The consolidation phase that I had announced was implemented earnestly and there were initial signs of success: we did cut costs at Dresdner Bank, streamline operations in property and casualty insurance, boost performance in asset management and increase our market share in private and corporate retirement plans. But we did not progress far enough to withstand the many blows that fell on us in 2002: the worldwide economic crisis and the free fall in the stock markets caused us to make significant writedowns in our investment portfolio and further impacted the bank’s earnings.
The implementation of these measures already began in 2002. We have initiated turnaround programs and we are making sure that they are implemented rigorously and without delay. We cut costs, discontinued unprofitable lines of business and changed management wherever necessary. Rates were adjusted to reflect the new risk dimensions, and risk management was further improved. We have become leaner and faster but at the same time we are growing, especially in the areas of life insurance and asset management, and in the region of Asia and central and eastern Europe.
Activities of the committees The members of the Supervisory Board formed a Standing Committee, a Personnel Committee and an Audit Committee as well as a Mediation Committee as called for by the German Codetermination Act. These committees do preliminary work on topics to be dealt with by the Supervisory Board as a whole to provide the board with decision-making information. In certain cases, the Supervisory Board has also given these committees decision-making authority. The names of the current members of the various committees can be found in the table to the left.
P E R S O N N E L C O M M I T T E E
_ According to § 27 (3) and § 31 (3) of the German Codetermination Act, the statutory Mediation Committee meets only if the Supervisory Board, in a vote on the appointment or recall of a member of the Board of Management, fails to obtain the two-thirds majority required by law.
In accordance with the recommendations of the German Corporate Governance Code, we also examined the compensation of the Supervisory Board. On the basis of our findings, we will propose an amendment of the Articles of Incorporation to the Annual General Meeting. As recommended by the Code, this amendment is intended to take into account the work in the committees of the Supervisory Board to a greater extent than is presently the case.
International Executive Committee In addition to members of Allianz AG’s Board of Management, the International Executive Committee includes the heads of the major Allianz subsidiaries.
M A R I O G R E C O RAS, Milan
Basic idea The basic idea behind EVA involves comparing profit with the cost of capital. EVA – whether positive or negative – is the difference between the two. It tells us whether or not our profits exceed the opportunity cost of the capital invested by our shareholders. As a result, EVA is expressed by the following equation: EVA = Profit – (Capital employed x Cost of capital)
In 2002, the stock market disappointed investors worldwide. A weak economy, loss of investor confidence and uncertainties as to the outcome of the current political crises sent share prices plummeting around the globe. The Allianz share lost more than half of its value. Our free float now extends to over 500,000 shareholders. Even in difficult times, we want to offer you continuity in terms of dividends and propose to pay an unchanged dividend of 1.50 euros per share for the year 2002.
Since the end of 2000, Allianz shares have also been traded on the New York Stock Exchange in the form of American Depositary Receipts (ADR). Ten ADRs are the equivalent of one Allianz share.
Under the heading “More service for investors”, we redesigned the Investor Relations section of our corporate website. There also is a Corporate Governance section with information about corporate management, controlling and more transparency.
AGF France issued a 6.625 percent subordinated bond with a volume of 450 million euros, which is also included in the long-term liabilities of the Allianz Group. This bond is not guaranteed by Allianz AG.
_ The Group finished the year with a loss of 1.2 billion euros.
_ The effects of these special influences were mainly felt in the third quarter, where they completely eroded the net earnings of 1.6 billion euros reported at mid-year. Despite clear improvements of our earnings, the fourth quarter ended with a loss of 0.2 billion euros, mainly due to persistently high write-downs on our equity portfolio. For the full fiscal year 2002, these amounted to 5.6 billion euros.
Minority interests in earnings decreased to 0.7 (1.0) billion euros, which brought the total loss for fiscal 2002 to 1.2 billion euros. Earnings per share came to – 4.81 euros.
R E C O M M E N D AT I O N F O R A P P R O P R I AT I O N O F P R O F I T
In absolute terms, revenues of Allianz AG decreased, but premium income from the remaining reinsurance business rose, in some cases significantly, as premiums and conditions were adjusted to take into account the difficult market situation immediately following the attack on the World Trade Center.
The claims ratio, which was negatively affected by business through agents, increased to 84.5 (83.0) percent. Reserves for claims from previous years were increased. It was not possible to compensate for the resultant increase in the claims ratio improvement in commercial business.
_ With premium income totaling 1.0 billion euros, the Mondial Assistance Group was able to reinforce its position as one of the world’s leading providers of assistance and travel insurance.
Premium growth totaled 10.6 percent. Premium income from travel insurance was up 10.4 percent to 808 million euros. Revenues from assistance services increased 11.2 to 198 million euros. As a result, this company bucked the economic trend and defied the especially difficult situation of the travel industry in the wake of the terrorist attacks of 2001 and 2002 (among others New York, Djerba, Karachi, Bali).
The expense ratio, in relation to total revenues, i.e., including investment-oriented products, improved from 12.1 to 10.0 percent. In IFRS accounts, it declined from 20.2 to 19.3 percent.
