STRENGTH CONTINUITY CHANGE Allianz Group Annual Report 2016 To go directly to any chapter, simply click All references to chapters, pages, notes, on the headline or the page number. internet pages, etc. within this report are also linked. CONTENT A To our Investors Pages 1 - 12 2 Letter to the Investors 5 Supervisory Board Report 11 Mandates of the Members of the Supervisory Board 12 Mandates of the Members of the Board of Management B Corporate Governance Pages 13 - 34 14 Corporate Governance Report 19 Statement on Corporate Management pursuant to § 315 (5) and § 289a of the HGB (part of the Group Management Report) 21 Takeover-related Statements and Explanations (part of the Group Management Report) 24 Remuneration Report (part of the Group Management Report) C Group Management Report Pages 35 - 76 36 Business Operations 39 Business Environment 41 Executive Summary of 2016 Results 43 Property-Casualty Insurance Operations 45 Life/Health Insurance Operations 48 Asset Management 50 Corporate and Other 51 Outlook 2017 55 Balance Sheet Review 57 Liquidity and Funding Resources 60 Reconciliations 62 Risk and Opportunity Report 75 Controls over Financial Reporting D Consolidated Financial Statements Pages 77 - 146 78 Consolidated Balance Sheets 79 Consolidated Income Statements 80 Consolidated Statements of Comprehensive Income 81 Consolidated Statements of Changes in Equity 82 Consolidated Statements of Cash Flows NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 84 General Information 101 Notes to the Consolidated Balance Sheets 117 Notes to the Consolidated Income Statements 122 Other Information 145 Responsibility Statement 146 Auditor's Report Further Information Disclaimer regarding roundings Following the change in the E.U. Transparency Directive, Allianz Group adjusted its reporting The consolidated financial statements are presented in millions of Euros (€ MN) unless other- in 2016, including the discontinuation of the First Quarter and Third Quarter Interim Reports. wise stated. Due to rounding, numbers presented may not add up precisely to the totals We have also taken this opportunity to enhance transparency, streamline our disclosures, and provided and percentages may not precisely reflect the absolute figures. remove redundancies wherever possible. TO OUR INVESTORS A Annual Report 2016 Allianz Group 1 A To Our Investors oliver bäte Chairman of the Board of Management In last year’s letter to you I stated that your company was positioned well to deliver impressive results even in difficult times. This still holds true, as our results for 2016 demonstrate: our operating profit improved by 0.9 % to € 10.8 BN; our net income attributable to shareholders was € 6.9 BN. A very good result, considering the persistent low interest rate environment, as well as a fiscal period that has the entire business world holding its breath in the face of war, terror, and sudden political changes. That said, our share price could not repeat the double-digit performance seen the previous year, what with unprecedented negative interest rates, political instability, and a difficult second quarter. But as the figures in our annual financial statements show, we are working hard to sustainably increase your company’s value to key stakeholder groups and to place customers at the center of all our actions. Our strategy and our Renewal Agenda are taking effect: they strengthen Allianz and enhance your company’s competitiveness. − A year after the introduction of the E.U. solvency guideline Solvency II, we can report a strong Solvency II capita lization ratio of 218 %. − Our Property-Casualty segment – a business with relatively low capital requirements – achieved a strong per formance despite headwinds, with our units in Turkey and Germany particularly standing out in terms of top-line growth. 2 Photo: Wolfgang Stahr Annual Report 2016 Allianz Group A To Our Investors − We are making good progress in shifting our Life portfolio towards capital-efficient products; our new business margin has increased to 2.7 %. And we continue to address deficits in the existing portfolio just as rigorously, as the successful sale of our South Korean business demonstrates. − In Asset Management, the new PIMCO management team (with Emmanuel Roman as CEO and Dan Ivascyn as CIO) produced excellent results: Despite the recent rise in U.S. Treasury interest rates, we registered third-party net inflows in the last two quarters of 2016 – for the first time since 2013. Furthermore, 88 % of PIMCO’s third-party assets under management exceeded their respective benchmarks. Allianz Global Investors continued on its road to success, achieving excellent results. − In order to make a comparative assessment of our customer orientation, the measurement of customers’ willingness to recommend Allianz (Net Promoter Score) was harmonized on a group-wide basis. Results for 2016 were quite gratifying: 55 % of our businesses achieved an NPS above the respective market average. − We