D _ Consolidated Financial Statements anticipated in the future from insurance contracts in force at the date interest in the acquiree held by the direct parent in excess of the fair of acquisition. It is amortized over the life of the relevant contracts. values assigned to the identifiable assets acquired and liabilities assumed. Goodwill is accounted for at the acquiree in the acquiree’s Deferred sales inducements functional currency. There is an at least annual evaluation whether it is Sales inducements on non-traditional insurance contracts are deferred deemed recoverable. and amortized using the same methodology and assumptions as for Further explanations on the impairment test for goodwill and its deferred acquisition costs. significant assumptions as well as respective sensitivity analyses are given in note 1 1. Shadow accounting For insurance contracts and investment contracts with discretionary Insurance, investment and reinsurance contracts participation features, shadow accounting is applied to DAC, PVFP, and deferred sales inducements, in order to include the effect of Insurance and investment contracts unrealized gains or losses in the measurement of these assets in the Insurance and investment contracts with discretionary participation same way as it is done for realized gains or losses. Accordingly, the features are accounted for under the insurance accounting provisions assets are adjusted with corresponding charges or credits recognized of US GAAP, as have been applied at first-time adoption of IFRS 4 on directly in other comprehensive income as a component of the related 1 January 2005, wherever IFRS 4 does not provide specific guidance. unrealized gain or loss. When the gains or losses are realized, they are Investment contracts without discretionary participation features are recognized in the income statement through recycling, and prior accounted for as financial instruments in accordance with IAS 39. adjustments due to shadow accounting are reversed. Reinsurance contracts Other assets The Allianz Group’s consolidated financial statements reflect the effects Other assets primarily consist of receivables, accrued dividends, of assumed and ceded reinsurance contracts. Assumed reinsurance interest, rent and deferred compensation amounts as well as leased or premiums, commissions, and claim settlements, as well as the own used real estate, software and equipment. Depreciation is reinsurance element of technical provisions, are accounted for in generally computed using the straight-line method over the estimated accordance with the conditions of the reinsurance contracts, and in useful lives of the assets. The right-of-use assets related to leased consideration of the original contracts for which the reinsurance was property and equipment are depreciated generally over the lease concluded. When the reinsurance contracts do not transfer significant term. insurance risk, deposit accounting is applied as required under the The table below summarizes estimated useful lives for real estate related reinsurance accounting provisions of US GAAP or under IAS 39. held for own use, software, and equipment. Liability adequacy tests Estimated useful lives (in years) Liability adequacy tests are performed for each insurance portfolio, based on estimates of future claims, costs, premiums earned, and Years proportionate expected investment income. For short-duration Real estate held for own use max. 50 contracts, a premium deficiency is recognized if the sum of expected Software 2-13 claim costs and claim adjustment expenses, expected dividends to Equipment 2-10 policyholders, DAC, and maintenance expenses exceeds related unearned premiums while considering anticipated investment income. For long-duration contracts, a premium deficiency is recognized, Intangible assets and goodwill if actual experience regarding investment yields, mortality, morbidity, Intangible assets with finite useful lives are measured at cost less terminations, or expense indicates that existing contract liabilities, accumulated amortization and impairments. along with the present value of future gross premiums, will not be The table below summarizes estimated useful lives and the sufficient to cover the present value of future benefits and to recover amortization methods for each class of intangible assets with finite DAC. useful lives. Unearned premiums Estimated useful lives (in years) and amortization methods For short-duration insurance contracts, such as most of the property and casualty contracts, premiums to be earned in future years are Useful lives Amortization method recorded as unearned premiums. These premiums are earned in Long-term distribution agreements straight-line considering contractual subsequent periods in relation to the insurance coverage provided. 10 – 20 terms Acquired business portfolios in proportion to the consumption of Amounts charged as consideration for origination of certain long- 1 – 31 future economic benefit duration insurance contracts (i.e., initiation or front-end fees) are Customer relationships straight-line or in relation to reported as unearned revenues and, as such, included in unearned 4 – 40 customer churn rates premiums. These fees are recognized using the same amortization methodology as DAC, including shadow accounting. For business combinations, goodwill is recognized in the amount of the consideration transferred plus the amount of any non-controlling 128 Annual Report 2021 − Allianz Group