Total statutory premiums increased by 6.8 % to ¤45.2 billion in 2004, reflecting growth in new business, in particular our life/health operations in the United States and in Germany.
However, we still have some way to go before we can achieve this. You may be wondering if this undertaking will spur on the Allianz share price over 2005. Common sense – not to mention the advice of our legal department – prevent me from making any predictions. Instead
A L L I A N Z G R O U P 5
All of the above is helping us to win over new customers and give customers the incentive to approach us on their own volition when they require new financial services which, ultimate ly, will lead to an increase in our revenue per customer. By striving towards excellence and reliability we are putting our faith in long-lasting customer relations – a lifelong partnership based on mutual benefit. As an investor, you can expect a more stable and predictable long-term flow of profitable revenue as a result of this.
We expect both these approaches to increase our long-term competitive strength and add value to Allianz – value that will justify your confidence in the future of Allianz.
We actively monitored the continuous implementation of the program for a return to profitability at Dresdner Bank and AGF.
Board. He will take over responsibility for the Europe II territory from Detlev Bremkamp who will retire at the end of 2005.
Supervisory Board The Supervisory Board has 20 members and under the German
In Germany, the main topics were disclosure of the remuneration of the Management and Supervisory Boards, and liability questions. In addition, national legislation on improved investor protection, accountancy law and financial control entered into force.
In addition, the interim accounts are inspected by the auditors on
The Declaration of Compliance with the German Corporate Governance Code in accordance with clause 161 of the German Stock
Corporation Law was published on December 15, 2004 and reads as follows: 1. Allianz AG will comply with all the recommendations made by the Government Commission on the German Corporate Governance Code as amended on May 21, 2003.
As a company listed on the New York Stock Exchange (NYSE),
The aim of having such common goals is to ensure that Allianz is more than simply the sum of its parts and ensure a sustainable increase in our competitive strength and value.
We are striving to ensure that your Allianz experiences profitable growth whatever the market situation. And this has to be of benefit to anyone connected with this; be they clients, shareholders, employees or our social environment. Our program is based on four main initiatives: 1 Protecting and strengthening our capital base 2 Giving a significant boost to our operating profitability 3 Reducing complexity
+One Increasing our competitive strength and value on a sustainable basis
German investors. We also commissioned an external services provider to support shareholders outside of Germany exercise their right to vote.
March 16, 2006 Financial press conference for the 2005 fiscal year
Our use of commercial paper as a short-term financing instrument was reduced considerably from the previous year, down from € 3 billion to € 1.4 billion. Interest paid on commercial paper fell accordingly, and amounted to € 31.6 million in 2004 (2003: Outstanding Allianz AG bonds*) – overview at 12/31/04
Interest cost ¤84.5 mn 3.0 % bond issued by Allianz Finance B. V., Amsterdam Volume CHF 1.5 bn Year of issue 1999/2000 Maturity date 8/26/2005
U.S. dollar, reaching a temporary peak of 1.36 U.S. dollars as the dominant EU currency. This exchange rate pattern showed that private investors doubted whether the balance of payments deficits and extremely expansionist monetary and fiscal policy in the United States were sustainable in the long term. The trend was accentuated by the impression given by representatives of the U.S. admin istration and the U.S. Federal Reserve that they were not ad versely disposed to a further drop in the value of the “greenback”. Unlike 2003, the appreciation of the euro was confined solely to its relationship with the U.S. dollar. Against other currencies the value of the euro was virtually unchanged or fell, particularly against Eastern European currencies. As in the previous year, pound sterling was worth 0.70 euro and the Swiss franc 1.45 euro, corresponding to an appreciation of 1 % over the year. The Japanese yen fluctuated very slightly against the euro, with only negligible changes in value; it appreciated against the
_ The quality of earnings also improved. Driven by strong operating profit, our net income rose to ¤2.2 billion despite a much lower contribution from non-operating investment results and significantly higher expenses for taxes and minority interests.
A L L I A N Z G R O U P 47
¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn 1) Earnings after taxes and before goodwill amortization in the Netherlands include the results of the holding and financing entities that are domiciled in the country, which amounted to a net loss of ¤6 mn in 2004 (2003: net income of ¤503 mn; 2002: net income of ¤276 mn).
_ Allianz Global Risks U.S. Insurance Company (or “Allianz Global Risks U.S.”) specializes in business with major clients.
Gross premiums written Gross premiums written increased by € 156 million, or 4.0 %, to € 4,075 million in 2004 from € 3,919 million in 2003. Excluding the negative effect of exchange rate movements of € 419 million, gross premiums written grew by 14.7 %, due primarily to increases in direct and assumed premiums in our crop insurance line, offset in part by stringent underwriting policies and decisions to exit certain non-strategic businesses.
