the supervisory Board was regularly and comprehensively informed of the committees’ work.
A u D i t C o M M i t t e e | Dr. Wulf Bernotat (Chairman), igor landau, Dr. henning schulte-noelle , Jean-Jacques Cette, Jörg reinbrecht n o M i n A t i o n C o M M i t t e e | Dr. henning schulte-noelle (Chairman), Dr. gerhard Cromme, prof. Dr. renate Köcher p e r s o n n e l C o M M i t t e e | Dr. henning schulte-noelle (Chairman), Dr. gerhard Cromme, rolf zimmermann r i s K C o M M i t t e e | Dr. henning schulte-noelle (Chairman), prof. Dr. renate Köcher, peter Denis sutherland , godfrey robert hayward, Franz heiß
Controlling, reporting, risk as of June 1, 2012, also investor relations enriCo CuCCHiAni insurance europe (& south America) until December 21, 2011
J ö rg r e i n B r eC H t union secretary, ver.di Bezirk Hannover p e t e r D e n is su t H e r l A n D Chairman, goldman sachs international
B A s i C s h A r e i n F o r M A t i o n share type registered share with restricted transfer security Codes Wkn 840 400
Due to the drop in our share price in 2011, our market capitalization decreased to € 33.7 bn. since our peers experienced similar market developments, Allianz has remained one of the most highly valued financial services providers in the world, with our strength reflected in the weighting of Allianz shares in major german, european and world indices. We are among the top companies in worldwide indices like the MsCi World Financials index, and in the stoXX europe 600 insurance, which includes 32 insurance companies, our shares carry the greatest weight.
More information on sustainability in the Allianz group is provided starting on page 73 of this Annual report and on the internet at w w w . a l l i a n z . c o m / r e s p o n s i b i l i t y .
the Board has also set up a group Compensation Committee, a group underwriting Committee and an international executive Committee as permanent group committees. Such group committees prepare decisions for the Board of Management of Allianz Se, submit proposals for resolutions and ensure the smooth flow of information within the group.
Monitoring the underwriting business and its risk management, developing an underwriting policy and strategy.
◾ i n D e p e n D e n t M e M B e r W i t h e x p e r t k n o W l e D g e i n t h e A r e A S AC C o u n t i n g/Au D i t: Dr. Wulf Bernotat, igor landau
◾ initial review of the risk report and other risk related statements in the annual financial statements and management reports of Allianz Se and the Allianz group, information of the Audit Committee on the results of such reviews p e r S o n n e l C o M M i t t e e | 3 members ◾ C h A i r : Chair of the Supervisory Board (Dr. henning Schulte-noelle) ◾ o n e ot h e r S h A r e h o l D e r r e p r e S e n tAt i v e
the Code of Conduct and the internal guidelines derived from it provide all employees with clear guidance on behavior that lives up to the values of Allianz. in order to transmit the principles of the Code of Conduct and other compliance guidelines and controls effectively and on a sustained basis, Allianz has developed interactive training programs around the world. these provide practical guidelines which enable employees to come to their own decisions and avoid potential conflicts of interest. the Code of Conduct also forms the basis for guidelines and controls to ensure fair dealings with Allianz customers (sales compliance).
e S S e n t i a l a G r e e m e n t S o f a l l i a n z S e w i t h C h a n G e o f C o n t r o l C l a u S e S a n d C o m p e n S at i o n a G r e e m e n t S p r o v i d i n G f o r ta k e o v e r S C e n a r i o S
the following compensation agreements providing for the event of a takeover bid have been entered into by the Company with members of the Board of management or employees: a change of control clause in the service contracts of the members of the allianz Se Board of management provides that, if within 12 months after the acquisition of more than 50 % of the Company’s share capital by one shareholder or several shareholders acting in concert (change of control), the appointment as a member of the Board of management is revoked unilaterally by the Supervisory Board, or if the mandate is ended by mutual agreement, or if the management Board member resigns his or her office because the responsibilities as a Board member are significantly reduced through no fault of the Board member, he or she shall receive his or her contractual remuneration for the remaining term of the service contract, but limited, for the purpose hereof, to three years, in the form of a one-off payment. the one-off payment is based on the fixed remuneration plus 50 % of the variable remuneration, however, this basis being limited to the amount paid for the last fiscal year. to the extent that the remaining term of the service contract is less than three years, the one-off payment is generally increased in line with a term of three years. this applies accordingly if, within two years of a change of control, a mandate in the Board of management is coming to an end and is not extended; the one-off payment will then be granted for the period between the end of the mandate and the end of the three year period after the change of control. for further details please refer to the remuneration report starting on page 37.
