2) Figures do not reflect changes in the presentation implemented in 2009. 3) The Allianz Group uses operating profit as a key financial indicator to assess the performance of its business segments and the Group as a whole. 4) Following the announcement of the sale on August 31, 2008, Dresdner Bank was classified as held for sale and discontinued operations. Therefore, all revenue and profit figures presented for our continuing business do not include the parts of Dresdner Bank that we sold to Commerzbank on January 12, 2009. Starting as of 2006 the results from these operations are presented in a separate net income line “net income (loss) from discontinued operations, net of income taxes”.
An accurate forecast in the current environment remains difficult. But I am sure that our business model will be put to the test again in 2010. We have received top marks in the categories of “moderation” and “risk management”. There is a palpable change of pace in the company. The business is going in the right direction. We are well positioned to mitigate risks and exploit opportunities. Assuming there are no significant disruptions in the capital markets and in the absence of major disasters, I am confident that, as we did in 2009, we will again produce solid results in 2010. I would be delighted if you, our owners, share in this assessment and continue to invest in Allianz.
In the fiscal year 2009, the Supervisory Board held five meetings and one discussion via telephone. The regular meetings were held in March, April, September and December. In January 2009, the Supervisory Board held an extraordinary meeting (conference call) in connection with the sale of Dresdner Bank AG to Commerzbank AG. In addition, following the meeting of the audit committee in February 2009, a discussion on the dividend proposal of the Board of Management was held in which all Supervisory Board members had the opportunity to participate by telephone. In between meetings the Board of Management kept us informed in writing of important issues at all times. Additionally, the chairman of the Supervisory Board was continually kept up to date on major developments and decisions.
Allianz Group Annual Report 2009 Supervisory Board Report assignments to the auditors for services not connected to the audit itself were discussed. The committee received reports from the heads of the Group Audit department and Group Compliance department about audit and compliance issues on an ongoing basis. The committee obtained summary reports on significant audit results for the past fiscal year from the head of the Group Audit department. The Committee also regularly received a report from the General Counsel regarding material legal proceedings. In the meeting in November 2009, Group Audit presented the audit plan for the year 2010.
On January 12, 2009, Ms. Claudia Eggert-Lehmann resigned from the Supervisory Board following the sale of Dresdner Bank to Commerzbank. For her strong commitment the Supervisory Board has expressed its gratitude. As the successor to Ms. Claudia Eggert-Lehmann Mr. Karl Grimm was initially appointed by the resolution of the court. Mr. Grimm was then elected by the General Meeting following his nomination by the employees on the Supervisory Board. Upon the recommendation of the employee representatives, the Supervisory Board elected Mr. Rolf Zimmermann on March 11, 2009 to replace Ms. Eggert-Lehmann as further deputy chairperson of the Supervisory Board.
The Board of Management manages Allianz SE and the Allianz Group. It currently comprises 10 members from different countries, making it as international as Allianz itself. Its responsibilities include setting business objectives and strategic direction, coordinating and supervising the operating entities, as well as implementing and supervising an effective risk management system.
The Government Commission on the German Corporate Governance Code made several amendments to the Code in June 2009. According to a new recommendation, members of the Board of Management of listed companies should have no more than three supervisory board mandates out­ side the company. It was also recommended that diversity be kept in mind when making appointments to the Board of Management and the Supervisory Board.
Overall, the changes to the law and to the Code correspond to the general trend towards greater professionalization in the work of the Supervisory Board.
Allianz operates an effective system of business, regional and company level compensation committees that periodically review remuneration guidelines and practices below the Board. Additionally, approval by a Group-level compensation committee is required for payments or individual agreements exceeding certain materiality thresholds or plans creating long-term liabilities.
For both performance­based remuneration components, earnings­per­share growth only above a € 5 threshold is measured. Allianz must produce EPS growth above this threshold for the Supervisory Board to be able to receive any performance­based remuneration.
As we can never rule out changes of dates, we recommend checking them on the Internet at www.allianz.com/financialcalendar.
• Our Allianz trademark is registered and protected worldwide, as are our web domains.
To attract, develop and retain professional staff, Allianz has furthermore developed target group-specific recruiting and development programs. For example a global development initiative for actuaries was successfully launched and is being offered to internal as well as external candidates. A targeted marketing campaign for this program was conducted in major actuarial websites.
