Allianz Group Alternative Performance Measures

FIRST HALF-YEAR 2018

ALLIANZ GROUP ALTERNATIVE PERFORMANCE MEASURES 1 _ Definitions, use and limitations

ALTERNATIVE PERFORMANCE MEASURES

The Allianz Group uses, throughout its financial publications, alterna- Definitions, use and limitations tive performance measures (APMs) in addition to the figures which are prepared in accordance with the International Financial Report- ing Standards (IFRS). We believe that these measures provide useful TOTAL REVENUES information to investors and enhance the understanding of our results. These financial measures are designed to measure perfor- DEFINITION AND USEFULNESS mance, growth, profit generation and capital efficiency. Total revenues are the “top line” figure from which costs and expenses The APMs should be viewed as complementary to, rather than a are subtracted to determine operating profit and net income. Accord- substitute for, the figures determined according to IFRS. ing to our business segments, total revenues in the Allianz Group The Allianz Group uses the following major alternative perfor- comprise gross premiums written in Property-Casualty, statutory mance measures: premiums in Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). − Total revenues − Internal growth Total revenues Allianz Group = Gross premiums written Property-Casualty − Operating profit + Statutory premiums Life/Health − Return on equity + Operating revenues Asset Management − Combined ratio + Total revenues Corporate and Other (Banking) − New business margin − Cost-income ratio We consider total revenues as a key performance indicator and − Total assets under management believe that it is useful and meaningful to our external audience because it is an important financial measure for the performance Investors should consider that similarly titled APMs reported by other and growth of the Allianz Group during a specific time period. companies may be calculated differently. For that reason, the comparability of APMs across companies might be limited. LIMITATIONS ON THE USEFULNESS In accordance with the guidelines of the European Securities and Total revenues do not provide any information as to the profitability Markets Authority (ESMA), the following information is given in re- of the Allianz Group. Therefore, total revenues should always be gards to the above mentioned alternative performance measures: viewed in conjunction with other performance indicators such as operating profit or net income. − Section 1: Furthermore, total revenues are subject to fluctuations which do Definition of the APM, its use and limitations on the usefulness. not derive from the performance of the Allianz Group. These fluctuations result from effects of price changes, foreign currency translation − Section 2: as well as acquisitions, disposals and transfers. Accordingly, in addi- Reconciliation of the APM to the most directly reconcilable line tion to presenting nominal total revenue growth, we also present item, subtotal or total presented in the financial statements. internal growth, which excludes some of these effects.

The Allianz Group’s most recent financial publications at any time are INTERNAL GROWTH available online at www.allianz.com/results. DEFINITION AND USEFULNESS The Allianz Group presents the percentage change of total revenues adjusted for foreign currency translation and portfolio effects in addition to presenting the nominal total revenue growth. The adjusted percentage change is called internal growth. The Allianz Group’s Consolidated Financial Statements are presented in Euro. As a significant portion of our total revenues results from countries outside the Eurozone, the comparability between different periods is affected when exchange rates fluctuate. The comparability of our total revenues is further influenced by acquisitions, disposals as well as transfers (or “changes in scope of consolidation”). We believe that internal growth allows a meaningful analysis of revenue development as it makes data comparable from period to period and enhances the understanding of the underlying operating development. Management uses internal growth in the steering of our business.

2 Alternative Performance Measures for the First Half-Year of 2018 − Allianz Group 1 _ Definitions, use and limitations

Internal growth of total revenues is determined by correcting The following exceptions apply to this general rule: nominal total revenue growth for the effects of foreign currency translation as well as acquisitions and disposals. Foreign currency − In all reportable segments, income from financial assets and translation effects are calculated as liabilities carried at fair value through income (net) is treated as operating profit if the income relates to operating business. total revenues at CY FX rate – total revenues at PY FX rate − For life/health insurance business and property-casualty insur- FX Effects = ance products with premium refunds, all items listed above are PY total revenues at PY FX rate included in operating profit if the profit sources are shared with policyholders. There is one exception from this general rule with

CY = current year period regard to policyholder participation in extraordinary tax benefits

