_ CO R P O R AT E G O V E R N A N C E 8 _ I N T E R N AT I O N A L E X E C U T I V E CO M M I T T E E 12 _ I N T E R N AT I O N A L P R E S E N C E 14 _ S T R AT E G Y 17 _ E CO N O M I C VA LU E A D D E D 18
_ G R O U P M A N AG E M E N T R E P O RT 27 _ CO N S O L I DAT E D F I N A N C I A L S TAT E M E N T S 83 _ A D D R E S S E S (D E TAC H A B L E) _ S TAT U TO R Y B OA R D M E M B E R S H I P S 152
ALLIANZ GROUP 2002 Change from 2001 2000 1999 1998 1997 More previous year details in % on page
Earnings per share before amortization of goodwill ¤ – 0.02 – 100.2 9.98 16.12 11.44 9.99 7.96 22
Return Return on equity after taxes % – 4.4 – 190.5 4.8 10.6 8.5 9.8 8.8
Return on equity before amortization of goodwill % 0.0 – 100.3 7.2 12.1 10.2 10.9 9.6
The English language version is a translation of the German Annual Report of the Allianz Group.
To go directly to any chapter, simply click ➤➤ on the headline or the page number.
Premium income by regions ¤40.1 bnPremium income by regions ¤43.3 bn
Development of the combined ratio in % Development of the expense ratio in %
In 2002, we focused our efforts on improving our operating results. But the improvements we made were overshadowed by the development the stock markets, natural catastrophes and the need to bolster our claims reserves in the U.S.. We therefore had to report a loss of just under 1.2 billion euros.
Allianz AG Königinstrasse 28 80802 Munich Telephone +4989380000 Telefax +4989349941 www.allianzgroup.com
Allianz is one of the five leading asset managers in the world. Net inflow to assets under management for third-party investors reached 43 billion euros. Nonetheless, assets managed for third parties decreased by 59 billion euros or 9.5 percent to 561 billion euros. This was due to falling stock prices and the depreciation of the U.S. dollar against the euro. The operating result amounted to 495 million euros. After deduction of acquisition -related expenses as well as taxes and minority interests, the segment reported a loss as expected of 405 million euros.
Development of the operating cost income ratio in % Structure of Group-internal investments by segments ¤403 bn
We have clearly missed this objective. For you, the owners of Allianz, 2002 was a bad year. In my 28 years with the company, I have never seen so many major risks materialize in such a short period. The bottom line was a loss of 1.2 billion euros and by year-end, our market capitalization stood at 22 billion euros.
Adding to these factors were threats of war and natural catastrophes of unexpected intensity and scale. Finally, we had to re-evaluate our exposure to asbestos-related and environmental risks in the U.S., leading us to increase the reserves related to these risks.
It is time to return to simple but vital and proven principles. Consistently applied, these are the principles that create true value. We have three primary objectives. In property and casualty insurance, we want to reduce the combined ratio (which measures claims and expenses as a percentage of premiums earned) to under 100 percent in 2003. That way, the profitability of this business will become increasingly independent of the capital markets. In banking, we want to control costs and structure our business model in such a way as to improve our earnings, even if the capital markets remain difficult over a prolonged period. Finally, our private retirement plans and asset management business should cater to the needs of customers at every stage of their life and in any market environment.
I thank you, our shareholders, for your trust and your patience. The past year has put you through a tough test. As I have explained, it will remain an exceptional year in the history of your company. That is why we propose to distribute a dividend in the same amount as last year. My sincere thanks also go to the approximately 182,000 employees of this company, as well as our agents and cooperation partners. In a very difficult year, they have shown their full capabilities.
In the course of the year 2002, the members of the Supervisory Board dealt in depth with the situation of the company against the background of a difficult economic environment. We advised the Board of Management with respect to the management of the company, oversaw its conduct of business and were directly involved in decisions of fundamental importance.
The Supervisory Board held five meetings during the reporting period. Between meetings, the Board of Management informed us in writing on important matters. In addition, the Chairman of the Supervisory Board was kept up to date on major developments and decisions.
The Board of Management regularly provided us with timely, detailed information on matters involving strategy, corporate planning and business developments as well as on the economic situation of the Group, including its risk exposure and risk management. We discussed deviations from plans and targets.
Development and integration of Dresdner Bank The performance of Dresdner Bank and its integration into the Allianz Group was one of our key concerns. The Board of Management had included these issues in its agenda of urgent priorities for fiscal 2002.
We devoted special attention to the precarious earnings situation of Dresdner Bank and received special reports on developments in the recent past as well as on the “Corporates & Markets” division. In order to increase the earning power of Dresdner Bank, management has adopted a series of far-reaching cost reduction measures, which have already started to produce positive effects. We will monitor the progress of Dresdner Bank’s “Turnaround 2003” program very attentively to ensure rigorous implementation. This program is expected to contribute significantly to a return to profitability.
The members of the Supervisory Board regularly had occasion to form an impression as to the current status of integration measures. At various meetings, we were also able to ascertain that the process of integration is proceeding on schedule. Among other things, we received reports on the status of asset management activities regrouped under the roof of Allianz Dresdner Asset Management GmbH, and we were briefed on the progress of the merger of the building and loan associations of the two companies.
The terrorist attack of September 11, 2001, which resulted in a net payout in the amount of approximately 1.5 billion euros for the Allianz Group alone, provided an occasion to address the feasibility of insuring such risks in the future. In this context, we discussed the creation of a special insurance company for terrorist risks located in Luxembourg, which is jointly owned by Allianz and other internationally active direct insurers and reinsurers. In Germany, Allianz also holds an interest in Extremus Versicherungs-AG, which was created with the support of the Federal Government.
Corporate Governance and Declaration of Compliance The German Corporate Governance Code sets standards for proper and responsible corporate management and supervision. The majority of the recommendations contained in the code were already part of everyday practice for Allianz before the code went into effect. The Supervisory Board has formed a work group to deal with the implementation of recommendations covering the activities of the Supervisory Board. The Standing Committee and the board itself regularly received reports on the work of this group. At the meeting of the Supervisory Board held on September 18, 2002, we recognized the principles embodied in the recommendations of the German Corporate Governance Code. We then revised our procedural rules to incorporate the recommendations. In this context, we formed an Audit Committee, the members of which are Dr. Klaus Liesen (Chairman), Dr. Diethart Breipohl, Dr. Gerhard Cromme, Prof. Dr. Rudolf Hickel and Horst Meyer. We discussed in depth the ramifications of the new U.S. corporate governance legislation (Sarbanes-Oxley Act) for the Allianz Group. Finally, the reporting obligations of the Board of Management vis-à-vis the Supervisory Board were specified.
The Board of Management and the Supervisory Board signed the first Declaration of Compliance with the German Corporate Governance Code on December 17 and December 18, 2002 respectively. This statement confirms that Allianz Aktiengesellschaft complies with all recommendations contained in the code. More detailed information on corporate governance within the Allianz Group can be found on pages 8 to 11 of the present Annual Report as well as on the Internet at www.allianzgroup.com/corporate-governance.
At its four meetings held in the course of the year, the Standing Committee addressed primarily corporate governance issues and the commissioning of the independent auditors to audit the financial statements. The Personnel Committee, which deals with matters involving the compensation and benefits of members of the Board of Management, met six times. There was no need for the Mediation Committee to convene.
Annual accounts and consolidated financial statements KPMG Deutsche Treuhand-Gesellschaft AG Wirtschaftsprüfungsgesellschaft, Munich, audited the financial statements of Allianz AG and the Allianz Group as well as the respective
D E P U T Y C H A I R M A N O F T H E S U P E R V I S O R Y B O A R D
On the basis of our own review of the financial statements of Allianz AG and the Allianz Group and the corresponding reports of management, we concurred with the findings of the audit by KPMG and approved the financial statements of Allianz AG and the Allianz Group prepared by the Board of Management. The Supervisory Board hereby adopts the individual accounts. We consent to the appropriation of earnings as proposed by the Board of Management.
The period of office of the present Supervisory Board will end as of the Annual General Meeting on April 29, 2003.
The Supervisory Board has appointed Dr. Herbert Walter as member of the Board of Management with immediate effect. As successor of Professor Dr. Fahrholz he will head the “Allianz Dresdner Banking” division. Another new appointment to the Board of Management is Mr. Jan R. Carendi who will assume responsibility for the North and South America region effective as of May 1, 2003.
D R . P A U L A C H L E I T N E R
L E O N H A R D H . F I S C H E R
D R . W E R N E R Z E D E L I U S
F R A N K L E Y Employee, Allianz Lebensversicherungs-AG
D R . B E R N D W . V O S S Member of the Supervisory Board Dresdner Bank AG
D R . D I E T H A R T B R E I P O H L Former member of the Board of Management Allianz AG
B E R T R A N D C O L L O M B Président Directeur Général Lafarge
J Ü R G E N D O R M A N N Chairman of the Supervisory Board Aventis S. A.
P R O F E S S O R D R . R U D O L F H I C K E L Professor of finance
H O R S T M E Y E R Employee, Hermes Kreditversicherungs-AG
R E I N H O L D P O H L Employee, Allianz Immobilien GmbH
D R . H E R M A N N S C H O L L Managing Director Robert Bosch GmbH
J Ü R G E N E . S C H R E M P P Chairman of the Board of Management DaimlerChrysler AG
The Declaration of Compliance with the German Corporate Governance Code in accordance with § 161 of the German Stock Corporation Law (AktG) was published on December 18, 2002 and reads as follows: “Allianz Aktiengesellschaft complies with all the recommendations made by the government commission on the German Corporate Governance Code. However, the members of Allianz AG’s Board of Management reserve the right to exceed the maximum number of mandates held outside the Group (section 5.4.3 of the Code) as appropriate, as the acceptance of supervisory board mandates in companies in which substantial holdings are maintained forms an essential part of the duties of members of the Board of Management.”
The two publicly traded Group companies Allianz Lebensversicherungs-AG and Oldenburgische Landesbank AG issued a Declaration of Compliance on December 11 and 17, respectively. Allianz states four points of deviation from the Code, and Oldenburgische Landesbank one. Our larger German companies, which are not listed at the stock exchange, also observe the key provisions of the Corporate Governance Code.
The Sarbanes-Oxley Act As a German company listed on the New York Stock Exchange, Allianz AG is subject to U.S. corporate governance rules to the extent that these are applicable to foreign issuers.
The Sarbanes-Oxley Act also has considerable implications for Allianz AG. The new disclosure rules require some amendments of our reporting. The Audit Committee is given comprehensive rights and duties. The SEC plans to publish more detailed rulings on the implementation of the SOA by April, 2003. However, previous statements by the SEC appear to indicate that it will accept the provisions of German codetermination law, even though they are in conflict with the American interpretation of the independence of the members of the Audit Committee. In other words, the fact that the Audit Committee of German corporations also comprises employee representatives should pose no problem in the future.
The Supervisory Board and its committees The majority of the recommendations of the German Corporate Governance Code concern the activities of the Supervisory Board and its committees. For this reason, the Supervisory Board has revised its rules of procedure as follows: first of all, a general description of the qualification and independence of the members of the Supervisory Board was established. As a rule, the age limit for members of the Supervisory Board is 70 years. Secondly, a number of rules concerning the avoidance or resolution of conflicts of interest were introduced, as well rules concerning the confidentiality and disclosure obligations of members of the Supervisory Board.
_ In its meeting of September 18, 2002, the Supervisory Board elected Messrs. Dr. Klaus Liesen, Dr. Diethart Breipohl, Dr. Gerhard Cromme, Prof. Dr. Rudolf Hickel and Horst Meyer as members of the Audit Committee. Dr. Klaus Liesen was elected as Chairman. In its constitutive meeting of November 12, 2002, the Audit Committee adopted its rules of procedure. Upon publication of the definitive SEC rules, these rules may have to be amended.
_ The Standing Committee has a total of five members, two of which are currently employee representatives. Its essential function is the approval of matters for which approval by the Supervisory Board is required, to the extent that such matters do not fall under the competency of the Personnel Committee or must be decided by the plenary meeting of the Supervisory Board. In particular, this concerns the approval of corporate actions and of the acquisition or divestiture of companies or shareholdings in companies. A new task of the Standing Committee is the drafting of the annual Declaration of Compliance in accordance with § 161 of the German Stock Corporation Law concerning compliance with the German Corporate Governance Code. It has also been placed in charge of the regular examination of corporate governance and the efficiency of the work of the Supervisory Board. It is held to submit suggestions for improvements to the plenary meeting of the Supervisory Board.
