D _ Consolidated Financial Statements Reserves for loss and loss adjustment expenses mortality and morbidity benefits related to non-traditional contracts Reserves are established for the payment of losses and loss with annuitization options and unit-linked insurance contracts. For adjustment expenses (LAE) on claims which have occurred but are not contracts with a discretionary participation feature, the whole contract yet settled. Reserves for loss and loss adjustment expenses fall into two is classified as one liability rather than separately recognizing the categories: case reserves for reported claims and reserves for incurred participation feature. but not reported losses (IBNR). Insurance contract features not closely related to the underlying Case reserves for reported claims are based on estimates of insurance contracts are bifurcated from the insurance contracts and future payments that will be made with respect to these claims, accounted for as derivatives in line with IFRS 4 and IAS 39. The including LAE relating to such claims. These estimates reflect the embedded derivatives separated from certain life insurance and informed judgment of claims personnel based on general insurance annuity contracts are recognized as financial liabilities held for trading. reserving practices and knowledge of the nature and value of a The assumptions used for aggregate policy reserves are specific type of claim. These case reserves are regularly re-evaluated determined using current and historical client data, industry data, and, in the ordinary course of the settlement process and adjustments are in the case of assumptions for interest rates, reflect expected earnings made as new information becomes available. on assets which back the future policyholder benefits. The information IBNR reserves are established to recognize the estimated cost of used by Allianz Group’s actuaries in setting such assumptions includes, losses that have occurred but where the Allianz Group has not yet but is not limited to, pricing assumptions, available experience studies, been notified. IBNR reserves, similar to case reserves for reported and profitability analyses. claims, are established to recognize the estimated costs, including The average interest rate assumptions per operating entity used expenses, necessary to bring claims to final settlement. The in the calculation of deferred acquisition costs and aggregate policy Allianz Group relies on its past experience, adjusted for current trends reserves are as follows: and any other relevant factors, in estimating IBNR reserves. IBNR reserves are estimates based on actuarial and statistical Interest rate assumptions projections of the expected cost of the ultimate settlement and ad- % ministration of claims. The analyses are based on facts and Traditional circumstances known at the time, predictions of future events, long-duration Participating insurance life insurance estimates of future inflation, and other societal and economic factors. contracts contracts Trends in claim frequency, severity, and time lag in reporting are Deferred acquisition costs 2.5 – 6.0 1.6 – 3.9 examples of factors used in projecting the IBNR reserves. IBNR Aggregate policy reserves 2.5 – 6.0 0.0 – 4.3 reserves are reviewed and revised periodically, as additional information becomes available and actual claims are reported. Reserves for loss and loss adjustment expenses are not The Allianz Group has recognized all rights and obligations related to discounted, except when payment amounts are fixed and timing is issued insurance contracts according to its accounting policies, and reasonably determinable. thus has not separately recognized an unbundled deposit component in respect of any of its insurance contracts. Reserves for insurance and investment contracts Non-unit-linked investment contracts without discretionary parti- Reserves for insurance and investment contracts include aggregate cipation features are accounted for under IAS 39. The aggregate policy reserves, reserves for premium refunds, and other insurance policy reserves for those contracts are initially recognized at fair value, reserves. or the amount of the deposit by the contract holder, net of the transaction costs, that are directly attributable to the issuance of the Aggregate policy reserves contract. Subsequently, those contracts are measured at amortized The aggregate policy reserves for participating life insurance contracts cost using the effective interest method. are calculated using the net level premium method based on For contracts where the policyholder has the option to transfer the assumptions for mortality, morbidity, and interest rates that are amounts invested in unit-linked funds to non-unit-linked funds, the guaranteed in the contract or used in determining the policyholder insurance contract is reported in both aggregate policy reserves and dividends (or premium refunds). financial liabilities for unit-linked contracts based upon the investment For traditional long-duration insurance contracts, such as election at the reporting date. traditional life and health products, aggregate policy reserves are computed using the net level premium method, based on best-estimate Reserves for premium refunds assumptions adjusted for a provision for adverse deviation for mortality, Reserves for premium refunds include the amounts allocated under morbidity, expected investment yields, surrenders, and expenses at the the relevant local statutory/contractual regulations or, at the entity’s policy inception date, which remain locked in thereafter unless a discretion, to the accounts of the policyholders and the amounts premium deficiency occurs. resulting from the differences between these IFRS-based financial The aggregate policy reserves for universal life-type insurance statements and the local financial statements (latent reserves for contracts are equal to the account balance, which represents premiums premium refunds), which will reverse and enter into future profit received and investment return credited to the policy, less deductions participation calculations. Unrealized gains and losses recognized for for mortality costs and expense charges. The aggregate policy reserve available-for-sale investments are recognized in the latent reserves for also includes reserves for investment contracts with discretionary premium refunds to the extent that policyholders will participate in participation features as well as for liabilities for guaranteed minimum such gains and losses on the basis of statutory or contractual Annual Report 2021 − Allianz Group 129