PY = prior year period and expenses. As IFRS require that the consolidated income

statements present all tax benefits in the income taxes line item, The effects of acquisitions are calculated as the percentage change even when they belong to policyholders, the corresponding ex- in total revenues attributable to the acquired business while the penses for premium refunds are shown as non-operating as well. effects of disposals are determined as the percentage change in total revenues assuming the disposed business had not been part of the Operating profit should be viewed as complementary to, and not as Allianz Group in the previous period. a substitute for, income before income taxes or net income as determined in accordance with IFRS. LIMITATIONS ON THE USEFULNESS Internal growth rates are not adjusted for other effects, such as price LIMITATIONS ON THE USEFULNESS changes. Operating profit is subject to fluctuations which do not derive from the performance of the Allianz Group such as changes in foreign OPERATING PROFIT (OP) currency rates or acquisitions, disposals and transfers between reportable segments. DEFINITION AND USEFULNESS The Allianz Group uses operating profit to evaluate the performance RETURN ON EQUITY (ROE) of its reportable segments as well as of the Allianz Group as a whole. Operating profit highlights the portion of income before income DEFINITION AND USEFULNESS taxes that is attributable to the ongoing core operations of the Allianz For the Allianz Group, return on equity represents net income at- Group. tributable to shareholders divided by the average shareholders’ The Allianz Group considers the presentation of operating profit equity excluding unrealized gains/losses on bonds net of shadow to be useful and meaningful to investors because it enhances the accounting at the beginning of the period and at the end of the understanding of the Allianz Group’s underlying operating perfor- period. mance and the comparability of its operating performance over time. Net income attributable to shareholders RoE = Operating profit is used as one of the decision metrics by Allianz AZ Group (Shareholders’ equity1,2 begin of period + Group’s management. Shareholders’ equity1,2 end of period)/2 To better understand the ongoing operations of the business, the Allianz Group generally excludes the following non-operating effects: 1_Shareholders’ equity excluding non-controlling interests

2_Shareholders’ equity excluding unrealized gains/losses on bonds net of shadow accounting − income from financial assets and liabilities carried at fair value through income (net), − realized gains and losses (net) and impairments of investments The Allianz Group also uses RoE as a performance measure for the (net), Life/Health segment. For the Life/Health segment, RoE represents net − interest expenses from external debt, income divided by the average total equity excluding unrealized − acquisition-related expenses (from business combinations), gains/losses on bonds net of shadow accounting at the beginning of − amortization of intangible assets, the period and at the end of the period. − restructuring charges, − profit (loss) of substantial subsidiaries classified as held for sale. Total net income

RoE LH Segment = (Total equity1 begin of period + Total equity1 end of period)/2

1_Total equity excluding unrealized gains/losses on bonds net of shadow accounting

Alternative Performance Measures for the First Half-Year of 2018 − Allianz Group 3 Repor t 1 _ Definitions, use and limitations

The Allianz Group uses RoE as a key performance indicator. It com- LIMITATIONS ON THE USEFULNESS bines the view on business profitability and capital efficiency. There- The combined ratio is used to measure underwriting profitability, but fore, management uses RoE in the steering of our business. it does not capture the profitability of the investment result or the non-operating result. Even in case of a combined ratio of above LIMITATIONS ON THE USEFULNESS 100 %, the operating profit and/or the net income can still be positive The RoE of the Allianz Group or the Life/Health segment include due to a positive investment income and/or a positive non-operating items which are not indicative of the performance of management. result. Furthermore, RoE is not available at Line of Business or product level. Moreover, the usefulness of the combined ratio is inherently lim- The performance indicator RoE is inherently limited by the fact ited by the fact that it is a ratio and thus it does not provide infor- that it represents a ratio and thus does not provide any information mation on the absolute amount of the underwriting result. as to the absolute amount of net income or shareholders’ equity/total equity excluding unrealized gains/losses on bonds net of shadow NEW BUSINESS MARGIN (NBM) accounting. DEFINITION AND USEFULNESS COMBINED RATIO (CR) The new business margin is a common key performance indicator to measure the profitability of new business in our Life/Health segment. DEFINITION AND USEFULNESS The NBM is calculated as the Value of new business (VNB) divided by The Allianz Group uses the combined ratio as a measure of underwrit- the Present value of new business premiums (PVNBP). All three com- ing profitability in the Property-Casualty segment. The combined ponents are shown after non-controlling interests unless otherwise ratio represents the total of acquisition and administrative expenses stated. (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). Value of new business (VNB) NBM LH Segment = Present value of new business premium (PVNBP) Acq. and admin. expenses (net)1 + Claims and ins. benefits inc. (net)1

