5  BN from our Inter­ national Health business in France, which will be moved to the Prop- erty-Casualty business segment in 2014. Ultimately, volumes will be dictated by our ability to write profitable business, but are also depen­ dentuponinterest ratedevelopmentsand thecompetitive landscape. In 2013, our operating profit of € 2.7  BN was within our target range of € 2.5  BN to € 3.1  BN. For 2014, we expect operating profit in our Life/Health business segment to be between € 2.7  BN and € 3.3  BN, sup- ported by growth in our underlying asset base along with the transfer of some small asset management entities from the Asset Manage- ment to the Life/Health business segment. Our outlook equates to a margin on reserves ranging between 50 and 70 basis points. As in 2013, we will continue to actively work on mitigating the impacts of the difficult market conditions, particularly low interest rates. This includes product and distribution actions, expense and asset/liability management as necessary, while exploring options to further optimize the use of capital. Still, it must be noted that market and accounting volatility along with the level of net harvesting can significantlyaffecttheLife/Healthbusinesssegmentresultsandmake precise predictions difficult.

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