Diversity management as a key employee value proposition Being active in over 70 different markets, appreciating and actively making use of the diversity of our people is a key component of our success. We have concentrated our global diversity efforts on general gender and disability issues, whilst complementing this locally with driving other diversity topics such as: • flexible working models, enabling the continuation of job and career engagement in child- or parental care situations
Allianz was again recognized in the year under review for its efforts in corporate responsibility and sustainable development. Since 2003 we have been included in the Dow Jones Sustainability Index, and were recognized in 2009 as “best in class” in the categories business risks and opportunities, environmental management and stakeholder engagement. In the year under review, we were also included in the “leadership index” of the Carbon Disclosure Project. For more information on our management approach, activities and performance, please visit www.allianz.com/sustainability.
• Life-cycle concepts • Multi-asset solution • Variable-annuity products • Asset/Liability management • Risk management concepts
The two insurance business segments Property-Casualty and Life/Health are further subdivided into five business divisions reflecting the responsibility of different members of the Board of Management. Asset Management is a stand alone segment again with effect from the fourth quarter 2009, retrospectively applied. Our ongoing Banking and Alternative Investments activities are now grouped together under the roof of the Corporate and Other segment together with Holding & Treasury activities with the same effective date.
1) 2008 figure without Dresdner Bank discontinued business. 2) Return on risk adjusted capital represents normalized profit divided by average risk adjusted capital.
We have proudly reported that, as predicted, our life and asset management businesses profited strongly from a global flight to quality. Our revenues in life/health and asset management grew by more than 11 % and 27 %, respectively, and operating profit jumped to € 2.8 billion in life/health and € 1.4 billion in asset management.
Overall we were able to grow net income by 13.2 % to € 4.7 billion from continuing operations and despite the tough property-casualty conditions, achieved an operating profit of € 7.2 billion.
We see many strategic opportunities for us on the road ahead. These vary by country and market, as described in the Local Presence and Global Diversification chapter that follows. At the macro level, we see some trends that have been building for some time, and others that have arisen directly out of the financial crisis. Here are a just a few examples: The image of insurance products has changed. Following the financial markets turmoil insurance products are now enjoying a renaissance. More caution and increased risk awareness are one of the driving forces behind rising demand.
Beyond executing on the delivery of continuous improvement of the customer experience, we are working to improve our ability to retain and grow market and customer segments with attractive margin and growth characteristics.
As the market leader in the German property-casualty market, we offer a wide variety of insurance products for private and business clients. Germany is rather a mature market for property-casualty business, with a high degree of competition. We expect the market to remain challenging in 2010 with a decrease in premiums especially in motor.
1) For further information on the business division structure of the Allianz Group please refer to page 57 to 62.
In Austria we offer traditional life/health insurance contracts, government subsidized products as well as unit-linked investment-oriented products. In 2009 we observed a substantial decline in growth due to a shortfall mainly in unit-linked products and sales via Independent Financial Advisors. Nevertheless, Allianz Austria remains in a good position within the peer group in terms of growth and profitability. We believe 2010 will still be impacted by the recession, higher unemployment and an increase in bankruptcies, but we anticipate further mid-term growth potential due to an increasing demand for retirement products.
Allianz instituted a restructuring program in 2009 to reflect the impact of this challenging environment in the local market. Price correction in personal lines should gain pace during 2010 in light of severe weather-related events at the end of 2009. However, the anticipated lag in the recovery of Ireland’s economic position compared to other countries may remain a challenge for commercial business in 2010. An improved rating environment, coupled with our continued focus on the customer, process efficiencies and cost control should lead to improved results in 2010 and a very competitive position for Allianz Ireland in advance of a return to economic growth in Ireland.
Through Allianz Egypt and Allianz SNA (Lebanon) we offer both, property-casualty as well as life/health products. Allianz Life Egypt has experienced strong growth for some time and is ranked fourth in the period 2008/2009, based on statutory premiums. Allianz SNA was among the top three companies in Lebanon in both life and property-casualty business based on gross premiums written and statutory premiums, respectively in 2009. The Lebanese and Egyptian companies provide the region with a base of experience and resources for expanding into the Arabian Peninsula.
