Net revenue from banking ¤bn 6.5 – 13.9 7.6 3.9 0.2 0.2 – 44
In the course of 2003, the members of the Supervisory Board dealt in depth with the situation of the company, against the background of a continuing difficult economic environment. We advised the Board of Management with respect to the management of the company, oversaw its conduct of business and were directly involved in decisions of fundamental importance.
We obtained a status report on the lawsuit filed in connection with the settlement of the World Trade Center loss.
It dealt with personnel matters of the members of the Board of
At the constitutive meeting of the new Supervisory Board in April 2003, Dr. Henning Schulte-Noelle was elected as its chairman and Mr. Norbert Blix as its deputy chairman.
continued to be one of our foremost concerns in 2003. We want to make our decision-making and control structures highly transparent and efficient. In this pursuit, the Board of Management and the Supervisory Board cooperate closely and in a climate of mutual trust. We always disclose information relevant to our company in a timely manner, and we regularly report on our corporate structure, business developments and financial situation. The consolidated financial statements, as well as our quarterly reports, are established in accordance with international accounting standards. We offer our shareholders the possibility of following our Annual General Meeting on the Internet and to exercise their voting rights by proxy instruction.
We take our responsibility for good management and control very seriously. To meet our goal of sustainable, transparent and efficient corporate governance, we continually incorporate current developments into the improvement process. This applies to the work of the Board of
The two listed Group companies Allianz Lebensversicherungs -AG and Oldenburgische Landesbank AG issued a Declaration of Compliance on December 15 and 18, 2003, respectively. Allianz Lebensversicherungs-AG states therein the deviations from the recommendation concerning the individual publication of remuneration for the Board of Management and the
The corporate governance practice of Allianz AG was also the subject of various media analyses in 2003, and the company received one of the top rankings among DAX 30 companies. We take this as an incentive and an obligation to continue our examination and development of corporate governance in the interest of serving our shareholders, customers and employees and in the interests of our sense of social responsibility.
The valuation of the stock-based remuneration is merely a mathematically calculated reference value. Whether and when the stock-based remuneration will actually lead to a payment depends on the future development of the share price, the strike price and the date of exercise. Stock appreciation rights (SAR)
Allocations to the budget available for increases of agreed pension benefits are primarily dependent on the economic performance of the company. When a member of Board of Management retires from the Board at the end of his mandate, oldage pension is paid no earlier than upon completion of the 60th year of age, except for cases of professional disability or general disability for medical reasons, or payments to a beneficiary in the case of death. If the mandate is terminated for other reasons before the retirement age has been reached, a non-expiring pension claim is maintained. But this claim does not include a right to the immediate payment of benefits.
Board member’s respective area of responsibility, as well as on the development of the share price. If one establishes a ranking of the average remuneration paid to the Board of Management at comparable German and European companies in recent years, the compensation of the Board of Allianz AG would fall approximately into the second third. If this listing takes into account criteria such as market capitalization, number of employees or complexity of the company, the average compensation of the
International Executive Committee In addition to members of Allianz AG’s Board of Management, the International Executive Commitee includes the heads of the major subsidiaries. Chaired by Michael Diekmann, this body discusses overall strategic issues at Group level.
The capital that is employed by the company must yield a higher return than a comparable alternative investment. In order to reach this objective, we apply the EVA® (Economic Value Added)
The Group, on the other hand – and this is where the central management instrument comes in – must look after the interests of shareholders and make sure that the sum total of the risks entered into remains acceptable for the company as a whole and that the actual profit realized justifies the investment of capital.
A L L I A N Z G R O U P 26
After three bearish years, confidence has returned to the stock market.
Earnings per share followed the progress in the operating business and improved clearly from – 4.44 euros to 4.77 euros.
Our Annual General Meeting for fiscal 2002 was attended by approximately 7,500 shareholders, 1,800 more than in the previous year. At the same time, the voting share capital represented decreased approximately 7 percentage points to about 40 percent. This was mainly due to our growing free float and to shares held by investors outside Germany. To nonetheless reach as many investors as possible, we directly addressed German asset management companies and advertised attendance by Internet. As in the previous year, online participants were
investor-relations. From that site, you can also download a special Internet version of our Annual Report.
Program launched in December 2003. This program provides a framework for issuing debt, and in particular long-term debt; the technical processing is considerably simplified by standardized documentation requirements.
