Disclosures relating to financial instruments

Transcription

1 Allianz Group Annual Report 2009 Disclosures relating to financial instruments IFRS 7 requires to group financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. The scope of IFRS 7 includes recognized and unrecognized financial instruments. Recognized financial instruments are those financial assets and financial liabilities within the scope of IAS 39. Unrecognized financial instruments are financial instruments that are outside of the scope of IAS 39 but within the scope of IFRS 7. The classes of financial instruments within Allianz Group are mainly in line with the categories according to IAS 39. The risk disclosure requirements of IFRS 7 and the requirements of IAS 1 with regard to capital disclosures are reflected in the consolidated financial statements and the risk report in the group management report. This risk report, with the exception of the Outlook section, is an integral part of the audited consolidated financial statements. The following table summarizes the relationship between the balance sheet positions and the classes of financial instruments according to IFRS 7. The balance sheet position also indicates the IAS 39 categories except when noted parenthetically. Balance sheet line item, IAS 39 categories and IFRS 7 classes of financial instruments Financial assets Cash and cash equivalents Financial assets carried at fair value through income Measurement basis Nominal value Financial assets held for trading Financial assets designated at fair value through income Investments Available-for-sale investments Held-to-maturity investments Loans and advances to banks and customers (Loans and receivables) Financial assets for unit-linked contracts Other assets Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments Assets held in trust Financial liabilities Financial liabilities carried at fair value through income Financial liabilities held for trading Financial liabilities designated at fair value through income Liabilities to banks and customers (Other liabilities) Reserves for insurance and investment contracts Investment contracts with policyholders Financial liabilities for unit-linked contracts Other liabilities Derivative financial instruments used for hedging purposes that meet the criteria for hedge accounting and firm commitments Financial liabilities for puttable equity instruments Redemption amount Certificated liabilities (Other liabilities) Participation certificates and subordinated liabilities (Other liabilities) Liabilities held in trust Fair Value Off-balance sheet Financial guarantees Irrevocable loan commitments Nominal value Nominal value 227

2 Insurance, investment and reinsurance contracts Insurance and investment contracts Contracts issued by insurance subsidiaries of the Allianz Group are classified according to IFRS 4 as insurance or investment contracts. Contracts under which the Allianz Group accepts significant insurance risk from a policyholder are classified as insurance contracts. Contracts under which the Allianz Group does not accept significant insurance risk are classified as investment contracts. Certain insurance and investment contracts include discretionary participation features. All insurance contracts and investment contracts with discretionary participating features are accounted for under the related insurance accounting provisions of US GAAP when IFRS 4 does not provide specific guidance. Investment contracts without discretionary participation features are accounted for as financial instruments in accordance with IAS 39. Reinsurance contracts The Allianz Group s consolidated financial statements reflect the effects of ceded and assumed reinsurance contracts. Assumed reinsurance refers to the acceptance of certain insurance risks by Allianz Group that other companies have underwritten. Ceded reinsurance refers to the transfer of insurance risk, along with the respective premiums, to one or more reinsurers who will share in the risks. When the reinsurance contracts do not transfer significant insurance risk according to the related reinsurance accounting provisions of US GAAP, deposit accounting is applied as required under the related reinsurance accounting provisions of US GAAP or under IAS 39, respectively. Assumed reinsurance premiums, commissions and claim settlements, as well as the reinsurance element of technical provisions are accounted for in accordance with the conditions of the reinsurance contracts and with consideration of the original contracts for which the reinsurance was concluded. Premiums ceded for reinsurance and reinsurance recoveries on benefits and claims incurred are deducted from premiums earned and insurance and investment contract benefits. Assets and liabilities related to reinsurance