◾ a l i G n m e n t w i t h S h a r e h o l d e r i n t e r e S t S : an important component of remuneration is dependent upon share price performance.
B u S i n e S S d i v i S i o n l e v e l ◾ 2010 - 2012 average growth ◾ 2012 return on capital
6 | dr. Joachim Faber left the allianz Se Board of management upon his retirement effective december 31, 2011. according to his contract he receives a transition payment of € 900 thousand. The payment is calculated based on the latest Base salary, which is paid for a further six months starting July 1, 2012, and a final lump-sum payment of 25 % of the target variable remuneration. The payable pension takes into account the monthly payments over the six-month period.
C o r p o r a T e G o v e r n a n C e4 4
a regular Board member with last Base salary of 700 and target variable remuneration of 2,100
The primary model is that of the allianz insurance business. most executives are covered by the allianz Sustained performance plan (aSpp). The model provides for a balance of fixed and variable remuneration components with a stronger focus on the longer-term realization of results in determining the final value of total remuneration.
◼ Y o u R A l l i A n z 56 Business operations and Markets 56 insurance operations 56 Asset Management 57 corporate and other 58 Worldwide Presence and Business Divisions 59 our insurance Markets 69 our Strategy 71 our Steering 73 our Progress in Sustainable Development 73 Sustainable Business 74 economic 78 environment 80 Social 83 Governance
85 Business environment 85 economic environment 2011 85 Business environment 2011: insurance industry 87 executive Summary of 2011 Results 89 total Revenues 89 operating Profit 90 non-operating Result 91 income taxes 91 net income 92 Shareholders’ equity 94 Proposal for Appropriation of Profit 94 events After the Balance Sheet Date 95 changes in Segment Structure, Presentation and Accounting Policies 95 other Parts of the Group Management Report 96 Property-casualty insurance operations 97 Gross Premiums Written 99 operating Profit 104 Property-casualty operations by Business Divisions 106 life/Health insurance operations 107 Statutory Premiums 109 operating Profit 112 life/Health operations by Business Division 114 Asset Management 115 Assets under Management 116 operating Revenues 117 operating Profit 118 corporate and other 119 earnings Summary Holding & treasury 119 earnings Summary Banking 119 earnings Summary Alternative investments 120 overview: 2011 Actual versus Prior Year outlook 121 economic outlook 121 industry outlook 122 outlook for the Allianz Group 123 overview: outlook and Assumptions 2012 124 Management’s Assessment of expected earnings and
g r o u p m A n A g e m e n t r e p o r t5 6 y o u r A l l i A n z iii. Business operations and markets
ASiA-pACifiC ◼ ◼ Japan ◼ ◼ Hong Kong ◼ ◼ taiwan ◼ ◼ Singapore ◼ ◼ South Korea ◼ ◼ China ◼ ◼ india ◼ ◼ Australia
our Austrian companies Allianz elementar versicherungs-Ag and Allianz elementar lebensversicherungs-Ag, offer a broad range of property-Casualty and life/Health products to individual and commercial customers primarily through a salaried sales force, tied agents and brokers.
1 | We define ifrS-premiums as “traditional” and premiums from investment-oriented products as “non-traditional”. this also applies to the following pages. 2 | Customer figures are not directly comparable to financial figures. Country specifics are also excluded (e.g. microinsurance and pension funds clients). this also applies to the following pages. 3 | including agents and financial advisors. this also applies to the following pages. 4 | Source: own local estimations as of 2010. this also applies to the following pages.
the p r o p E r T y - C A S u A L T y market in 2011 was characterized by moderate growth and profitability. While third-party motor liability insurance business substantially improved compared to 2010, the non-motor segment continued to suffer from strong competition for limited demand in a weak economic environment. in property-Casualty, motor is our most important line of business. We also have a strong presence in property, personal accident and general liability insurance.
◼ t H e n e t H e r l A n d S
g r o u p m A n A g e m e n t r e p o r t6 4
given the uncertain economic climate, we do not expect significant premium growth in our p r o p E r T y - C A S u A L T y business in 2012. Addressing the expense ratio, focusing on niche markets, enhancing customer service and improving fireman’s funds’ core underwriting strength should allow us to better position ourselves in this difficult market.
our Australian insurance operations include a variety of products and services, with strong positions in the workers’ compensation market as well as in rehabilitation, occupational health, safety and environment services. We also operate in certain niche markets, including premium financing and pleasure craft insurance. We have also expanded our premium financing business to include receivables financing. Allianz Australia markets products through brokers and non-tied agents, as well as directly to customers.