Total interest cost for exchangeable bonds ¤151.6 mn 4. Participation certificate Allianz AG participation certificate Nominal amount ¤ 31.2 mn Payout per certificate for 2002 ¤ 3.60 Current redemption price ¤ 72.39
59 Credit insurance 60 Travel insurance and assistance services 60 Allianz Marine & Aviation 62 Life and Health insurance 64 Overview: Life and Health insurance 65 Germany 67 Italy 68 France 69 Switzerland 70 Spain 71 Rest of Europe 72 U.S.A.
And yet, from a global perspective, there were hopeful signs of an impending recovery. At 2.2 percent, economic growth in
Property and Casualty insurance This business segment was able to carry over its positive outlook from the previous year into 2003. It is favored by risk aversion on the part of customers and their readiness to sign up for insurance protection. Under these circumstances, property and casualty insurers in most business lines were able to impose rate adjustments corresponding to the actual risk. Higher premium income paired with only moderate increases of the claims ratio improved earnings across the market. But it became clear in the course of the year that property and casualty insurance continues to be an area of highly intensive competition, which in some cases made it impossible to enforce the necessary rate increases. Nonetheless, most insurers were able to improve their combined ratio. Disciplined cost management, risk-adequate pricing and, to some extent, more restrictive contractual conditions with clear coverage limits instead of unlimited risk transfers all helped to lower the combined ratio. Higher underwriting capacities on the part of reinsurers allowed primary insurers to spread their risks over a
For these new requirements, exceptions may apply for a limited period of time, for example for the units we are currently positioning in future growth markets such as China and India, or in turnaround cases.
In addition, the remuneration systems were more strongly oriented towards our Leadership Values (see page 92 of this Annual Report) and towards meeting financial performance objectives. These are consistent with the increase of net income generated in excess of capital costs and distributable profits. With that, we want to encourage our senior management to work towards a sustainable increase of the competitiveness and value creation of the Allianz Group.
Group investments declined by 1.0 percent from the previous year (403.0 billion euros). To reduce the exposure of our earnings to fluctuations in the capital markets we further reduced the equity share of our investments from 19 percent to the current 16.4 percent, despite higher stock market prices.
Outstanding financial liabilities of Allianz AG (for further details please refer to page 33 of the Annual Report) totaled 12.9 (15.2)
At the end of 2004, shareholders’ equity of Allianz amounted to 28.6 (21.7) billion euros. The 6.9 billion euro increase includes 4.6 billion euros from the issue of new shares. The remaining increase of 2.3 billion euros essentially reflects higher unrealized gains of 2.5 billion euros on securities held-for-sale.
The market capitalization of Allianz AG, adjusted for treasury shares, was 36.7 billion euros on December 31, 2003. The
This figure, however, reflected the one-off special effect produced by the substantial gains. As a result, earnings after taxes fell to 0.4 (1.9) billion euros.
Lower realized gains than in the previous years depressed net investment income to 181 (248) million euros.
FFIC, our largest company in this region, generated revenues of 3.9 (4.5) billion euros or a three percent increase in original currency. Having eliminated unprofitable activities from the portfolio, the company is concentrating solely on business with commercial clients and high net worth individuals, on transportation and crop insurance as well as on professional liability insurance. FFIC scored impressive results in the continuing core business.
_ Allianz Global Risks U.S.A., formerly Allianz Insurance Company, specializes in business with major clients.
At Allianz Global Risks US, formerly Allianz Insurance Company, premium income fell by 11.4 percent to 677 (765) million euros, which is mainly attributable to the selective underwriting policy pursued by the company. This insurer specializes in the major client segment. In the twelve months under review, it returned to the profit zone, generating earnings after taxes of 36 million euros.
_ Allianz Global Risks Rückversicherungs-AG (AGR Re) handles all business with our major international clients.
France and Great Britain. It is the parent company of Allianz
_ The expense ratio, in relation to total premium income, improved significantly to 7.9 (10.0) percent.
With a uniform and modernized product portfolio, we anticipate a return to the profit zone in the current fiscal year.
_ Together, they increased their premium income by 10.8 percent to 611 million euros.
Banking division of Dresdner Bank recorded operating income of 1.1 billion euros, with all earnings components – in spite of declining risk weighted assets – showing a stable trend. The projects to streamline the support and service functions that were almost entirely implemented in the year under review, led to a significant decline in administrative expenses to 0.5 billion euros. In response to a new record in company insolvencies, loan loss provisions were raised to 118 million euros. Overall, the operating result climbed to 447 million euros. After other income/expenses, especially restructuring expenses of 90 million euros, earnings after taxes were 208 million euros.
As a result, DrKW achieved the turnaround with an operating result of 354 million euros and earnings after taxes of 238 million euros.
