C _ Group Management Report RISK AND OPPORTUNITY REPORT Target and strategy of risk Our risk management system is based on the following four pillars: management − Risk identification, assessment and underwriting: A robust system Allianz aims to ensure that the Group is adequately capitalized at all of risk identification, assessment and underwriting forms the times and that all related undertakings at least meet their respective foundation for adequate risk management decisions. Supporting regulatory capital requirements for the benefit of both shareholders activities include standards for underwriting, valuation methods, and policyholders. individual transaction and new product approvals, In addition, we take the requirements of rating agencies into emerging/operational/top risk assessments, liquidity risk and account. While capital requirements imposed by regulators constitute scenario analyses, amongst others. a binding constraint, meeting rating agencies’ capital requirements − Risk strategy and risk appetite: Our risk strategy defines our risk and maintaining strong credit ratings are strategic business objectives appetite in line with our business strategy. It ensures that rewards of the Allianz Group. are appropriate based on the taken risks and the required capital. We closely monitor the capital position and risk concentrations of It also ensures that delegated decision-making bodies work in line the Group and its related undertakings, and apply regular stress tests with our overall risk-bearing capacity and strategy. (including standardized, historical, and reverse stress test scenarios as − Risk reporting and monitoring: Our comprehensive qualitative well as monthly stress and scenario analyses focusing on current and and quantitative risk monitoring and reporting framework possible future developments). These analyses allow us to take provides management with the transparency needed to assess appropriate measures to preserve our continued capital and solvency whether our risk profile remains within the approved limits and to strength. For example, the risk capital reflecting the risk profile and the identify emerging issues and risks quickly. For example, risk cost of capital is an important aspect that is considered in business dashboard and limit utilization reports as well as scenario decisions. Furthermore, we ensure a close alignment of the risk and analyses and stress tests are regularly prepared and business strategy by the fact that business decisions to achieve our set communicated. targets are taken within the determined risk appetite and in line with − Communication and transparency: Transparent risk disclosure the risk strategy. The implemented sound processes to steer the provides the basis for communicating our strategy and business and assess and manage associated risks ensure a continuous performance to internal and external stakeholders, ensuring a alignment of the risk and business strategy, and enable us to detect sustainable positive impact on valuation and financing. It also and address any potential deviations. strengthens the risk awareness and risk culture throughout the In addition, our liquidity risk management framework ensures that entire Group. all legal entities in scope are responsible for managing their liquidity risks and maintaining a sufficient liquidity position under both market and business conditions (expected as well as stressed). Our business aspirations The Board of Management of Allianz SE has defined the following Risk governance system objectives for Allianz Group’s medium-term strategy, building on the success of the efforts to simplify the company, with the motto “Simplicity at Scale”: As a provider of financial services, we consider risk management to be a core competency and an integral part of our business. Our risk − Outperform: We seek to move ahead of our competitors, both management framework covers all operations and subsidiaries within traditional businesses and disruptors, to drive profitable growth. the Group in proportion to the inherent risks of their activities, ensuring − Transform: We seek to become simpler and deeply digital, and to that risks across the Group are consistently identified, analyzed, put – in addition to the customer – scalability at the heart of our assessed, and adequately managed. The key elements of our risk actions. management framework are: − Rebalance: We seek to build leading positions in large, profitable, and fast-growing geographies as well as in new areas of business. − Promotion of a strong risk management culture, supported by a An increased focus will be placed on an organic rebalancing of the robust risk governance structure. business mix. − Consistent and proportional application of an integrated risk capital framework to protect our capital base and support These objectives have been translated into clear ambitions for the effective capital management. period 2022 to 2024. With regard to financial performance, we strive − Integration of risk considerations and capital needs into for a return on equity (excluding unrealized gains/losses on bonds) of management and decision-making processes by attributing risk more than 13 %, while growing our earnings per share from € 21 and allocating capital to business (expected baseline full year 2021, as communicated in the Allianz segments, products, and strategies. Annual Report 2021 − Allianz Group 97