Siemens 2013 Annual Report Download - page 297

253 D. Consolidated Financial Statements 357 E. Additional Information
254 D.1 Consolidated Statements of Income
255 D.2 Consolidated Statements of Comprehensive Income
256 D.3 Consolidated Statements of Financial Position
257 D. Consolidated Statements of Cash Flows
258 D.5 Consolidated Statements of Changes in Equity
260 D.6 Notes to Consolidated Financial Statements
348 D.7 Supervisory Board and Managing Board

The rates of compensation increase for countries with signi-
ficant effects with regard to this assumption were as follows
in fiscal  and : U.S.: .% and .%, U.K.: .% and
.%, Switzerland: .% and .%. The rates of pension
progression for countries with significant effects with regard
to this assumption were as follows in fiscal  and :
Germany: .% and .%, U.K.: .% and .%.
The DBO is also affected by assumed future inflation rates. The
effect of inflation is recognized within the assumptions above
where applicable.
Sensitivity analysis
A one-half-percentage-point change of the established as-
sumptions mentioned before, used for the calculation of the
DBO as of September , , would result in the following
increase (decrease) of the DBO:
Effect on DBO as of
September 2013 due to a
one-half percentage-point
(in millions of €) increase decrease
Discount rate (1,919) 2,159
Rate of compensation increase 136 (105)
Rate of pension progression 1,492 (1,339)
The reduction of the mortality rates by % results in an in-
crease of life expectancy depending on the individual age
of each beneficiary. That means for example, that the life
expectancy of a male Siemens employee age  years as of
September ,  increases by approximately one year. In
order to determine the longevity sensitivity the mortality rates
were reduced by % for all beneficiaries. The effect on DBO as
of September ,  due to a % reduction in mortality rates
would result in an increase of € million.
When calculating the sensitivity of the defined benefit obliga-
tion to significant actuarial assumptions the same method
(present value of the defined benefit obligation calculated
with the projected unit credit method) has been applied as
when calculating the post-employment benefit obligation rec-
ognized in the Consolidated Statement of Financial Position.
Increases and decreases in the discount rate, rate of compen-
sation increase, rate of pension progression and mortality
rates which are used in determining the DBO do not have a
symmetrical effect on the DBO primarily due to the compound
interest effect created when determining the net present value
of the future benefit. If more than one of the assumptions are
changed simultaneously, the combined impact due to the
changes would not necessarily be the same as the sum of the
individual effects due to the changes. Furthermore, the sensi-
tivities reflect a change in the DBO only for a change in the as-
sumptions in this specific magnitude, i.e. .%. If the assump-
tions change at a different level, the effect on the DBO is not
necessarily in a linear relation.
Asset Liability Matching Strategies
Siemens’ funding policy for its funded defined benefit plans
is part of the overall commitment to sound financial manage-
ment, which also includes an ongoing analysis of the struc-
ture of Siemens’ defined benefit liabilities. To balance return
and risk, Siemens has developed a benefit risk management
concept. The Company has identified as a major risk a decline
in the plans’ funded status as a result of the adverse develop-
ment of plan assets and / or defined benefit obligations.
Siemens monitors its investments and its defined benefit ob-
ligations in order to measure such risk. The risk quantifies
the expected maximum decline in the principle plans’ funded
status for a given confidence level over a given time horizon.
A risk limit on the Group level forms the basis for the determi-
nation of the Company ’s investment strategy, i.e. the strate-
gic asset class allocation of principle plan assets and the
degree of interest rate risk hedging. Both the risk limit and
investment strategy are regularly reviewed with the participa-
tion of senior external experts of the international asset
management and insurance industry to allow for an integral
view on plan assets and benefit liabilities. The Company se-
lects asset managers based on quantitative and qualitative
analysis and subsequently constantly monitors their perfor-
mance and risk, both on a stand-alone basis, and in the
broader portfolio context. Siemens reviews the asset alloca-
tion of each plan in light of the duration of the related benefit
liabilities and analyzes trends and events that may affect as-
set values in order to inform about appropriate measures at
a very early stage.
Derivatives are used for risk reducing purposes to either re-
duce the fluctuations in the value of plan assets or reduce
funded status volatility as part of an integrated risk manage-
ment approach for assets and liabilities. Main risks mitigated
are interest rate, credit, equity, currency and inflation risk. All
over-the-counter derivatives are collateralized on a daily basis
to eliminate counterparty risk. In addition, derivatives are
permitted for investment managers to use as substitutes for
traditional securities where appropriate to manage exposure to
foreign exchange and interest rate risks.