_ The Personnel Committee is composed of the Chairman as well as one representative each of the shareholders and employees on the Supervisory Board. It prepares the appointment of members of The Board of Management, tends to ongoing personnel matters of Board members and handles questions concerning their compensation. It is also involved in the long-term succession planning for the Board of Management and closely cooperates with the current Board in this matter.
Like the majority of publicly traded German companies, we do not disclose the individual compensation paid to members of the Board of Management. In our opinion, the principle of the Board’s shared responsibility is more accurately reflected by disclosure of the total compensation. In addition, we doubt that disclosure of individual compensation is apt to promote a performance-based differentiation.
The compensation of the Supervisory Board also contains a fixed and a variable component. The fixed annual compensation amounts to 4,000 euros. The variable component of the compensation is linked to the dividend paid. If the dividend exceeds 15 cents, each additional cent increases the compensation by 500 euros. For a dividend in the amount of 1.50 euros, the variable compensation comes to 67,500 euros. The Chairman of the Supervisory Board receives 200 percent of the combined total, and any other member of a committee of the Supervisory Board (with the exception of the Mediation Committee) is paid 150 percent of this amount.
Under the terms of this amendment, the fixed and variable components of the compensation of the Supervisory Board will remain unchanged, with respect to both their amount and the basis on which they are calculated. But committee work is to be compensated separately. The amendment stipulates that the members of the Audit Committee, in order to protect their independence to the greatest possible extent, shall receive an annual fixed compensation in the amount of 30,000 euros, and that the chairman of the committee shall receive a fixed amount of 45,000 euros. For the members of the Standing Committee and of the Personnel Committee, a compensation in the amount of 25 percent of the basic compensation is proposed. The chairmen of these committees would receive 50 percent of the basic compensation. This separate compensation for committee members is limited by a ceiling which takes effect when the Chairman of the Supervisory Board has reached three times the basic compensation and the other members of the Supervisory Board have reached twice the basic compensation.
Retention in Directors & Officers Liability Insurance Members of the management and supervisory bodies of Allianz Group have a Directors & Officers Liability Insurance, which covers the liability from their officerships and directorships. In accordance with the recommendations of the German Corporate Governance Code, we have decided that in case of damage awards, members of the Board of Management are subject to a retention equal to 25 percent of their fixed annual compensation. The retention for members of the Supervisory Board is 100 percent of their annual compensation.
PA U L A C H L E I T N E R Allianz AG, Munich
L E O N H A R D H. F I S C H E R Dresdner Bank, Frankfurt/Main,
G E R H A R D R U P P R E C H T Allianz AG, Munich
J E A N - P H I L I P P E T H I E R R Y AGF, Paris
M A R K Z E S B A U G H Allianz Life Insurance, Minneapolis
D E T L E V B R E M K A M P Allianz AG, Munich
Argentina ■ AGF Allianz Argentina Generales S. A. Brazil ■ AGF Brasil Seguros S. A. Canada ■ Allianz Insurance Company of Canada Chile ■ AGF AZ Chile Generales S. A. Colombia ■ Colseguros Generales S. A. Mexico ■ AFORE Allianz Dresdner S. A. ■ Allianz México S. A. Compañía de Seguros ■ Allianz Rentas Vitalicias U.S.A.
Burkina Faso ■ Foncias Egypt ■ Arab International Insurance Company ■ Arab International Life Company Ivory Coast ■ SAFARRIV
Group are backed by the commitment of our approximately 182,000 employees worldwide.
Aktiengesellschaft Belgium ■ AGF Belgium Insurance Bulgaria ■ Allianz Bulgaria Insurance and Reinsurance
Riassicurazioni S. p. A. ■ Lloyd Adriatico S. p. A. ■ RAS Asset Management SGR S. p. A. ■ Riunione Adriatica di Sicurtà S. p. A. Luxembourg ■ dresdnerbank asset management S. A. ■ Dresdner Bank Luxembourg S. A. ■ International Reinsurance Company S. A. Netherlands ■ London Verzekeringen N. V. ■ Royal Nederland Schade ■ Royal Nederland Leven ■ ZA Leven N. V.
Poland ■ T.U. Allianz Polska S. A. ■ T.U. Allianz Polska Zycie S. A. Portugal ■ Companhia de Seguros Allianz
Brunei ■ National Insurance Company Berhad China ■ Allianz Asset Management (Hong Kong) Ltd. ■ Allianz Dazhong Life Insurance Co. Ltd. ■ Allianz Dresdner Asset Management
Hong Kong Ltd. ■ Allianz Insurance Company – Guangzhou Branch ■ Allianz Insurance (Hong Kong) Ltd. Indonesia ■ P. T. Asuransi Allianz Utama Indonesia ■ P. T. Asuransi Allianz Life Indonesia Japan ■ Allianz Fire and Marine Insurance Japan Ltd. ■ Dresdner Kleinwort Wasserstein (Japan) Ltd. ■ MEIJI Dresdner Asset Management Co. Ltd. Laos ■ A. G. L.
Malaysia ■ Allianz General Insurance Malaysia Berhad ■ Allianz Life Insurance Malaysia Berhad Pakistan ■ Allianz EFU Health Insurance Ltd. Singapore ■ Allianz Dresdner Asset Management Ltd. ■ Allianz Insurance Company of
Singapore Pte. Ltd. ■ Allianz Parkway Integrated Care Pte. Ltd. South Korea
■ Allianz General Insurance Korea Ltd. ■ Allianz Life Insurance Company Ltd. Taiwan ■ Allianz President General Insurance ■ Allianz President Life Insurance Thailand ■ Allianz CP General Insurance Company, Ltd. ■ Allianz C. P. Life Assurance Co., Ltd. ■ Ayudhya CMG Life Assurance Public Company Lim. United Arab Emirates ■ Allianz Versicherungs-AG (Dubai Branch)
2002 was a bad year for Allianz. The continuing decline of the stock markets, natural catastrophes and the need to bolster our claims reserves in the U.S. overshadowed clear improvements in our operating performance. But we are determined to adhere to our long-term strategy and we will do everything to return to sustained, profitable growth.
A return to profitability is the prerequisite for the further pursuit of our strategy. This strategy is still aimed at shaping the profound changes in our markets and taking full advantage of the great business potential they offer. In that, we are guided by five principles: 1. We believe that we can best serve our shareholders by giving priority to our clients.
2. We realize that our continued success is based on our reputation, our acceptance by society and our ability to attract and retain the best people.
These fundamental business principles lead us to the five strategic priorities listed below. They determine our actions as a financial services group in insurance, banking and asset management.
_ exploiting the opportunities offered by high-growth markets by leveraging our traditional risk management expertise.
The prime objective of all Group companies and all business areas must be the creation of economic value added. Consistently applied, these principles and priorities are a reliable guide that will help us stay the course in a difficult market environment. We see Allianz as one of the decisive forces in the consolidation process that is currently unfolding in the financial services market, and we will emerge from this process with renewed strength.
What do we mean when we talk about the creation of wealth? The capital that is employed by the company must yield a higher return than a comparable alternative investment. In order to determine whether this is the case, we apply the concept EVA (Economic Value Added) throughout the company. Adapted to the specific requirements of our industry and the needs of Allianz, Economic Value Added determines our company’s economic goals. It provides a measure of our performance and plays an important role in setting the remuneration of management.
_ establishes a relationship between corporate profit and the minimum return our investors expect from the capital they have invested.
Central and decentral elements These considerations are important because they support valued-based management of the Allianz Group and at the same time allow us to retain a decentralized structure. Why do we need decentralization? We are convinced that the management of our business entities worldwide is in the best position to determine what measures are appropriate for making their companies more profitable. They have to decide what risks they can take – for example, when they write insurance policies, extend loans, invest funds or make other managerial decisions – to generate a specific profit.
Risk capital In order to do this, we start by determining the amount of capital each individual operational entity requires to cover the financial risks involved in ongoing business activities. On the one hand, the required capital depends upon the risks that are typical for the products of our Group companies, i.e., premium, reserve and credit risks plus risks in connection with capital investment and operational risks. On the other hand, the amount of capital needed is geared to the mandatory level of security that is centrally prescribed for the group as a whole. Uniform standards are also applied when determining risk capital. In this context, the Standard & Poor’s model is use to valuate risks.
Value added As holding company, we assign available capital to our operational entities on the basis of efficiency and risk. Group companies are then responsible for generating a return on this risk capital that covers at least the cost of capital. Added value results only when this threshold is exceeded. That means that the business units must know which activities will increase the value of their companies and concentrate on these activities. New value drivers must also be built up, for example, through new products, more cost-effective processes, innovative rates, etc. Local management must also prevent value from being destroyed along the value added chain. If this happens, countermeasures must be adopted immediately.
Management remuneration Since EVA is the key indicator that shows us whether or not we are generating a profit, the remuneration of senior management is based to a significant extent upon this factor. That means we have opted for an incentive system that helps make the continuous increase in the value of the company a priority concern that cuts across our entire organization.
Capital markets weaken insurance stocks In 2002, insurance stocks lagged behind general market indices, just as they did in the previous year. While the Dow Jones EURO STOXX 50 registered a decline of 37.3 percent, the Dow Jones EURO STOXX Insurance index lost 51.7 percent of its value. This manifest slide of an entire industry is caused by the deep-seated weakness in the capital markets, which has hit high-volume investors such as insurers particularly hard. Falling stock prices tangibly diminish the value of their portfolios. The downward trend of the stock markets not only depressed our investment income, it also had a very negative impact on our banking business. As a result, our share price dropped 65.9 percent and clearly underperformed the Dow Jones EURO STOXX Insurance index.
Dow Jones EURO STOXX Financial Services – 32.2 – 2.7 5.9
Source (chart and table): Thomson Financial Datastream Weighting of the Allianz share in European indices on in %
The Allianz share is also included in the Dow Jones Sustainability Index. This index only lists the top 10 percent of companies in a given industry that have obtained the best rankings in a sustainability rating. The ranking is based on economic, ecological and social criteria. More information on this subject is provided in the enclosed Corporate Responsibility Magazine “Two”.
Dividend at previous year’s level Even in difficult times, we maintain the continuity of our dividend policy. We therefore propose to our shareholders to distribute a dividend of 1.50 euros per share for 2002, unchanged from last year. In the period from 1995 to 2000, we had successively increased our dividend six times.
Free float now over 71 percent The free float percentage of our share continued to rise in 2002, from 64 percent in 2001 to 71 percent at the end of the year. The increase is mainly attributable to HypoVereinsbank, which reduced its stake in Allianz to under 5 percent. This makes Allianz one of the largest public corporations in Europe. A higher free float percentage raises the liquidity of our share and upgrades its weighting in most major indices.
Shareholder structure on December 31, 2002 (including treasury shares) Free float: 71 % Long-term investments: 29 %
Value-oriented management Our foremost objective is profitable growth. That is why we use “Economic Value Added” (EVA) as the key indicator for controlling our business. In 2002, we did not reach our profitability targets. For more information on this subject, see page 18 of this Annual Report.
The stock appreciation rights are issued over a seven-year term. They can be exercised for the first time after a period of two years, provided that two conditions are met. Our share price must: _ outperform the Dow Jones EUROPE STOXX Price Index (600) on each of at least five consecutive trading days and
_ our share must have increased at least 20 percent over the base price of the stock appreciation rights.
Average number of shares in the fiscal year1) 242,788,806 243,585,880 245,401,507
Share price performance in the year (excluding dividend) % – 65.9 – 33.3 19.3
Earnings per share, adjusted2) before depreciation of goodwill ¤ – 0.02 9.98 11.74
Return on equity, adjusted2) before depreciation of goodwill % 0.0 7.2 8.8 1) Excluding treasury shares 2) After elimination of extraordinary factors, in particular, a tax effect of ¤1.1 bn in 2000
Annual General Meeting online on the Internet In 2002, Allianz shareholders were able for the first time to follow the entire Annual General Meeting of their corporation on the Internet. This service will be maintained. In 2003, shareholders with Internet access will once again be able to change their instructions online during the meeting, provided voting has not yet begun. Last year, this offer met with great interest.
Top priority for investor relations For Allianz, investor relations remain of crucial importance. That is why we expanded the range of information we offer. In numerous meetings, we informed investors about the development of our business and the progress in integrating Dresdner Bank. Our roadshows brought us to the world’s leading financial centers, including New York, Boston, San Francisco, London und
Frankfurt. We also talked to investors in Paris, Zurich and Edinburgh and organized separate information meetings for our bond investors whom we visited in Europe and Asia.