are reported on a gross basis. The amount of reserves ceded to reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured risks. Revenues and expenses related to reinsurance agreements are recognized in a manner consistent with the underlying risk of the business reinsured. To the extent that the assuming reinsurers are unable to meet their obligations, the Group remains liable to its policyholders for the portion reinsured. Consequently, allowances are made for receivables on reinsurance contracts which are deemed uncollectible. Deferred acquisition costs Deferred acquisition costs ( DAC ), present value of future profits ( PVFP ) and deferred sales inducements comprise the deferred acquisition costs in the consolidated balance sheets. DAC generally consist of commissions, underwriting expenses and policy issuance costs, which vary with and are directly related to the acquisition and renewal of insurance contracts. Acquisition costs that are expected to be recovered over the life of the contract correspondingly are deferred and are subject to recoverability testing at the end of each accounting period. For short-duration and traditional long-duration contracts and limited-payment contracts, DAC is amortized in proportion to premium revenue recognized. For universal life-type contracts, participating life insurance contracts and investment contracts with discretionary participation features, DAC is amortized over the contract life of a book of contracts based on estimated gross profits ( EGP ) or estimated gross margins ( EGM ), as appropriate, based on historical and anticipated future experience, which is evaluated regularly. For unit-linked investment contracts without discretionary participation features accounted for under IAS 39 at fair value, acquisition costs are deferred in accordance with IAS 18, if the costs are incremental. Acquisition costs are incremental if the costs would not have been incurred if the related contracts would not have been issued. For non-unitlinked investment contracts without discretionary participation features accounted for under IAS 39 at amortized cost, incremental transaction costs are accounted for in accordance with IAS 39. The value of an insurance business acquired or the value of an insurance portfolio acquired is demonstrated by the PVFP which is the present value of net cash flows anticipated in the future from insurance contracts in force at the date of acquisition. It is amortized over the life of the related contracts. PVFP was determined using discount rates ranging from 8.0 % to 12.0 %. Interest accrues on the PVFP balance based upon the policy liability rate or contract rate. Interest accrues on PVFP at rates between 2.0 % and 6.5 %. 228

3 Allianz Group Annual Report 2009 Sales inducements on insurance contracts that meet the following criteria are generally deferred and amortized using the same methodology and assumptions used for amortized deferred acquisition costs: recognized as part of reserves for insurance and investment contracts, in unearned premiums. According to the insurance accounting provisions of US GAAP, these fees are recognized using the same methodology as DAC amortization. Unbundling The deposit component of an insurance contract is unbundled when both of the following conditions are met: explicitly identified in the contract at inception, incremental to amounts the Allianz Group credits on similar contracts without sales inducements, and higher than the contract s expected ongoing crediting rates for periods after the inducement. 1. the deposit component (including any embedded surrender options) can be measured separately (i.e. without taking into account the insurance component); and 2. the Allianz Group s accounting policies do not otherwise require the recognition of all obligations and rights arising from the deposit component. Shadow accounting For insurance and investment contracts with discretionary participation features, shadow accounting is applied to DAC, PVFP and deferred sales inducements. The Allianz Group utilizes EGPs or EGMs, which include only realized gains and losses, in measuring these assets. Shadow accounting is applied in order to include the effect of unrealized gains or losses in the measurement of these intangible assets in the same way as it is done for realized gains or losses. Accordingly, the assets are adjusted with corresponding charges or credits recognized directly in other comprehensive income as a component of the related unrealized gain or loss. When the gains or losses are realized, they are recorded in the income statement through recycling and prior adjustments due to shadow accounting are reversed. Shadow accounting in a broader sense is also applied to all valuation differences between statutory accounting which is the