The balance of trading assets and trading liabilities amounted to 61.3 billion euros at December 31, 2003. Trading assets (146.1 billion euros) consist of fixed-income securities (76 percent), dividend-earning equity securities (11 percent) and derivatives
Standard & Poor’s rating agency was used for the value-oriented control of our insurance companies. For the control of Dresdner
Legal risks The limitation of legal risks is an important task of the Group’s Legal Department. This is done, for example, by using internationally recognized standard documentation and, if necessary, by obtaining legal opinions. Contracts for established products are continuously reviewed to include any amendments required by changes in legislation or jurisdiction.
Risk capital At the end of fiscal 2003, risk capital calculated according to the Standard & Poor’s model, and before minority interests, was composed as follows: in property and casualty insurance, 16.1 billion euros were allocated for actuarial risks, 1.1 billion euros for credit and counterparty risks and 3.5 billion euros for investment risks. Risk capital in life insurance amounted to 10.8 billion euros.
As a minimum, the capital we allocate to our local units meets the requirements for an “A” rating from Standard & Poor’s.
In setting up risk provisions, we consider the creditworthiness of the borrower, the general economic environment and riskreducing measures, for example securities. Total risk provisions in the banking business amounted to about 6 billion euros as of
Business risks These risks stem from an unexpected variance of results, which can arise when a downturn in earnings, for example as a result of changes in the competitive situation or in customer behavior, can not be compensated by a corresponding reduction of expenses.
At the same time, the performance of the various product lines is periodically monitored and analyzed at the Group level. At the end of fiscal 2003, risk capital in the asset management segment – calculated according to the Standard & Poor’s model and before minority interests – amounted to 1.8 billion euros.
Experienced specialists and managers can apply for expatriate positions which are assigned for several years and are designed to give them a deeper understanding of new markets and an unfamiliar cultural context. For reliable planning, we have international expatriate guidelines that provide answers to questions about integration assistance, remuneration and social security in the host country as well as the modalities of returning home. This not only helps our employees and their families; it also enables the respective supervisors to adjust better to the expatriate situation.
Allianz Dresdner Asset Management (ADAM) offers private and institutional clients investment funds that are structured in accordance with ethical criteria. Together with the United Nations
Allianz Center for Technology develop waste management and recycling concepts, work for the efficient use of non-renewable energies and analyze the environmental impact of the activities of their customers in trade and industry.
Supplementary Information to the Consolidated Income Statement 148 24 Premiums earned (net)
Change in funds held under reinsurance business ceded 234 – 192 – 278
S. p. A., in all periods presented. Allianz AG exercises control over these entities by its ability to govern the financial and operating policies of the enterprise through management agreements.
South Korean Won in thousands (KRW) 1.498 1.249 1.348 1.178 1.155
Investments include securities held-to-maturity, securities availablefor -sale, real estate used by third parties, and funds held by others under reinsurance contracts assumed. Derivatives used for hedge transactions are included with the classification of the item hedged.
An impairment charge is recorded on debt instruments if financial difficulties on the part of the issuer, a default or delay in interest service or repayment of principal or an impending or actual insolvency indicate that repayment of the principal can no longer be expected.
Debt securities for which the recoverable amount remains continually at least 20 % below their carrying amount for a period of at least 6 months are examined more closely and an impairment charge is recorded, if other impairment criteria occur.
A L L I A N Z G R O U P 122
Investment advisory fees are recognized as the services are performed. Such fees are primarily based on percentages of the market value of the assets under management. Investment advisory fees receivable for private accounts consist primarily of accounts billed on a quarterly basis. Private accounts may also generate a fee based on investment performance which are recognized at the end of the respective contract period if the prescribed performance hurdles have been achieved.
Changes in goodwill were as follows: The additions essentially include goodwill from increasing our interests in
(2002: 39; 2001: 15) mn in the fiscal year, the brand names are recognized at balance sheet date in the amount of ¤782 (2002: 829) mn.
Changes in the total carrying value of real estate used by third parties
Loans and advances to customers by customer category (before loan loss allowance) are as follows: 12/31/2003 12/31/2002
The reinsurance department of Allianz AG compiles a list of approved reinsurers, provides the subsidiaries with orientation guidelines for reinsurance contracts on a per-event basis and collects cession data from the subsidiaries to avoid concentration of risk with particular reinsurers and to ensure that the aggregate risk retention of the Group is within the Group’s guidelines. Reinsurance is placed with companies based on an evaluation of the financial strength of the reinsurers, terms of coverage, and price.