Earnings after taxes and before goodwill amortization ¤ mn 24 18 21
2) Net of earned premiums ceded to reinsurers of ¤2,048 mn (2003: ¤1,953 mn). 3) Net of investment management expenses of ¤450 mn (2003: ¤493 mn) and interest expenses of
Individual life insurance policies, which include endowment, term and annuity policies, accounted for 62.4 % of statutory premiums from our new business in Germany in 2004. Our individual life insurance statutory premiums increased to € 8,071 million in 2004 as compared to € 7,935 million in 2003. New individual business increased to € 2,031 million in 2004 from € 1,958 million
Earnings after taxes and before goodwill amortization ¤ mn 56 (8 ) (80 )
_ Allianz Suisse Lebensversicherungs-Gesellschaft posted statutory premiums of ¤1.1 billion, making it number six in the Swiss market based on market share.
2) Consists of net interest income, net fee and commission income and net trading income. Operating revenues is a measure used by management to calculate and monitor the activities and operating performance of its banking operations. This measure is used by other banks although other banks may calculate operating revenues on a different basis and accordingly may not be comparable to operating revenues as used herein. With effect from January 1, 2004, current income (loss) from investments in associated enterprises and joint ventures is included within operating revenues. This change resulted in a decrease of ¤12 mn to operating revenues in 2003.
Operating revenues Operating revenues were € 1,861 million in 2004, a decrease of € 9 million, or 0.5 %, from € 1,870 million in 2003, reflecting primarily a decrease in net interest income partly offset by an increase in net fee and commission income. Net interest income was down primarily in the deposit business, which was negatively affected by lower market interest rates in 2004 as compared to 2003. As a result of increased activities in our securities and insurance businesses, net fee and commission income increased to € 836 million in 2004, or 7.3 %, from € 779 million in 2003.
in 2004 from 86.3 % in 2003, mainly reflecting the decrease in operating revenues.
The following table sets forth our third-party assets under man agement by geographic region at December 31 for the years indicated: Third Party Assets — by Investment Category
Fund increased its assets under management to USD 79.0 billion at December 31, 2004, and thus continued to be the largest actively-managed fixed-income fund in the world.
Investors ranked second among German asset management companies based on net inflows. In addition to the continued positive development of the sale of mutual funds through third-party distributors, we also managed to increase the share of net inflows through the Allianz Group’s tied-agents network. With a market share of 15.0 %, Allianz Global Investors ranked fourth among
Since 2003, the Group Risk Committee has been monitoring the capitalization and risk profile of the Allianz Group to ensure a reasonable ratio between the two. This committee consists solely of members of the Allianz AG Board of Management. Its role is to ensure comprehensive risk awareness within the Allianz Group and to further improve risk control. It also provides timely information to the Management Board about risk-relevant developments, sets risk limits, and is responsible for recommending and coordinating risk containment measures.
In individual cases, we use derivative financial instruments to hedge against price risks, credit risks and risks associated with interest rate changes. We treat derivatives risks within our internal investment and monitoring rules, which in the insurance segment too are based on the stricter regulations imposed by supervisory authorities for banks.
Currency risks in the banking book of Dresdner Bank are limited by applying the following principle: all loans and deposits in foreign currencies are refinanced or reinvested in the same currency with matching maturities.
Goodwill will no longer be amortized, resulting in an estimated benefit net of tax for the Allianz Group of € 1.1 billion in 2005.
_ Companies should work against all forms of corruption, including extortion and bribery.
Supplementary Information on Group Assets 136 6 Intangible assets 137 7 Investments in associated enterprises and joint ventures 140 9 Loans and advances to banks and customers 141 10 Trading assets 142 11 Cash and cash equivalents 142 12 Amounts ceded to reinsurers from insurance reserves 142 13 Other assets
Unrealized investment gains and losses – – – (6,930 ) (6,930 )
Change in deferred acquisition costs (1,174 ) (2,460 ) (1,211 )
Principles of Consolidation The consolidated financial statements of the Allianz Group include those of Allianz AG, its subsidiaries and certain investment funds and special purpose entities. Subsidiaries, investment funds and special purpose entities which are directly or indirectly controlled by the Allianz Group are consolidated (hereafter “subsidiaries”). Subsidiaries are consolidated from the date control is obtained by the Allianz Group. Subsidiaries that are disposed are consolidated until the date of disposal. The Allianz Group has used interim financial statements for certain subsidiaries whose fiscal year is other than December 31, but not exceeding a lag of three months. The effects of intra-Allianz Group transactions have been eliminated.