Investment income clearly recovered. After a substantial drop in the previous year, it increased to 421 (275) million euros. As a result, earnings after taxes also improved to 64 (48) million euros.
_ With the RAS Group and Lloyd Adriatico, we have an excellent position in the Italian life insurance market.
For the most part, the legal minimum interest rate for our life insurance products is 3.0 percent. We closely monitor the day-to-day situation on the capital markets and are able to rapidly and flexibly adjust the interest payments credited to our customers.
2. The ongoing cost-cutting efforts are being stepped up once again. The objective is to reduce operating and personnel costs to 6.5 billion euros by the end of 2003.
Approximately 57 percent or 561 billion euros of our assets are managed for third party investors. That includes 43 billion euros in net inflows. Despite these inflows, the value of this portfolio decreased by 59 billion euros. The causes for this decline were lower stock market prices, which accounted for 25 billion euros, and an additional 77 billion euros due to the depreciation of the U.S. dollar against the euro.
cember 31, 2001. This amount comprises the investments from the banking business, including Dresdner Bank, which amounted to 99.2 billion euros. Total Group investments decreased 16.2 percent from the previous year (480.9 billion euros). This decline is primarily due to lower stock market prices.
In the past year, Dresdner Bank set up the Institutional Restructuring Unit (IRU) at Dresdner Bank. The task of this unit is to unwind non-strategic obligations of Dresdner Bank that are exposed to a high risk, thus liberating risk capital. This process primarily concerns lines of credit in North and South America, in Germany and in the areas of private equity and commercial real estate.
Center ensures that Group-wide standards for asset management are applied at the local level. The individual asset management companies continually monitor the portfolio risks of the customer assets they manage by using analytical tools specifically adapted to the risk profile of the product concerned. At the same time, the performance of the various product lines is periodically monitored and analyzed at the Group level.
In addition, we intend to strengthen our operating risk management in 2003. Data on internal losses attributable to operating risks will be compiled and analyzed. If the insights gained from this process are sufficiently stable, the data will also be integrated into our risk capital computation model so that the corresponding risks can be backed with capital.
Our employers rankings are testimony to the fact that we really do have something to offer young people. In the “Great Place to Work” audit by the German business magazine “Capital”, we were one of the companies who were honored as “Germany’s best employer”. And our U.S. company Allianz Life in Minneapolis won the “Great Place to Work” award of the local Business Journal for the second time in a row.
Uneven business environment for financial services providers A subdued economic outlook does not, however, mean that sales and revenue of the Allianz Group will deliver an equally subdued performance. In fact, our business activities are additionally buoyed by many current trends. Since September 11, 2001, risks are again being viewed more critically, which can be expected to contribute to premium growth in the area of property and casualty insurance, even though this segment of our business is subject to strong competition. The known weakness of governmental retirement insurance plans is helping to maintain interest in private insurance in the form of life insurance and asset management products, which means that conditions for these areas of business in 2003 will be favorable. The situation in private health insurance is more tenuous, especially since recent changes in legislation in Germany are a burden for the insurance industry. Conditions in the banking sector will not improve significantly until there is an economic recovery and, most importantly, a return of confidence in the financial markets.
84 Consolidated Balance Sheet 85 Consolidated Income Statement 86 Statement of Changes in Shareholders’ Equity 87 Cash Flow Statement 88 Segment Reporting 88 Consolidated balance sheet by business segments 90 Consolidated income statement by business segments 92 Property/casualty insurance 92 Specialty lines 92 Life/health insurance 92 Banking
Notes to the Consolidated Financial Statements 93 1 Accounting regulations 93 2 Declaration of compliance with the German Corporate
Of the entities that have been consolidated in full, 12 (19) subsidiaries have been consolidated where Allianz AG owns less than a majority of the voting power of the subsidiary, including CreditRas Vita S. p. A. and Antoniana Popolare Veneta Vita 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. A majority interest in Bayerische Versicherungsbank AG and Frankfurter Versicherungs-AG, which were already fully consolidated, was acquired in 2002.
Slovenská poist’ovna a. s., Bratislava 7/22/2002 – 8 138 – 7 1) Consolidated in the business segments 2) On the date of first-time consolidation
Securities available for sale are accounted for at fair value. Positive and negative differences between market value and amortized cost or acquisition cost, as applicable, are included in a separate component of shareholders’ equity net of deferred tax, and as appropriate latent reserves, for premium refunds. Realized gains and losses are principally determined by applying the average cost method.
In the second and third cases, assumptions including provisions for adverse deviations are used which are based on values at the time when the policy is taken out. In health insurance the insurer has the option of adjusting premiums when the assumptions change. Acquisition costs are also recognized over the terms of these policies, but in the same proportion as premiums written for the year concerned compared to the total premium income.
Other accrued liabilities Pension and similar reserves are calculated taking local circumstances into account as well as current mortality, morbidity and employee turnover projections. Expected future trends in salaries and wages, retirement rates and pension increases are also taken into account. The notional interest rate used is based on the rate for long-term high-grade corporate or government bonds.