C A S u A L T y products, including a number of specialty offerings like pet health insurance where we are the market leader. We sell to retail and commercial customers through a range of distribution channels, including affinity groups.
operating in a highly competitive market, Allianz insurance plc continues to concentrate on active cycle management in order to support operating profitability. We seek to capitalize on growth opportunities that offer a profitable correlation between premium rates and risks. We forego premium growth in areas which do not offer an adequate return on risks.
our comprehensive and s t a t e - o f - t h e - a r t r i s k f r a m e w o r k and strategy aim to offer an attractive risk-reward proposition to our investors and other stakeholders. through our risk policies, standards, guidelines and systems, we ensure that our local and global business and investment decisions operate within the limits of our carefully defined appetite and tolerance for foreseeable risks. For further information on what allianz has done to mitigate possible impacts from the european sovereign debt crisis as well as our direct exposure to some of the potentially affected countries, please refer to the Risk Report on page 149.
We serve our customers mainly through three business segments, property-Casualty insurance, life/ Health insurance and asset Management. our Banking business is reported under our Corporate and other segment, which also includes our Group functions.
the allianz Group steers its operating entities and business segments via an integrated management and control process. this starts with the definition of the business-specific strategy and goals, which are discussed and agreed between the Holding and operating entities. according to this strategy, a three-year plan is prepared by our operating entities and aggregated to form the plans for the business divisions and the allianz Group. the supervisory Board then approves the plan and sets corresponding targets. the performance-based remuneration of the Board of Management is linked to both short- and long-term targets to ensure effectiveness and emphasize sustainability. For further details please refer to the Remuneration Report starting on page 37. this plan also forms the basis for our capital allocation process which is described in more detail under liquidity and Funding Resources, starting on page 140.
C a R b o n R e D u C t i o n s t R at e G y
as part of the effort on the advancement of women at allianz, in 2008, we already set ourselves the global target of increasing the share of women in the talent pool for executive positions to 30 % by 2015. in 2011, a top management mentoring program for women and flexible work-life programs, such as part-time employment or job sharing, are part of supporting actions taken in several countries. in 2011, we also made a joint declaration with other Dax 30 companies of our commitment to increase the share of female leaders in Germany. allianz’s own commitment is to have 30 % of management positions in Germany held by women by the end of 2015.
2 | based on the quarterly average exchange rate of 2011 compared to 2010. 3 | After elimination of transactions between Allianz group companies in different geographic regions and different segments. gross premiums written from our specialty lines have been allocated to the respective geographic regions.
1 | before elimination of transactions between Allianz group companies in different geographic regions and different segments. 2 | Allianz risk transfer (Art) now shown within Agcs. previous years were adjusted accordingly.
Allianz global Corporate & Specialty (AgCS) 4, 5, 7 92.9 93.1 87.4 65.7 65.2 60.9 27.2 27.9 26.5
premiums in B e l g i U m / l U x e m B O U R g amounted to € 1,275 mn with an internal growth of € 102 mn, of which € 88 mn was from investment-oriented products. in Belgium life (up € 77 mn), our personal lines performed well and explained a large part of the growth. Additionally, we launched an online tool which boosted the new business volume on pension and protection products. luxembourg life contributed growth of € 29 mn.
i n T e R e S T A n d S i m i l A R i n c O m e n e T O f i n T e R e S T e x P e n S e S increased by € 1,017 mn to € 15,999 mn primarily due to higher interest income related to the increased debt securities asset base with only slightly lower yields. Although the equities asset base was relatively stable, about one fourth of the increase stemmed from equity investments, both equity securities and affiliated companies.
our operating investment result decreased 5.6 % and non-operating investment result deteriorated by € 2.2 bn leading to a lower net income.
growth will only take off in europe if the european sovereign debt crisis does not escalate to the extent that states default or are forced out of the eurozone. even for such adverse scenarios, we have to be prepared and have taken several steps to mitigate possible impacts. We still expect the debt crisis to abate slowly in the course of this year as e.u. summit decisions are implemented, public finances continue to consolidate and ecB measures prove effective in preventing a credit crunch.
operating profit increased further by 9.5 % to € 2.3 bn, mostly driven by higher net fee and commission income by 11.0 % (15.3 % on internal basis).
