Statements 176 Supplementary Information to the consolidated Balance Sheets 203 Supplementary Information to the consolidated Income Statements 217 Other Information 252 Joint Advisory council and International Advisory Board 254 Mandates 258 Glossary 263 Index
The past financial year has been both challenging and successful for Allianz. Challenging, because an unusual surge in medium-severity natural disasters led to major losses and in the second half of the year the U.S. housing crisis triggered severe turbulence in the financial markets, sending the U.S. Dollar plunging. Successful, because we were able to demonstrate that we are in a better position than before to add value to our business. Amid all the economic turmoil and widespread uncertainty, almost all our subsidiaries posted results that were good to very good.
The number of SAR and RSU awarded to the members of the Board of Management is dependent upon the discretionary decision of the Supervisory Board based on their designated role and the performance of the Group and their respective business division. The value of the GEI program granted in any year cannot exceed the sum of base salary and the annual target bonus.
For the 2004 –2006 three-year bonus plan the total amount paid to the Board of Management in 2007 was � 9.7 million. The amounts paid to each member were accrued over the three-year performance period and disclosed in the relevant remuneration tables in the 2004, 2005 and 2006 annual reports.
For a list of Supervisory Board mandates in companies outside the Allianz Group see page 256.
Michael Diekmann (Chairman) 299 Dr. Helmut Perlet 208 Dr. Paul Achleitner 183 Dr. Gerhard Rupprecht 182 Clement B. Booth 259 Jean-Philippe Thierry 477 Jan R. Carendi 0 Dr. Herbert Walter 198 Enrico Cucchiani 310 Dr. Werner Zedelius 210 Dr. Joachim Faber 214
Benefits to retired Members of the Board of Management In 2007, remuneration and other benefits of � 5 million (2006: � 4 million) were paid to retired members of the Board of Management and dependents. Additionally, reserves for current pensions and accrued pension rights totaled � 49 million (2006: � 52 million).
Remuneration system The remuneration of the Supervisory Board is based on the scale and scope of the company, the functions and responsibilities of the members of the Supervisory Board and the financial situation of the company. The relevant provisions are contained in § 11 of the Statutes of Allianz SE. The remuneration was decided at the General Meeting.
The maximum sum for each of the two variable remuneration components is � 24,000. This means that with the fixed sum of � 50,000 the maximum total regular compensation for a Supervisory Board member amounts to � 98,000. This maximum amount is achieved when the previous year’s earnings-per-share has risen by 16.0 % and when this indicator has further improved by a total of 40.0 % or more over the last three years. If there has been no improvement in Corporate earnings-per-share during the relevant period (i.e. the past fiscal year or the past three years), no performance -based remuneration will be awarded.
Dr. Henning Schulte-Noelle (Chairman) 100,000 16,200 48,000 82,100 246,300 Dr. Gerhard Cromme (Deputy Chairman) 75,000 12,150 36,000 41,050 164,200 Claudia Eggert-Lehmann (Deputy Chairwoman) 75,000 12,150 36,000 41,050 164,200 should contain components based on the long-term performance of the business. We believe that this form of the Supervisory Board’s remuneration has proven to be effective, and that the earnings-per-share performance measure is appropriate for the calculation of the performance-based remuneration of the Supervisory Board.
Jay Ralph, Allianz SE, Munich Manfred Knof, Allianz Suisse, Zurich Joachim Faber, Allianz SE, Munich
– Our sustainable underlying profitability helped to compensate for the impact of the financial markets turbulence.
Income (loss) before income taxes and minority interests in earnings 6,166 2,271 1,526 425 (1,999) (560) 7,829 1) Total revenues comprise Property-Casualty segment’s gross premiums written, Life/Health segment’s statutory premiums Banking segment’s operating revenues and Asset Management segment’s operating revenues.
Most of our insurance operations were not affected by these developments. The investment activities of the insurance segments were only impacted to a very limited extent, reflecting the high quality of the asset bases with no material CDO and subprime exposure. Similarly, the impact on our
For the structured, not consolidated SIV “K2”, in which Dresdner Bank holds a share of 3.5 %, the Bank serves as an asset manager and provides liquidity back-up lines and repurchase agreements on an arms-length basis. This SIV is refinanced by CPs, MTNs, repos and capital notes. Since September 2007, the volume of K2 has been reduced by almost 30 % to � 16.4 billion.