also moved up the newly defined Inclusive Meritocracy Index, which measures progress in establishing an inclusive performance culture: it stood at 70 % in 2016, after 68 % in 2015. − Our commitment to being a sustainable business was rewarded by the Dow Jones Sustain- ability Index, one of the most prestigious Responsible Business ratings. We achieved a gold rating and were the highest-placed primary insurer. Over the last year, we continued to take industry-leading steps including our divestment from coal-based industries and the growth of our renewable energy portfolio to € 4.6 BN. Well, the good results of 2016 are history now and it is time to look to the future. As stated before, we want to use our present financial strength and solid balance sheet to strengthen Allianz even further. When asked about the long-term growth prospects for your company, I usually point out three things: first, over seven billion people wake up every day, and for most of them it is a key concern to have their safety and well-being protected and be able to appropriately partake in global prosperity. Second, only about one percent of these people are our customers at present. Third, since we are one of the world’s leading financial services providers, we are in a better position than most to fulfil this basic need for financial security and a share in prosperity. In other words, there are basically no limits to our growth – all we need to do is tap these opportunities prudently and in sustainable ways. We are experiencing an exciting moment in the history of Allianz, with huge and tantalizing challenges ahead. It makes me happy to see how, at the various Allianz entities, young talents work with experienced veterans to take this proud global company further into the digital age. I am very pleased that we have such talented employees, and I extend my warmest thanks to them for their hard work and outstanding dedi cation. Special thanks also go to our sales part- ners, in particular our capable Allianz representatives worldwide. I am sure I am expressing these thanks on your behalf as well. Annual Report 2016 Allianz Group 3 A To Our Investors All of these women and men work hard and successfully to provide you with both robust returns and superior capital efficiency, in keeping with our promise. And, as you may remember, there is another promise we have made: any capital we don’t use to expand our business will be returned to our investors. We have kept this promise as well. At the same time, we work to ensure we have the flexibility required to keep a sound balance between Allianz’s capital efficiency on the one hand and its balance sheet strength on the other. Dear investors, we greatly appreciate your ongoing loyalty and support. Please be assured that in 2017, as in the past years, we will not rest on our laurels, and we are making good progress despite all the uncertainties and challenges we are facing. It is not in our power, obviously, to prevent low interest rates, strong market fluctuations, or natural catastrophes. But we can work hard to achieve our ambitious goals, and to ensure that your Allianz will remain successful as the world goes digital. P.S.: Our financial reporting goes digital, too, and we are deliberately keeping this Annual Report as brief as possible. For further details on our figures and plans, please refer to our www.allianz.com/investor-relations website at or our Allianz Investor Relations App. 4 Annual Report 2016 Allianz Group A To Our Investors Supervisory Board Report Ladies and Gentlemen, During the fiscal year 2016, the Supervisory Board fulfilled all its duties and obligations as laid out in the company Statutes and applicable law. It monitored the management of the company, devoted particular attention to personnel matters related to the Board of Management, and advised the Board of Management regarding the conduct of business. OVERVIEW In all of the Supervisory Board’s 2016 meetings, the Board of Management reported on Group revenues and results as well as developments in individual business segments. The Board of Management informed us on the course of business as well as on the development of the Allianz Group and Allianz SE, including deviations in actual business developments from the planning. Within the framework of our activities, the Board of Management reported to us on a regular basis and in a timely and comprehensive manner, both verbally and in writing. Key reporting issues were strategic topics, such as the implementation of the Renewal Agenda and the portfolio strategy, the risk strategy and capital management, the ongoing challenges facing the life insurance business due to the low interest rates, the divestment of the life insurance business in South Korea, as well as the business development in the Asset Manage- ment segment. In addition, we were extensively involved in the Board of Management’s plan- ning for both the fiscal year 2017 and the three-year period from 2017 to 2019.