Financial assets for unit-linked contracts decreased by € 1.3 bn – or 2.0 % – to € 63.5 bn. unit-linked insurance contracts declined by € 0.3 bn despite premium inflows exceeding outflows by € 3.2 bn. this drop was caused by a weak fund performance (€ (1.5) bn) and by policyholders moving to non-unit-linked contracts (€ (1.9) bn). unit-linked investment contracts decreased by € 1.7 bn, mainly driven by outflows in italy. the main drivers of currency effects were the stronger u.s. Dollar (€ 0.5 bn) and asian currencies (€ 0.2 bn). 1
D e v e l o p M e n t o F R e s e R v e s F o R i n s u R a n c e a n D i n v e s t M e n t c o n t R a c t s | in € bn 12/31/2010 C
Debt securities 18.1 17.3 cash and cash pool assets 4 2.3 1.6 loans and advances to banks and customers 17.7 16.4 corporate and other asset base 40.0 39.1 aBs in our corporate and other asset base amounted to € 0.4 bn, which was 1.0 % of our corporate and other asset base.
2 | this comprises assets of € 0.2 bn and € 0.5 bn and liabilities of € (0.5) bn and € (0.5) bn as of December 31, 2011 and December 31, 2010, respectively. 3 | these do not include affiliates of € 73.4 bn and € 69.2 bn as of December 31, 2011 and December 31, 2010, respectively.
4 | including cash and cash equivalents, as stated in our segment balance sheet, of € 1.8 bn and € 1.1 bn and receivables from cash pooling amounting to € 0.5 bn and € 0.5 bn net of liabilities from securities lending and derivatives of insignificant amounts as of December 31, 2011 and December 31, 2010, respectively.
While our baseline scenario for the global economy is one of moderate growth, it is not difficult to imagine more adverse scenarios being driven by the uncertainty surrounding the european sovereign debt crisis.
in addition, insurance companies are faced with the continued trend towards consumer protection, especially in the realms of transparency, sales practices and suitability for life insurance products.
i n s u R e R F i n a n c i a l s t R e n G t H R a t i n G s o F a l l i a n z s e 2012 aa negative outlook aa3 negative outlook a+ under review with negative implications 2011 aa credit watch negative aa3 stable outlook a+ under review with negative implications 2010 back to 2007 aa stable outlook aa3 stable outlook a+ stable outlook 2006 aa– positive outlook aa3 stable outlook a+ stable outlook in addition to its long-term financial strength rating, standard & poor’s determines a separate rating for “enterprise Risk Management” (eRM). as of september 2011, standard & poor’s assigned allianz a “strong” rating for the eRM capabilities of our insurance operations. this rating indicates that standard & poor’s regards it as “unlikely that allianz Group will experience major losses outside its risk tolerance”. standard & poor’s stated that the assessment is based on the allianz Group’s strong risk management culture, strong controls for the majority of key risks and strong strategic risk management.
this Risk Report provides both pre-diversified and Group-diversified internal risk capital results. pre-diversified internal risk capital reflects the diversification effect within each risk category (i.e. market, credit, underwriting and business risk) and does not include the diversification effect across categories. Group-diversified internal risk capital, in contrast, captures the total diversification effect across all risk categories and regions. pre-diversified internal risk capital is used to measure concentration risks. as risks are primarily managed at the operating entity level, pre-diversified internal risk capital is based on a confidence level of 99.93 % consistent with our internal capital standards for operating entities. Group-diversified internal risk capital determines the internal capital requirements for the Group and is accordingly based on a confidence level of 99.97 %.
Minimum underwriting standards, natural catastrophe limits, reinsurance programs u n D e R W R i t i n G R i s k ◾ premium natural catastrophe ◾ premium terror ◾ premium non-catastrophe ◾ reserve ◾ biometric possible losses resulting from inadequate or failed internal processes, from personnel and systems, or from external events, as well as unexpected changes in business assump tions and unanticipated earnings fluctuations due to a decline in income without corresponding decrease in expenses, as well as changes in policyholder behavior related to early termination of contracts and unanticipated use of options such as renewals and annuitization.
as interest rates may fall below the guaranteed rates in those markets, we are specifically exposed to interest rate risk, when we have to re-invest maturing assets prior to the maturity of life contracts. this interaction of investment strategy and obligations 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 long-term investment returns in excess of the obligations related to insurance and investment contracts.
these effects are reflected in the internal risk capital results and managed by duration mismatch limits. We have allocated a significant part of the l i f e / H e a l t H segment’s pre-diversified internal risk capital for interest rate risk to Western europe (86.7 % as of December 31, 2011), mainly to cover traditional life insurance products.
