The relevant criteria for determining the appropriate inclusion method of a company are summarized in note 2 of this Annual Report. The determination of the appropriate inclusion method of some entities involves management judgment.
For some subsidiaries where the Allianz Group does not hold a majority stake, management has assessed that the Allianz Group controls these companies. The Allianz Group controls these entities on the basis of distinctive rights stipulated by shareholder agree- ments between the Allianz Group and the other shareholders in these companies.
There are some companies where the Allianz Group holds a majority stake but where management has assessed that the Allianz Group does not control these entities because it has no majority representation in the governing bodies and/or it requires at least the confirmative vote of another investor to pass any decisions over rel- evant activities.
Although the Allianz Group’s share in some companies is below 20 %, management has assessed that the Allianz Group has signifi- cant influence over these companies because it is represented in the governing bodies that decide on the relevant activities of these com- panies.
To determine control for investment funds managed by the Allianz Group, management considers in particular the remunera- tion to which the asset manager is entitled, the exposure to variability of returns from these investments and the rights held by other parties. When the exposure to variability of returns is within a certain range, significant judgment is required for the determination of the appro- priate inclusion method of these investment funds.
For certain investment funds managed by the Allianz Group in which the Allianz Group holds a minority stake, management has assessed that the Allianz Group controls these investment funds because of its asset management role combined with its aggregate economic interest in these investment funds.
For certain investment funds managed by third parties where the Allianz Group holds a majority stake, management has assessed that the Allianz Group does not control these investment funds because it has neither a majority representation in the governing bodies of these investment funds nor any substantial removal rights to replace the asset manager.
For certain investment funds in which the Allianz Group holds a stake of above 20 %, management has assessed that the Allianz Group has no significant influence because it is not represented in the governing bodies of these investment funds.
Pursuant to IFRS 11, investments in joint arrangements have to be classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Allianz Group has assessed the nature of all its joint arrangements and determined them to be joint ventures.
For further details, please refer to the explanations to the list of participations of the Allianz Group from page 256 of this Annual Report onwards.
GooDWiLL
As of 31 December 2014, the Allianz Group reported total goodwill of € 12,166 mn, of which:1
−
€ 2,440 mn related to the business segment Property-Casualty−
€ 2,232 mn related to the business segment Life/Health−
€ 7,187 mn related to the business segment Asset Management and−
€ 307 mn related to the business segment Corporate and Other. Goodwill represents the excess of the consideration transferred in a business combination and any non-controlling interest over the net identifiable assets acquired. Upon acquisition, goodwill is allocated to the cash generating units (CGUs) that are expected to benefit from the synergies of the acquisition. Since goodwill is not amortized, the Allianz Group must evaluate at least annually whether the carrying value per CGU is deemed recoverable. This is assumed as long as the carrying value is not in excess of the unit’s estimated recoverable amount. If it is not deemed recoverable, the excess goodwill will need to be impaired.The recoverable amounts of all cash generating units are typi- cally determined on the basis of value in use calculations. The deter- mination of a CGU’s recoverable amount requires significant judg- ment regarding the selection of appropriate valuation techniques and assumptions. These assumptions include selection of appropri- ate discount rates, planning horizons, capitalization requirements and the expected future business results. Assumptions may need to change as economic, market and business conditions change. As such, the Allianz Group continuously evaluates external conditions and the operating performances of the CGUs.
The Allianz Group’s processes and controls around the estima- tion of recoverable amounts are generally applied at the Allianz Group level and are designed to minimize subjectivity. For example, the assumptions used are required to be consistent with the param- eters of the well-defined planning and controlling processes. Impor- tant input factors for those calculations are the business plan, the esti- mate of the sustainable returns and eternal growth rates, as is further explained in note 15. The Allianz Group also performs sensitivity tests
1 Please refer to note 2 Summary of significant accounting policies and note 15 Intangible assets for further details.
with regard to key value drivers, such as projected long-term com- bined ratios or discount rates. Furthermore, the Allianz Group reviews market-based business transaction multiples where avail- able. This information is used to assess reasonableness since directly comparable market value information is not generally available. The Allianz Group believes that the controls over assessing the recover- ability of goodwill ensure both consistent and reliable results.