basis for profit participation of policyholders and IFRS accounting. These valuation differences are accounted for as latent reserve for premium refunds. Further information are included in a succeeding section entitled Reserves for insurance and investment contracts and financial liabilities for unit-linked contracts. Unearned premiums For short-duration insurance contracts, like most of the property and casualty contracts, premiums written to be earned in future years are recorded as unearned premiums according to the insurance accounting provisions of US GAAP. These premiums are earned in subsequent years in relation to the insurance coverage provided. Amounts charged as consideration for origination of certain long-duration insurance contracts (i.e. initiation or front-end fees) are reported as unearned revenue which are included Currently, the Allianz Group has recognized all rights and obligations related to issued insurance contracts according to its accounting policies. As a result, the Allianz Group has not recognized an unbundled deposit component in respect of any of its insurance contracts, and accordingly the Allianz Group has not recorded any related provisions in its consolidated financial statements. Bifurcation Certain of the Allianz Group s universal life-type insurance contracts include options to replicate a market index (market value liability options or MVLO ). These options are bifurcated from the insurance contracts and accounted for as derivatives under IAS 39. Reserves for loss and loss adjustment expenses Reserves are established for the payment of losses and loss adjustment expenses ( LAE ) on claims which have occurred but are not yet settled. Reserves for loss and loss adjustment expenses fall into two categories: case reserves for reported claims and incurred but not reported reserves ( IBNR ). Case reserves for reported claims are based on estimates of future payments that will be made with respect to claims, including LAE relating to such claims. Such estimates are made on a case-by-case basis, based on the facts and circumstances available at the time the reserves are established. The estimates reflect the informed judgment of claims personnel based on general insurance reserving practices and knowledge of the nature and value of a specific type of claim. These case reserves are regularly reevaluated in the ordinary course of the settlement process and adjustments are made as new information becomes available. IBNR reserves are established to recognize the estimated cost of losses that have occurred but where the Allianz 229

4 3 Recently adopted and issued accounting pronouncements, changes in accounting policies and changes in the presentation of the consolidated financial statements Recently adopted accounting pronouncements (effective January 1, 2009 and early adoption) IAS 1, Presentation of Financial Statements revised In September 2007, the IASB issued the revised IAS 1, Presentation of Financial Statements. The revised standard requires information in financial statements to be aggregated on the basis of shared characteristics and introduces a statement of comprehensive income. The revised standard gives preparers of financial statements the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements. The revisions also include changes in the titles of some of the financial statements, however, the new titles are not mandatory for use in financial statements. The Allianz Group adopted revised IAS 1 as of January 1, 2009, and decided not to change the titles of the statements. of fair value measurements. These disclosures will help to improve comparability between entities about the effects of fair value measurements. In addition, the amendments clarify and enhance the existing requirements for the disclosure of liquidity risk. This is aimed at ensuring that the information disclosed enables users of an entity s financial statements to evaluate the nature and extent of liquidity risk arising from financial instruments and how the entity manages that risk. The amendments to IFRS 7 apply for annual periods beginning on or after January 1, However, an entity will not be required to provide comparative disclosures in the first year of application. The Allianz Group disclosed voluntarily the amendments regarding the fair value hierarchy in the 2008 consolidated financial statements and adopted the other amendments in 2009 with no material impact on its financial result or financial position. Due to improvements in the Allianz Group s guidelines and processes for the determination of the different levels of the fair value hierarchy, some of the prior period figures have been adjusted to be in line with the presented figures for The Allianz Group applies the two statement approach, i.e., in addition to