Because of our diversified real estate portfolio, real estate risk is currently of less relevance for the allianz Group. about 4.0 % of the total pre-diversified internal risk capital is related to real estate exposures.
D e s c R i p t i o n
t H e F i v e l a R G e s t s i n G l e a c c u M u l a t i o n s c e n a R i o s : l o s s p o t e n t i a l n e t o F R e i n s u R a n c e loss potential 1 as of December 31, 2011 € mn europe Windstorm 912 Germany Hail 742 australia earthquake 697 u.s. Hurricane 671 u.s. california earthquake 587
Total Group internal business risk capital: 7,066 [7,254] Share of total Group internal risk capital: 14.2 % [16.1 %]
◼ n o t e S t o t h e C o n S o l I d a t e d B a l a n C e S h e e t S
Net income from continuing operations 2,804 5,209 4,650 Net income (loss) from discontinued operations, net of income taxes 42 — — (395)
Change in other loans and advances to banks and customers (originated loans) (2,181) 3,696 1,384
Consolidated statements of Cash flows – continued € mn € mn € mn s u p p l e m e n t A r Y i n f o r m A t i o n o n t h e C o n s o l i d A t e d s t A t e m e n t s o f C A s h f l o w s income taxes paid (2,073) (1,347) (831)
allianz Se and its subsidiaries (the allianz Group) have global property-Casualty insurance, life/health insurance and asset management operations in around 70 countries, with the largest of its operations in europe. the allianz Group’s headquarters and allianz Se as its parent company are located in munich, Germany. allianz Se is recorded in the Commercial register of the municipal court in munich under its registered address at Koeniginstraße 28, 80802 munich.
the accounting policies adopted are consistent with those of the previous financial year, except for recently adopted iFrS effective January 1, 2011, and changes in accounting policies as described in note 4.
� S C o p e o F C o n S o l i d a t i o n the consolidated financial statements of the allianz Group comprise the financial statements of allianz Se, its subsidiaries and certain investment funds and Special purpose entities (Spes). Subsidiaries, investment funds and Spes, hereafter “subsidiaries”, which are directly or indirectly controlled by the allianz Group, are consolidated. Control exists when the allianz Group has the power to govern the financial and operating policies of the subsidiary generally either when the allianz Group owns directly or indirectly more than half of the voting rights of the subsidiary or when control can be
any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration - which is deemed to be an asset or a liability - will be recognized in accordance with the applicable iFrS. if the contingent consideration is classified as equity, it will not be remeasured and its subsequent settlement will be accounted for within equity.
any additional acquired share of interest after having obtained control does not affect previously recognized goodwill. transactions with non-controlling interests, i.e. changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, are accounted for as equity transactions. losses are allocated to a non-controlling interest even if they exceed the non-controlling interest’s share of equity in the subsidiary. any retained non-controlling investment at the date that control is lost is remeasured to fair value.
when the allianz Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date.
n o a c t i v e m a r k e t s – v a l u a t i o n t e c h n i q u e s : if the market for a financial instrument is not active, the fair value is determined by using valuation techniques. the valuation techniques used are based on market observable inputs when available. Such market inputs include references to formerly quoted prices for identical instruments from an active market, quoted prices for identical instruments from an inactive market, quoted prices for similar instruments from active markets and quoted prices for similar instruments from inactive markets. market observable inputs also include interest rate yield curves, option volatilities and foreign currency exchange rates. where observable market inputs are not available, fair value is based on appropriate valuation techniques using non-market observable inputs. valuation techniques include net present value techniques, the discounted cash flow method, comparison to similar instruments for which observable market prices exist and other valuation models. in the process, appropriate adjustments are made for credit risks. in particular when observable market inputs are not available, the use of estimates and assumptions may have a high impact on the valuation outcome. please refer to note 3, where the processes and controls for ensuring an appropriate use of estimates and assumptions are explained.
the amortized cost of a financial instrument is the amount at which the financial instrument is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between that initial amount and the redemption amount, minus any subsequent reduction for impairment or uncollectability.