In line with both a prudent risk governance structure and regulatory requirements, we utilize a system of internal control over financial reporting to identify and mitigate risks that could lead to material misstatements in the Allianz Group consolidated financial statements. These financial misstatement risks include the risk of errors occurring during the origination or processing of transactions and during the preparation of financial reports, as well as misstatements resulting from fraudulent activities. The control framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) serves as the basis upon which our system of internal control is designed.
consideration economic developments, peer reviews, currently available market and industry data as well as historical performance of the plans and their assets. The defined parameters are then used by the local operating entities to determine pension expenses and pension liabilities, which are in return submitted to the Group and reviewed also by external experts.
The members of the Board of Management of Allianz SE are appointed by the Supervisory Board for a maximum term of five years (Article 9 (1), Article 39 (2) and Article 46 SE Regulation, §§ 84, 85 German Stock Corporation Act, § 5 (3) of the Statutes). Reappointments, in each case for a maximum of five years, are permitted. A simple majority of the votes cast in the Supervisory Board is required to appoint members of the Board of Management. In the case of a tie, the vote of the Chairperson of the Supervisory Board, who pursuant to Art. 42 sentence 2 SE Regulation must be a shareholder representative, is decisive (§ 8 (3) of the Statutes). If the Chairperson does not participate in the vote, the Deputy Chairperson has the casting vote, provided that the Deputy Chairperson is a shareholder representative. A Deputy Chairperson who is an employee representative has no casting vote (§ 8 (3) of the Statutes). These provisions make sure that the shareholder side of the Supervisory Board has the right to finally decide in case of a tie. If a required member of the Board of Management is missing, in urgent cases the court must appoint such member upon the application of an involved party, by virtue of § 85 of the German Stock Corporation Act.
Bilateral credit agreements in some cases provide for termination rights in case of a change of control, mostly defined as the acquisition of at least 30 % of the voting rights within the meaning of § 29 (2) German Takeover Act (Wertpapiererwerbs - und Übernahmegesetz, WpÜG). In case such termination rights are exercised the respective credit lines would have to be replaced by new credit lines at conditions then applicable.
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 in the form of a one-off payment. The one-off payment is based on the fixed remuneration and 50 % of the variable remuneration. To the extent 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.
The Group Equity Incentive (GEI) scheme also contains provisions in respect of a change of control. Under this scheme, Stock Appreciation Rights (SAR), i.e. virtual options on Allianz shares, and Restricted Stock Units (RSU), i.e. virtual Allianz shares, are granted as a stock-based remuneration component to senior management of the Allianz Group worldwide.
If a majority of the voting share capital in Allianz SE is acquired, directly or indirectly, by one or more third parties who do not belong to the Allianz Group, there will be a derogation from the usual exercise periods. The SARs shall then be exercised, in line with their general conditions, by the Company for the relevant plan participants on the day of the change of control without observing any vesting period. The RSUs shall be exercised in the case of such majority acquisition, in line with their general conditions, by the Company for the relevant plan participants on the day of the change of control without observing any vesting period otherwise applicable. The cash amount payable per RSU has to be at least the price offered per Allianz share in a preceding tender offer. In providing for the non application of the blocking period in the event of a change of control, account is taken of the fact that the conditions under which the share price moves are very different when there is a change in control.
Operating profit from our Life/Health segment more than doubled to € 2,808 million. The investment performance, which had suffered exceptionally high impairments of investments last year, benefited from improved conditions on capital markets. Recovery effects in France and the U.S. balanced low net harvesting income. Interest and similar income grew as strong net inflows more than outweighed reduced yields.
Acquisition-related expenses grew to € 406 million, mainly resulting from higher expenses for PIMCO B-Units following significantly improved underlying earnings.
Even if a severe recession would cause a shortfall in revenues, the short term impact on operating profit would not be significant.
Lower impairments than last year The level of dividend and interest income is robust.
Cluster 3 At AGCS, premiums amounted to € 3,806 million. We recorded an increase of 5.0 %, largely from volume growth and price increases in financial lines and aviation. On a nominal basis revenues increased by 33.1 % mainly due to the transfers of portfolios from other operations to AGCS previously mentioned above, in particular the marine business from the United States.
• In France we observed an increase in man-made large claims especially in the first half of 2009 which we believe were mainly triggered by recession. In addition, we recorded a higher load from natural catastrophes (e.g. windstorms “Klaus” and “Quinten”) and lower gross premiums written as discussed above. This added 0.8 percentage points to our combined ratio development. However, the claims situation stabilized in the last quarter of the year.