the income statement, a statement of comprehensive income is presented including net income and other comprehensive income ( OCI ). For each component of OCI related tax effects are disclosed in the notes. Furthermore, reclassifications of components of OCI to realized gains or losses are separately presented for each component of OCI. The change in presentation has also been included for prior periods. As a consequence, the statement of changes in equity includes transactions with owners in their capacity as owners, the total comprehensive income and, when applicable, the effects of retrospective applications or restatements. The Allianz Group s consolidated financial statements have been presented with the effect of these changes. The revision does not have any impact on the financial result and financial position of the Allianz Group. IFRS 7, Financial Instruments: Disclosures Amendments enhancing disclosures about fair value and liquidity risk In March 2009, the IASB issued amendments to IFRS 7, Financial Instruments: Disclosures. The amendments improve the disclosure requirements about fair value measurements and reinforce existing principles for disclosures about the liquidity risk associated with financial instruments. The amendments to IFRS 7 introduce a three-level hierarchy for fair value measurement disclosures and require entities to provide additional disclosures about the relative reliability IFRS 8, Operating Segments In November 2006, the IASB issued IFRS 8, Operating Segments. Effectively replacing IAS 14, IFRS 8 requires that an entity selects operating segments that are consistent with internal reports regularly reviewed by the entity s chief operating decision maker in order to allocate resources to the segment and to assess its performance. The standard also requires explanations of how segment information is prepared as well as reconciliations of total reportable segment revenues, total profits or losses, total assets and other material amounts disclosed for reportable segments to corresponding amounts recognized in the entity s financial statements. The Allianz Group adopted IFRS 8 as of January 1, IFRS 8 does not have any material impact on the Allianz Group s financial results or financial position. Previously, under IAS 14, the Allianz Group reported Property-Casualty, Life/Health, Banking, Asset Management and Corporate as primary segments that, where appropriate, were subsequently organized by geographical areas. The implementation of IFRS 8 led to a change in the segment report (Note 6) from prior periods. Based on information reported to the Allianz Group s chief operating decision maker for the purposes of allocating resources and measuring performance, IFRS 8 reportable segments have been selected on the basis of property-casualty insurance and life/health insurance (both organized by geographic regions), as well as asset management and corporate and 236

5 Supplementary Information to the Consolidated Balance Sheets 7 Cash and cash equivalents mn mn Balances with banks payable on demand 5,243 7,760 Balances with central banks Cash on hand Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks Total 6,089 8,958 As of December 31, 2009, compulsory deposits on accounts with national central banks under restrictions due to required reserves from the European Central Bank totaled 198 mn (2008: 363 mn). Debt and equity securities included in financial assets held for trading Debt and equity securities included in financial assets held for trading are primarily marketable and listed securities. As of December 31, 2009, the debt securities include 31 mn (2008: 55 mn) from public sector issuers and 332 mn (2008: 492 mn) from other issuers. 9 Investments mn mn Available-for-sale investments 279, ,099 Held-to-maturity investments 3,475 3,599 Funds held by others under reinsurance contracts assumed 1,193 1,039 Investments in associates and joint ventures 3,025 4,524 Real estate held for investment 7,514 7,551 Total 294, ,812 8 Financial assets carried at fair value through income mn mn Financial assets held for trading Debt securities Equity securities Derivative financial instruments 1,663 1,978 Subtotal 2,131 2,624 Financial assets designated at fair value through income Debt securities 8,814 8,589 Equity securities 3,376 3,027 Subtotal 12,190 11,616 Total 14,321 14,

