D _ Consolidated Financial Statements interests in the acquiree that are present ownership interests and Assets and liabilities measured or disclosed at fair value in the entitle their holders to a proportionate share of the acquiree's net consolidated financial statements are measured and classified in assets in the event of liquidation are generally measured at the non- accordance with the fair value hierarchy in IFRS 13, which categorizes controlling interest’s proportionate share of the acquiree’s identifiable the inputs to valuation techniques used to measure fair value into net assets. three levels. Level 1 inputs of financial instruments traded in active markets are Associates and joint arrangements based on unadjusted quoted market prices or dealer price quotations Associates are entities over which the Allianz Group can exercise for identical assets or liabilities on the last exchange trading day prior significant influence. In general, if the Allianz Group holds 20 % or more to or at the reporting date, if the latter is a trading day. of the voting power in an investee but does not control the investee, it Level 2 applies if the market for a financial instrument is not active is assumed to have significant influence. Investments in associates are or when the fair value is determined by using valuation techniques generally accounted for using the equity method. based on observable input parameters. Although the Allianz Group’s share in some entities is below 20 %, Level 3 applies if not all input parameters that are significant to management has assessed that the Allianz Group has significant the entire measurement are observable in the market. Accordingly, the influence over these entities because it is sufficiently represented in the fair value is based on valuation techniques using non-market governing bodies that decide on the relevant activities of these entities. observable inputs. Valuation techniques include the discounted For certain investment funds in which the Allianz Group holds a cashflow method, comparison to similar instruments for which stake of above 20 %, management has assessed that the Allianz Group observable market prices exist and other valuation models. has no significant influence because it is not represented in the Appropriate adjustments are made, for example, for credit risks. governing bodies of these investment funds or their investment activities For fair value measurements categorized as level 2 and level 3, are largely predetermined. the Allianz Group uses valuation techniques consistent with the three Pursuant to IFRS 11, investments in joint arrangements have to be widely used valuation techniques listed in IFRS 13: classified as either joint operations or joint ventures, depending on the contractual rights and obligations of each investor. The Allianz Group − Market approach: Prices and other relevant information has assessed the nature of all its joint arrangements and determined generated by market transactions involving identical or them to be joint ventures in most cases. Those are generally comparable assets or liabilities. accounted for using the equity method. − Cost approach: Amount that would currently be required to The Allianz Group accounts for investments in associates and joint replace the service capacity of an asset (replacement cost). arrangements with a time lag of no more than three months. Income − Income approach: Conversion of future amounts such as cash from investments in associates and joint arrangements – excluding flows or income to a single current amount (present value distributions – is included in interest and similar income. Accounting technique). policies of associates and joint arrangements are generally adjusted where necessary to ensure consistency with the accounting policies There is no one-to-one connection between valuation technique and adopted by the Allianz Group. hierarchy level. Depending on whether valuation techniques are For further information, please refer to note 44. based on significant observable or unobservable inputs, financial instruments are classified in the fair value hierarchy. Foreign currency translation Estimates and assumptions of fair values and hierarchies are Foreign currency translation generally follows the guidance set forth in particularly significant when determining the fair value of financial IAS 21. Income and expenses from subsidiaries that have a functional instruments for which at least one significant input is not based on currency other than Allianz Group’s presentation currency (Euro) are observable market data (classified as level 3 of the fair value translated to Euro at the quarterly average exchange rate. Foreign hierarchy). The availability of market information is determined by the currency gains and losses arising from foreign currency transactions relative trading levels of identical or similar instruments in the market, are reported in income from financial assets and liabilities carried at with emphasis placed on information that represents actual market fair value through income (net), except when the gain or loss on a non- activity or binding quotations from brokers or dealers. monetary item measured at fair value is recognized in other The degree of judgment used in measuring the fair value of comprehensive income. In this case, any foreign exchange component financial instruments closely correlates with the use of non-market of that gain or loss is also recognized in other comprehensive income. observable inputs. The Allianz Group uses a maximum of observable inputs and a minimum of non-market observable inputs when Financial instruments measuring fair value. Observability of input parameters is influenced by various factors such as type of the financial instrument, whether a Recognition and derecognition market is established for the particular instrument, specific transaction Financial assets are generally recognized and derecognized on the characteristics, liquidity, and general market conditions. If the fair trade date, i.e., when the Allianz Group commits to purchase or sell value cannot be measured reliably, amortized cost is used as a proxy securities. for determining fair values. For further information, please refer to note 3 4. Measurement at fair value The Allianz Group carries certain financial instruments at fair value and discloses the fair value of all financial instruments. 126 Annual Report 2021 − Allianz Group