Our business in Asia-Pacific delivered premiums of € 4,197 million. Growth was 19.0 %. We saw remarkable signs of recovery throughout the region, particularly in the second half of 2009. This development was mainly driven by an increase in sales by 76.9 % or € 767 million in Taiwan, where consumer confidence returned in line with the capital market recovery, and demand for pure unit-linked products increased significantly. The high demand for our pure unitlinked products backed by Exchange Traded Funds arises from the strong performance of the Taiwan Stock Exchange, which grew by more than 70 % during the course of the year.
Net claims and insurance benefits incurred decreased by 1.8 % to € 19,326 million.
Acquisition and administrative expenses (net) amounted to € 5,798 million, up by 32.0 %. Administrative expenses declined by 10.2 %, whereas acquisition costs increased by 57.9 %, mainly driven by higher amortization of deferred acquisition costs at Allianz Life in the U.S. as gross margins improved.
Our statutory expense ratio increased by 1.8 percentage points to 11.5 %. The increase of our statutory premiums was offset by higher acquisition expenses due to higher amortization of deferred acquisition costs.
1) For more information about the new segment structure please refer to the chapter “Business Operations & Steering” on page 60.
To better understand the ongoing operations of the business, we exclude the following non-operating effects: • acquisition-related expenses and the amortization of intangible assets, as these relate to business combinations; • restructuring charges, because the timing of the restructuring charges are largely at our discretion, and accordingly their exclusion provides additional insight into the operating trends of the underlying business. This differentiation is not made if the profit sources are shared with policyholders; • interest expenses from external debt, as these relate to our capital structure; • income from fully consolidated private equity investments (net), as this represents income from industrial holdings, which is outside the Allianz Group’s normal scope of operating business; • income from financial assets and liabilities held for trading (net) as part of the income from financial assets and liabilities carried at fair value through income (net) for the Property-Casualty insurance operations and the Corporate and Other activities (except for certain items for the Holding & Treasury activities and Banking operations where the trading income refers to operating business). For the Life/Health insurance and Asset Management operations, this item is treated as operating business and is therefore not excluded; and
Asset Management consisting of: Net fee and commission income 3,590 2,874 3,133 Net interest income 30 63 80 Income from financial assets and liabilities carried at fair value through income (net) 40 (71) 32
Fixed-income A decline in long­term interest rates in 2008 due to the financial crisis turned moderately positive in 2009. How­ ever, interest rate levels at the end of 2009 still remained below where they were at the beginning of 2008. Short­term interest rates further decreased during 2009. Market recov­ ery has helped reduce credit spreads to pre­2008 levels. Special high­quality spread products are now trading at or even below pre­Lehman collapse levels.
3) Comprises assets of € 0.5 bn and € 0.5 bn and liabilities of € (0.5) bn and € (0.7) bn as of December 31, 2009 and December 31, 2008 respectively.
Using the development patterns and expected loss ratios described above, local reserving actuaries produce esti­ mates of ultimate loss and allocated loss adjustment ex­ pense (LAE) using several methods. The most commonly used local reserving methods are: • Loss Development (Chain­Ladder) Method, which esti­ mates ultimate loss and LAE by applying loss development patterns directly to observed paid and reported losses.
December 31, 2003 44,683 44,683 December 31, 2004 31,454 14,025 45,480 December 31, 2005 27,221 7,658 14,777 49,656 December 31, 2006 22,324 4,920 8,238 13,848 49,331 December 31, 2007 18,820 3,354 4,878 7,612 14,012 48,677 December 31, 2008 16,007 2,382 3,248 4,488 7,449 14,222 47,796 December 31, 2009 14,056 1,987 2,334 3,432 5,038 7,620 14,074 48,540
The bottom section compares the latest re­estimated gross and net reserves, respectively, for loss and LAE to the gross and net reserves, respectively, as initially established, and indicates the cumulative development of the initially estab­ lished reserves through December 31, 2009. The surplus (deficiency) shown in the table for each year represents the aggregate amount by which the original estimates of re­ serves at that year­end have changed in subsequent years. Accordingly, the cumulative surplus (deficiency) for a year­ end relates only to reserves at that year­end and such amounts are not additive. Caution should be exercised in evaluating the information shown in this table, as each amount includes the effects of all changes in amounts for prior periods. For example, the development of 2005 re­ serves during 2008 is included in the cumulative surplus (deficiency) of the 2005 through 2007 columns.