CR PC Segment = Premiums earned (net)1

1_In insurance terminology the term ”net” means after reinsurance ceded. The VNB is the additional value to the shareholder which is created through the activity of writing new business in the current period. It is The combined ratio is typically expressed as a percentage. A ratio of defined as the present value of future profits (PVFP) after acquisition below 100 % indicates that the underwriting result is profitable, expenses overrun or underrun, minus the time value of financial whereas a ratio of above 100 % indicates an underwriting loss. options and guarantees (O & G) and minus the risk margin (RM), all The combined ratio can be further broken down into the loss ra- determined at the date of issue. tio and the expense ratio. The loss ratio represents claims and insur- The PVNBP is the present value of projected new regular premi- ance benefits incurred (net) divided by premiums earned (net), and ums, discounted with risk-free rates, plus the total amount of single thus expresses the percentage of net earned premiums used to settle premiums received. claims. VNB and PVNBP are determined by using an actuarial platform. In the actuarial platform, insurance contracts are projected determin- Claims and ins. benefits inc. (net) istically using best estimate assumptions for lapse, mortality, disability

Loss ratio PC Segment= and expenses until maturity. Contracts are projected no longer than Premiums earned (net) 60 years. Premiums are before reinsurance. To receive a valid and meaningful NBM, the calculation of VNB and PVNBP need to be based on the same assumptions.

LIMITATIONS ON THE USEFULNESS The expense ratio represents acquisition and administrative expenses Limitations come from the best estimate assumptions, including risk- (net) divided by premiums earned (net). It expresses the percentage free rate, and the long projection period of up to 60 years. The best of net earned premiums used to cover underwriting expenses for the estimate assumptions are derived from historical data. That means acquisition of new or renewal business and for administrative ex- that a different future customer behavior could lead to variances. The penses. same is applicable for the risk-free rate, which is based on current market data. Furthermore, the long projection period is worthy of Acq. and admin. expenses (net) discussion, because changes such as regulatory changes or a new = Expense ratio PC Segment currency are not reflected in the projection. Premiums earned (net)

4 Alternative Performance Measures for the First Half-Year of 2018 − Allianz Group 1 _ Definitions, use and limitations

COST-INCOME RATIO (CIR) LIMITATIONS ON THE USEFULNESS The volume of AuM reported is subject to fluctuations which do not DEFINITION AND USEFULNESS derive from the success of our asset management activities. These The Allianz Group uses the cost-income ratio as a key performance fluctuations result from effects of foreign currency translation as well indicator in the Asset Management segment. The CIR sets operating as acquisitions, disposals and transfers. expenses in relation to operating revenues in a given period.

Operating expenses1 CIR AM Segment = Operating revenues2

1_Operating expenses consist of administrative expenses (net), excluding acquisition-related expenses. 2_Operating revenues are the sum of net fee and commission income, net interest income, income from financial assets and liabilities carried at fair value through income and other income. The term “net” means that the relevant expenses have already been deducted.

The Allianz Group uses CIR in order to measure the efficiency of its activities in the Asset Management segment. Changes in the ratio indicate a change in efficiency.

LIMITATIONS ON THE USEFULNESS The CIR in a given period of time can be influenced by special items, one-offs or foreign exchange effects on the revenue and/or expense side which lead to a change in CIR without a long-term change of efficiency. Moreover, the usefulness of the cost-income ratio is inherently limited by the fact that it is a ratio and thus it does not provide information on the absolute amount of the operating revenues and expenses.

TOTAL ASSETS UNDER MANAGEMENT (AUM)

DEFINITION AND USEFULNESS Assets under management are assets or securities portfolios, valued at current market value, for which Allianz Asset Management companies provide discretionary investment management decisions and have the portfolio management responsibility. They are managed on behalf of third parties as well as on behalf of the Allianz Group. AuM are a key performance indicator in the Allianz Group and the underlying of the success of our asset management activities in comparison with prior periods as well as in comparison with other companies. Changes in AuM are driven by net flows, market and other, consolidation/deconsolidation effects and foreign exchange effects. Net flows represent the sum of new clients’ assets, additional contributions from existing clients – including dividend reinvestment – withdrawals of assets from, and termination of, client accounts and distributions to investors. Market and other represents current income earned on, and changes in the fair value of, securities held in client accounts. It also includes dividends from net investment income and from net realized capital gains to investors of open ended mutual funds and of closed end funds. Net flows as well as market and other define the real growth of the AuM base.

