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As an inherent part of our insurance operations, we collect premiums from our customers and invest them in a wide variety of assets. Thereby, the Allianz Group holds and uses many different financial instruments. The resulting investment portfolios back the future claims and benefits to our customers. In addition we invest share- holders’ capital, which is required to support the risks underwritten. As the fair values of our investment portfolios depend on financial markets, which may change over time, we are exposed to market risks. The following table presents our Group-wide internal risk fig- ures related to market risks by business segment and source of risk.

allianz GRoup: intERnal RiSk pRofilE – maRkEt RiSk By SouRcE of RiSk and BuSinESS SEGmEnt (total poRtfolio BEfoRE tax and non-contRollinG intEREStS)1

pre-diversified, € mn

Interest rate Inflation Credit spread Equity Real estate Currency Total as of 31 December 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Property-Casualty 497 372 3,466 2,834 574 503 929 942 596 635 57 103 6,120 5,388 Life/Health 6,038 3,432 481 321 5,016 4,314 5,484 4,730 1,420 1,035 129 266 18,569 14,098

Asset Management 1 1 – – – – 24 29 5 6 491 585 521 621

Corporate and Other 469 548 228 282 447 265 1,352 1,034 99 130 297 332 2,891 2,591

Total Group 7,005 4,353 4,175 3,437 6,038 5,082 7,789 6,735 2,119 1,806 975 1,286 28,102 22,698

Share of total Group pre-diversified internal risk 46.2 % 44.8 %

1 Due to rounding, numbers presented may not precisely reflect the absolute figures.

Our total pre-diversified Allianz Group market risk showed a strong increase mainly driven by market movements. In particular the decreasing interest rates in 2014, combined with an increase in implied interest rate volatilities, led to higher sensitivities of options and guarantees in our Life/Health business segment. In addition, the historically low interest rates also created significant cross effects to other risk types in the Life/Health business segment due to profit

sharing mechanisms and by that also increasing respective risk for example equity and spread risk. In addition, equity risk increased due to higher exposure resulting from increasing equity markets outside the Eurozone and a weakened Euro against almost all currencies.

For the legal entity Allianz SE, the pre-diversified market risk showed a significant decrease, mainly driven by a reduction in equity risk.

allianz SE: intERnal RiSk pRofilE maRkEt RiSk pre-diversified, € mn as of 31 December 2014 20131 Interest rate 140 137 Inflation 332 294 Credit spread 432 337 Equity 16,950 18,444 Real estate 65 85 Currency 183 285 Total Allianz Se 18,102 19,582

1 2013 figures recalculated based on model changes in 2014.

Interest rate risk

As interest rates may fall below the rates guaranteed to policyholders in some Life/Health markets and given the long duration of insur- ance obligations, Allianz Group is specifically exposed to interest rate risk, because we have to reinvest maturing assets prior to the matu- rity of life contracts. This interaction of investment strategy and obli- gations to policyholders forms an integral part of our internal risk capital model. In addition, our asset/liability management approach is closely linked to the internal risk capital framework and designed to achieve investment returns over the long-term in excess of the obligations related to insurance and investment contracts.

These risks are reflected in the internal risk profile and managed by interest rate sensitivity limits. A significant part of the Allianz Group Life/Health business segment’s pre-diversified interest rate risk lies in Western Europe – 80.9 % as of 31 December 2014 (2013: 81.3 %) – mainly to cover traditional life insurance products with guarantees. Allianz Group manages interest rate risk from a comprehensive corporate perspective: While the potential payments related to our liabilities in the Property-Casualty business segment are typically shorter in maturity than the financial assets backing them, the oppo- site usually holds true for our Life/Health business segment due to the long-term life insurance contracts. In part, this provides us with a natural hedge on an economic basis at the Group level.

As of 31 December 2014 Allianz Group’s interest rate sensitive investments excluding unit-linked business – amounting to a market value of € 509.9 Bn1 – would have gained € 33.7 Bn or lost € 37.0 Bn in value in case of interest rates changing by -100 and +100 basis points, respectively.

As described above, the risk related to interest rates lies in the fact that in the long run yields that can be achieved by reinvesting may not be sufficient enough to cover the guaranteed rates. In con- trast, opportunities may materialize when interest rates increase. This may result in higher returns from reinvestments than the guar- anteed rates.

1 The stated market value includes all investments whose market value is sensitive to interest rate move- ments (excluding unit-linked business) and therefore is not based on classifications given by accounting principles.