Favorable developments included: • € 49 million at our French entity, mainly driven by changes in actuarial assumptions as regards large claims frequency and better than expected experience on older accident years; • € 36 million at our Australian subsidiary in its general liability business, mostly as a result of a favorable impact from prior years’ legislative changes and reduced assumptions for attritional claims frequencies and in particular large claims frequencies; and
While the U.S. A&E claims still represent a majority of the total A&E claims reported to the Allianz Group, the insurance industry is facing exposures to A&E claims on a global basis. We continue to analyze these non­U.S. A&E exposures. The results of our ongoing non­U.S. A&E reserve analysis sup­ port our prior and current level of carried A&E reserves without any need for additional reserve strengthening in 2009. For the U.S. A&E exposure an independent actuarial analysis was initiated in 2009 and is ongoing. As already mentioned in the prior section, we experienced €46 million of unfavourable development at our U.S. entity driven by the increase in the Asbestos & Environmental (A&E) reserve estimates mainly as a result of the settlement of all potential asbestos claim liabilities associated with a single insured.
As percentage of the Allianz Groups’ Property-Casualty Gross Reserves 5.6 % 5.6 % 5.8 %
The liquidity of our banking operations is largely subject to the ability of individual customers and enterprises to meet their payment obligations arising from the credit lines and outstanding commitments provided by us. The ability of our banking operations to retain the deposits provided by individual customers and enterprises to us is clearly very important, too.
As of December 31, 2009, other Group companies held 118,410 (2008: 1,013,970) shares in Allianz SE.
No such conversion or option rights were outstanding as of 12/31/2009.
Interest expense € 25.8 mn 1) For further information on Allianz SE debt (issued or guaranteed) as of December 31, 2009, please refer to note 23 and 24 to our financial statements.
Communication and transparency Finally, a transparent and robust risk disclosure provides a basis for communicating this strategy to our internal and external stakeholders, ensuring a sustainably positive impact on valuation and financing.
The degree to which diversification can be realized depends in part on the level of relative concentration of those risks. For example, the greatest diversification is in general obtained in a balanced portfolio without any disproportionately large exposures to any one or more risks. In addition, the diversification effect depends upon the relationship between sources of risks. One measure of the degree of relationship between two sources of risk is linear correlation, characterized by a value between “–1” and “+1”. Where possible, we develop correlation parameters for each pair of risks through statistical analysis of historical data. If sufficient historical data is not available, we use professional judgment, following a conservative approach and ruling out negative correlations, and, in general, we set the correlation parameters to represent the level of interdependency of risks under adverse conditions.
To the extent available, we use non-market assumptions approved by supervisory authorities and actuarial associations to enhance our models. In addition, the internal risk capital model is based on assumptions regarding claims trend and inflation, mortality, morbidity, future lapse rates etc. Overall, we consider the assumptions made for our internal risk capital calculations and for reserving to be appropriate and adequate.
Possible losses caused by the failure of our debtors, bond issuers, reinsurance partners or counterparties to meet payment obligations
Under the EU Financial Conglomerates Directive, a supplementary European Union directive, a financial conglomerate is defined as any financial parent holding company that, together with its subsidiaries, has significant cross-border and cross-sector activities. The Allianz Group is a financial conglomerate within the scope of the Directive and related German law. The law requires that a financial conglomerate calculates the capital needed to meet its solvency requirements on a consolidated basis, which we refer to below as “eligible capital”.
In addition to its long-term financial strength rating, Standard & Poor’s determines a separate rating for “Enterprise Risk Management” (ERM). As of September 2009, Standard & Poor’s has 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.
In our insurance segments, the more benign interest rate environments across the world helped us reduce internal interest rate risk capital requirements. This was supported by an active reduction of the mismatch between asset and liability durations for some of our portfolios.
The Allianz Group holds and uses many different financial instruments in managing its businesses. Grouped according to our internal risk capital model categories, the following are the most significant market risks in terms of market values: interest rate risk (arising from bonds, loans and other debt instruments) and equity price risk (including risks arising from common shares and preferred shares).
The increase in credit investment risk capital was partly offset by a decline in credit (re)insurance risk capital due to a new reinsurance structure at our credit insurance entity Euler Hermes, that actively reduced its net exposure.
Credit risk – reinsurance and credit insurance This risk category also covers the premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model, as this type of risk is a special form of credit risk. As of December 31, 2009, it represented 57 % of our total Group non-diversified internal risk capital allocated to credit (re)insurance risk.
