D _ Consolidated Financial Statements Impairments Real estate held for investment An available-for-sale equity security is considered to be impaired if Real estate held for investment is carried at cost less accumulated there is objective evidence that the cost may not be recovered. Such depreciation and impairments. Real estate held for investment is evidence is deemed to exist if there is a significant or prolonged decline depreciated on a straight-line basis over its useful life, with a maximum in the fair value of the security. The Allianz Group’s policy considers a of 50 years, and regularly tested for impairment. decline to be significant if the fair value is below the weighted average cost by more than 20 %. A decline is considered to be prolonged if the Fixed assets from alternative investments fair value is below the weighted average cost for a period of more than These assets are carried at cost less accumulated depreciation and nine consecutive months. If an available-for-sale equity security is impairments. They are depreciated on a straight-line basis over their impaired, any further declines in the fair value at subsequent reporting useful life, with a maximum of 35 years, and regularly tested for dates are recognized as impairments. impairment. Hedge accounting Financial assets and liabilities for unit-linked Derivative financial instruments designated as hedging instruments in contracts hedge accounting relationships are included in the line items Other Financial assets for unit-linked contracts are recorded at fair value, assets and Other liabilities. Freestanding derivatives are included in with changes in fair value recognized in the income statement the line items Financial assets held for trading or Financial liabilities together with the offsetting changes in fair value of the corresponding held for trading. financial liabilities for unit-linked contracts. They are included in the For further information on derivatives, please refer to note 3 line item Income from financial assets and liabilities carried at fair 3. value through income (net). Cash and cash equivalents Cash and cash equivalents include balances with banks payable on Reinsurances assets demand, balances with central banks, cash on hand, treasury bills to Assets and liabilities related to reinsurance are reported on a gross the extent they are not included in financial assets held for trading, and basis. Reinsurance assets include balances expected to be recovered checks and bills of exchange that are eligible for refinancing at central from reinsurance companies. The amount of reserves ceded to banks, subject to a maximum term of three months from the date of reinsurers is estimated in a manner consistent with the claim liability acquisition. associated with the reinsured risks. To the extent that the assuming reinsurers are unable to meet their obligations, the respective ceding Financial assets and liabilities carried at fair value insurers of the Allianz Group remain liable to their policyholders for the through income portion reinsured. Consequently, allowances are made for receivables Financial assets and liabilities carried at fair value through income on reinsurance contracts which are deemed uncollectible. include financial assets and liabilities held for trading as well as financial assets and liabilities designated at fair value through income. Deferred acquisition costs While the former category includes trading instruments and financial derivatives, the latter category is mainly designated at fair value to Deferred acquisition costs (DAC) avoid accounting mismatches. Costs that vary with and are directly related to the acquisition and renewal of insurance contracts and investment contracts with Investments discretionary participation features are deferred by recognizing a DAC asset. At inception, DAC is tested to ensure that it is recoverable over Available-for-sale investments the life of the contracts. Subsequently, loss recognition tests at the end Available-for-sale investments comprise debt and equity instruments of each reporting period ensure that the DAC is covered by future that are designated as available-for-sale or do not fall into the other profits. measurement categories. Realized gains and losses on those For short-duration, traditional long-duration, and limited- instruments are generally determined by applying the average cost payment insurance contracts, DAC is amortized in proportion to method at the subsidiary or the portfolio level. premium revenue recognized. For universal life-type and participating life insurance contracts as well as investment contracts with Funds held by others under reinsurance contracts assumed discretionary participation features, DAC is generally amortized over Funds held by others under reinsurance contracts assumed relate to the life of a book of contracts based on estimated gross profits (EGP) cash deposits to which the Allianz Group is entitled, but which the or estimated gross margins (EGM), respectively. ceding insurer retains as collateral for future obligations of the Acquisition costs for unit-linked investment contracts are deferred Allianz Group. The cash deposits are recorded at the amount due on in accordance with IFRS 15, if the costs are incremental. For non-unit- repayment, less any impairment for balances that are deemed not to linked investment contracts accounted for under IAS 39 at amortized be recoverable. cost, acquisition costs that meet the definition of transaction costs under IAS 39 are considered in the aggregate policy reserves. Investments in associates and joint ventures For details on the accounting for investments in associates and joint Present value of future profits (PVFP) ventures, please see the section principles of consolidation. The value of an insurance business or an insurance portfolio acquired is measured by the PVFP, which is the present value of net cash flows Annual Report 2021 − Allianz Group 127