C _ Group Management Report Our group-wide country and obligor group limit management These loss distributions are then used within the internal model to framework (CRisP1) allows us to manage counterparty concentration calculate potential losses with a predefined confidence level of 99.5 %. risk, covering both credit and equity exposures at the Group and operating-entity levels. This limit framework forms the basis for Reserve risk discussions on credit actions and provides notification services Reserve risk represents the risk of adverse developments in best- featuring the quick and broad communication of credit-related estimate reserves over a one-year time horizon, resulting from decisions across the Group. fluctuations in the timing and/or amount of claims settlement. We Clearly defined processes ensure that exposure concentrations estimate and hold reserves for claims resulting from past events that and limit utilizations are appropriately monitored and managed. The have not yet been settled. In case of unexpected developments, we setting of country and obligor exposure limits from the Group’s would experience a reserve gain or loss dependent on the perspective (i.e., the maximum concentration limit) takes into account assumptions applied for the estimate. the Allianz Group’s portfolio size and structure as well as our overall Similar to premium risk, reserve risk is calculated based on risk strategy. actuarial models. The reserve distributions derived are then used within the internal model to calculate potential losses based on a predefined confidence level of 99.5 %. Apart from risks from internal pensions, underwriting risk consists of In order to reduce the risk of unexpected reserve volatility, premium and reserve risks in the Property-Casualty2 business segment Allianz SE and the other related undertakings of Allianz Group as well as biometric risks in the Life/Health3 business segment, and constantly monitor the development of reserves for insurance claims underwriting risks are not relevant for the Asset Management business on a line-of-business level. In addition, related undertakings generally segment and our banking operations. conduct annual reserve uncertainty analyses based on similar methods used for reserve risk calculations. The Allianz Group performs Property-Casualty regular independent reviews of these analyses and Group Our Property-Casualty insurance businesses are exposed to premium- representatives participate in the local reserve committee meetings. risk-related adverse developments in the current year’s new and renewed business as well as to reserve risks related to the business in Life/Health force. Underwriting risks in our Life/Health operations (biometric risks) include mortality, disability, morbidity, and longevity risks. Mortality, Premium risk disability, and morbidity risks are associated with an unexpected As part of our Property-Casualty business operations, we receive increase in the occurrence of death, disability, or medical claims. premiums from our customers and provide insurance protection in Longevity risk is the risk that the reserves covering life annuities and return. Premium risk is the risk that actual claims for the business in the pension products might not be sufficient due to longer life current year develop adversely relative to expected claims ratios. expectancies of the insured. Premium risk can be mitigated by reinsurance as well as by technical Life/Health underwriting risk arises from profitability being lower excellence in underwriting. Assessing risks as part of the underwriting than expected. As profitability calculations are based on several process is therefore a key element of our risk management framework. parameters – such as historical loss information and assumptions on There are clear underwriting limits and restrictions which are defined inflation, mortality, or morbidity – realized parameters may differ from centrally and applied across the Group. the ones used for underwriting. For example, higher-than-expected Premium risk is subdivided into three categories: natural inflation may lead to higher medical claims in the future. However, catastrophe risk, terror risk, and non-catastrophe risk including man- beneficial deviations are also possible; for example, a lower morbidity made catastrophes. rate than expected will most likely result in lower claims in income Premium risk is estimated based on actuarial models that are protection products. used to derive loss distributions. Non-catastrophe risks are modeled We measure these risks within our internal model, distinguishing, using frequency and severity models for large losses and aggregate where appropriate, between risks affecting the absolute level and loss distribution models for attritional losses. Natural disasters such as trend development of the actuarial assumptions on the one hand and earthquakes, storms, and floods represent a significant challenge for pandemic risk scenarios on the other. Depending on the nature and risk management due to their high accumulation potential for higher complexity of the risks involved, our health business is represented in return periods. For natural catastrophe risks, we use special modeling the internal model according to Property-Casualty or Life/Health techniques which combine portfolio data (geographic location, calculation methods and is therefore included in the relevant Property- characteristics of insured objects, and their values) with simulated Casualty and Life/Health figures accordingly. However, most of our natural disaster scenarios to estimate the magnitude and frequency of health business is attributable to the Life/Health business segment. potential losses. Where such stochastic models do not exist, we use deterministic, scenario-based approaches to estimate potential losses. Similar approaches are used to evaluate risk concentrations for terror and man-made catastrophes, including losses from cyber incidents and industrial concentrations. 1_Credit Risk Platform 3_Life/Health is also referred to as Life. 2_Property-Casualty is also referred to as Non-Life. 102 Annual Report 2021 − Allianz Group