In a survey of stock analysts conducted by the magazine “Institutional Investor” and the Reuters news agency, the Allianz investor relations service was ranked second among European providers of financial services.
March 18, 2004 Financial press conference for the 2003 fiscal year
Shareholders’ equity does not include valuation reserves for our real estate holdings nor participations consolidated at equity. After deduction of taxes, minority interests and interests of policyholders, these amounted to 5.1 billion euros at the end of 2002.
In addition, all entities of the Allianz Group had sufficient own funds and met local solvency requirements. In the Interim Report on the first three quarters of 2002, we announced that we were extending an offer to the holders of profit participation certificates to exchange these certificates into Allianz shares at a rate of eight certificates for ten Allianz shares. The exchange period ran from November 19, 2002, to January 16, 2003. A total of 4,918,488 profit participation certificates – close to 86 percent of the certificates issued – were exchanged for 6.15 million shares. The share certificates issued were taken from treasury stock. This outflow increased our shareholders’ equity by 386 million euros in January 2003.
Ratings In the fall of 2002, the Allianz Group’s ratings were slightly downgraded by several rating agencies. This was a reaction to the high charges with which the Group was burdened by the extreme weakness in the capital markets, exceptionally high claims in the insurance business and very high risk provisions at Dresdner Bank. Nonetheless, the ratings of Allianz continue to be among the best in the market.
Our fundamental assets as a provider of financial services are our capital strength and solvency. We are committed to these values and we adhere to them even in times of turbulence. In 2002, in a difficult market we launched the biggest financing project of a European insurer.
The demand was so overwhelming that we increased the total volume from 1 to 2 billion euros and were able to set the interest rate at the lower end of the book building range. The bond was hailed as “deal of the year” in the financial services provider category by the British financial magazine Euroweek. It is listed at the Luxembourg stock exchange.
In December 2002, we also emitted a subordinated bond with a 22-year maturity in Europe. This bond can be recalled for the first time after 12 years. The demand for this issue reached 1.8 billion euros, of which we utilized 1 billion with a 6.5 percent coupon. That concluded the so far biggest bond emission project by a European financial services provider.
The funds raised by these bond issues will be used, on the one hand, to redeem short-term financing arrangements and, on the other, to secure the financing of our future growth.
1. Senior Bonds 6.0 % bond issued by Allianz Finance B. V., Amsterdam Volume ¤767 million Year of issue 1996 Maturity date 5/14/2003 5.75 % bond issued by Allianz Finance B. V., Amsterdam Volume ¤1.1 billion Year of issue 1997/2000 Maturity date 7/30/2007 5.0 % bond issued by Allianz Finance B. V., Amsterdam Volume ¤1.6 billion Year of issue 1998 Maturity date 3/25/2008 3.0 % bond issued by Allianz Finance B. V., Amsterdam Volume CHF 1.5 billion Year of issue 1999/2000 Maturity date 8/26/2005 4.625 % bond issued by Allianz Finance II B. V., Amsterdam Volume ¤1.1 billion Year of issue 2002 Maturity date 11/29/2007 5.625 % bond issued by Allianz Finance II B. V., Amsterdam Volume ¤0.9 billion Year of issue 2002 Maturity date 11/29/2012 2. Subordinated Bonds 6.125 % bond issued by Allianz Finance II B. V., Amsterdam Volume ¤2 billion Year of issue 2002 Maturity date 5/31/2022 7.25 % bond issued by Allianz Finance II B. V., Amsterdam Volume $ 0.5 billion Year of issue 2002 Maturity date Perpetual Bond 6.5 % bond issued by Allianz Finance II B. V., Amsterdam Volume ¤1 billion Year of issue 2002 Maturity date 1/13/2025 3. Exchangeable Bonds 3.0 % exchangeable bond issued by Allianz Finance B. V., Amsterdam Exchangeable for Deutsche Bank AG shares Volume ¤1.0 billion Year of issue 1998 Maturity date 2/4/2003 2.0 % exchangeable bond issued by Allianz Finance B. V., Amsterdam Exchangeable for Siemens AG shares Volume ¤1.7 billion Year of issue 2000 Maturity date 3/23/2005 Current exchange price ¤149.64 SIN 452 540
Outperformance bonus 1.25 % p. a. of the relevant DAX reference price 1.25 % exchangeable bond issued by Allianz Finance II B. V., Amsterdam Exchangeable for RWE AG shares Volume ¤1.1 billion Year of issue 2001 Maturity date 12/20/2006 Current exchange price ¤50.16 SIN 825 371 4. Participation certificate Allianz AG participation certificate Nominal amount ¤29.3 million
(¤4.1 million after the exchange) Payout for 2002 ¤3.6 Current redemption price ¤78.54 SIN 840 405
64 Asia-Pacific Region 65 South America 66 Banking 67 Private customers and business customers 67 Corporates & Markets 68 Asset Management 68 Asset Management for third party investors 69 Investments 72 Risk report 72 Responsibilities 72 Risk categories 73 Management of the Allianz Group through risk capital 74 Risk controlling in the insurance business 75 Risk controlling in the banking business 77 Risk control in the asset management 77 Operational risks 78 Outlook 78 Risk monitoring by third parties 79 Our employees 79 International personnel marketing 79 International education programs and development perspectives 80 Cross-border training programs 80 Expatriation 80 Transfer of know-how 80 AMI management programs 80 Performance orientation and compensation 80 Thank you 81 Outlook 81 Many question marks 81 Uneven business environment for financial services providers 82 Business outlook for Allianz Group 82 Cautionary note regarding forward-looking statements
The world economy failed to regain its footing in 2002, disappointing many who had hoped it would. The going remained rough since virtually all regions fell short of growth expectations. The optimistic mood at the beginning of the year, which actually could have laid the groundwork for general upward momentum, had already fizzled out by mid-2002. Anxiety about a war against Iraq, deep-seated uncertainty on the capital markets and the fear of terrorist attacks combined to smother the economy and prevented any noticeable rebound.
Premium income from automobile insurance, the most important source of property and casualty business with private customers, was in some cases down from the previous year. The sluggish economy, especially in various major EU countries, resulted in a decrease in vehicle registrations that had a direct impact upon providers of automobile insurance (see chart).
The unfavorable capital market development in 2002 proved an obstacle to these essentially positive conditions underlying Asset Management. Very weak stock markets in the second half of the year intimidated investors and resulted in a change in investment priorities. The trend favored funds which for the most part invest in fixed-interest securities and money market products. On the other hand, stock funds in 2002 once again failed to repeat the very successful performance of the ’90s. However, this change in
investor preferences is hardly likely to have an unfavorable effect on future growth prospects for asset management business over the long term and will prove temporary. The mere fact that asset managers were on balance still able to record an inflow of funds in a year like 2002 that was so weak in terms of stock performance speaks in favor of this.
Investments held on account and at risk of life insurance policy holders 25.7 24.7
_ In fiscal 2002, total premium income increased 9.9 percent to 82.6 billion euros.
_ The deterioration of earnings overshadowed significant improvements in our operating performance. In addition to substantially higher revenues, the major achievements were a clearly improved combined ratio in property and casualty insurance, the trimming of Dresdner Bank's administrative expenses by 12.3 percent and the growth of net inflows in asset management by 43 billion euros.
_ Allianz had to report a loss of just under 1.2 billion euros in 2002. A major contributing factor was the extraordinarily difficult situation in the economy and in the capital markets. Another problem was the shortfall of operating income at Dresdner Bank. To make matters worse, our performance was undermined by a number of special influences.
What is the bottom line of these conflicting trends? Operating improvements were insufficient to compensate the drop in earnings in the third quarter. While we did succeed in reducing the third-quarter loss of 2.5 billion euros to 0.2 billion euros in the fourth quarter, we finished the fiscal year with an overall loss of 1.2 billion euros.
Premium income from the insurance business Total premium income from the insurance business increased 7.5 billion euros or 9.9 percent to 82.6 billion euros. In property and casualty insurance, revenues were up 2.7 percent while total premium income in life and health insurance increased 18.9 percent. Changes in the scope of consolidation contributed 223 million euros to sales growth.
Exchange rate fluctuations – in particular the rise of the euro against the U.S. dollar and the pound sterling – reduced premium income by 736 million euros. Disregarding consolidation and currency effects, total revenues from the insurance business grew by 10.6 percent.
Earnings before taxes and amortization of goodwill ¤ bn – 0.1 2.6
Market capitalization The continuing downturn in the capital markets also brought down the Allianz share. Insurance stocks clearly underperformed the market average in 2002 because the bear market forced insurers to make substantial write-downs on their investment portfolios. On the final trading day of 2002, the market capitalization of Allianz AG came to 22 billion euros after deduction of treasury shares. That was 42 billion euros or 65.7 percent lower than the comparable 2001 figure. These figures are based on the Xetra closing price on the last trading day of the year, which was 91 euros.
Human Resources The total number of employees worldwide increased slightly by 1,705 to 181,651 at the end of 2002. This increase was mainly due to the build-up of our sales network in Germany and the first-time consolidation of recent acquisitions.
_ The combined ratio decreased 3.1 percentage points to 105.7 percent. Restated to eliminate one-time charges in connection with the severe flooding in central and eastern Europe and the increase in reserves to cover asbestos-related and environmental risks, the combined ratio amounted to 101.7 percent.
Allianz Marine & Aviation 17 2) Earnings after taxes, before amortization of goodwill and minority interests, net of extraordinary tax items in 2000
Restated to eliminate the effects of consolidation and currency transactions, premium income was up 3.2 percent, primarily due to rate increases. However, this gain does not completely reflect the improvement in our business as we also declined to renew many client portfolios that we did not feel would be profitable over the long term. These concerned primarily international corporate clients and clients in the U.S.A. It was possible to offset the resultant decrease in premium income through rate increases.
Net investment income amounted to 11.7 billion euros. After elimination of intercompany transactions, net investment income comes to 7.8 billion euros. This figure reflects write-offs on securities in our portfolio in the amount of 2.3 billion euros. Interest for financing activities came to 1.2 billion euros.
Earnings before taxes and amortization of goodwill increased 5.1 billion euros to 7.9 billion euros. After amortization of goodwill, taxes and minority interests, net income increased to 7.2 (2.4) billion euros. After elimination of intercompany transactions, the result fell to 3.4 billion euros.
Premium income from property and casualty insurance was up 2.7 percent to 43.3 billion euros for the year 2002. This represented 51.5 percent of total revenues. The combined ratio decreased 3.1 percentage points to 105.7 percent. After restatement to eliminate the effect of one-time charges in connection with the flood in central Europe and the increase in reserves for asbestos-related and environmental risks in the USA, the combined ratio improved to 101.7 percent. Net income for this segment came to 7.2 billion euros. Restated to eliminate intercompany transactions, this segment contributed 3.4 billion euros to consolidated net income.
_ We serve this market through the companies of Allianz Sachgruppe Deutschland (SGD). With revenues of 9.8 billion euros, SGD is the leading provider of property and casualty insurance in Germany.
_ Allianz AG, which functions both as the Group’s management holding company and as its reinsurer, generated premium income in the amount of 5.6 billion euros.
Excluding revenues of Allianz Marine & Aviation insurance AG and Allianz Global Risk Rückversicherungs-AG, which will be reported separately for the first time this year, we generated premium income in the amount of 12.3 billion euros.
Earnings after taxes jumped to 9.2 (3.8) billion euros, primarily due to realized capital gains on shares in connection with the acquisition of Dresdner Bank.
Property and casualty insurance in Germany 12,314 12,644 11,948 *) Excluding Allianz Marine & Aviation from 2002 on.
The claims ratio deteriorated to 73.5 (70.9) percent as a result of the high payouts following the severe flooding in 2002, which totaled 330 million euros (after reinsurance). If these claims are eliminated, the claims ratio comes to a low 68.4, an improvement of 2.5 percentage points compared with the previous year’s figure.
One-time charges for company retirement benefits, investments in expansion of marketing activities and the expense of integrating Dresdner Bank had a negative impact on the expense ratio, which increased 1.2 percentage points to 28.0 percent.