We believe that the targets covered by our mid-term outlook through 2009 are still achievable. We are striving for an average annual consolidated operating profit growth of 10 % from the 2006 level, adjusted for the particularly favorable natural catastrophe trend in 2006. This is subject to a normal level of operating profit contribution from Dresdner Bank.
1) New business margin according to the definition of European Embedded Value.
Weaker economic growth Our economists forecast global economic growth of more than 3 % in 2008. Although around half a percentage point less than in 2007, this is still robust growth. The pace is again likely to be set by the emerging markets, which will grow at 6.5 %, only slightly less than 2007 (7 %). We expect expansion in industrialized countries to be much more subdued than in 2007, at 2 % (2.4 %).
1) 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.
Net income increased by 9.0 % to � 5,174 million. Our effective tax rate further declined from 27.4 % to 22.8 %. Income tax expenses were down significantly to � 1,656 million. This development benefited particularly from the German tax reform. Additionally lower minority interests in earnings contributed � 308 million to income growth. This resulted primarily from the minority buy-out at RAS in Italy and at AGF in France.
Highest absolute growth was achieved in Italy, where revenues increased from � 8,555 million to � 9,765 million in spite of poor market conditions. This resulted mainly from a sound sales performance of our bancassurance channel at CreditRAS. Additionally, we successfully launched new products during the year.
Net impairments of investments declined by 58.6 % to � 89 million as the prior year’s figure included higher write-downs on real estate properties used by third-parties.
Fee and commission expenses (1,237) (1,244) (1,093) Net fee and commission income 3,060 2,874 2,597
Non-operating result The non-operating result turned into an aggregate profit of � 37 million compared to an aggregate loss of � 455 million in the prior year. The non-operating trading result driven by the BITES exchangeable bond, which was partially repaid in 2007, and higher net capital gains contributed to this development and therefore more than compensated for the higher interest expense from external debt in connection with the minority buy-out at AGF.
Shareholders’ equity 47,753 49,650 Minority interests 3,628 7,180 Total equity 51,381 56,830
Allianz SE Issued Debt Outstanding as of December 31, 2007 1)
Floating coupon rate bond issued by Allianz Finance II B.V., Amsterdam Volume USD 0.4 bn Year of issue 2007 Maturity date 4/2/2009 SIN — ISIN — Interest expense � 11.5 mn 5.625 % bond issued by Allianz Finance II B.V., Amsterdam Volume � 0.9 bn Year of issue 2002 Maturity date 11/29/2012
Local operating entities assume responsibility for their own risk management, with risk functions and committees that are similar to the Group structure. Independent risk oversight is a fundamental principle of our risk governance structure, with a clear separation between business functions that actively take decisions and assume risk responsibility, on the one hand, and independent risk oversight, on the other hand. Risk oversight consists of independent risk identification, assessment, reporting and monitoring, but also includes analyzing alternatives and proposing recommendations to the Risk Committees and local management or to the Board of Management of Allianz SE. The local risk departments performing the oversight role in our major operating entities are headed by a local Chief Risk Officer. Group Risk is represented on the local Risk Committees to enhance the risk dialogue between the Group and the operating entities.
Possible losses caused by changes in interest rates, equity prices, real estate values, commodity prices and exchange rates
Our available capital at December 31, 2007 amounted to � 63.8 billion (2006: � 70.2 billion 1)), while our internal capital requirements at December 31, 2007 amounted to � 33.4 billion (2006: � 35.8 billion), resulting in a capital adequacy ratio of 191.0 % at December 31, 2007, compared to 196.1 % at December 31, 2006. The decrease of 9.1 % in available capital was primarily driven by a decrease of shareholders’ equity due to the buy-out by Allianz of the minority interests in AGF.
The Allianz Group-wide internal risk capital after Group diversification and before minority interests of � 33.4 billion at December 31, 2007 reflects a realized diversification benefit on the Group level of approximately 54 %. Non-diversified and Group diversified internal risk capital are broken down as follows: 1) The figure for available capital in 2006 has been adjusted. See Note 3 to our consolidated financial statements for further information.
