ALLIANZ GROUP 188 Acquisition cost Affiliated enterprises Aggregate policy reserves Allowance for loan losses Consolidated interest (%) Certificated liabilities Cash flow statement Capital relating to participating certificates Benefits (net) payable to policyholders At amortized cost Associated enterprises Assets under management The accounting terms explained here are intended to help the reader under- stand this Annual Report. Most of these terms concern the balance sheet  or the income statement. Terminology relating to particular segments of the insurance or banking business has not been included. The amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acqui- sition. The parent company of the Group and all consolidated subsidiaries. Subsidiaries are enterprises where the parent company can exercise a dominant influence over their corporate strategy in accordance with the control concept. This is possible, for example, where the parent Group holds, directly or indirectly, a majority of the voting rights, has the power to appoint or remove a majority of the mem- bers of the Board of Management or equivalent governing body, or where there are contractual rights of control. Policies in force – especially in life, health, and personal accident in- surance – give rise to potential liabilities for which funds have to be set aside. The amount required is calculated actuarially. The overall volume of provisions includes allowance for credit loss – deducted from the asset side of the balance sheet – and provisions for risks associated with hedge derivatives and other contingencies, such as guarantees, loan commitments or other obligations, which are stated as liabilities. Identified counterparty risk is covered by specific credit risk al- lowances. The size of each allowance is determined by the proba- bility of the borrower’s agreed payments regarding interest and in- stallments, with the value of underlying collateral being taken into consideration. General allowances for loan losses have been established, on the basis of historical loss data. Country risk allowances are established for transfer risks. Trans- fer risk is a reflection of the ability of a certain country to serve its ex- ternal debt. These country risk allowances are based on an internal country rating system which incorporates economic data as well as other facts to categorize countries. Where it is determined that a loan cannot be repaid, the uncol- lectable amount is written off against any existing specific loan loss allowance, or directly recognized as expense in the income state- ment. Recoveries on loans previously written off are recognized in the income statement under net loan loss provisions. The total of all investments, valued at current market value, which the Group has under management with responsibility for maintain- ing and improving their performance. In addition to the Group’s own investments, they include investments held for variable annuity policyholders, bank loans and advances, and investments held un- der management for third parties. All enterprises, other than affiliated enterprises or joint ventures, in which the Group has an interest of between 20 % and 50 %, regard- less of whether a significant influence is actually exercised or not. Under this accounting principle the difference between the acquisi- tion cost and redemption value (of an investment) is added to or subtracted from the original cost figure over the period from ac- quisition to maturity and credited or charged to income over the same period. The expense of policyholder benefits (less amounts ceded in rein- surance) comprises loss and loss adjustment expenses, premium re- funds, and the net change in insurance reserves. Amount payable on redemption of participating certificates issued. The participating certificates of Allianz AG carry distribution rights based on the dividends paid, and subscription rights when the capi- tal stock is increased; but they carry no voting rights, no rights to participate in any proceeds of liquidation, and no rights to be con- verted into shares. Statement showing movements of cash and cash equivalents during an accounting period, classified by three types of activity: Certificated liabilities comprise debentures and other liabilities for which transferable certificates have been issued. The consolidated interest is the total of all interests held by affiliated enterprises and joint ventures in affiliated enterprises, joint ven- tures, and associated enterprises. _  normal operating activities _  investing activities financing activities