¤1,523 mn at the end of the year. Assets pledged as security and other restrictions on title amount to ¤28 (2002: 30) mn.
In connection with an exchange offer to the holders of participation certificates, a total of 6,148,110 treasury shares were exchanged for participation certificates of Allianz AG as of January 16, 2003.
These non-voting interests include 2 issues of Dresdner Bank AG in the nominal amount of ¤500 mn (interest rate 5.79 %, maturity 2011) and USD 1,000 mn (interest rate 8.15 %, maturity 2031). Additionally Dresdner Bank AG issued 2 non-voting interests in the nominal amount of ¤159 mn (interest rate 7.00 %, maturity 2013)
The increase of obligations to deliver securities is due to the substantially higher volume of short sales of fixed-interest securities by
Activity in the provisions for restructuring measures was as follows: Dresdner Bank restructuring plans
_ An amount of ¤134 (2002: 287) mn eligible for refinancing with the central bank is held in cash funds.
Up to 1 – 5 Over Notional Positive Negative Notional Positive Negative 1 year years 5 years principal market market principal market market amounts values values amounts values values
is able to provide excess coverage of up to ¤13 bn for terror risks encountered in Germany. Companies of the Allianz Group take insurance coverage that is granted at market terms.
Jürgen Dormann who acquired 1,000 shares of the company for a price of ¤49.40 per share on March 31, 2003, and Dr. Wulf Bernotat, who sold 600 Eurex calls on shares of the company for a base price of
On May 24, 2002, pursuant to a statutory squeeze-out procedure, the general meeting of Dresdner Bank AG resolved to transfer shares from its minority shareholders to Allianz AG as principal shareholder in return for payment of a cash settlement amounting to ¤51.50 per share. The amount of the cash settlement was established by Allianz
As of December 31, 2003 there were no underwriting commitments drawn.
Shares in Allianz AG are offered to qualified employees in Germany and abroad within pre-defined timeframes at favorable conditions. In order to be qualified, employees must have been employed in continuous service, or had a position as an apprentice, for a period of 6 months prior to share offer and notice of termination of employment must not have been served. Share purchase plans also include restrictions relating to the amount that the employee can invest in purchasing shares. All participating enterprises in Germany and abroad impose restrictions on the disposal of shares, though the length of time varies from a minimum of 1 year to a maximum of 5 years, depending on the country involved. The shares are freely disposable after the expiration of the minimum holding period. The number of shares sold to employees under these plans was 944,625 in 2003
Group Equity Incentives support the orientation of senior management, and in particular the Board of Management, toward the longterm increase of the value of the company.
EVA ® is a registered Trademark of Stern Steward & Co.
Following a 2-year vesting period, the stock appreciation rights may be exercised at any time between the 2nd and the 7th anniversary of the effective date of the relevant plan, provided that
AG share price and is accrued over the 2-year vesting period. As of
Range of AGF options Weighted-average Weighted-average AGF options Weighted-average exercise price outstanding as of remaining contractual exercise price exercisable as of exercise price
Kleinwort Wasserstein and Merrill Lynch. RASFIN, an Italian subsidiary of Allianz, Crédit Agricole and West LB were also involved in the transaction.
In the reporting year, fixed remuneration of the Board of Management amounted to ¤7.3 mn. This amount includes payment in kind and ancillary compensation amounting to ¤0.2 mn. The percentage of fixed remuneration with respect to total fixed and variable remu-
Granted Changes1) Outstanding at Intrinsic value the end of fiscal at the end of fiscal
Allianz Subalpina Società di Assicurazioni e Riassicurazioni S. p. A., Turin 189 97.9
Heidelberger Druckmaschinen AG, Heidelberg 316 12.0 1,950 – 138 3/31/2003 mg technologies ag, Frankfurt/Main 218 10.1 1,991 – 31 12/31/2002
Associated or other non-consolidated asset management companies hold the following shareholdings in the listed companies shown below: Disclosure of equity investments
Our audit, which also extends to the group management report prepared by the Company’s management for the business year from
F R A N Z F E H R E N B A C H since March 1, 2003
Assets are recorded as subordinated assets if, in the case of liquidation or bankruptcy, the related claim cannot be realized before the claims of other creditors are realized.
The benefits payable under this type of life insurance depend primarily on the performance of the investments in a mutual fund.
Other 1) 1997 without IAS SIC 12 and SEC adjustment 2) Including banking business 3) Adjusted for capital measures (capital increase) 4) Excluding treasury shares