The overall decrease of 6.8 % in internal risk capital in 2007 was due to a decline in market risk, which is discussed in more detail in the respective section.
We plan to continue to strengthen our risk management framework and systems in 2008. In particular, we are striving to constantly improve our accumulation monitoring systems, particularly those related to natural and man-made catastrophes, and are continuing to develop and extend our modeling capabilities for catastrophe risk.
ments. The United States and Germany as well as France, Italy and the Asia-Pacific region represent our primary asset management markets.
Each member of the Board of Management of Allianz SE is responsible for a particular division within the Allianz Group. There are three corporate functions: the Chairman’s division, Controlling/Reporting/Risk, and the Finance division.
In the framework of the reorganization backoffice functions were lined up based on a shared services approach. This process was already started in 2006 and was further implemented in 2007 according to schedule. In the course of 2007 the Allianz north-east service region tested the functionality of the new business model in a pilot phase. In 2008, the remaining three areas will also be reorganized.
All Allianz Group companies are responsible for generating a return on their risk capital that covers at least their cost of capital. Profits exceeding the cost of capital can be retained by the operating entities to finance further organic growth. That means, that our most profitable entities have direct access to considerable funds. If these funds are not required to finance their organic growth, they will be distributed to the holding company.
3) For detailed information on the remuneration of the board of management and of the supervisory board see our remuneration report on pages 15 to 21.
Since 2007 we have been offering customers in Austria and Germany who buy car insurance the option to contribute to protecting the climate. In the US our subsidiary sells policies for energy-efficient homes. In 2006 Allianz launched an ecofund investing in renewable energy, which has now grown to more than � 2 billion. We invest in Italian and German wind farms, and in the year under review we established Allianz Climate Solutions GmbH to coordinate the development of climate-related products within Allianz and promote this development efficiently.
In life business, we are active both in the private and commercial markets and offer a comprehensive range of life insurance and related products on both an individual and group basis. The main classes of coverage offered include annuity, endowment and term insurance. In our commercial lines, we offer group life in surance and provide companies with services and solutions in connection with pension arrangements and defined contribution plans.
We conduct property-casualty operations in most of the other Western and Southern European countries, of which, based on gross premiums written in 2007, the largest are our operations in the Netherlands, Austria and Ireland.
In the very competitive property-casualty business in Switzerland, we will continue to focus on profitability, while simultaneously attempting to achieve attractive growth.
– July 30: Licence to expand into Jiangsu province granted to Allianz China Life
In Brazil, we write mainly motor insurance, furthermore, we sell fire, transportation and other insurance coverage. Distribution is organized primarily through independent agents and brokers. In Colombia and Argentina, we offer a broad range of products.
Our life insurance activities in Colombia include traditional group life insurance as well as investment-oriented products such as savings, pension and annuity products.
The share capital of Allianz SE was � 1,152,384,000 as of December 31, 2007. It was divided into 450,150,000 registered shares with no par value and a corresponding share capital amount of � 2.56 per share. The shares are fully paid in. All shares carry the same rights and obligations. Each no-parvalue share grants one vote. The shareholders‘ share in the Company’s profit is determined in proportion to their share in the share capital (§ 60 German Stock Corporation Act (Aktiengesetz, AktG)). Excepted from this are treasury shares held by the Company, which do not entitle the Company to any rights (§ 71b German Stock Corporation Act). Pursuant to § 3 (1) of the Statutes of Allianz SE, shareholders shall not have the right to receive share certificates, unless it is necessary pursuant to the rules applicable at a stock exchange where the shares are listed. The shareholders‘ rights and obligations are governed by the provisions of the German Stock Corporation Act, in particular by §§ 12, 53a et seq., 118 et seq. and 186 of the German Stock Corporation Act.
ASSETS Cash and cash equivalents 6 31,337 33,031 Financial assets carried at fair value through income 1) 7 185,461 198,992
Total liabilities and equity 1,061,149 1,110,081 1) As of December 31, 2007, � 23,163 mn are pledged to creditors and can be sold or repledged (2006: � 90,211 mn). 2) As of December 31, 2007, � 7,384 mn are pledged to creditors and can be sold or repledged (2006: � 3,156 mn).