Changes in the fair value of separate account assets are offset by a corresponding change in separate account liabilities in the consolidated income statement.
reported in interest and similar income in the Allianz Group’s consolidated income statement.
The loan loss allowance is reported as a reduction of loans and advances to banks and customers and the provisions for contingent liabilities, such as guarantees, loan commitments and other obligations are carried as other liabilities.
Receivables are recorded at face value less any payments received, net of appropriate valuation allowances.
A L L I A N Z G R O U P 113
Group over the entire lifetime of the transaction, the securities concerned are retained in the Allianz Group’s consolidated balance sheet and are valued in accordance with the accounting principles for trading assets or investments. The proceeds of the sale are reported under liabilities to banks or liabilities to customers, as appropriate, within the Allianz Group’s consolidated balance sheet. Interest expenses from repo transactions are accrued over the durations of the agreements and reported in interest and similar expenses in the Allianz Group’s consolidated income statement.
Trading liabilities Trading liabilities primarily include derivative financial instruments that do not meet the criteria for hedge accounting with negative market values and obligations to deliver assets arising from short sales of securities, which are carried out in order to benefit from short-term price fluctuations. The securities required to close out short sales are obtained through securities borrowing or reverse repurchase agreements. These liabilities are valued the same as trading assets.
Fee and commission income and expenses In addition to traditional commission income received on security transactions, fee and commission income in the securities business also includes commissions received in relation to private placements, syndicated loans and financial advisory services. Other fees reflect commissions received for trust and custody services, for the brokerage of insurance policies, credit cards, home loans, savings contracts and real estate. Fee and commission income is recognized in Allianz Group’s banking operations when the corresponding service is provided.
Based Compensation, whereby stock-based compensation cost is measured at the grant date based on the value of the awards granted and is recognized as expense over the vesting period. For rights redeemed by the issue of shares, the fair value is determined at the date of grant. The corresponding compensation expense is accrued over the vesting period and increases revenue reserves in shareholders’ equity. For awards to be settled in cash, the total compensation expense is initially measured as the difference between the current share price and the reference price
A L L I A N Z G R O U P 117
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). Under the fair value recognition provisions of SFAS 123, stock-based compensation cost is measured at the grant date based on the value of the awards granted and is recognized as expense over the vesting period. The Allianz Group elected to use the modified prospective method as permitted by and described in SFAS No. 148, Accounting for
Milan, by 4.4 % to 55.5 %, resulting in additional goodwill of ¤146 mn.
1) Consolidated in the business segments 2) At the date of deconsolidation
Acquisition costs and administrative expenses (10,004 ) (9,972 ) (10,521 ) (4,399 ) (3,713 ) (4,263 )
2) Consists of net interest and similar income, net fee and commission income and net trading income. Operating revenue is a measure used by management to calculate and monitor the activities and operating performance of its banking operations. This measure is used by other banks but other banks, may calculate operating income on a different basis and accordingly may not be comparable to operating income as used herein. With effect from January 1, 2004, current income(loss) from investments in associated enterprises and joint ventures is included within operating revenues. This change resulted in a decrease of ¤12 mn and an increase of ¤70 mn to operating revenues in 2003 and 2002, respectively. Furthermore, operating revenues excludes income from service activities, which resulted in a decrease of ¤22 mn to operating revenues in 2002.
¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn 1) Consists of net interest income, net fee and commission income, and net trading income. Operating revenue is a measure used by management to calculate and monitor the activities and operating performance of its banking operations. This measure is used by other banks but other banks may calculate the operating income on the basis of different components and thus, may not be comparable to the operating income as used herein. With effect from January 1, 2004, current income(loss) from investments in associated enterprises and joint ventures is included within operating revenues. This change resulted in a decrease of ¤12 mn and an increase of ¤70 mn to operating revenues in 2003 and 2002, respectively. Furthermore, operating revenues excludes income from service activities, which resulted in a decrease of ¤22 mn to operating revenues in 2002.
Gross capitalized values as of 12/31 previous year 13,672 13,621 14,545
Changes due to currency translation (31 ) (246 ) (219 ) (8 ) (41 ) (18 ) (2 ) (3 ) (6 ) (41 ) (290 ) (243 )
(2003: ¤6,919 mn). Accumulated depreciation amounted to ¤5,716 mn as of December 31, 2004 (2003: ¤5,293) mn. At December 31, 2004, commitments outstanding to purchase items of equipment amounted to
Amounts recognized in the Allianz Group’s consolidated balance sheet as of
The net periodic benefit cost recognized in the Allianz Group’s consolidated income statements consist of the following components: ¤ mn ¤ mn ¤ mn
Contributions The Allianz Group expects to contribute ¤140 mn to its pension plans during the year ended December 31, 2005.