� i n v e S t m e n t C o n t r a C t S w i t h p o l i C y h o l d e r S
◼ d e r i v a t i v e F i n a n C i a l i n S t r u m e n t S
F i n a n C i a l a S S e t S Cash and cash equivalents nominal value Financial assets carried at fair value through income
Shadow accounting in a broader sense is also applied to all valuation differences between statutory accounting, which is the basis for profit participation of policyholders, and iFrS accounting. these valuation differences generally are accounted for as latent reserves for premium refunds. losses that can be born by policyholders in future periods are considered in the corresponding insurance liability. Further information is included in a succeeding section entitled “reserves for insurance and investment contracts”.
there is no adequate statistical data available for some risk exposures in liability insurance, such as environmental and asbestos claims and large-scale individual claims, because some aspects of these types of claims become known very slowly and continue to evolve. appropriate provisions have been made for such cases based on the allianz Group’s judgment and analyses of the portfolios in which such risks occur. these provisions represent the allianz Group’s best estimate. Current reserves reflect subsequent loss development and re-estimation of initial reserves. the reserves for loss and loss adjustment expenses for asbestos and environmental claims were reviewed in 2011. as a result, reserves developed favorably by € 130 mn for asbestos reserves outside of the united States, partially offset by an adverse development of environmental claims in the united States. the overall favourable development of € 24 mn or 0.7 % of the reserves as at december 31, 2010, supports the prior level of reserves for a&e claims. in addition, operating entities regularly monitor asbestos and environmental claims emergence and trends.
◾ € 8,055 mn of the financial assets and € 5,351 mn of the financial liabilities carried at fair value are classified within level 3 of the fair value hierarchy (valuation technique with significant input being non-observable). level 3 financial assets represent less than 2 % of the allianz Group’s total financial assets carried at fair value estimates and assumptions are particularly significant when determining the fair value of financial instruments for which at least one significant input is not based on observable market data (classified within level 3 of the fair value hierarchy). the availability of market information is determined by the relative trading levels of identical or similar instruments in the market, with emphasis placed on information that represents actual market activity or binding quotations from brokers or dealers. when appropriate, values are adjusted on the basis of available market information including pricing, credit-related factors, volatility levels, and liquidity considerations. if sufficient market information is unavailable, management’s best estimate of a particular input is used to determine the value.
the impact of the acquisition, net of cash acquired, on the consolidated statement of cash flows for the year ended december 31, 2009 was: € mn investments (1,708) deferred acquisition costs (pVFp) (230) other assets (93) unearned premiums 5 reserves for insurance and investment contracts 1,973 other liabilities 26 non-controlling interests 33 less: previous investments in ayudhya 71 Acquisition of subsidiary, net of cash acquired 77
prices for transactions between reportable segments are set on an arm’s length basis in a manner similar to transactions with third parties. transactions between reportable segments are eliminated in Consolidation. for the reportable segment Asset management, interest revenues are reported net of interest expenses.
� g o v e r n m e n t A n d g o v e r n m e n t A g e n C y B o n d s total unrealized losses amounted to € 4,131 mn as of december 31, 2011. the Allianz group holds a large variety of government bonds, mostly of oeCd countries (organization of economic Cooperation and development). given the fact that the issuers of these bonds are backed by the fiscal capacity of the issuers and the issuers typically hold an “investment grade” country- and/or issue-rating, credit risk is as a general rule not a significant factor. the unrealized losses on the Allianz group’s investment in government bonds were mainly caused by investments in certain european countries. these unrealized losses are attributable to changes in credit spreads, caused by concerns in the market. the Allianz group believes that this is a temporary issue and that markets will recover. Based on a detailed analysis of the underlying securities the Allianz group did not consider these investments to be impaired as of december 31, 2011.
As of december 31, 2011, loans to associated enterprises and joint ventures and available-for-sale debt securities issued by associated enterprises and joint ventures held by the Allianz group amounted to € 136 mn (2010: € 192 mn). As of december 31, 2011, the fair value of investments in associates and joint ventures was € 2,801 mn (2010: € 2,598 mn).
◼ r e A l e s t A t e H e l d f o r i n v e s t m e n t € mn € mn € mn
loan loss allowance provision for credit losses total € mn € mn € mn € mn € mn € mn € mn € mn € mn
the following table presents information relating to the Allianz group’s impaired loans: As of december 31, 2011 2010 € mn € mn impaired loans 766 1,074 impaired loans with specific allowances 762 1,063 Average balance of impaired loans 688 874 interest income recognized on impaired loans 8 10 11 reinsurance assets As of december 31, 2011 2010 € mn € mn unearned premiums 1,394 1,372 reserves for loss and loss adjustment expenses 7,006 6,986 Aggregate policy reserves 4,364 4,674 other insurance reserves 110 103
the allocated goodwill of the cash generating units (Cgu) Banking europe, Central and eastern europe in the propertyCasuality segment and manroland Ag in the Corporate and other segment was impaired as a result of the annual impairment test 2010.