Internal reserve risk capital increased primarily due to model enhancements related to our reinsurance business and some health insurance activities in France. The internal risk capital allocated to biometric risk rose significantly, because longevity risks are better reflected now in our internal risk capital model for a major part of the life portfolio.
Allocated internal business risk capital by business segment (total portfolio before minority interests)
Corporate and Other 5) 681 648 Total Group 16,449 15,013 Share of total Group internal risk capital in % 23 22 Group diversified Property-Casualty 1,921 1,707 Life/Health 2,133 1,864
There are potentially diverging views with regards to the medium term development of interest rates, which makes asset liability management challenging in these times. Therefore, we analyzed the impact of two scenarios, a sudden increase in rates and a continued low interest rate environment, on the Group’s shareholders’ equity, economic value and capital position as well as the local operating entities’ capital positions. Based on this analysis, we moderately adapted our fixed income investment strategy and, given the unprecedentedly high implied interest rate volatilities and the associated high hedging costs, have kept our hedge strategy largely unchanged.
Basic earnings per share 50 9.53 (5.43) 18.00 from continuing operations 10.41 8.81 16.53 from discontinued operations (0.88) (14.24) 1.47
Business combinations (for further details see Note 5) Proceeds from sale of subsidiaries, net of cash disposed (26,975) 103 372 Acquisitions of subsidiaries, net of cash acquired 77 (152) (670)
The consolidated financial statements are prepared as of and for the year ended December 31, and presented in millions of Euro (€), unless otherwise stated.
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009 monetary assets and liabilities recorded in foreign currencies that are measured at historical cost are translated at historical rates and non-monetary items that are measured at fair value are translated using the closing rate. Foreign currency gains and losses arising from foreign currency transactions are reported in income from financial assets and liabilities carried at fair value through income (net), except when the gain or loss on a non-monetary item measured at fair value is recognized directly in other comprehensive income. In this case, any exchange component of that gain or loss is also directly recognized in other comprehensive income.
For derivative financial instruments used in hedge transactions that meet the criteria for hedge accounting (“accounting hedges”), the Allianz Group designates the derivative as hedging instrument in a fair value hedge, cash flow hedge, or hedge of a net investment in a foreign entity. The Allianz Group documents the hedge relationship, as well as its risk management objective and strategy for entering into various hedge transactions. The Allianz Group assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative financial instruments that are used for hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items. Derivative financial instruments used in accounting hedges are recognized as follows: Fair value hedges Fair value hedges are hedges of a change in the fair value of a recognized financial asset or liability or a firm commitment due to a specified risk. Changes in the fair value of a derivative financial instrument, together with the share of the change in fair value of the hedged item attributable to the hedged risk are recognized in net income.
The Allianz Group also records its fixed assets of Alternative Investments including wind parks, production plants of manroland and vending machines of Selecta within property and equipment. These assets are carried at cost less accumulated depreciation and impairments. Depreciation is generally computed using the straight-line method over estimated useful lives of the assets. The estimated useful life for the wind parks ranges from 20 to 25 years, for the production plants from 5 to 15 years and for the vending machines from 4 to 8 years.
Fee and commission income and expenses Fee and commission income is included in the Allianz Group’s consolidated financial statements when the corresponding service is provided. Such fees comprise commission income received on security transactions, financial advisory services, trust and custody services, brokerage of insurance policies, and services related to credit cards, home loans, savings contracts and real estate.
The Allianz Group applies the two statement approach, i.e., in addition to the income statement, a statement of comprehensive income is presented including net income and other comprehensive income (“OCI”). For each component of OCI related tax effects are disclosed in the notes. Furthermore, reclassifications of components of OCI to realized gains or losses are separately presented for each component of OCI. The change in presentation has also been included for prior periods. As a consequence, the statement of changes in equity includes transactions with owners in their capacity as owners, the total comprehensive income and, when applicable, the effects of retrospective applications or restatements. The Allianz Group’s consolidated financial statements have been presented with the effect of these changes. The revision does not have any impact on the financial result and financial position of the Allianz Group.
Change in presentation of “Net income (loss)” In prior periods, minority interests were not included in “Net income (loss)” but were shown separately in the line item “Minority interests in earnings”. Minority interests were significantly larger in past years.