Restructuring charges are shown separately in the Allianz Group’s consolidated income statement in other expenses.
Trading income of ¤2,813 mn for the year ending December 31, 2004
Gains from the disposal of real estate used for own activities and equipment 199 29 115
Acquisition costs and administrative expenses in insurance business include the personnel and operating expenses of the insurance business allocated to the functional areas acquisition of insurance policies, administration of insurance policies and management of investments. Other personnel and operating expenses are reported under insurance benefits
Municipal trade tax and similar taxes 234 (216 ) (139 )
The agreement must be approved by the Joint Committee on Taxation and would result in a tax refund. The approval and resulting refund are anticipated to be final in 2005 and is expected to be material to the Allianz
Structure of residual terms for banking operations The following presents loans and advances and liabilities in the Allianz
Trustee business in banking operations The following presents trustee business within the Allianz Group’s banking operations not recorded in the balance sheet as of December 31: 12/31/2004 12/31/2003
Loans and advances to banks and customers The fair value of loans is calculated using the discounted cash flow method. This method uses the effective yield of similar debt instruments. Where there is doubt regarding the repayment of the loan, the anticipated cash flows are discounted using a reasonable discount rate and include a charge for an element of uncertainty in cash flows.
The following relates to material business relationships with associated enterprises and enterprises in which the Allianz Group held an ownership interest of between 10 % and 20 % during the last fiscal year and to enterprises which held such an ownership interest in Allianz AG as well as to transactions with associated individuals.
Derivative financial instruments included in other liabilities 1,254 1,254 933 933
In December 2001 the European Commission commenced an investigation involving several insurance companies operating in London, including a subsidiary of Allianz AG, in connection with alleged anticompetitive behavior related to aviation war risk insurance in the London market. It is currently not possible to predict the outcome of this proceeding.
GmbH & Co. KGaA (KirchMedia) made a formal demand on Dresdner Bank
L.P. (formerly Allianz Dresdner Asset Management of America L.P.) entered into settlements with the U.S. Securities and Exchange Commission (SEC)
L.P and some of its subsidiaries have also been named as defendants in multiple civil U.S. lawsuits commenced as puntative class actions. These lawsuits relate generally to the same facts that were the subject of the regulatory proceedings settled in 2004 as described above. The outcome of these proceedings cannot be predicted at this stage.
Dresdner Bank AG has unlimited liability with respect to its interest in
During the course of the purchase of Nicholas Applegate, San Diego, an agreement was reached whereby part of the purchase price would become due in 2005 and would depend on the income growth of Nicholas
Various Allianz Group companies have made commitments to invest in private equity funds totaling ¤1,378 mn (2003: ¤750 mn) as of December
Other – 63 *) Of which, letters of credit opened totaled ¤894 mn (2003: ¤919 mn) and letteres of credit confirmed totaled ¤863 mn (2003: ¤664 mn).
The number of SARs and RSUs offered is set individually for each participant and is determined on the basis of the grant price, the economic development of the value of Allianz AG and the respective responsible company in accordance with the Economic Value Added (EVA®) concept, a capital-cost based target performance of the Allianz AG share and individual elements such as fixed remuneration and performance.
The Allianz Group paid ¤2.3 mn (2003: ¤1.1 mn) to increase pension reserves and reserves for similar benefits for active members of the Management Board. On December 31, 2004, the pension and similar reserves for members of the Management Board who were active on this date amounted to ¤25.8 mn (2003: ¤21.4 mn).
The names of all members of the Supervisory Board and of the Management Board are listed on pages 10 and 11, and information regarding their membership in other supervisory and comparable management bodies is shown on pages 196 to 199.
We conducted our audit of the consolidated financial statements in accordance with German auditing regulations and German generally accepted standards for the audit of financial statements promulgated by the
Country risk allowances are established for transfer risks. Transfer risk is a reflection of the ability of certain country to serve its external debt.
These country risk allowances are based on an internal country rating system which incorporates economic data as well as other facts to categorize countries.
FAS U.S. Financial Accounting Standards on which the details of U.S. GAAP
Group but to others outside the Group who hold shares in affiliated enterprises.
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.
Subordinated liabilities Liabilities which, in the event of liquidation or bankruptcy, are not settled until after all other liabilities.
Integrated financial services provider 2, 63–64 International Financial Reporting Standards (IFRS) 13, 38 Internet service 29 Investor relations 29 Ireland 53
Italy ❚❚ Allianz Subalpina Società di Assicurazioni e Riassicurazioni S. p. A.