Cash generating units in the property-Casualty segment are: ◾ german speaking Countries, ◾ europe, including france, the netherlands, Belgium, luxembourg, italy, spain, portugal, greece, turkey and Africa, ◾ south America, ◾ Asia-pacific and middle east, ◾ Central and eastern europe, including Bulgaria, Croatia, the Czech republic, Hungary, slovakia, poland, romania and russia, ◾ global insurance lines & Anglo markets, ◾ nAftA markets, ◾ specialty lines i, including Allianz global Corporate & specialty and Credit insurance, ◾ specialty lines ii, including travel insurance and Assistance services.
€ 100 mn at the Allianz group’s italian subsidiary. the reduction was driven by a lower than expected claims severity, leading to a more positive view of the cost of claims in the projections being adopted.
Allianz global Corporate and specialty (AgCs) is the Allianz group’s global carrier for corporate and specialty risks and also includes the corporate branch of the german business. overall, AgCs experienced € 546 mn of favorable development in 2011 net of reinsurance, or 10.1 % of the reserves as at december 31, 2010. the major contributors of the run-off included: € 208 mn from favorable claims development in the property portfolio in the u.s. branch.
As of december 31, 2011 2010 € mn € mn participating life insurance contracts 141,776 138,588 traditional long-duration insurance contracts 56,520 54,860 universal life-type insurance contracts 138,846 129,680 non-unit-linked investment contracts 1,176 1,061
the following table shows total A&e loss activity for the past three years.
◼ r e s e r v e s f o r p r e m i u m r e f u n d s € mn € mn € mn
As of december 31, 2011, Allianz se held 2,754,556 (2010: 2,832,789) own shares. of these, 148,387 (2010: 226,620) shares were held for covering subscriptions by employees of the Allianz group in the context of the employee stock purchase plan 2012, whereas 2,606,169 (2010: 2,606,169) shares were held as a hedge for obligations from the Allianz equity incentive program (former group equity incentive program).
1 | the presented subtotal for expenses and total income and expenses from fully consolidated private equity investment for the year ended december 31, 2011 differs from the amounts presented in the “Consolidated income statements” and in “total revenues and reconciliation of operating profit (loss) to net income (loss)”. this difference is due to a consolidation effect of € 77 mn (2010: € 113 mn; 2009: € 132 mn) for the year ended december 31, 2011. this consolidation effect results from the deferred policyholder participation, recognized on the result from fully consolidated private equity investments within operating profit in the life/Health segment, that was reclassified into expenses from fully consolidated private equity investments in non-operating profit to ensure a consistent presentation of the Allianz group‘s operating profit.
Gross other insurance reserves (1) (98) — (99) expenses for premium refunds (259) (3,444) (907) (4,610)
Real estate held for investment 35 35 14 Loans and advances to banks and customers 33 1 —
other effects include an effect of € 205 mn resulting from natural catastrophe related losses in jurisdictions with below average tax rates and from non tax-effective impairments. in the tax reconciliation for 2009, the other effects of € (499) mn include € (505) mn current and deferred taxes for prior years, a major part resulting from the court decisions (steko/ bfH) mentioned above.
during the year ended december 31, 2011, the write-down of deferred tax assets on tax losses carried forward resulted in deferred tax expenses of € 33 mn (2010: € 153 mn; 2009: € 11 mn). the non-recognition of deferred taxes on tax losses for the current fiscal year increased the tax expenses by € 161 mn (2010: € 142 mn; 2009: € 85 mn). due to the use of tax losses carried forward for which no deferred tax asset was recognized, the current income tax expenses decreased by € 14 mn (2010: € 15 mn; 2009: € 5 mn). deferred tax income of € 2 mn (2010: € 1 mn; 2009: € 150 mn) resulted from the recognition of deferred tax assets on tax losses carried forward from earlier periods for which no deferred taxes had yet been recognized. the above mentioned effects are shown in the reconciliation statement as “effects of tax losses”.