Assets of disposal groups held for sale 417,874 less: cash and cash equivalents (30,238) Liabilities of disposal groups held for sale (410,469) Minority interests (1,738) Treasury shares 69 less non-cash components of the consideration received: Commerzbank shares (746) Distribution agreement (480) Cominvest (net of cash acquired) (652) Consolidation (595)
The impact of the acquisition of Selecta AG, Muntelier, net of cash acquired, on the consolidated statement of cash flows for the year ended December 31, 2007 was: € mn
Allianz PFI (UK) Ltd., London 100.0 08/17/2007 52 Corporate and Other
1) Impact on shareholders’ equity includes increase in equity due to financing of AGF minority buy-out in the year 2007 of € 2,765 mn.
Interest and similar income 3,612 4,477 4,473 13,971 13,772 13,417 Operating income from financial assets and liabilities carried at fair value through income (net) 118 9 178 716 (309) (1,135) Operating realized gains/losses (net) 57 37 46 1,755 874 3,579 Fee and commission income 1,075 1,247 1,178 491 571 701 Other income 19 271 122 17 140 182 Claims and insurance benefits incurred (net) (26,320) (25,986) (25,485) (19,326) (19,673) (17,637) Change in reserves for insurance and investment contracts (net) (355) 3 (339) (8,299) (5,122) (10,268) Interest expenses, excluding interest expenses from external debt (104) (295) (402) (127) (283) (374) Loan loss provisions (18) (17) (6) (75) (13) 3 Operating impairments of investments (net) (75) (437) (67) (1,663) (5,747) (824) Investment expenses (238) (254) (300) (622) (583) (640) Acquisition and administrative expenses (net), excluding acquisition-related expenses (10,540) (10,478) (10,631) (5,798) (4,391) (4,591) Fee and commission expenses (995) (1,141) (967) (246) (253) (209) Operating restructuring charges — — — (15) 1 (16) Other expenses — (2) (13) — (7) (2) Reclassification of tax benefits — — — — — —
As of December 31, 2009, compulsory deposits on accounts with national central banks under restrictions due to required reserves from the European Central Bank totaled € 198 mn (2008: € 363 mn).
Government and agency mortgage-backed securities (residential and commercial) Total unrealized losses amounted to € 53 mn as of December 31, 2009. The unrealized loss positions concern mostly issues of United States government agencies, which are primarily held by Allianz Group’s North American entities. These pay-through/pass-through securities are serviced by cash flows from pools of underlying loans to mostly private debtors. The unrealized losses of these mortgage-backed securities were partly caused by interest rate increases between purchase date of the individual securities and the balance sheet date. Also in various instances, price decreases were caused by increased prepayment risk for individual loan pools that were originated in a significantly higher interest rate environment. As the decline in fair value is attributable to changes in interest rates and, to a lesser extent, instances of insignificant deterioration of credit quality and there is no immediate intent to sell the securities, the Allianz Group does not consider these investments to be impaired at December 31, 2009.
Equity investments carried at cost As of December 31, 2009, fair values could not be reliably measured for equity investments with carrying amounts totaling € 375 mn (2008: € 473 mn). These investments are primarily investments in privately held corporations and partnerships. During the year ended December 31, 2009, such investments with carrying amounts of € — mn (2008: € 18 mn) were sold leading to gains of € — mn (2008: € 1 mn) and losses of € — mn (2008: € — mn).
Carrying amount as of December 31, 4,613 5,018 5,319 1) Primarily relating to changes of quota share reinsurance agreements.
Cost as of January 1, 2,415 2,344 2,359 Accumulated amortization as of January 1, (1,176) (1,138) (1,132) Carrying amount as of January 1, 1,239 1,206 1,227 Changes in the consolidated subsidiaries of the Allianz Group 230 54 5 Foreign currency translation adjustments (2) 3 (6)
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009 15 Intangible assets
The reclassification affects the goodwill of Selecta AG, Muntelier, as this subsidiary is reclassified out of disposal groups held for sale.
Floating rate — — — — — — — 287 Current interest rate — — — — — — — —
Total all other subsidiaries — — — — — 891 891 891 1) Except for interest rates. Interest rates represent the weighted average.
Issued shares outstanding as of January 1, 451,490,223 448,910,648 429,336,291 Capital increase for tender offer AGF — — 16,974,357 Exercise of warrants — 2,200,000 — Capital increase for employee shares 850,000 700,000 1,025,643 Change in treasury shares held for non-
2) During the year ended December 31, 2009, includes realized losses from the disposal of subsidiaries of € 2 mn (2008: € 1 mn; 2007: € 83 mn).