Alternative Performance Measures for the First Half-Year of 2018 − Allianz Group 5 Repor t 2 _ Reconciliations

Reconciliations INTERNAL GROWTH The IFRS financial measure most directly comparable to internal growth is the nominal growth of total revenue growth. TOTAL REVENUES Total revenues comprise statutory gross premiums written in Proper- Reconciliation of nominal total revenue growth tyCasualty and Life/Health, operating revenues in Asset Manage- to internal total revenue growth ment, and total revenues in Corporate and Other (Banking). %

Changes in Foreign Composition of total revenues Internal scope of currency Nominal € mn Six months ended 30 June Growth consolidation translation Growth

Six months ended 30 June 2018 2017 2018 Property-Casualty 5.9 0.1 (3.9) 2.0 PROPERTY-CASUALTY Life/Health 4.9 (0.1) (3.0) 1.8 Gross premiums written 29,984 29,388 Asset Management 10.9 2.3 (8.6) 4.6 LIFE/HEALTH Corporate and Other (1.3) (46.0) - (46.5) Statutory premiums 34,229 33,619 Allianz Group 5.6 (0.2) (3.7) 1.7

ASSET MANAGEMENT 2017 Operating revenues 3,257 3,114 Property-Casualty 1.2 0.6 - 1.8 consisting of: Life/Health 3.5 (1.9) 0.5 2.0 Net fee and commission income 3,249 3,076 Asset Management 7.5 0.3 2.3 10.1 Net interest income1 - 7 Corporate and Other 1.0 - - 1.0 Income from financial assets and liabilities carried at fair Allianz Group 2.6 (0.7) 0.3 2.3 value through income (net) 5 31 Other income 2 -

CORPORATE AND OTHER thereof: Total revenues (Banking) 147 275 consisting of: Interest and similar income 65 217 Income from financial assets and liabilities carried at fair value through income (net)2 2 13 Fee and commission income 262 287 Other income 4 3 Interest expenses, excluding interest expenses from external debt (14) (72) Fee and commission expenses (172) (172)

CONSOLIDATION (267) (178) Allianz Group total revenues 67,350 66,218

1_Represents interest and similar income less interest expenses. 2_Includes trading income.

6 Alternative Performance Measures for the First Half-Year of 2018 − Allianz Group 2 _ Reconciliations

OPERATING PROFIT (OP)

Business segment information – reconciliation of operating profit (loss) to net income (loss) € mn

Property- Asset Corporate and Six months ended 30 June Casualty Life/Health Management Other Consolidation Group

2018 Operating profit (loss) 2,729 2,144 1,247 (378) 12 5,753

Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net)1 27 1 - 14 (4) 36 Non-operating realized gains/losses (net)1 444 22 - 147 (2) 612 Non-operating impairments of investments (net)1 (144) (15) - (12) - (172) Subtotal 327 7 - 148 (6) 476 Non-operating change in reserves for insurance and investment contracts (net)1 - 2 - - - 2 Interest expenses from external debt - - - (416) - (416) Acquisition-related expenses ------Non-operating amortization of intangible assets (29) (251) (7) (5) - (291) Non-operating restructuring charges (50) (32) 1 (77) - (158) Non-operating items 247 (273) (6) (350) (6) (388)

Income (loss) before income taxes 2,976 1,872 1,241 (728) 5 5,366 Income taxes (732) (550) (307) 247 1 (1,340) Net income (loss) 2,244 1,322 934 (481) 7 4,025

Net income (loss) attributable to: Non-controlling interests 44 89 38 25 - 196 Shareholders 2,200 1,233 896 (506) 7 3,830

2017 Operating profit (loss) 2,705 2,282 1,156 (265) (18) 5,860

Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) 1 (2) 22 - (29) 31 22 Non-operating realized gains/losses (net)1 307 59 7 71 59 504 Non-operating impairments of investments (net)1 (53) (27) - 9 - (71) Subtotal 252 54 7 51 91 454 Non-operating change in reserves for insurance and investment contracts (net)1 - 2 - - - 2 Interest expenses from external debt - - - (421) - (421) Acquisition-related expenses - - 6 - - 6 Non-operating amortization of intangible assets (31) (27) (7) (5) - (69) Non-operating restructuring charges (165) (7) (8) (56) - (235) Non-operating items 56 22 (2) (430) 91 (263)

Income (loss) before income taxes 2,761 2,305 1,154 (695) 73 5,597 Income taxes (691) (693) (419) 239 (21) (1,585) Net income (loss) 2,070 1,611 735 (456) 52 4,013

Net income (loss) attributable to: Non-controlling interests 90 67 35 11 - 203 Shareholders 1,980 1,544 700 (467) 52 3,810

1_In investment terminology the term "net" is used when the relevant expenses have already been deducted.