Ceded premiums written (5,934) (6,218) (6,429) Change in unearned premiums (492) (533) (655)
Basic earnings per share 50 18.00 17.09 11.24 Diluted earnings per share 50 17.71 16.78 11.14
Total recognized income and expense for the year — 7,889 (1,378) (3,574) 2,937 508 3,445 Paid-in capital 158 — — — 158 — 158 1) During the year ended December 31, 2007 unrealized gains and losses (net) arising during the year included in shareholders’ equity are net of deferred tax benefit of � 720 mn (2006: deferred tax benefit of � 478 mn; 2005: deferred tax charge of � 568 mn).
Change in other loans and advances to banks and customers (originated loans) 43 (19,224) (1,877)
Held-to-maturity investments Held-to-maturity investments are debt securities which the Allianz Group has the positive intent and ability to hold to maturity. These securities are recorded at amortized cost using the effective interest method over the life of the security, less any impairment losses. Amortization of premium or discount is included in interest and similar income.
Portfolio allowances are established for all loans that are not considered individually significant and have not been individually assessed. These loans are segmented into portfolios of homogeneous loans exhibiting similar loss characteristics, and allowances are calculated using statistical methods based upon historical loss rates which are regularly updated. Portfolio allowances are presented within the specific allowance category.
Derivative financial instruments The Allianz Group’s Property-Casualty and Life/Health segments use derivative financial instruments such as swaps, options and futures to hedge against changes in market prices or interest rates in their investment portfolios.
Financial liabilities for puttable equity instruments Redemption amount — Certificated liabilities Amortized cost Other liabilities - at amortized cost Participation certificates and subordinated liabilities Amortized cost Other liabilities - at amortized cost
Furthermore, the enlarged risk disclosure requirements of IFRS 7 are reflected in the risk report in the group managment report.
The adjustment impacted certain asset and liability accounts previously reported within the consolidated balance sheet, consolidated statement of changes in equity and the consolidated segment balance sheet as of December 31, 2006. The following table summarizes the impact of correcting the Errors on the relevant line items on the face of the consolidated balance sheet and consolidated statement of changes in equity as of December 31, 2006: As of December 31, 2006 As previously reported
Income from financial assets and liabilities carried at fair value through income (net) 85 189 164 (940) (361) 258 (431) 1,335 1,163
The Allianz Group evaluates the results of its Property-Casualty, Life/Health, Banking, Asset Management and Corporate segments using a financial performance measure referred to herein as “operating profit”. The Allianz Group defines segment operating profit as earnings from ordinary activities before taxes, excluding, as applicable for each respective segment, all or some of the following items: net capital gains and impairments on investments, net trading income, intraAllianz Group dividends and profit transfer, interest expense on external debt, restructuring charges, other non-operating income/expenses, acquisition-related expenses and amortization of intangible assets.
2) The total of these items equals income from financial assets and liabilities carried at fair value through income (net) in the segment income statement. 3) The total of these items equals realized gains/losses (net) in the segment income statement. 4) The total of these items equals impairments of investments (net) in the segment income statement. 5) The total of these items equals restructuring charges in the segment income statement.
Acquisition-related expenses 4), thereof: Deferred purchases of interests in PIMCO (488) (488) (523) (523) (677) (677)
� mn � mn � mn � mn � mn � mn � mn � mn
Debt securities Government and agency mortgage-backed securities (residential and commercial)1) 7,628 30 (112) 7,546 8,757 16 (218) 8,555 Corporate mortgage-backed securities (residential and commercial)1) 6,663 39 (101) 6,601 4,768 38 (53) 4,753
Changes in the consolidated subsidiaries of the Allianz Group — (1) (3) — — — — (1) (3) Additions charged to the income statement 559 511 604 13 22 170 572 533 774 1) The category country risk allowance, disclosed separately in previous years financial statements, has been be due to simplicity and materiality reasons allocated to the categories of specific and general allowances going forward, using objective criteria. The amounts of � 95 mn and � 225 mn as of December 31, 2006 and 2005 have been allocated completely to general allowance.