◼ d e r i v a t i v e F i N a N C i a l i N S t r u m e N t S W i t h i N t h e a l l i a N z G r o u p as of december 31, 2011 2010 maturity by notional amount Notional principal amounts positive fair values
� l e v e l 1 Financial instruments for which the fair value is determined by using quoted prices (unadjusted) in active markets for identical assets or liabilities are classified into this category. according to iaS 39 a financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available and those prices represent actual and regularly occurring market transactions on an arm’s length basis.
F i N a N C i a l a S S e t S Financial assets carried at fair value through income
Total financial assets at fair value 7,314 1,891 52 (1,322) (44) 298 (133) 106 (107) 8,055 (53)
indemnification contracts are executed by the allianz Group with various counterparties under existing service, lease or acquisition transactions. Such contracts may also be used to indemnify counterparties under various contingencies, such as changes in laws and regulations or litigation claims.
as of december 31, 2011 and 2010, the allianz Group did not take possession of collateral it holds as security.
As of December 31, 2011, post-retirement health benefits included in the defined benefit obligation and in the net amount recognized amounted to € 11 mn (2010: € 11 mn) and € 11 mn (2010: € 11 mn), respectively.
the assumptions for the actuarial computation of the defined benefit obligation and the expense recognized in profit or loss depend on the circumstances in the par ticular country where the plan has been established.
especially the discount rate assumption results in uncertainty and a significant risk. A change in the discount rate by 25 bps would lead to an effect of € 551 mn on the defined benefit obligation.
therefore, the Allianz Group accrues the fair value of the Class b equity units as a compensation expense over the vesting period. upon vesting, any changes in the fair value of the Class b equity units are recognized as a compensation expense. During the year ended December 31, 2011, the Allianz Group recognized a compensation expense related to the Class b equity units of € 167 mn (2010: € 367 mn; 2009: € 311 mn). In addition, the Allianz Group recognized an expense related to the priority claim on the adjusted operating profits of PIMCo llC of € 47 mn (2010: € 74 mn; 2009: € 92 mn). Furthermore, the Allianz Group called 13,786 Class b equity units during the year ended December 31, 2011. the total amount paid related to the call of the Class b equity units was € 449 mn.
In 2010, the euler hermes Group launched the program “excellence” which will be executed over a period of four years. this program comprises several measures including voluntary leaver programs, early and partial retirements, involuntary dismissals and termination of rental contracts. From the original objective of reducing approximately 570 positions by 2013 in the regions concerned by the restructuring program, approximately 200 positions remain as of December 31, 2011. the staff reduction concerns mainly euler hermes in Germany, the united kingdom, Italy, belgium and France.
Allianz life Insurance Japan ltd. — 16 — — (4) — 12
In 2011, AGCS decided, in response to the market conditions in recent years, to implement a new strategy of Property underwriting giving up significant segments of the Property business, such as government business in the united States, food sector globally and reduction of non-core business activities. Giving up significant underwriting sectors has resulted in the need for substantial personnel reduction related to the discontinued business, impacting not only the underwriting teams but also the global support functions and back-office areas. the staff reduction concerns mainly the locations in Munich, Chicago and burbank, California. the restructuring program is planned to be finalized to a large extent in 2013.
◼ p r I N C I p A l A C C o u N t A N t F e e S A N D S e r v I C e S
the Italian cruise ship Costa Concordia partially sank on January 13, 2012 after hitting a reef off the Italian coast and running aground at Isola del giglio, tuscany. the fleet operated by Costa Crociere is insured via a global insurance program, of which the Allianz group covers only a minor stake. As of today, the Allianz group expects a maximum net loss of € 20 mn.
Allianz global investors europe Holding gmbH, munich 100.0 Allianz global investors Kapitalanlagegesellschaft mbH, frankfurt am main 100.0
p a r t I c I p a t I n g c e r t I F I c a t e s ◾ amount payable on redemption of participating certificates issued.
r e p u r c h a s e a n d r e V e r s e r e p u r c h a s e a g r e e M e n t s ◾ a repurchase (repo) transaction involves the sale of securities by the group to a counterparty, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed price. the securities concerned are retained in the group’s balance sheet for the entire lifetime of the transaction, and are valued in accordance with the accounting principles for financial assets carried at fair value through income or investment securities, respectively. the proceeds of the sale are reported in liabilities to banks or to customers, as appropriate. a reverse repo transaction involves the purchase of securities with the simultaneous obligation to sell these securities at a future date, at an agreed price. such transactions are reported in loans and advances to banks, or loans and advances to customers, respectively. Interest income from reverse repos and interest expenses from repos are accrued evenly over the lifetime of the transactions and reported under interest and similar income or interest expenses.