DeferreD taX assets
As of 31 December 2014, the Allianz Group reported deferred tax assets of € 1,046 mn. The deferred tax assets before netting with deferred tax liabilities amounted to € 17,887 mn. € 1,585 mn thereof resulted from tax losses which are carried forward to future periods.1 Deferred tax assets are determined based on tax loss carry for- wards, unused tax credits and on deductible temporary differences between the Allianz Group’s carrying amounts of assets and liabili- ties in its consolidated balance sheet and their tax bases. Deferred tax assets are recognized only to the extent it is probable that suffi- cient future taxable income will be available for their realization. Assessments as to the recoverability of deferred tax assets require the use of judgment regarding assumptions related to estimated future taxable profits. This includes the character and amounts of taxable future profits, the periods in which those profits are expected to occur as well as the availability of tax planning opportunities.
The analysis and forecasting required in this process, and as a result the determination of the deferred tax assets, is performed for individual jurisdictions by qualified local tax and financial profes- sionals. Given the potential significance surrounding the underlying estimates and assumptions, Group-wide policies and procedures have been designed to ensure consistency and reliability around the recoverability assessment process. Forecasted operating results are based upon approved business plans which are themselves subject to a well-defined process of control. As a matter of policy, especially strong evidence supporting the recognition of deferred tax assets is required if an entity has suffered a loss in either the current or pre- ceding period.
Recognition and recoverability of all significant deferred tax assets are reviewed by tax professionals at Group level and the Allianz Group Tax Committee.
peNsioN LiaBiLities aND simiLar oBLiGatioNs
As of 31 December 2014, the Allianz Group reported a defined benefit obligation for defined benefit plans of € 22,767 mn which is offset by the fair value of plan assets of € 13,123 mn.2
1 Please refer to note 2 Summary of significant accounting policies and note 42 Income taxes for further details.
2 Please refer to note 2 Summary of significant accounting policies and note 48 Pensions and similar obliga-
Liabilities for pension and similar obligations and related net pension expenses are determined in accordance with actuarial valu- ation models. These valuations rely on extensive assumptions. Key assumptions including discount rates, inflation rates, compensation increases, pension increases and rates of medical cost trends are defined centrally at the Allianz Group level considering the circum- stances in the particular countries. In order to ensure their thorough and consistent determination, all input parameters are discussed and defined, taking into consideration economic developments, peer reviews as well as currently available market and industry data. The discount rate assumptions are determined by reference to yields of high-quality corporate bonds of appropriate duration and currency at the balance sheet date. In countries where there is no deep market in such bonds, market yields on government bonds are generally used as discount rates.
Due to changing market and economic conditions, the under- lying assumptions may differ from actual developments. Potential financial impacts from deviations in certain critical assumptions based on respective sensitivity analyses are disclosed in note 48.
restruCturiNG proVisioNs
As of 31 December 2014, the Allianz Group reported a provision for restructuring programs of € 109 mn.3
Provisions for restructuring programs are recognized when the Allianz Group has a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or by announcing its main features. The detailed formal plan of a restructuring pro- gram is based on several estimates and assumptions, such as the number of employees to be dismissed, amount of severance pay- ments, impacts of onerous contracts, possibilities of sub-leases, tim- ing of the various steps of the program and in consequence timing of the expected cash flows.
Generally, the subsidiaries which are undertaking the restruc- turing program, set up a formal plan and determine all underlying estimates and assumptions. Therefore, it is the Allianz Group’s policy that the subsidiaries are responsible for an adequate planning pro- cess, controlling the execution of the program, and for the fulfillment of all requirements of IFRS. The respective documentation has to be submitted to the Allianz Group Accounting and Reporting depart- ment, where qualified staff members review all restructuring pro- grams. This includes a review of all estimates and assumptions, and an assessment of whether all requirements for setting up a restruc- turing provision are satisfied, including which cost components can be treated as restructuring charges.