Interest income from reverse repos and interest expenses from repos are accrued on a straight-line basis over the lifetime of the transactions and reported under interest income/interest expenses and similar income/expenses. For repos or reverse repos in the trading portfolio of banks, the corresponding interest income or expense is recognized as trading income.
Securities borrowing and lending The Group enters into securities borrowing and lending transactions on behalf of its customers and to fulfill its own obligations to deliver or take delivery of securities and to maximize returns on the investment-portfolios of the insurance companies. Such transactions involve the transfer of securities from one market participant (lender) to a counterparty (borrower), for a certain period of time. If the lender retains control, the lender continues to report the security involved on its balance sheet, whereas borrowed securities are not reported. Securities borrowed and securities loaned are recorded at the amount of cash advanced and received, respectively, and are collateralized primarily by equity and fixed income securities. Securities borrowed transactions generally require the Group to deposit cash collateral with the securities lender. In a securities loaned transaction, the Group generally receives cash collateral in an amount equal to or in excess of the market value of the securities loaned. The Group monitors the fair value of securities borrowed and securities loaned and additional collateral is obtained if necessary. Income and expenses from securities borrowing and lending transactions are recognized on an accrual basis and reported under “Interest and similar income” or “Interest and similar expenses”.
_ ¤94 mn from the increase of the interest in Bayerische Versicherungsbank AG by 45.0 % to 90.0 %,
The capitalized value of life/health insurance portfolios was determined using discount rates ranging from 12.0 % to 15.0 %. Interest rates between 3.5 % and 8.5 % were applied for interest not yet due.
Due after 1 year and in less than 5 years 1,341 3,797 1,409 3,901
Realized gains and losses have been calculated on the basis of average values.
Additions Additions charged to the income statement 2,927 1,087 111 – 90 110 3,128 1,197
The primary subsidiaries included are the AGF Group, Paris, the RAS Group, Milan and the PIMCO Group, Delaware.
Contribution Variable annuities and Other principle unit-linked life insurance (FAS 60) (FAS 120) (FAS 97)
12/31/2002 12/31/2001 12/31/2002 12/31/2001 12/31/2002 12/31/2001 ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn
Net fee and commission income from banking business comprises income from: ¤ mn ¤ mn
Depreciation and write-downs of other intangible assets – 308 – 413
Under the current German tax laws, the dividend distribution proposed for fiscal 2002 is expected to reduce corporate taxes for fiscal 2003 by ¤62 mn.
= Current tax charge – 809 – 914 12/31/2002 12/31/2001 ¤ mn ¤ mn
Trading assets 562 765 Deferred acquisition costs 53 61 Tax loss carried forward 4,910 3,019 Other assets 843 934 Insurance reserves 2,226 1,508 Pensions and similar reserves 364 400 Deferred income 1,558 – 250
L I A B I L I T I E S Participation certificates and subordinated liabilities 9,832 6 1,097 3,110 5,619
The following report relates to transactions with associated enterprises and enterprises in which the Allianz Group holds or held an ownership interest of between 10 % and 20 %, or to enterprises which held such an ownership interest in Allianz AG.
As of December 31, 2002 there were no underwriting commitments drawn.
Because the intrinsic value of all SARs issued by December 31, 2002, was zero, no reserve was set up for any of these plans. The intrinsic value at balance sheet date is the difference between the share price on the balance sheet date and the reference price of the plan concerned. Call options have been entered into to hedge future obligations.
Earnings per share The earnings per share figure is calculated by dividing the consolidated net income by the weighted average number of common shares outstanding.
Waiting time expired? no no yes yes 20 % hurdle cleared? no no no no
Allianz Private Krankenversicherungs-AG, Munich (until 12/31/2002: Vereinte Krankenversicherung AG) 290 100,0
D R . D I E T E R S C H A D T Former Chairman of the Board of Management Franz Haniel & Cie. GmbH
Korea (Chairman), Allianz pojistovna a.s. (Chairman), Allianz Slovenska poistovna a.s. (Chairman), T. U. Allianz Polska S. A. (Chairman), T. U. Allianz Zycie Polska S. A.
Affiliated enterprises The parent company of the Group and all consolidated subsidiaries.
Premium income, total 33, 35 Profit participation certificate, holder of 21 Property and casualty insurance 1, 2,
In the future, we want to become less dependent on economic trends and the development of the capital markets. More efficient workflows and thus lower costs, an improved claims ratio in the insurance business and the sustained improvement of our performance in the banking business are the foremost priorities of our operating units.
Allianz is one of the five leading asset managers in the world. Net inflow to assets under management for third-party investors reached 43 billion euros. Nonetheless, assets managed for third parties decreased by 59 billion euros or 9.5 percent to 561 billion euros. This was due to falling stock prices and the depreciation of the U.S. dollar against the euro. The operatingresult amounted to 495 million euros. After deduction of acquisition -related expenses as well as taxes and minority interests, the segment reported a loss as expected of 405 million euros.