The € 140 Mn interest rate risk capital requirement for Allianz SE mainly arises from fixed rate bonds and loans on the asset side, as well as issued Allianz corporate bonds, reinsurance and pension reserves on the liability side. Interest rate risk barely changed in 2014. As of 31 December 2014, Allianz SE’S interest rate sensitive invest- ments amounting to a market value of 38.4 Bn would have gained 1.0 Bn or lost 1.4 Bn in value in case of interest rates changing by -100 and +100 basis points, respectively.

Inflation risk

As an insurance company, Allianz Group is exposed to changing inflation rates, predominantly due to our non-life insurance obliga- tions. In addition internal pension obligations contribute to our exposure to inflation. Since inflation increases both claims and costs, higher inflation rates will lead to greater liabilities. Inflation assump- tions are already taken into account in our product development and pricing and the risk of changing inflation rates is incorporated in our internal model. As of 31 December 2014, Allianz Group’s inflation risk amounted to € 4.2 Bn, showing a change of € 0.7 Bn, mainly due to lower discount rates resulting in higher market values of inflation sensitive liabilities and internal pension liabilities.

Primary sources for the € 332 Mn inflation risk of the legal entity Allianz SE in 2014 are reinsurance liabilities and internal pension obligations. The 13 % increase in 2014 mainly reflects additional inter- nal quota share reinsurance business.

Equity risk

The Allianz Group’s insurance operating entities usually hold equity investments to diversify their portfolios and take advantage of expected long-term returns. Strategic asset allocation benchmarks and investment limits are used to manage and monitor these expo- sures. In addition, equity investments fall within the scope of CRisP to avoid a disproportionately large concentration of risk.

As of 31 December 2014, Allianz Group’s investments excluding unit-linked business that are sensitive to changing equity markets – amounting to a market value of € 38.9 Bn2 – would have lost € 10.2 Bn in value assuming equity markets declined by 30 %.

Risks from changes in equity prices are normally associated with decreasing share prices and increasing equity price volatilities. As stock markets also might increase, opportunities may arise from equity investments.

2 The stated market value includes all investments whose market value is sensitive to equity movements (excluding unit-linked business) and therefore is not based on classifications given by accounting principles.

Allianz SE is the ultimate holding entity in the Allianz Group. Par- ticipation assets represent approximately 75 % of the total investment assets. Thus, most of the equity risk of Allianz SE is reflecting insur- ance participations. The € 1.5 Bn reduction in equity risk in 2014 to € 16.9 Bn predominantly results from a lower value of participations. One of the key drivers for this development was the impact on lower interest rates on the value of key life insurance participations.

In 2014, Allianz SE had profit-and-loss transfer agreements in place with eleven German subsidiaries. These are listed in the appendix on page 103. Risk from these contracts is reflected via the risk capital calculation on participations.

Credit spread risk

Our internal model framework fully acknowledges the risk of declining market values for our fixed income assets – such as bonds – due to the widening of credit spreads. However, for internal risk management and appetite we also take into account the underlying economics of our business model. For example, the application of the volatility adjustment in our internal risk model to partially mitigate spread risk as described in the section on yield curve assumptions.

The advantage of being a long-term investor therefore gives us the opportunity to invest in bonds yielding spreads over the risk free return and earning this additional yield component.

With € 432 Mn, Allianz SE’S credit spread risk is 28 % higher than in 2013. This can be explained by a change in the rating structure of the investment portfolio.

Currency risk

Based on our foreign exchange management limit framework, cur- rency risk is monitored and managed at the operating entity and Group level. As our operating entities are typically invested in assets of the same currency as their liabilities, the major part of foreign cur- rency risk for Allianz Group results from the economic value of our non-Euro operating entities. If non-Euro foreign exchange rates decline against the Euro from a Group perspective, the Euro equiva- lent net asset values also decrease. However, at the same time the capital requirements in Euro terms from the respective non-Euro entity also decrease, partially mitigating the total impact on the capitalization.

In addition to risk from non-Euro participations, Allianz SE’S cur- rency risk is driven by its non-Euro reinsurance exposure, as well as the use of non-Euro bonds as external financing vehicles. Allianz SE’S € 183 Mn currency risk at year end 2014 is mainly reflecting net open positions in USD and CHF.

Real estate risk

Despite the risk of decreasing real estate values, real estate is a suit- able addition to our investment portfolio due to good diversification benefits as well as due to the contribution of relatively predictable cash-flows in the long-term. As of 31 December 2014, about 3.5 %

(2013: 3.6 %) of the total Allianz Group pre-diversified risk was related to real estate exposures.

As of 31 December 2014, real estate risk for Allianz SE is minor only (€ 65 Mn).