The expense ratio increased 1.9 percentage points to 28.8 percent. This ratio essentially reflects reinsurance commissions. Expenses incurred in connection with the integration of Dresdner Bank also had an effect.
make it reasonable to assume that this will be possible. We also want to expand the reinsurance activities of Allianz AG in 2003. Higher rates, more favorable conditions and improvement in earnings from insurance activities should generally boost this area of business although income from investment activities cannot be expected to reach the previous year’s level.
_ Starting in the 2002 fiscal year, the financial results of Allianz Marine & Aviation France will be combined with those of Allianz Marine & Aviation Deutschland and included in a separate report.
The 9.7 percent gain in premium income year-on-year was due primarily to rate adjustments. We were able to raise premiums in the commercial area, especially in the case of major clients, as well as in the area of consumer policies. In particular, increases in the prices of private automobile and household insurance contributed to the gain in revenues.
AGF’s income performance is expected to at least keep pace with the market in the current fiscal year. Growth of 6 percent is projected for the French property and casualty insurance market. Leaner and more efficient workflows will continue to reduce our expense ratio. We have eliminated especially claims-prone portfolios in the commercial and private areas and further rate increases will take hold. As a result, we expect a more favorable claims ratio in the years to come.
Earnings after taxes ¤ mn 383.0 30.9 439.2 *) Excluding Allianz Marine & Aviation from 2002 on.
_ We are represented on the Italian market by the property and casualty insurance companies of the RAS Group and Lloyd Adriatico.
Net investment income of the RAS Group rose to 1,033 (491) million euros following the disposal of a large share of the company’s real estate holdings. Lloyd Adriatico recorded net investment income in the amount of 69 (91) million euros.
We expect the current fiscal year to produce continued growth in our Italian property and casualty insurance business as well as further improvement in the combined ratio. Our companies’ earnings are also expected to show further improvement. RAS has offered to buy back 7 percent of the company ’s outstanding share capital from shareholders. This offer applied for a limited period, namely, from December 9, 2002, to January 10, 2003. Unlike other RAS shareholders, we did not take advantage of this offer, and as a result of this transaction we now hold 55.4 percent interest in the company.
_ This subsidiary achieved a substantial 2.7 billion euros increase in premium income.
Our pricing policy and our decision to forego unprofitable business resulted in an improvement of 4.4 percentage points in the claims ratio, to 68.8 percent.
Despite high premium growth, we kept administrative expense under control, which improved the expense ratio 1.1 percentage points to 29.5 percent.
S W I T Z E R L A N D
_ With revenues of 1.2 billion euros, Allianz Suisse Versicherungs-Gesellschaft ranks third in the Swiss market.
At 1.2 billion euros, premium income approached last year’s level despite the restructuring of both the group health insurance and the accident insurance activities.
In the current fiscal year, product improvements are expected to stimulate premium growth. We plan to improve the efficiency of our sales organization in order to achieve an even lower expense ratio. On the whole, we are confident that the measures we have taken will produce the desired results and that our Swiss company will report significantly better earnings performance for the year 2003.
Revenues of our Allianz Risk Transfer (ART) company were up 1.2 percent to 512 million euros, with 365 million euros generated by conventional reinsurance and 147 million euros by alternate risk solutions. Revenues in this area of our business increased 44 percent. This area involves comprehensive risk management solutions for companies in the service, financial and industrial sectors. These products bundle financial and insurance expertise.
The expense ratio was down 3.6 percentage points to 22.6 percent, primarily due to lower commissions.
_ Together, these two company rank second in the Spanish market.
A risk-based premium structure combined with a restrictive underwriting policy in the automobile insurance segment to reduce the claims frequency. As a result, the claims ratio improved 1.7 percentage points to 77.0 percent.
In the current fiscal year, the turbulent growth in the area of automobile insurance can be expected to slacken somewhat. However, we expect brisk demand for other property insurance products and assistance services. Double-digit revenue growth is projected for these areas. Overall, Allianz Seguros plans to grow more strongly than the market again in 2003. We are counting on our brand image and further expansion of our marketing structure to achieve this. We also expect further improvement in the combined ratio.
_ We also market property and casualty insurance in Austria, the Netherlands, Ireland, Belgium, Portugal, Luxembourg and Greece. We are also represented in Hungary, Slovakia, the Czech Repuplic and Poland. In addition, we underwrite property and casualty insurance in Croatia, Bulgaria, Romania and Russia.
_ Our local companies rank among the five leading insurers in most of these markets.
_ Our Allianz Mexico Compañía de Seguros S. A. is active in the Mexican market.
Premium income in the NAFTA region dropped 12.2 percent to 6 billion euros. Expressed in local currency, the comparable figure is 6.2 percent.
the ratio between reserves and the corresponding risks we are now one of the leading insurers in this market. As a result the claims ratio increased to 94.1 (84.7) percent.
Rigorous cost management, which also involved the shedding of over 2,500 jobs since the year 2000, resulted in savings at the operational level in 2002. Nevertheless, the expense ratio deteriorated to 34.5 (29.6) percent due to severance settlements and the fact that a larger share our business involves higher closing costs.
As a result, FFIC’s loss after taxes came to 666 (357) million euros. Premium income of AIC, which primarily serves major clients, increased 11.4 percent to 765 million euros. The company ended the year with a loss of 49 million euros. New management has given AIC a new sense of direction. The company introduced rate increases of 10 percent in the current fiscal year and continues to dispose of unprofitable business. These and other measures can be expected to bring AIC back into the profit zone.
_ We are represented by subsidiaries or joint ventures in almost all markets in this region, which offers considerable potential for growth.
_ Our total revenues in the Asia-Pacific region amounted to 1.6 billion euros.
However, investment income suffered from high realized capital losses due to the downscaling of the company’s equity portfolio, the company ended the year with a loss of 27 million euros.
In January 2002, we acquired a 98 percent interest in Malaysia British Assurance Berhad in. This Malaysian company now operates under the name Allianz General Insurance Malaysia. With premium income in the amount of 133 million euros, it is the second largest company in its market and our second-largest property and casualty insurer in the region. The company’s earnings after taxes came to 6 million euros. We also started to underwrite property and casualty insurance in South Korea in 2002.
Taken together, our companies in the Asia-Pacific region reported a loss after taxes of 17 million euros following a profit of 11 million euros a year earlier.
_ Total premium income in these countries amounted to 768 million euros.
Brazil contributed 336 million euros in premium income to rank first among our South America companies. Colombia followed with revenues of 222 million euros. Due to the economic situation in Argentina, we decided to significantly downscale our business in that country.
The combined ratio for South America declined to 101.8 (103.4) percent. Although our company in Argentina incurred a loss in the amount of 5 million euros due to the economic crisis, our subsidiaries in the other South American countries all produced positive operating results. Earnings after taxes were up significantly to 47 (29) million euros.
In Venezuela and Argentina, it is likely that major political decisions will determine how the economy develops.
A L L I A N Z G LO B A L R I S K S R Ü C K V E R S I C H E R U N G S - A G
_ Allianz Global Risks Rückversicherungs-AG has been in existence since January 1, 2002. This company handles all business with our major international clients.
_ We provide global credit insurance through EULER & HERMES S. A. in Paris.
Within the consolidated credit insurance group, EULER concentrates on the core markets France, Great Britain, Italy, Belgium, Spain, the Netherlands, Luxembourg, the U.S., Canada and South America.
In addition, EULER handles our factoring activities worldwide and HERMES our bond and surety business.
Despite the reorganization of our portfolio, the claims ratio increased 4.1 percentage points to 72.1 percent. Major claims and a large number of insolvencies due to the situation of the economy depressed this figure.
As a result, earnings after taxes deteriorated significantly to 16 (91) million euros.
_ Premium growth was generated primarily by an increase in travel insurance business in Great Britain and the Asia-Pacific region.
Taken together, travel insurance and assistance generated earnings after taxes in the amount of 21 (3) million euros.
Despite the current difficult economic and political situation throughout the world, we expect to be able to maintain our dynamic growth in the current fiscal year.
The claims ratio improved by an exceptional 33 percentage points to 75.2 percent. We are therefore reaping the rewards of the thorough portfolio reorganization that eliminated claims-prone, unprofitable business. In addition, we were spared the major claims that exerted extreme downward pressure on our claims ratio in past years.
Higher premium income combined with constant administrative expense to relieve pressure on the expense ratio, which decreased to 21.1 (22.1) percent.
Allianz Marine & Aviation continued to pursue its previous corporate strategy in the current fiscal year: premiums and conditions were adjusted to cover risks, and the company was extremely selective about underwriting new business. We anticipate a more attractive claims ratio and expect these measure to produce a significant improvement in earnings.
G R O U P M A N A G E M E N T R E P O R T Overview: Life and Health Insurance 55
_ Revenues from investment-oriented life insurance products included in the total rose 43.3 percent to 19.4 billion euros, which increased their share of total revenues to 48.5 percent.
The following table shows the premiums we generated from investment-oriented products in the various countries.
In IFRS accounts, which only recognize the risk and cost elements in premiums from investmentoriented products, premium income rose 2.6 percent to 20.7 billion euros.
_ In this market, we offer life insurance products through Allianz Lebensversicherungs-AG and Deutsche Lebensversicherungs-AG.
_ In November 2002, Allianz Leben was merged with Allianz Lebensversicherungs-AG. The merger was retroactive as of January 1, 2002.
Life insurance Following diminishing premium income in the preceding year, our German life insurers returned to growth in 2002. Revenues were up 719 million euros or 8 percent, which brought premium income to 9.7 billion euros.
With 30 percent higher premiums from new contracts, Allianz Leben clearly outperformed the market. In the area of new business, we were able to increase our market share from 15.1 to 18.3 percent. On the one hand, this success is due to the “flight to quality“ phenomenon, i.e., in uncertain times, customers prefer to obtain their private retirement insurance from life insurers that are financially particularly solid. On the other hand, this upturn in new business is supported by the efficiency of our distribution channels, which include exclusive distribution networks, brokers, special and direct sales as well as the branch network of Dresdner Bank. The bank’s contribution to new business increased substantially from 7.8 to 11.6 percent. The figure for the prior year also included business generated by HypoVereinsbank until cooperation with this institution was terminated.
The expense ratio improved from 13.7 to 9.7 percent. Administrative costs remained at last year’s level of 2.4 percent and thus continue to stay clearly below the market average.
In mandatory care insurance, for which the same conditions apply throughout the market, premium income remained at the previous year’s level of 230 million euros.
The expense ratio increased slightly by 0.7 percentage points to 10.6 percent since the offsetting effect of capitalized acquisition costs was lower than last year.
Our business prospects for the current fiscal year will to a large extent depend on the government’s decisions on health care policy. Disregarding these effects, we expect an increase in new business and corresponding growth in revenues. In this context, we are counting on the strength of our brand and our exclusive sales organizations. Our ongoing efforts in the area of claims and health management are likely to further reduce the claims ratio. A more efficient sales organization is expected to lower the expense ratio. All in all, we expect improved earnings performance in 2003.
The extraordinarily dynamic growth of total premium income by an impressive 1.8 billion euros or 29.8 percent was well above the market average. The RAS Group reported revenues of 6.5 billion euros and Lloyd Adriatico revenues of 1.2 billion euros. While the demand for traditional unit-linked life insurance products declined slightly, this was more than compensated for by sales of unitlinked products with guaranteed components. Premium income in IFRS accounts, which includes only a small fraction of the premiums from investment-oriented life insurance products, amounted to 1.3 billion euros. The success of our companies increased our share of the Italian health insurance market from 12.8 to 13.7 percent.
Net investment income increased to 868 (842) million euros, mainly because RAS Group disposed of most of its real estate holdings.
We are confident that revenues from unit-linked life insurance will continue to increase in the current fiscal year, provided that there is a recovery in the capital markets. The success of sales cooperation with the Unicredito group and the dynamic development of Antoniana Veneta Popolare Vita will further strengthen our position in this growth market. On the downside, the new tax rules announced for life insurance are likely to depress growth in this industry. Nonetheless, we have reason to believe that we will once again be able to improve our earnings performance in 2003.
_ In the French life insurance market, the AGF Group retreated from sixth to eighth place.
Premium income of AGF decreased 11.9 percent for various reasons. First of all, demand for unit-linked life insurance products in private customer business declined 36 percent due to the downturn of the capital markets. The sale of unit-linked products with guaranteed interest rates to some extent made up for this loss but did not fully compensate for it. Growth in this product category amounted to 2 percent. The cancellation ratio continued its fall to 3.25 percentage points, which is below market average.