Unearned premiums 1,342 1,317 Reserves for loss and loss adjustment ex-
Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 344 463 Property and equipment
Cash generating units � mn � mn � mn � mn
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2007 17 Reserves for loss and loss adjustment expenses
Net Surplus as percentage of initial reserves 3.0 % 4.4 % 7.0 % 9.2 % 4.9 %
Foreign currency translation adjustments (104) (755) (119) (356) Changes in the consolidated subsidiaries of the Allianz Group — 10 — — Changes recorded in consolidated income statements 2,445 954 2,393 927 Novation of reinsurance agreements — — (420) — Dividends allocated to policyholders 1,278 207 1,029 198 Additions and disposals — (2) — —
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2007 19 Financial liabilities for unit linked contracts
Shareholders’ equity Issued capital 1,152 1,106 Capital reserve 27,169 24,292 Revenue reserves 12,790 13,511 Treasury shares (172) (441) Foreign currency translation adjustments (3,656) (2,210) Unrealized gains and losses (net)1) 10,470 13,392
In order to enable Dresdner Bank Group to trade in shares of Allianz SE, the Annual General Meeting on May 2, 2007 authorized the Allianz Group’s domestic or foreign credit institutions in which Allianz SE has a majority holding to acquire treasury shares for trading purposes pursuant to clause 71(1) no. 7 of the Aktiengesetz. During the year ended December 31, 2007, in accordance with this authorization, the credit institutions of the Allianz Group purchased 24,780,668 (2006: 44,741,900) of Allianz SE’s shares at an average price of � 131.55 per share (2006: � 131.45), which included previously held Allianz SE shares. During the year ended December 31, 2007, 25,348,169 shares (2006: 42,180,935) were disposed of holdings at an average price of � 127.39 per share (2006: � 132.76). During the year ended December 31, 2007, the losses arising from treasury share transactions and in consideration of the holding, were � 110 mn (2006: gains � 29 mn), which were recorded directly in revenue reserves.
Investments in associates and joint ventures 2) (93) (15) (32) Loans to banks and customers 3) (120) (57) (93) Real estate held for investment (46) (135) (22)
Volume of foreign currency exposure from the Banking segment The amounts reported constitute aggregate Euro equivalents of a wide variety of currencies outside the European Monetary Union (“EMU”). Any differences between assets and liabilities are a result of differing measurements under current accounting policies. Loans and advances to banks, loans and advances to customers, liabilities to banks and liabilities to customers are reported at amortized cost, while all derivative transactions are accounted for at fair value.
Options 13 — — 13 — — 2 — — Exchange traded
For the year ended December 31, 2007, the Allianz Group recognised for fair value hedges a net loss of � 462 mn (2006: � 687 mn; 2005: � 359 mn) on the hedging instrument and a net gain of � 494 mn (2006: � 698 mn; 2005: � 400 mn) on the hedged item attributable to the hedged risk.
The following table shows the reconciliation of day one profit and loss for the years ended December 31, 2007, 2006 and 2005: � mn � mn � mn
In August 2005, two nearly identical class action complaints were filed in the Northern District of Illinois Eastern Division against Pacific Investment Management Company LLC
The U.S. Department of Justice has alleged False Claims Act violations related to Fireman’s Fund Insurance Company’s (“FFIC”) involvement as a provider of Federal crop insurance from 1997 to 2003. The majority of the allegations concern falsified documentation in FFIC’s Lambert, Mississippi and Modesto, California field offices. Two former FFIC claims employees and one contract adjuster have pled guilty to assisting farmers in asserting fraudulent crop claims. In November 2006, the Department of Justice proposed to FFIC a resolution of all civil, criminal and administrative allegations in the form of an offer to settle. Discussions between FFIC and the Department of Justice are continuing and the outcome of this matter cannot be predicted at this stage.
