D _ Consolidated Financial Statements regulations when they are realized, based on and similar to shadow Stage two: The Allianz Group Actuarial function forms an opinion accounting. The latent profit participation rates are significant on the adequacy of the reserves proposed by the local entities. The accounting estimates, which take into account legal and/or Allianz Group Actuarial function challenges the operating entities’ contractual obligations or – in some jurisdictions – the common selection through their continuous interaction with local teams and market practice. The profit participation allocated to participating quarterly attendance in the local reserve committees. The ability to form policyholders or disbursed to them reduces the reserves for premium a view on reserve adequacy is further enabled by regular reviews of the refunds. local reserving practices. Such reviews consist of an evaluation of the reserving process as well as of the appropriateness and consistency of Reserving process the assumptions, and an analysis of the movements of the reserves. For the business segments Life/Health and Property-Casualty, the Significant findings from these reviews are communicated in the central oversight process around reserve estimates includes the setting Allianz Group Reserve Committee to initiate actions where necessary. of group-wide standards and guidelines, regular site visits, as well as regular quantitative and qualitative reserve monitoring. Other liabilities The oversight and monitoring of the Allianz Group’s reserves culminate in quarterly meetings of the Allianz Group Reserve Pensions and similar obligations Committee, which is the supervising body that governs all significant Pensions and similar obligations are measured at present value and reserves. It particularly monitors key developments across the presented net of plan assets by applying the provisions of IAS 19. For a Allianz Group affecting the adequacy of reserves. reliable estimate of the obligations owed to employees, the Life/Health reserves are subject to estimates and assumptions, Allianz Group makes estimates (actuarial assumptions) about especially on the life expectancy and health of an insured individual demographic variables (such as employee turnover and mortality) (mortality, longevity, and morbidity risk) and on the development of and financial variables (such as discount rates, inflation rates, interest rates and investment returns (asset-liability mismatch risk). compensation increases, pension increases, and rates of medical cost These assumptions also have an impact on the presentation of costs trends) for each material pension plan separately, considering the arising from the origination of insurance business (acquisition costs circumstances in the individual countries. and sales inducements) and the value of acquired insurance business Further explanations and sensitivity calculations are given in (PVFP). To ensure consistency in the application of actuarial methods note 39. and assumptions in the Life/Health reserving process, the Allianz Group has designed a two-stage reserving process: Share-based compensation plans Stage one: Life/Health reserves are calculated by qualified local The share-based compensation plans of the Allianz Group are staff experienced in the subsidiaries’ business. Actuaries in the local classified as either equity-settled or cash-settled plans. Where equity- entities also conduct tests of the adequacy of the premiums and reserves settled plans involve equity instruments of Allianz SE, a corresponding to cover future claims and expenses (liability adequacy tests). The increase in shareholders’ equity is recognized. Where equity-settled process follows group-wide standards for applying consistent and plans involve equity instruments of subsidiaries of the Allianz Group, the plausible assumptions. The appropriateness of the reserves and their corresponding increase is recognized in non-controlling interests. compliance with group-wide standards is confirmed by the local actuary. Where expected tax deductions differ, in terms of amount and timing, Stage two: The Allianz Group Actuarial function regularly reviews from the cumulative share-based payment expense recognized in profit the local reserving processes, including the appropriateness and or loss, deferred taxes are recognized on temporary differences. consistency of the assumptions, and analyzes the movements of the Further explanations are given in note 40. reserves. Any adjustments to the reserves and other insurance-related reporting items are reported to and analyzed together with the Financial liabilities for puttable financial instruments Allianz Group Reserve Committee. The Allianz Group records financial liabilities where non-controlling Property-Casualty reserves are set by leveraging the use of shareholders have the right to put their financial instruments back to actuarial techniques and educated judgment. A two-stage process the Allianz Group (puttable instruments). If these non-controlling exists for the setting of reserves in the Allianz Group: shareholders still have present access to the risks and rewards Stage one: Property-Casualty reserves are calculated by local associated with the underlying ownership interests, the non-controlling reserving actuaries at the Allianz operating entities. The reserves are set interests remain recognized, and profit and loss is allocated between based on a thorough analysis of historical data, enhanced by inter- controlling and non-controlling interests. The financial liabilities for actions with other business functions (e.g., Underwriting, Claims and puttable instruments are generally required to be recorded at the Reinsurance). Actuarial judgment is applied where necessary, especially redemption amount, with changes recognized in equity where the in cases where data is unreliable, scanty, or unavailable. The judgment non-controlling shareholders have present access to risks and rewards of Property-Casualty actuaries is based on past experience of the of ownership and in the income statement in all other cases. As an characteristics of each line of business, the current stage of the exception, for puttable instruments that are to be classified as equity underwriting cycle, and the external environment in which the subsidiary instruments in the separate or individual financial statements of the operates. The reserves are proposed to a local reserve committee, issuer in accordance with IAS 32.16A-16B and are to be presented as whereat the rationale of the selections is discussed and subsequently liabilities in the consolidated financial statements of the Allianz Group documented. A final decision on the reserve selection is made in the instead of non-controlling interests, valuation changes of these reserve committee. Local actuaries are responsible for their compliance liabilities are always recognized in the income statement. This is the with the Group Actuarial Standards and Guidelines. 130 Annual Report 2021 − Allianz Group