C _ Group Management Report € 3.3 bn). This is caused by a regulatory change in the risk based mechanisms are applied to ensure adherence to Allianz’s capital (RBC) factors for Allianz Life of North America. underwriting standards and monitor the quality of the portfolio and underwriting process. The underwriting processes must Impact of model changes on eligible Group own support sustainable and profitable business, secure consistency, funds align with the risk appetite of the Group and of the operating The regulatory and model changes in 2021 resulted in a € 0.2 bn entities as well as avoid undesired and/or excessive risks and increase of Own Funds which was mainly driven by the adjustment of accumulations. The full economic consequences of a pandemic the UFR, an economic scenario generator model change, and several event such as COVID-19 are uninsurable. The required capital for major model changes at the German Life/Health companies Allianz an effective protection against such an accumulation of risks Lebensversicherungs-Aktiengesellschaft and Allianz Private would require premium rates that are unattractive for the Krankenversicherungs-Aktiengesellschaft. Transferability deduction of customers, if not unaffordable. In addition, a pandemic affects surplus funds at Allianz Lebensversicherungs-Aktiengesellschaft and multiple factors such as business interruption, impact on global Allianz Private Krankenversicherungs-Aktiengesellschaft in the capital markets, increase in medical costs, and mortality. amount of € (0.4) bn from model-related SCR changes are further − Other non-financial risks: These risks are inherent to the Group’s offsetting the model changes. core business and need to be carefully managed via continuous improvements in risk identification, risk assessment, and control Impacts of transitional measures environments. This occurs through elements of the Group Risk The continued application of transitional measures on technical management framework such as the Top Risk Assessment (TRA), provisions for Allianz Lebensversicherungs-Aktiengesellschaft and Integrated Risk and Control System (IRCS), Reputational Risk Allianz Private Krankenversicherungs-Aktiengesellschaft resulted in Management Framework, and Liquidity Risk Management. an increase in the Own Funds of € 12.4 bn at the Group level. Allianz risk profile and management Financial markets are characterized by historically low interest rates 1 and risk premiums, causing some investors to look for higher-yielding assessment – and potentially higher-risk – investments. In addition to sustained low interest rates, there are several other factors that may lead to increasing market volatility. These include the challenges of Allianz’s core business as a global insurer and asset manager implementing long-term structural reforms in key eurozone countries; predominantly exposes it to a variety of risks such as underwriting risks, tensions in the relationship between the United Kingdom and the financial market and credit risks, and several other non-financial risks European Union following the exit of the United Kingdom from the (i.e., operational, reputational, liquidity, and strategic risks). The union; the uncertainty about future monetary and fiscal policies; rising execution of the Renewal Agenda may impact the potential severity populism; amplified geopolitical tensions and economic nationalism or likelihood of these existing risks, contribute towards concentrations amid the pandemic, including a worsening of the Russia-Ukraine of certain types of risk, or potentially even give rise to new risks within situation or a deterioration of the U.S.-China relationship; and a given risk category. However, from a broad perspective, the overall disruptions in global supply chains, which weigh on global trade with risk profile of Allianz has remained and is expected to remain stable. the potential of prompting long-term structural shifts in global supply “Stable” in this context means a relatively high exposure to market and chains. credit risks, a moderate exposure to underwriting risks, and a modest Another potential source of higher market volatility is the exposure to operational, business, and other risks (i.e., measured as a uncertainty around whether the currently observed higher rates of share of the Allianz Group’s Solvency II risk capital). Please refer to inflation are transitory, and the associated timing and extent of section “Solvency II Regulatory Capitalization” for further details. corresponding central bank policy measures. To support the development of a risk appetite and a risk The increasing reliance on digital technologies which has been management framework for these core risks, the Allianz Group has greatly accelerated by the COVID-19 pandemic – to ensure business elaborated the following risk management philosophy: continuity and enhance efficiency and competitiveness – increases the risk of technology obsolescence, cyberattacks, data breaches, system − Financial risks: Allianz Group’s ultimate objective is to assure that failures as well as the risk of non-compliance with increasing financial risk taking is in line with risk-bearing capacity at the regulation covering IT-related business processes. Group and legal entity level, and that it creates shareholder equity. The ongoing uncertainty around the evolution of the COVID-19 To manage financial risk effectively and avoid accumulated losses pandemic remains a significant risk. Full economic recovery is not in times of financial crisis, it is essential to clearly identify, measure, expected to occur until the health concerns are forcefully and credibly monitor, and control the risks inherent in the investment portfolios removed, i.e., highly effective medication is available or herd immunity and in insurance products, including the development of new is achieved. The timing and progress remain uncertain, and residual products. risks will remain such as further virus mutations, emerging side effects, − Underwriting risks: Exposures to these risks are required to serve length of the immunity from vaccination, and a lasting refusal to take customers and generate shareholder value. Quality control vaccines by too large a part of the population, as most authorities do 1_This section contains specific risk disclosures as required by IFRS 4 and IFRS 7 relating to the Notes to the Consolidated Financial Statements. 108 Annual Report 2021 − Allianz Group