Total premium income increased 2.0 percent to 1.2 billion euros. Premium income in IFRS accounts, which includes only a small fraction of the premiums from investment-oriented life insurance products, amounted to 651 million euros. This growth is mainly attributable to consumer life insurance business with a high percentage of non-recurring premiums. Gross premium income from this activity increased 12.2 percent to 412 million euros. Recurring premiums represented the main source of income in the area of group life insurance, which brought total premium income up 3.2 percent to 239 million euros.
The expense ratio increased slightly by 0.5 percentage points to 23.1 percent, essentially due to higher project costs.
Total premium income decreased sharply by 41.4 percent to 551 (940) million euros. This decline was due to the fact that in the previous year our corporate customers outsourced their employee pension funds and transferred them to us. In this process, we acquired exceptionally high single payments. In the remaining group and private customer business our companies resisted the downward trend of the market and increased their premium income. Growth amounted to 26 percent and 13 percent respectively.
Total revenues from life and health insurance in the other European markets came to 1.6 (1.9) billion euros. Due to the downturn in the capital markets, many customers refrained from buying unit-linked products, particularly in the Netherlands. In Great Britain, we withdrew from the investment -oriented business and concentrated our efforts on risk life insurance. The demand for traditional life insurance increased in many countries. In IFRS accounts, premium income rose to 1.3 (1.1) billion euros.
In 2002, our companies in central and eastern Europe were involved in the process of building up their business. The corresponding expenses depressed earnings. In Belgium, the Netherlands and Great Britain, charges arising from the performance of the capital markets resulted in losses.
For the current fiscal year, we expect higher premium income and improved earnings performance. The fact that private retirement savings are being increasingly subsidized by the governments of Central and Eastern Europe gives us reason for optimism. Larger portfolios should improve our expense ratio so that overall profitability in the other European markets is likely to rise again.
_ Strong expansion of our revenues network enabled us to boost total premium income 91.3 percent to 9.5 billion euros.
The dynamic growth triggered high acquisition costs, which in IFRS accounts are capitalized and amortized over the estimated life of the contracts. As a result, the expense ratio improved to 47.0 (49.2) percent in the reporting year.
For the current fiscal year, we are aiming for premium volume at the level of the reporting year. Further cost reductions and stable investment income are expected to restore profitability.
A S I A - PA C I F I C R E G I O N
_ We also offer life and health insurance in Asia and are steadily expanding our business in the rapidly developing markets of this region.
With a total premium volume of 1.9 billion euros, our biggest company in this region is in Allianz Life Insurance South Korea (formerly Allianz First Life). It ranks fourth in the South Korean life insurance market. The most common products in this country are guaranteed interest products, which in years with falling interest rates like 2002 puts life insurers under considerable pressure. After taxes, the company reported earnings of 3.2 (26) million euros.
Our Indonesian company, PT Asuransi Allianz Life Indonesia, offers life and health insurance. In 2002, the two lines generated vigorous growth of 87 percent to 47 million euros, which was due to the expansion of our distribution capacity. With 5.400 representatives, we operate the biggest life insurance distribution network in the Indonesian market. The after-tax loss in Indonesia came to 2.5 (8.5) million euros.
In Malaysia, we sell life insurance through our subsidiary Allianz Life Insurance Malaysia Berhad. We are also represented in the area of life insurance in Taiwan. In Singapore and Pakistan, we now underwrite health insurance. In Thailand, we are represented through our interest in Allianz CP Life.
In the current fiscal year, we will further expand our life insurance business in China. We are planning to enter the bancassurance market in South Korea together with our cooperation partner Hana Bank.
Altogether, we expect further premium growth in the Asia-Pacific region and improved earnings performance.
We also sell life insurance in Brazil, Colombia, Chile, Argentina and Venezuela. Total revenues in these countries amounted to 237 million euros.
Loan loss provisions were increased to 2.2 billion euros. This step was necessitated by the growing number of insolvencies among business customers and the fact that we expect substantial loan losses in Latin America. Additional write-downs were required in the private customer lending business.
The balance of other income and expenses increased to 675 (248) million euros. This amount includes a profit of 1.9 billion euros that was generated by the transfer of the activities of Dresdner Bank Asset Management to Allianz AG. This profit is consolidated at Group level. Other expenses essentially included write-downs on stock portfolios (986 million euros) and restructuring expenses (245 million euros).
As a result, the banking business reported a loss of 1.4 billion euros.
Loans and advances to customers and banks ¤ bn 246 277
Liabilities to customers and banks ¤ bn 278 307 *) When comparing the figures for fiscal 2002 with those for 2001, it should be noted that
3. In the process of divisionalization, previously centralized services were transferred to the divisions and made even leaner.
To ensure that the Turnaround 2003 program is successfully realized within the set timeframe, we established a steering committee made up of members of the Board of Management of Allianz AG and Dresdner Bank. The execution of this program is our foremost priority.
In 2002, our business with private and business customers was once again overshadowed by the downward trend of the stock markets. Securities trading stagnated and the lending business suffered from low interest rates and a high default rate. We set aside 561 (233) million euros for the corresponding loan loss provision. This provision primarily concerns our loans to business customers. Our restructuring measures produced first results und limited administrative expenses to 3.0 billion euros. Our loss increased to 304 (160) million euros. However, it should be borne in mind that our earnings were impacted by restructuring expenses.
Corporates & Markets The results of the Corporates & Markets division continued to
Corporates & Markets deteriorate. The weakness of the capital markets and the stagnating world economy caused income to dwindle to 3.8 billion euros. While we were able to reduce administrative expenses more than originally planned, cost management alone was unable to stem the tide, particularly since earnings were hit by loan loss provisions that climbed to 1.6 billion euros. The write-downs essentially affect the portfolios which we are transferring to IRU. The after-tax loss doubled to 1.6 (0.8) billion euros.
In the current fiscal year, the banking business will continue on its precarious path. As long as the economy shows no clear signs of recovery and the decline of the capital markets cannot be reversed, we do not expect any fundamental improvements. Beyond the timely implementation of the Turnaround 2003 program, our performance will essentially depend on our ability to boost operating income in a difficult economic context.
In 2002, we achieved a number of successes: _ With a net inflow of 56 billion euros, our fixed-income fund business achieved extraordinarily strong growth. This increased the fixed-income share of our portfolio to 72 percent; equity funds account for 25 percent.
_ Our PIMCO Total Return Fund alone increased its investment volume to 68 billion U.S. dollars by the end of the year and thus became the largest actively managed investment fund in the world.
_ Measured in terms of net inflows from third-party sales, our public funds rank second in the U.S.A.
_ The leading position of ADAM in the institutional customer business in Germany can also be attributed to the successful integration of Dresdner Bank Asset Management.
_ In June 2000, we launched the Allianz Dresdner Pension Fund.
The operating result rose to 495 million euros, up 182 million euros from the previous year. The increase is due to the fact that the asset management activities of Dresdner Bank were for the first time included on a full-year basis. The bank was consolidated as of July 23, 2001. Our operating result remained essentially unchanged on the previous year, despite the difficult situation in the capital markets.
An improved cost structure, mainly due to the restructuring of our equity investment units, improved the cost-income ratio from 84.7 to 78.5 percent.
Acquisition-related expenses totaled 729 million euros. They include amortization of goodwill of 377 million euros as well 155 million euros for the amortization of loyalty bonuses for the management of the PIMCO group. These bonuses were agreed upon in 2000 as part of the price paid for the company and are amortized over five years. Another 197 million euros are “retention payments ” for the management and employees of PIMCO and Nicholas-Applegate. These payments were also agreed upon as part of the acquisition package for the fund management companies and will continue for another two years.
For the first time, this statement of Group investments also includes trading liabilities in the amount of 53.5 billion euros.
The current value of investments in affiliated enterprises, joint ventures and associated enterprises decreased by 9.2 billion euros to 15.0 billion euros. Most of these investments are in associated enterprises (i.e. companies in which we hold a share of between 20 and 50 percent), which are valued by the equity method. Our biggest holdings were Münchener Rückversicherungs-Gesellschaft AG (4.5 billion euros) and Beiersdorf AG (3.9 billion euros). For the first time, we also valued our interest in Eurohypo AG as an associated enterprise. In this company, Dresdner Bank AG, Deutsche Bank AG and Commerzbank AG have pooled together their real estate financing activities.
In addition, we held securities with a current value of 289.4 billion euros. Of these, 6.5 billion euros were in securities held to maturity and 266.0 billion euros in securities available for sale. The latter included 18 (25) percent stocks and 82 (75) percent fixedincome securities. The difference with respect to the previous year is due to the development of the capital markets and our decision to reduce the equity allocation in our portfolios. Unrealized gains and losses from dividend-bearing equity securities decreased to – 4.9 billion euros, those from fixed income securities increased to 11.0 billion euros. A list of companies in which we hold at least 5 percent of the capital or in which our investment exceeds 100 million euros can be found on pages 149 to 150 of the Notes to the Consolidated Financial Statements. Also shown in this list are the percentage of our interest in each company and the market capitalization of our holdings. At the end of 2002, the market value of these holdings amounted to 27.7 billion euros.
The balance of trading assets and trading liabilities amounted to 71.3 billion euros at December 31, 2002. Trading assets (124.8 billion euros) consist of fixed-income securities (74 percent), dividend-earning equity securities (7 percent) and derivatives (19 percent). Trading liabilities (53,5 billion euros) essentially include derivatives (40 percent) and obligations to deliver securities (56 percent). These items are primarily attributable to the banking business.
Other investment mainly includes loans advanced by Group enterprises (18.7 billion euros) as well as bank deposits (8.3 billion euros).
Investment from the insurance business contributed 13.8 (14.8) billion euros (also see table 38 “Supplementary information on insurance business – Investment income” on page 132 of the Notes to the Consolidated Financial Statement). Differences with respect to this presentation are due to the inclusion of income components from real estate owned by Allianz and used for its own activities (0.2 billion euros) as well as the exclusion of income components from trading liabilities (0.2 billion euros). An additional 2.7 (2.8) billion euros of investment income came from the banking business, including 1.1 billion euros from trading activities.
Investments for unit-linked life insurance increased 4 percent from last year to 25.7 billion euros.
Investment structure by segments as of December 31, 2002 Current values in ¤ bn
Interests in affiliated enterprises, joint ventures and associated enterprises 8.2 2.0 4.8 –
This decentralized approach is complemented by centralized responsibility. This is necessary because we need to deal with an accumulation of global risks which can considerably increase potential risk exposure. As a result, central controls are essential. The responsibility for central control lies with Group Risk Controlling, a unit that was expanded in 2002. Central control now also includes the banking business.
In property and casualty insurance, actuarial risks arise from an unexpected variance: _ the volume of losses exceeds premiums fixed in advance (premium risk), or
In life insurance, actuarial risks arise because we are committed to making guaranteed long-term payments in return for a fixed insurance premium calculated in advance even though the biometric data of the population may change over time (e.g., longer life expectancy as a result of medical progress).
Counterparty risks from trading activities relate primarily to derivatives and especially OTC transactions. In the insurance business, these risks stem from the possibility that receivables may remain unpaid, in particular those due from reinsurers.
Market risks Market risks result from portfolio valuation fluctuations due to changes in share prices, interest rates or exchange rates. Also risk relevant are changes observed in the variation behavior (volatility) of an asset price, for example.
Liquidity risks These risks can materialize under various circumstances, for example: _ if present or future payment obligations cannot be met in full or as of the due date, or
Health insurance risks Health insurance risks are treated either as property and casualty insurance risks or as life and health insurance risks, depending on the segment to which the health insurance is assigned in the given market.
Risk controlling in the insurance business To control risks in the insurance business, we focus on premium risks, reserve risks, credit and counterparty risks and investment risks.
In individual cases, we use derivative financial instruments such as swaps, options and futures to hedge against changes in prices or interest rates. The end users of these derivatives are Allianz Group companies. Our internal investment and monitoring rules are considerably stricter than the regulations imposed by supervisory authorities.
Market and counterparty risks arising from the use of derivative financial instruments are subject to particularly strict control procedures: _ credit risks are assessed by calculating replacement values.
_ market risks are monitored by means of up-to-date value-at-risk calculations and stress tests and limited by specifying stop-loss limits.
We limit liquidity risks by reconciling our investment portfolio with our insurance commitments. In addition, we plan our cash flow from ordinary activities.
In this business segment, the following types of risks are controlled: credit and counterparty risks including counterparty risks from trading activities, country risks, market risks in the trading and investment portfolios, and liquidity risks.