6 Allianz Group Annual Report 2009 Available-for-sale investments Debt securities Amortized Unrealized Unrealized Fair Value Amortized Unrealized Unrealized Fair Value mn mn mn mn mn mn mn mn Government and agency mortgage-backed securities (residential and commercial) 8, (53) 8,358 7, (2) 7,989 Corporate mortgage-backed securities (residential and commercial) 8, (444) 7,748 8, (1,417) 7,311 Other asset-backed securities 3, (110) 3,887 4, (385) 4,489 Government and government agency bonds Germany 12, (30) 12,697 10, (11) 11,523 Italy 25, (100) 26,391 22, (353) 22,176 France 15, (34) 16,775 13,628 1,240 (42) 14,826 United States 4, (34) 4,290 3, (22) 4,317 Spain 6, (79) 6,909 5, (16) 5,697 Belgium 3, (9) 3,760 4, (2) 4,786 All other countries 42,283 1,228 (381) 43,130 34,246 1,298 (574) 34,970 Subtotal 110,550 4,069 (667) 113,952 94,742 4,573 (1,020) 98,295 Corporate bonds 113,338 4,338 (1,902) 115,774 98,864 1,367 (7,028) 93,203 Other 1, (34) 1,602 1, (18) 1,323 Subtotal 245,654 8,877 (3,210) 251, ,275 6,205 (9,870) 212,610 Equity securities 17,647 10,227 (150) 27,724 23,802 6,538 (851) 29,489 Total 263,301 19,104 (3,360) 279, ,077 12,743 (10,721) 242,099 Held-to-maturity investments Government and government agency bonds Amortized Unrealized Unrealized Fair Value Amortized Unrealized Unrealized Fair Value mn mn mn mn mn mn mn mn Switzerland Italy (1) 382 All other countries 1, (4) 1, (6) 998 Subtotal 1, (4) 1,963 1, (7) 2,033 Corporate bonds 1) 1, (18) 1,658 1, (2) 1,678 Other Total 3, (22) 3,629 3, (9) 3,724 1) Includes also corporate mortgage-backed securities. 267

7 Unrealized losses on available-for-sale investments and held-to-maturity investments The following table sets forth gross unrealized losses on available-for-sale investments and held-to-maturity invest- ments and the related fair value, segregated by investment category and length of time such investments have been in a continuous unrealized loss position as of December 31, 2009 and Less than 12 months Greater than 12 months Total Fair Value Unrealized Fair Value Unrealized Fair Value Unrealized Losses Losses Losses As of December 31, mn mn mn mn mn mn 2009 Debt securities Government and agency mortgage-backed securities (residential and commercial) 2,205 (53) 4 2,209 (53) Corporate mortgage-backed securities (residential and commercial) 2,841 (127) 3,105 (317) 5,946 (444) Other asset-backed securities 475 (18) 1,237 (92) 1,712 (110) Government and government agency bonds 18,475 (457) 3,533 (214) 22,008 (671) Corporate bonds 12,463 (286) 13,777 (1,634) 26,240 (1,920) Other 290 (23) 166 (11) 456 (34) Subtotal 36,749 (964) 21,822 (2,268) 58,571 (3,232) Equity securities 728 (122) 76 (28) 804 (150) Total 37,477 (1,086) 21,898 (2,296) 59,375 (3,382) 2008 Debt securities Government and agency mortgage-backed securities (residential and commercial) 29 (1) 133 (1) 162 (2) Corporate mortgage-backed securities (residential and commercial) 3,749 (763) 3,196 (655) 6,945 (1,418) Other asset-backed securities 2,014 (193) 1,673 (192) 3,687 (385) Government and government agency bonds 7,964 (416) 8,300 (611) 16,264 (1,027) Corporate bonds 24,090 (2,504) 25,708 (4,525) 49,798 (7,029) Other 406 (18) 406 (18) Subtotal 38,252 (3,895) 39,010 (5,984) 77,262 (9,879) Equity securities 8,184 (838) 96 (13) 8,280 (851) Total 46,436 (4,733) 39,106 (5,997) 85,542 (10,730) Government and agency mortgage-backed securities (residential and commercial) Total unrealized losses amounted to 53 mn as of December 31, The unrealized loss positions concern mostly issues of United States government agencies, which are primarily held by Allianz Group s North American entities. These pay-through/pass-through securities are serviced by cash flows from pools of underlying loans to mostly private debtors. The unrealized losses of these mortgage-backed securities were partly caused by interest rate increases between purchase date of the individual securities and the balance sheet date. Also in various instances, price decreases were caused by increased prepayment risk for individual loan pools that were originated in a significantly higher interest rate environment. As the decline in fair value is attributable to changes in interest rates and, to a lesser extent, instances of insignificant deterioration of credit quality and there is no immediate intent to sell the securities, the Allianz Group does not consider these investments to be impaired at December 31, Corporate mortgage-backed securities (residential and commercial) Total unrealized losses amounted to 444 mn as of December 31, The unrealized loss positions primarily stem from issues in the U.S. security market, which are mostly held by Allianz Group s North American entities. The largest part of these issues is backed by mortgages on commercial rather than residential real estate. The unrealized losses of these mortgage-backed securities were mostly caused by the increased volatility in credit spreads. During 2009 corporate bond performance has been positive with spreads narrowing which resulted in a decrease of the unr ealized losses of 974 mn. Based on a detailed analysis of the underlying securities and collaterals the Allianz Group does not consider these investments to be impaired at December 31,