During the year ended December 31, 2009, a deferred tax expense of € 11 mn (2008: € 5 mn; 2007: € 8 mn) was recognized due to devaluation of deferred tax assets on tax losses carried forward. Due to the use of tax losses carried forward for which no deferred tax asset was recognized, the current income tax expense diminished by € 5 mn (2008: € 19 mn; 2007: € 43 mn). The recognition of deferred tax assets on tax losses carried forward from earlier periods, for which no deferred taxes had yet been recognized or which had been devalued resulted in a deferred tax income of € 150 mn (2008: € 4 mn; 2007: € 4 mn). The non-recognition of deferred taxes on tax losses for the current fiscal year increased the tax expense by € 85 mn (2008: € 46 mn; 2007: € 22 mn). The above mentioned effects are shown in the reconciliation statement as “effects of tax losses”.
Over 5 years € mn € mn € mn € mn € mn € mn € mn € mn € mn
The CDOs are senior tranches that were high-grade ABS at the time of origination. In January 2009, the CDOs were rated B1 (2 %), Ba3 (29 %), Caa2 (46 %) and Caa3 (23 %) by Moody’s. In December 2009, the CDOs were rated Caa2 (40 %) and Caa3 (60 %). In the current environment of highly illiquid markets for these types of assets, valuation techniques are required to estimate fair value. As significant input parameters are non-observable, significant management judgment is required.
Maturity of financial liabilities Please refer to the risk report in the group management report for a description of how Allianz Group manages the liquidity risk.
As of December 31, 2009, the future minimum lease payments under non-cancelable operating leases were as follows: € mn
Actuarial (gains)/losses 956 (774) Foreign currency translation adjustments 70 (182) Benefits paid (582) (570) Changes in the consolidated subsidiaries of the Allianz Group 54 (38)
Defined contribution plans Defined contribution plans are funded through independent pension funds or similar organizations. Contributions fixed in advance (e.g. based on salary) are paid to these institutions and the beneficiary’s right to benefits exists against the pension fund. The employer has no obligation beyond payment of the contributions.
On the effective date of the merger between Allianz SE and RAS, the RAS share option plan was modified. The outstanding share options, which were granted in 2005, on the date of the merger were replaced with Allianz SE share options on the basis of 1 Allianz SE option for every 5.501 RAS share options outstanding. The outstanding RAS Group options of 953,000 were replaced by 173,241 Allianz SE options. The Allianz SE share options have the same vesting period of 2 years; however, the market conditions noted above were replaced with a performance condition, which was already achieved on the date of the modification.
New provisions — Additions to existing provisions 3 Release of provisions recognized in previous years (53) Restructuring charges directly reflected in the consolidated income statement 3 Total restructuring charges during the year ended December 31, 2009 (47) Total restructuring charges incurred to date 454
Allianz Deutschland AG recorded utilization of provisions via transfers to other provision categories of € 27 mn as of December 31, 2009 (2008: € 61 mn).
Manroland Group‘s provision for restructuring Due to tense economic conditions and a dramatic drop in demand manroland Group was forced to restructure its businesses in financial year 2009 resulting in a provision making up € 87mn as of December 31, 2009. The company reached agreements (“Interessenausgleich” and “Sozialplan”) with the workers’ council to implement a restructuring program. Partial retirement was effectively used in order to reduce staff. Additionally, to minimize the consequences for the affected employees of the program, a “Qualifizierungs- und Beschäftigungsgesellschaft” as well as an outplacement agency were set up.
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009 50 Earnings per share
Dr. Rüdiger Grube Chairman of the Board of Management, Deutsche Bahn AG since January 1, 2010
Dr. Franz B. Humer until December 31, 2009 Membership in comparable 1) supervisory bodies DIAGEO plc (Chairman)
Membership in comparable 1) supervisory bodies HSBC France, Sanofi-Aventis S. A.
Michael Diekmann Membership in other statutory supervisory boards and SE administrative boards in Germany BASF SE (Deputy Chairman), Linde AG (Deputy Chairman), Siemens AG
Defined benefit plans For defined benefit plans, the participant is granted a defined benefit by the employer or via an external entity. In contrast to defined contribution arrangements, the future cost to the employer of a defined benefit plan is not known with certainty in advance. To determine the expense over the period, accounting regulations require that actuarial calculations are carried out according to a fixed set of rules.