Credit and counterparty risks These risks are directly linked to granting credits in the banking business. The bank controls these risks through guidelines and credit risk committees. The ratings of our customers and their credit engagements represent the central element used in the approval, supervisory and control process in the area of credit and derivatives activities. This process involves analyzing and weighting the various creditworthiness characteristics of the customers and presenting the results in the form of rating scales. The forecasting quality, up-to-dateness and portfolio coverage of the rating methods used are controlled by periodic sampling and regular reports.
In the past year, Dresdner Bank increased the number of rating classes from 8 to 16. The first six classes correspond to “investment grade”, classes VII to XIV signify “non investment grade”. Rating classes XV and XVI are default classes according to the Basel II Definition. At the end of fiscal 2002, about 70 percent of all counterparty risks in the trading and banking portfolios of Dresdner Bank fell into rating classes I to VI.
The volume of the overall portfolio is to a great extent determined by the banks trading business, which involves primarily transaction with very low default probability, i.e. with state and local agencies and financial services providers. Approximately 85 percent of the transactions with public agencies or organizations are rated in the top risk class I. Approximately 60 percent of the transactions with financial services providers fall into risk classes III to V. These two segments represent 56 percent of the bank’s total portfolio.
Counterparty risks are now centrally controlled by Dresdner Bank’s Risk Management and Control Committee, which is headed by the Chief Risk Officer of Dresdner Bank. The newly created body issues the appropriate guidelines and standards for the risk strategy and risk control of the Dresdner Bank Group and ensures compliance. In addition, the committee decides on essential projects involving a credit risk. In this context, the Risk Management and Control Committee oversees the coordination between the risk management of the company’s divisions and the Corporate Center Risk Control Unit. This is done in close cooperation with Allianz AG’s Group Risk Controlling (Allianz Group Center). In addition, the committee is responsible for the monthly audit of the overall portfolio. This audit, which is performed in cooperation with the divisions, is controlled by Risk Controlling. Its purpose is to monitor credit risks on a continuing basis and to make sure that the management ’s credit risk strategy is adhered to.
We account for the development of risks in the lending business by making allowances for individual risks and country risks. In setting up risk provisions, we consider the creditworthiness of the borrower, the general economic environment and risk-reducing measures, for example securities. In 2002, total risk provisions in the banking business amounted to 7.6 billion euros.
Counterparty risk from trading activities: in the credit-sensitive trading business with OTC derivatives, the selection of counterparties plays a decisive role. The selection process is aimed at counterparties with top-quality credit ratings. In the derivatives portfolios of Dresdner Bank, 95 percent of the positive replacement values, which are essential for assessing counterparty risk, involve counterparties in risk classes I to VI described above and are thus of “investment grade”. To reduce the counterparty risk from trading activities, socalled cross-product netting master agreements with the business partners are set up. In the case of a defaulting counterparty, netting makes it possible to offset any claims and liabilities not yet due.
At the end 2002, Dresdner Bank’s country risk provisions totaled 367 million euros. The regional breakdown of this amount is shown in the chart.
Market risks in the trading portfolio: the risks from Dresdner Bank’s trading activities decreased in comparison to the previous year. This is mainly attributable to reduced holdings of interest-bearing instruments.
To validate the quality of the value-at-risk model, our bank performs regular backtests. For this purpose, the value-at-risk calculated on the basis of the current position is compared to the actual change in value on the following day. This shows whether the model used provides an adequate assessment of the risks.
Financial services providers Governmental agencies and organizations Services Industry Non self-employed Wholesale and retail Others 12/31/2002 ¤ bn
Value-at-risk is only one of the instruments used to characterize the risk profile of the Dresdner Bank Group. In addition, the bank also uses operational risk indicators and limits, which are specifically adapted to the risk situation of the trading units. Trading is controlled by setting value-at-risk and operational market risk limits. Current limit utilization is determined and monitored by Risk Controlling on a daily basis. Limit breaches are immediately indicated to the management concerned so that corrective action can be taken.
Liquidity risk measurement is based on the liquidity management system. This system models the maturities of all cash flows and draws up a scenario-based liquidity balance sheet, taking into account available prime-rated securities.
Risk control in asset management Risk control in asset management is an integral part of the processes of the local units or the investment platform. The Corporate
Year-end 2002 annual statistics Year-end 2002 Mean value Maximum Minimum 2001
*) No diversification effect can be taken into account since the maximum and minimum values were measured at different dates.
Operational risks are risks caused by inadequacies or faults in business processes or controls. These may be related to technical problems or employees, operational structures or external influences. We intend to minimize such risks by installing a comprehensive system of internal controls and security systems in each operating unit. Operational risks are limited by a wide range of technical and organizational measures such as redundant hardware configurations, communications equipment and systems, back-up computing facilities, and data backups to maintain IT capability in emergencies. In addition, procedures are in place for safeguarding the confidentiality and integrity of stored data and information. For this purpose, high-performance firewall systems were introduced to protect the IT network against external interference along with complex access authorization procedures, supervision and control processes. The principle of dual control is adhered to in the case of operating procedures. The purpose of these measures is to ensure and document an adequate standard for Group-internal processes.
Dresdner Bank is continually refining its system for the assessment of creditworthiness in the lending and trading business, as well as its authorization, supervision and control processes. These measures are based on the future Basel Capital Accord (Basel II), which is currently being revised. The new accord provides for a fundamental reform of regulatory capital requirements for credit risks and, for the first time, includes operating risks. The objective is to bring statutory minimum equity capital requirements in line with actual risks. Basel II also provides for different calculation options for credit risks and operational risks, whereby different levels of security are permitted within a given risk class. In either case, Dresdner Bank intends to implement the approach with the most stringent requirements. For credit risks, this is the Internal Rating Based Advanced Approach and for operational risks the Advanced Measurement Approach.
We therefore cultivate contacts with international management prospects at renowned universities and business schools in the U.S.A., France, Switzerland and Italy. We also recruit our future managers from leading schools in Australia and South Korea. In addition, we offer a total of about 800 internships in all parts of the world – a coveted opportunity to become more familiar with the Allianz Group.
International education programs and development perspectives As an international financial services group, we demand and promote an international orientation and intercultural competency on the part of our employees. We are committed to filling newly available positions in our worldwide organization primarily through internal promotions that encourage upward mobility on an international scale. With the acquisition of Dresdner Bank, the available career choices have become even more interesting. Many employees already switched from Dresdner Bank to Allianz
Our employees’ sense of commitment, professionalism and customer focus have helped the Allianz Group obtain the rank it holds today.
The human resources policy of the Allianz Group is based on two principles: delegation of operating responsibility to the individual company units, and close global coordination in core areas. In human resources, this coordination primarily covers succession planning, management training and the transfer of know-how.
What do we do to help our employees enlarge their professional horizon? We provide international training programs, expatriation programs as well as study groups and workshops on the transfer of know-how in which multi-nationality is a basic principle. Our corporate university, the Allianz Management Institute, operates exclusively on an international scale.
Expatriation We offer our employees every opportunity for professional advancement outside their familiar context. We propose project-related foreign assignments, which tend to be short-term by nature, but also expatriate positions for several years. Standards for expatriations of any kind and for the return to their home country ensure the peace of mind of our employees and their superiors and thus increase their motivation to expand their professional horizons far from home.
Transfer of know-how Internationally staffed study groups and workshops promote the transfer of knowledge within the Group and strengthen the market position of our subsidiaries. The added-value potential of this initiative is enormous, and the participants’ possibilities for professional and intercultural advancement are equally as large.
AMI management programs The Allianz Management Institute is our corporate university for international top management. It disseminates knowledge, but it also develops Group strategy. An example are the meetings of top-level managers from the most diverse countries with members of the Group’s Board of Management. In the framework of the AMI Campus Program, these meetings address common strategic questions. The topics of these strategic workshops included “Building an Entrepreneurial Organization” and “The Integration Process after a Merger”.
Our training center in Kempfenhausen on Lake Starnberg was completed in April 2002 and can now accommodate conferences with up to 150 participants. It is the venue for our international Allianz Management Programs, with the exception of those held at business schools. In addition, we invite renowned professors from business schools and experts from within the company to shape career and management programs for Allianz junior managers at Kempfenhausen.
Performance orientation and compensation Performance and result-based remuneration is the mainstay of our compensation strategy. With management, we agree on annual objectives in which our added-value concept is of crucial importance. But even employees without management functions are increasingly managed by objective and the corresponding target agreements.
Total wages and salaries paid by the Group to its employees worldwide amounted to 8.8 (6.8) billion euros in 2002. Social security contributions, pensions and other employee benefits amounted to 2.4 (1.6) billion euros.
Our employee stock purchase plan was further expanded. In 2002, we offered Allianz shares at preferential conditions to over 150,000 employees in 24 (22) countries.
For management, we launched another tranche of our long-term incentive plan. The key determinants of this variable compensation plan are the development of the Allianz share price as well as the Economic Value Added of the Group and its respective companies. For details, see page 20 as well as 18 of this Annual Report.
Business outlook of the Allianz Group Despite the risks referred to, we expect clear improvements of Allianz Group's operating results in the current year. We are planning further reductions of the combined ratio in the insurance business and of the cost-income ratio in asset management. The Turnaround 2003 program will substantially lower personnel costs and operating expenses in the banking business. However, if the uncertainties in the financial markets persist and economic activity remains depressed, high charges for security write-offs and loan loss provisions can be expected in the current year as well.
These assessments are, as always, subject to the disclaimer provided below.
Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences.
Commission. The company assumes no obligation to update any forward-looking information contained herein.
Supplementary Information to the Consolidated Income Statement 124 24 Premiums earned (net) 124 25 Interest and similar income 125 26 Income (net) from investments in affiliated enterprises, joint ventures, and associated enterprises 125 27 Other income from investments 125 28 Trading income 126 29 Fee and commission income, and income from service activities 127 30 Other income 127 31 Insurance benefits 128 32 Interest and similar expenses 128 33 Other expenses for investments 128 34 Loan loss provisions 129 35 Acquisition costs and administrative expenses 130 36 Other expenses
B. Investments in affiliated enterprises, joint ventures, and associated enterprises 6 11,345 10,247
➤➤ Note ¤ mn ¤ mn 2. Interest and similar income 25 28,210 24,224 3. Income (net) from investments in affiliated enterprises, joint ventures, and associated enterprises 26 4,398 1,588 4. Other income from investments 27 9,355 8,502 6. Fee and commission income, and income from service activities 29 6,102 4,827 9. Interest and similar expenses 32 – 10,651 – 7,947 10. Other expenses for investments 33 – 14,102 – 8,923 12. Acquisition costs and administrative expenses 35 – 24,431 – 19,324 15. Earnings from ordinary activities before taxes – 1,214 1,827 17. Minority interests in earnings 14 – 688 – 1,044
Paid-in Revenue Unrealized Consolidated Shareholders’ capital reserves gains and unappropriated equity losses profit ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn
The data for the cash flow statement were prepared in accordance with International Financial Reporting Standards. It excludes the effects of major changes in the scope of consolidation, which in 2002 included in particular the purchase of additional shares of Allianz Lebensversicherungs -AG, Stuttgart, Bayerische Versicherungsbank AG, Munich, Frankfurter Versicherungs-AG, Frankfurt/Main, Dresdner Bank Group, Frankfurt/Main, and Slovenská poist’ovna a.s., Bratislava, as well as the deconsolidation of Deutsche Hyp Deutsche Hypothekenbank Frankfurt -Hamburg AG, Frankfurt/Main. The deconsolidation led to a decrease in the value of investments held (excluding funds held by others) by ¤43,558 mn, compared to a ¤77,978 mn increase in the prior-year period. Acquisitions increased goodwill by ¤2,924 mn (5,146 mn), and the net total of other assets and liabilities by ¤51,416 mn (88,568 mn decrease). Cash outflow related to these transactions amounted to ¤10,764 mn (12,450 mn). Cash funds were further reduced by changes in the scope of consolidation amouting to ¤23 mn (24,564 mn increase). Outflow for taxes on income amounted to ¤1,196 mn, compared to an inflow of ¤306 mn in the prior-year period.