Alternative Performance Measures for the First Half-Year of 2018 − Allianz Group 7 Repor t 2 _ Reconciliations

RETURN ON EQUITY (ROE) COMBINED RATIO (CR) Return on equity represents net income attributable to shareholders The combined ratio represents the total of acquisition and adminis- divided by the average shareholders’ equity excluding unrealized trative expenses (net) and claims and insurance benefits incurred gains/losses on bonds net of shadow accounting at the beginning of (net) divided by premiums earned (net). the period and at the end of the period. Acq. and admin expenses (net) + Claims and ins. benefits inc. (net)

CR PC Segment = Net income attributable to shareholders Premiums earned (net) RoE AZ Group = (Shareholders’ equity1,2 begin of period +

Shareholders’ equity1,2 end of period)/2 Reconciliation of combined ratio € mn 1_Shareholders’ equity excluding non-controlling interests

2_Shareholders’ equity excluding unrealized gains/losses on bonds net of shadow accounting Six months ended 30 June 2017 2017 Claims and insurance benefits incurred (net) (15,759) (15,556) Acquisition and administrative expenses (net), excluding one-off Reconciliation of return on equity for Allianz Group effects from pension revaluation (6,657) (6,739) € mn Premiums earned (net) 23,742 23,557 Six months ended 30 June 2018 20171 Combined ratio in % 94.4 94.6 Net income attributable to shareholders 3,830 6,803 Loss ratio in % 66.4 66.0 Shareholders' equity bop 65,553 67,083 Expense ratio in % 28.0 28.6 Shareholders' equity eop 60,282 65,553

Unrealized gains/losses on bonds (net of shadow accounting) bop 8,904 8,695 Unrealized gains/losses on bonds NEW BUSINESS MARGIN (NBM) (net of shadow accounting) eop 6,005 8,904 There is no comparable IFRS financial measure. Therefore, a reconcil- Return on equity (excluding unrealized iation is not possible. However, our calculation of NBM is consistent gains/losses on bonds net of shadow accounting) in % 6.9 11.8 with the accounting policies we apply in our financial statements annualized in % 13.8 prepared in accordance with IFRS.

1_For 2017, the return on equity for the full year is shown. COST-INCOME RATIO (CIR) The cost-income ratio sets operating expenses in relation to operat- For the Life/Health segment, RoE represents net income divided by ing revenues in a given period. the average total equity excluding unrealized gains/losses on bonds net of shadow accounting at the beginning of the period and at the Operating expenses end of the period. CIR AM Segment = Operating revenues Total net income

RoE LH Segment = (Total equity1 begin of period + Total equity1 end of period)/2 Reconciliation of cost-income ratio € mn

1_Total equity excluding unrealized gains/losses on bonds net of shadow accounting Six months ended 30 June 2018 2017 Operating expenses (2,010) (1,958) Operating revenues 3,257 3,114 Reconciliation of return on equity for the Life/Health segment Cost-income ratio in % 61.7 62.9 € mn

Six months ended 30 June 2018 20171 Net income attributable to shareholders 1,322 2,968 Shareholders' equity bop 30,151 30,695 TOTAL ASSETS UNDER MANAGEMENT (AUM) Shareholders' equity eop 28,878 30,151 There is no comparable IFRS financial measure. Therefore, a reconcil- Unrealized gains/losses on bonds iation is not possible. However, our calculation of AuM is consistent (net of shadow accounting) bop 6,208 5,721 with the accounting policies we apply in our financial statements Unrealized gains/losses on bonds (net of shadow accounting) eop 4,114 6,208 prepared in accordance with IFRS. Return on equity (excluding unrealized gains/losses on bonds net of shadow accounting) FORWARD-LOOKING APMS in % 5.4 12.1 An APM may not be reconcilable because it is not derived from the annualized in % 10.9 financial statements, such as profit estimates, future projections or 1_For 2017, the return on equity for the full year is shown. profit forecasts. However, all forward-looking APMs are consistent with the accounting policies we apply in our financial statements prepared in accordance with IFRS.

8 Alternative Performance Measures for the First Half-Year of 2018 − Allianz Group