Other commitments Other principal commitments of the Allianz Group include the following: For Allianz of America, Inc.,Wilmington, a guarantee declaration was made for liabilities in connection with the acquisition of PIMCO Advisors L.P. Allianz originally acquired through its subsidiary Allianz of America Inc., Wilmington, a stake of 69.5 % in PIMCO, whereby minority shareholders held the option to tender their share to Allianz of America Inc.,Wilmington. On December 31, 2007 the stake of Pacific Life in PIMCO was still 2.0 %, so that the liabilities towards Pacific Life as of December 31, 2007 amounted to US Dollar 0.3 bn.
As of December 31, 2007, the Allianz Group recorded a liability for the nonvested cash settled shares of � 13 mn (2006: � 10 mn).
The following table provides original fair values at grant date of the AGF share options and the assumptions used in calculating them: Fair value � 24.87 � 17.40 Assumptions: Share price at grant date � 110.20 � 77.95 Expected life (years) 5 8 Risk free interest rate 3.9 % 2.7 %
During the year ended December 31, 2006, the Allianz Group recorded compensation expense of � 1 mn (2005: � 1 mn) related to these share options.
During the year ended December 31, 2007, Allianz Deutschland AG recorded restructuring charges of � (16) mn. This amount includes additions to existing provisions, release of provisions recognized in previous years, and restructuring charges as reflected in the consolidated income statement. The reduction of staff within this program shall occur in consent with the employees. The plan includes a reduction of approximately 5,700 positions.
A summary of the restructuring charges related to Dresdner Bank Group that are reflected in the Allianz Group’s consolidated income statement for the year ended December 31, 2007, by restructuring program is as follows: Programs 2007
Programs 2007 Personnel costs — 8 — — — — — — 8 Contract termination costs — — — — — — — — — Other — — — — — — — — —
The Allianz Group’s share compensation plans with potentially dilutive securities of 1,321,100 (2006: 335,346) are included in the calculation of diluted earnings per share for the year ended December 31, 2007.
1) On March 18, 2008, Dresdner Bank and K2 Corporation entered into an agreement through which Dresdner Bank will provide a support facility to the Structured Investment Vehicle, K2. The agreement, which consists of a U.S.$1,500,000,000 committed revolving mezzanine credit facility and a ‘backstop’ facility, follows the announcement by Dresdner Bank on February 21, 2008 that it intended to offer support to K2 .
Allianz PIMCO Euro Bond Total Return 713 30.3 Deutsche Schiffsbank AG, Bremen und Hamburg 552 40.0 AGF Peh Eur. IV FCPR 306 49.2 Oddo, Paris 289 20.0 Cofitem Cofimur, Paris 230 22.1 PHRV (Paris Hotels Roissy Vaugirard), Paris 163 24.9 Bajaj Allianz Life Insurance Company Ltd., Pune 153 26.0 Koç Allianz Sigorta T.A.S., Istanbul 147 37.1 Dresdner-Cetelem Kreditbank GmbH, Munich 138 49.9 FONDO IMMOBILIARE DOMUS 133 25.5 Citylife Srl., Milano 129 26.7 Ayudhya Allianz C.P. Life Public Company Limited, Bangkok 113 25.0 Kommanditgesellschaft Allgemeine Leasing GmbH & Co, Gruenwald 104 40.5 Bajaj Allianz General Insurance Company Ltd., Pune 89 26.0 Scandferries Holding GmbH, Hamburg 60 38.1 Euro Media Télévision S.A., Bry-sur_Marne 17 21.4
Professor Dr. Bernd Gottschalk President, Verband der Automobilindustrie e.V. (until May 31, 2007), Autovalue GmbH
Professor Dr. Peter Gruss President, Max-Planck-Gesellschaft zur Förderung der Wissenschaften e.V.
Dr. Hartmut Mehdorn Chairman of the Board of Management, Deutsche Bahn AG
Igor Landau Membership in other statutory supervisory boards and SE administrative councils in Germany adidas AG (Deputy Chairman )
Membership in comparable 1) supervisory bodies Membership in Group bodies Allianz Australia Limited, Allianz Insurance Holdings plc (Chairman), Allianz Irish Life Holdings plc, Allianz Life Insurance Company of North America (since January 1, 2008), Euler Hermes S.A., Fireman ’s Fund Insurance Company (since January 1, 2008)