Change in reserves for loss and loss adjustment expenses 2,530 3,375
Change in funds held by others under reinsurance business assumed 1,349 – 171
Change in liabilities to banks and customers – 8,215 – 5,456
Net cash flow provided by (used in) operating activities – 670 – 775
Change in aggregate policy reserves for life insurance products according to SFAS 97 10,808 8,089
Effect of exchange rate changes on cash and cash equivalents – 109 18
B. Investments in affiliated enterprises, joint ventures, and associated enterprises 51,448 40,387 6,183 6,043
D. Investments held on account and at risk of life insurance policyholders – – 25,657 24,692
I. Amounts ceded to reinsurers from insurance reserves 17,188 19,209 17,623 17,927
Total equity and liabilities 852,056 942,925 *) Shareholders’ equity and minority interests
Specialty lines Premiums Net Net Net Investments earned (net) claims ratio expense ratio income
¤ mn ¤ mn % % % % ¤ mn ¤ mn ¤ mn ¤ m
Allianz Global Risks Rückversicherungs-AG 559 – 100.8 – 41.7 – – 257 – 1 –
L I F E / H E A LT H Premiums Net Net income Investments earned (net) expense ratio
¤ mn ¤ mn % % ¤ mn ¤ mn ¤ mn ¤ mn 1. Europe
On December 18, 2002, the Board of Management and the Supervisory Board of Allianz AG issued the Declaration of Compliance according to § 161 AktG and made it available on a permanent basis to the shareholders on the company’s website. The text of the Declaration of Compliance is also reproduced in the section German Corporate Governance Code beginning on page 8 of this Annual Report.
In addition to Allianz AG, 213 (previous year: 163) German and 1,045 (1,021) foreign enterprises have been consolidated in full. In addition, 74 (73) German and 79 (85) foreign investment funds were consolidated.
12 (13) joint ventures have been accounted for using the equity method; each of these enterprises is managed by Allianz AG together with a third party not included in the consolidated financial statements.
All affiliated companies, joint ventures, and associated companies that are included in or excluded from the consolidated financial statements are individually listed in the disclosure of equity investments filed with the Commercial Register in Munich. All private companies are also listed and identified separately in this disclosure of equity investments, for which the consolidated financial statements and the Group management report have an exempting effect in accordance with the application of the § 264 b of the German Commercial Code (HGB). Selected affiliated and associated enterprises are shown on pages 145 to 148.
New acquisitions and first-time consolidations in the year under review included in particular the following: The Slovak insurance company Slovenská poist’ovna a. s., Bratislava, operates in both the property/casualty and the life/health insurance business segments. On July 22, 2002, Allianz Group acquired 66.8 % of the shares of Slovenská poist’ovna for a purchase price of ¤66.3 mn. An additional 25.8 % of the shares were acquired on August 22, 2002, and a further 6.5 % on December 20, 2002. The total acquisition cost for our 99.1 % shareholding amounted to ¤216.2 mn.
_ On June 28, 2002, we increased our interest in Frankfurter Versicherungs-AG, Frankfurt/Main, by 50.0 % to 100.0 % (acquisition cost for additional shares: ¤929.5 mn). This transaction produced additional goodwill amounting to ¤57 mn.
_ On June 28, 2002, we increased our interest in Bayerische Versicherungsbank AG, Munich, from 45.0 % to 90.0 % (acquisition cost for additional shares: ¤857.9 mn). This transaction produced additional goodwill amounting to ¤94 mn.
_ On January 15, 2002, June 28, 2002, July 2, 2002 and August 23, 2002, we successively increased our interest in Dresdner Bank AG, Frankfurt/Main, by a total of 21.5 % to 100.0 % (acquisition cost for additional shares: ¤6,338.2 mn). This transaction produced additional goodwill amounting to ¤2,002 mn.
The proceeds from the sale of Deutsche Hyp Deutsche Hypothekenbank AG amounted to ¤1,411 mn.
Date of Net Goodwill2) Amortization first-time income of goodwill consolidation ¤ mn ¤ mn ¤ mn
Positive differences arising on first-time consolidation are capitalized as goodwill and amortized over their estimated useful life. In the case of acquisitions prior to January 1, 1995, such differences have been recorded directly in revenue reserves within shareholders’ equity in accordance with the transitional provisions in force under IAS 22.
The earnings generated by subsidiaries after their first-time consolidation or, where appropriate their acquisition adjusted for consolidation effects, are allocated to revenue reserves of the Group based on the Group’s ownership percentage in the subsidiaries.
Foreign currency translation Allianz AG’s reporting currency is the euro (¤). Foreign currency is translated in accordance with IAS 21 by the method of functional currency. The functional currencies for Group companies are usually the local currencies of the relevant companies, e.g. the prevailing currency in the environment where the enterprise carries out its ordinary activities. In accordance with the functional currency method, assets and liabilities are translated at the closing rate on the balance sheet date, and expenses and income are translated at the annual average rate for financial statements of subsidiaries not reporting in ¤. Any translation differences, including those arising in the process of equity consolidation, are recorded directly in shareholders’ equity without affecting earnings.
Assets and liabilities of the Group which are subject to exchange rate fluctuations are normally safeguarded against such fluctuations by the fact that individual foreign subsidiaries have most of their assets and liabilities in the same currency.
The principal exchange rates are summarized in the following table: Recognition principles Financial assets or financial liabilities are recognized in the balance sheet from the time at which the recognizing Group enterprise becomes a contractual partner to the contract governing the financial instrument. A financial asset is derecognized when the enterprise loses control of the contractual rights that characterize the financial asset. Financial liabilities are derecognized when the liability is amortized, settled, discharged, cancelled or expired.
Goodwill represents the difference between the purchase price of subsidiaries and the Group’s proportionate share of their net assets valued at the current value of all assets and liabilities at the time of acquisition. Minority interests are generally valued at amortized historical cost. Goodwill is amortized over its useful life, which is normally 10 years for property and casualty insurance enterprises, 20 years for life and health insurance enterprises, 10 years for banks, and 20 years for asset management companies.
The capitalized value of life/ health insurance policies is amortized over the lives of the policies concerned based on either the realization of surpluses or receipt of premium income. The valuation is based on actuarial principles taking into account assumptions for future premium income, mortality, disease and lapses in addition to underwriting expenses and returns on invested assets. The discount rate corresponds to the opportunity costs for the risk capital used. Other intangible assets also include capitalized loyalty bonuses for senior management of the PIMCO Group, Delaware, that are amortized on a straight-line basis over five years, as well as the value of the brand names of Dresdner Bank Group that are amortized on a straight-line basis over 20 years. The fair value for the names “Dresdner Bank” and “dit” (Deutscher Investment-Trust), registered as trade names, was determined using a royalty savings approach.
Investments in affiliated enterprises, joint ventures, and associated enterprises Investments in unconsolidated affiliated enterprises, joint ventures, and associated enterprises are generally valued in accordance with the equity method and the Group’s valuation principles, at the Group’s proportionate share of their net assets based on information at the last available balance sheet date. In the case of investments in enterprises that prepare their own consolidated financial statements, the valuation is based on their consolidated equity. Accordingly, our share of net income or loss of such investments is included in consolidated net income. The effects of profits and losses from intercompany transactions have been eliminated.
Investments in unconsolidated affiliated enterprises, joint ventures, and associated enterprises that are not valued using the equity method because they are not material, are accounted for at cost. Associated enterprises are all those enterprises in which the Group has an interest of between 20 % and 50 %, for all of which significant influence is presumed.
Securities held to maturity, include fixed-income securities that the Group has the ability and intent to hold until maturity. They are valued at amortized cost. Premiums or discounts are amortized over the life of the instrument using the effective yield method. The amortization of premiums or discounts is booked as interest income. If securities of this category are exceptionally sold before reaching maturity, the realized gains and losses are principally determined by applying the average cost method.
Securities held to maturity, securities available for sale, and equity method investments are subject to regular impairment reviews. Securities and equity method investments whose decline in fair value is other than temporary are written down to their fair value.
Real estate used by third parties (i.e. real property and equivalent rights and buildings, including buildings on leased land) is carried at cost less accumulated scheduled and unscheduled depreciation. Real estate used by third parties is depreciated on a straight-line basis over its estimated life. The fair value of real estate used by third parties is determined by the discounted cash flow method.
Derivatives are initially recognized at cost and subsequently valued at fair value. Pursuant to IAS 39, derivative financial instruments that do not meet the criteria for hedge accounting are reported at fair value as trading assets or trading liabilities. Gains or losses on these instruments arising from valuation at fair value are included in trading income. This treatment is also applicable to derivatives that are used independently not in connection with hedge transactions and for separated embedded derivatives of a hybrid financial instrument. In contrast, derivatives used in hedge transactions are recognized and classified as follows: Fair value hedges The risk of changes in the fair value of reported assets or liabilities is hedged by a fair value hedge. Changes in the fair value of a hedging instrument are recognized in current income, and classified together with the corresponding changes in fair value of the hedged instruments in the income statement.
Cash flow hedges Cash flow hedges reduce the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or attributable to future cash flows from a firm commitment or a forecasted transaction. Any value changes in derivative instruments that constitute an effective hedge are recorded under shareholders’ equity, and recognized in income when the offsetting gain or loss associated with the hedged item is recognized. The ineffective part of the hedge is recognized directly in the income statement.
Hedges of a net investment in a foreign entity Hedge accounting may be applied to a hedge of a net investment in a foreign entity. Financial instruments are used to hedge currency risk. The proportion of gains or losses arising from the valuation of the hedging instrument that qualifies as an effective hedge is recognized in shareholders’ equity, while the ineffective part is recognized in the income statement.
Loans are placed on non-accrual status when management determines that the payment of principal or interest is doubtful. Management ’s judgement is applied based on its credit assessment of the borrower. Non-accrual loans consist of loans on which interest income is no longer recognized on an accrued basis, and loans for which a specific provision is recorded for the entire amount of accrued interest receivable. When a loan is placed on non-accrual status, any accrued but unpaid interest previously recorded is reversed against current period interest revenues. Loans can only be restored to accrual status when interest and principal payments are made current in accordance
Included in loans and advances to banks and customers are outstanding reverse repurchase transactions. A reverse repurchase transaction involves the purchase of securities with the simultaneous obligation to sell those securities at a future date. Interest earned on reverse repurchase agreements is reported as interest income in the consolidated income statement.
Property and equipment holdings are used by the Group under operating leases, whereby the risks and benefits relating to ownership of the assets remain with the lessor, and are not recorded on our balance sheet. Payments made under operating leases to the lessor are charged to administrative expenses using the straight-line method over the period of the lease. When an operating lease is terminated before the lease period has expired, any penalty is recognized in full as an expense at the time when such termination takes place.
Cash and cash equivalents This item includes balances with banks payable on demand, balances with central banks, checks and cash on hand, treasury bills (to the extent that they are not included in trading assets), and bills of exchange which are eligible for refinancing at central banks, subject to a maximum term of six months from the date of acquisition. Cash funds are stated at their face value, with holdings of foreign notes and coins valued at year-end closing prices.
Deferred tax assets The calculation of deferred taxes is based on temporary differences between the carrying amounts of assets or liabilities in the published balance sheet and their tax bases, and on differences arising from the application of uniform valuation policies for consolidation purposes as well as consolidation in the income statement. The tax rates used for the calculation of deferred taxes are the local rates applicable in the countries concerned; changes to tax rates already adopted as of the balance sheet date are taken into account.
Real estate owned by Allianz and used for its own activities (e.g., real property, and buildings, including buildings on leased land) is carried at cost less accumulated scheduled and unscheduled depreciation. Buildings owned by the Allianz Group are depreciated on a straight-line basis over their estimated useful lives.
Equipment is carried at cost, less accumulated scheduled and unscheduled amortization. Depreciation is generally computed using the straight-line method over the estimated useful lives of the assets. The estimated useful life of equipment is 2 to 10 years and for purchased information technology equipment is 2 to 8 years. Costs for repairs and maintenance are charged to expenses while improvements are capitalized.
All deferred acquisition costs are reviewed regularly to determine if they are recoverable from future income, including anticipated investment income. Deferred acquisition costs which are not deemed to be recoverable, are charged to income.
_ policyholders participate in a surplus on the basis of a mechanical or non-contributory system.
_ policyholders are guaranteed fixed benefits and do not participate in any profits. All other benefits and risks are carried by the insurer.
_ policyholders are entitled, within certain limits, to vary the level of premium payments, and the life insurance enterprise does not generally give any contractual guarantees about minimum rate of return or the level of management fees (e. g. universal life policies).
The assumptions used in the first case are conservative and contractually agreed, so there is a strong probability that surpluses will arise, most of which have to be distributed to policyholders. Acquisition costs are deferred over the term of the policies in the same proportion as the surpluses in individual years contribute to the surplus on the portfolio concerned.
