Siemens 2014 Annual Report Download - page 285

247 D. Consolidated Financial Statements 337 E. Additional Information
248 D. Consolidated Statements of Income
249 D. Consolidated Statements of Comprehensive Income
250 D. Consolidated Statements of Financial Position
251 D. Consolidated Statements of Cash Flows
252 D. Consolidated Statements of Changes in Equity
254 D. Notes to Consolidated Financial Statements
330 D. Supervisory Board and Managing Board

Effect on DBO due to a
one-half percentage-point
as of September 
(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
increase of life expectancy depending on the individual age of
each beneficiary. That means for example, that the life expec-
tancy of a  years old male Siemens employee as of Sep-
tember ,  increases by approximately  year. In order to
determine the longevity sensitivity the mortality rates were
reduced by  % for all beneficiaries. The effect on DBO due to
a  % reduction in mortality rates would result in an increase
of € , million and €  million as of September , 
and .
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 cal-
culating the post-employment benefit obligation recognized in
the Consolidated Statement of Financial Position. Increases and
decreases in the discount rate, rate of compensation 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 sensitivities reflect a change in the
DBO only for a change in the assumptions in this specific mag-
nitude, i.e. . %. If the assumptions 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 structure
of Siemens’ defined benefit liabilities. To balance return and
risk, Siemens has developed a benefit risk management con-
cept. The Company has identified as a major risk a decline in
the plans’ funded status as a result of the adverse development
of plan assets and / or defined benefit obligations. Siemens
monitors its investments and its defined benefit obligations 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 determination of the
Company’s investment strategy, i.e. the strategic 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 participation 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 selects asset managers based on quan-
titative and qualitative analysis and subsequently constantly
monitors their performance and risk, both on a stand-alone
basis, and in the broader portfolio context. Siemens reviews
the asset allocation of each plan in light of the duration of the
related benefit liabilities and analyzes trends and events that
may affect asset values in order to inform about appropriate
measures at a very early stage.
Derivatives are used for risk reducing purposes to either reduce
the fluctuations in the value of plan assets or reduce funded
status volatility as part of an integrated risk management
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 permit-
ted for investment managers to use as substitutes for tradi-
tional securities where appropriate, to manage exposure to
foreign exchange and interest rate risks.