The interest rates used for the assumptions were as follows: In the fourth and fifth cases the aggregate reserve is not calculated actuarially; in the fourth case it moves in line with the value of the related investments, and in the fifth case in line with the policyholders’ account balances.
_ claims incurred but not yet reported at the balance sheet date
Unrealized gains and losses in connection with the valuation of investments are recognized in the latent reserve for premium refunds to the extent that the policyholder will participate in such gains and losses on the basis of statutory or contractual regulations when they are realized.
Accrued taxes are calculated in accordance with the relevant local tax regulations. Miscellaneous accrued liabilities are recorded as projected. Miscellaneous accrued liabilities primarily include restructuring provisions, provisions for anticipated losses arising from non-insurance business, provisions for contingent liabilities, for litigation, and for employees (e.g. early retirement, phased retirement, employee awards for long service, and vacation) and agents (e.g. unpaid commissions).
Other liabilities These include funds held under reinsurance business ceded, accounts payable on direct insurance business, accounts payable on reinsurance business, and miscellaneous liabilities. These are reported at the redemption value.
Premiums and unearned premiums Premiums for property and casualty insurance are reported proportionately as income over the term of the insurance contract in relation to the exact risk coverage period. Unearned premiums are calculated separately for each policy, in order to determine the portion of premium income that has not yet been earned.
Premiums from short-term personal accident and health insurance policies are recorded proportionately over the term of the insurance policy. Premiums from long-term personal accident and health insurance policies are reported as earned when due. Reserves are set up for benefits and expenses from this income, in order to record the profits over the estimated term of the insurance policies.
Risk premiums, cost of insurance and cancellation premiums represent the premium income from investment-oriented insurance policies (universal life type) and pension plans with variable payout amounts. These are deducted from the accountholder’s account balance and recorded in the income statement. Benefits charged to expense include benefit claims incurred during the period in excess of policy account balances and interest credited to policy account balances.
Interest income and interest expenses are recognized on an accrual basis. Reporting of current income includes interest, dividends from equity securities, the share of net income from enterprises accounted for using the equity method, dividend income from investments in affiliated enterprises and participations, and interest recognized on finance leases. Dividends are recognized in income when received. Interest on finance leases is recognized in interest income over the term of the respective lease so that a constant yield based on the net investment is attained.
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 loan and savings contracts and real estate. Fee and commission income is recognized in banking business when the corresponding service is provided.
A reverse repo transaction involves the purchase of securities with the simultaneous obligation to sell these securities at a future date. If control over the securities remains with the pledgor, these transactions are reported in “Loans and advances to banks”, or “Loans and advances to customers”.
Assets The definition of an asset is broader under IFRS rules than under the German Commercial Code (HGB). By its reference to the creation of future commercial benefit for the company without the prerequisite of an acquisition against payment, items such as brand names and software developed in-house also must be reported in the accounts under IFRS as assets.
Claims equalization reserves Claims equalization reserves and major risk reserves are not allowed under IFRS because they do not represent a present obligation toward third parties. The net result for the year is not affected by transfers to or from such reserves.
Valuation at equity All participations of between 20 % and 50 % are valued using the equity method, i.e. at the corresponding proportion of the shareholders’ equity. It is therefore irrelevant whether a significant influence is actually exercised or not. This means that the valuation includes a proportion of the net profit of the enterprises concerned.
Fund for general banking risks According to German Commercial Law, provisions may be made for general banking risks pursuant to clause § 340f of the German Commercial Code (HGB), setting aside a special item pursuant to clause § 340g of the German Commercial Code. This is, however, not permitted for consolidated financial statements under IFRS rules.
Treasury shares Under IFRS rules, treasury shares held within the Group are deducted from shareholders’ equity. Gains or losses from trading in own shares are added to, or subtracted from, equity with no impact on the income statement. According to the German Commercial Code, own shares must be reported as assets, with reserves for treasury shares set aside at the same time. Also, in financial statements prepared according to the German Commercial Code, gains or losses from trading in own shares would be transferred to the income statement and reported under trading income.
Intangible assets comprise the following: Changes in goodwill for the fiscal year were as follows: The reclassification represents the goodwill in associated companies, which is recognized as part of the interest in associated companies. Reclassifications include: _ ¤181 mn Münchener Rückversicherungs-AG,
_ ¤2,002 mn from the increase of the interest in Dresdner Bank AG by 21.5 % to 100 %,
_ ¤633 mn from the increase of the interest in Allianz Lebensversicherungs-AG by 40.5 % to 91.0 %,
_ ¤57 mn from the increase of the interest in Frankfurter Versicherungs-AG by 50.0 % to 100.0 %.
During the year under review other intangible asset values changed as follows: The balance sheet value amounting to ¤1,281 (1,436) mn includes ¤630 (619) mn for internally developed software and ¤651 (817) mn for software purchased from third parties.
The value of interests in banks amounts to ¤4,349 (2,079) mn.
Due after 5 years and in less than 10 years 2,626 2,125 2,662 2,174
Amortized cost Unrealized gains Unrealized losses Market values 12/31/2002 12/31/2001 12/31/2002 12/31/2001 12/31/2002 12/31/2001 12/31/2002 12/31/2001 ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn
Depreciation includes unscheduled write-downs of ¤104 (86) mn. Expenditures to restore the future economic benefits of the assets are capitalized if they extend the useful life of the asset, otherwise they are recognized as an expense. Commitments outstanding at the balance sheet date to purchase real estate amounted to ¤161 mn.
The fair value of real estate used by third parties was ¤14,818 (16,731) mn at the balance sheet date.
¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn
Due after 5 years and in less than 10 years 70,109 85,572 90,113 88,209 *) Excluding equity securities
Receivables due within one year total ¤84,074 (51,052) mn, those due after more than one year total ¤3,156 (10,476) mn.
Loans and advances to banks after loan loss allowance 86,822 61,274 12/31/2002 12/31/2001 ¤ mn ¤ mn
Loans and advances to customers after loan loss allowance 188,084 239,693
Loans and advances to customers by type of loan are as follows: 12/31/2002 12/31/2001 ¤ mn ¤ mn
Lending volume In contrast to the reporting of loans and advances, lending volume does not include reverse repos or other advances. However, this item does comprise loans extended on bills of exchange which, in turn, are not reported under loans and advances to customers or loans and advances to banks.
December 31, 2002 had a related valuation allowance. For the year ended December 31, 2002 the average balance in impaired loans was ¤12,773 (12,990) mn and the interest income recognized on impaired loans was ¤131 (67) mn.
Changes in the group of consolidated companies – 928 6,596 – 544 – 63 855 – 991 7,995
Changes due to currency translation – 219 44 – 18 5 – 6 4 – 243 53
The positive market values of derivative financial arguments are shown on a net basis, i.e. taking into account existing netting agreements.
Treasury bills, discounted treasury notes and similar treasury securities 850 255
The amounts ceded to reinsurers from the insurance reserves stated under assets include rights of recourse against reinsurers. The credit risk is partly covered by funds held for others under reinsurance contracts, securities portfolios and bank guarantees.
Insurance reserves for life insurance where the investment risk is carried by policyholders 50 47
Real estate used by Allianz for its own activities The capitalized cost of buildings is calculated on the basis of acquisition cost and depreciated over a maximum of 50 years in accordance with their useful lives. The gross capitalized values totaled ¤6,175 mn at the beginning of the year and ¤6,854 mn at the end of the year. Accumulated depreciation amounted to ¤1,078 mn at the beginning of the year and ¤1,422 mn at the end of the year. Assets pledged as security and other restrictions on title amount to ¤30 mn.
As in the previous year, no unscheduled depreciation was recorded in 2002.
Expenditures to restore the future economic benefits of the assets are capitalized if they extend the useful life of the asset, otherwise they are recognized as an expense. At the balance sheet date, commitments outstanding to purchase real estate amounted to ¤28 mn.
The market value of real estate used by Allianz for its own activities amounted to ¤6,245 (6,205) mn.
Accounts receivable on direct insurance business These amount to ¤5,114 (5,884) mn for policyholders and ¤3,732 (3,639) mn for agents.
Other assets These include non-trading derivatives used for hedging totaling ¤815 (598) mn.
Changes in the total carrying value of real estate owned by Allianz Group and used for its own activities during the year: ¤ mn
The shareholders’ equity comprises the following: Issued capital In November 2002, 137,625 shares held by the company were issued at a price of ¤114.00 each, enabling employees of Allianz Group enterprises in Germany and abroad to purchase 136,222 shares at prices between ¤79.80 and ¤96.90. The remaining 1,403 shares were sold on the stock exchange at an average price of ¤90.60.
The shares issued in 2002 are qualifying shares from the beginning of the year of issue.
At the end of the year under review, there was authorized unissued capital with a notional principal amount of ¤300,000,000 (117,187,500 shares), which can be issued at any time up to July 10, 2006 (authorized unissued capital 2001/I). If shares are issued against a non-cash consideration, the Board of Management is authorized to exclude the pre-emptive rights of shareholders. In the case of capital increases against a cash consideration, pre-emptive rights can be partially excluded, if the issue price is not significantly less than the stock-market price. At the end of the year under review, there was a further ¤7,841,188 (3,062,964 shares) of Authorized Unissued Capital 2001/II which can be issued up to July 10, 2006. The pre-emptive rights of shareholders can be excluded in order to offer the new shares to employees of Allianz AG or its Group companies. Authorized Unissued Capital 1998 can be used at any time up to July 7, 2003 to issue shares with a notional principal amount of ¤2,556,459 (998,617 shares). In the event of future capital increases for cash, these shares can be used to protect the holders of conversion or subscription rights from dilution by granting them a pre-emptive right to subscribe for new shares. Otherwise, pre-emptive rights of shareholders are excluded.
The capital reserve includes the premium received on the issuance of shares.
Treasury stock In order to enable Dresdner Bank AG to trade in shares of Allianz AG following the takeover of the bank, the Annual General Meeting on July 11, 2001 authorized the banks in which Allianz AG has a majority holding to acquire treasury stock for purposes of securities trading pursuant to § 71 (1) no. 7 of the Corporation Law (Aktiengesetz). In accordance with this authorization, the banks in the Group purchased 93,726,589 of the company’s own shares or acquired them by way of securities borrowing in the course of 2002. An average price of ¤179.86 per share is calculated, including the initial inventory. 92,448,634 shares were disposed of or ceded from borrowed holdings in the course of 2002 at an average price of ¤181.11 per share.
At year-end, treasury stock is comprised as follows: In addition to the reserves in the financial statements of Allianz AG required by law, revenue reserves include the retained earnings of consolidated subsidiaries and amounts resulting from consolidated net income for the year. Revenue reserves also include foreign currency translation adjustments in the equity section. In the case of acquisitions prior to January 1, 1995, differences arising on first-time consolidation have been taken to revenue reserves.
Other reserves comprise the component of shareholders’ equity representing unrealized gains and losses on investments available for sale and derivatives used in hedge accounting to hedge a net investment in a foreign entity.
The consolidated unappropriated profit is derived from consolidated net income as follows: The Board of Management will propose to shareholders at the Annual General Meeting the distribution of a dividend of ¤1.50 (1.50) per qualifying share for fiscal year 2002. Details on the recommendation for appropriation of profit are given in the Group management report.
The interests of minority shareholders are made up as follows: 12/31/2002 12/31/2001 ¤ mn ¤ mn
In November 2002, Allianz AG made a voluntary public offer to holders of participation certificates to exchange their certificates for Allianz shares. The voluntary exchange offer does not constitute a call for redemption by the company in accordance with the terms governing the participation certificates. Participation certificates for which the exchange offer was not accepted remain in existence. The exchange ratio was 10 shares for 8 participation certificates; the exchange period ended after one extension on January 16, 2003. A total of 4,918,488 participation certificates were exchanged for 6,148,110 shares (86 %). The shares for the exchange offer come from Allianz treasury stock. After the exchange, 804,666 participation certificates are currently still outstanding. For these participation certificates the terms set upon their issuance continue to apply.
Profit participation certificates can be redeemed by holders upon twelve months’ prior notice, beginning December 31, 2001, and every fifth year thereafter. To date, redemption rights have been exercised with respect to 358 profit participation certificates. Upon redemption by holders, the terms of the profit participation certificates provide for a redemption price equal to the weighted average of the issue prices of all profit participation certificates. Since the last issue of March 1998, the price has been uniformly ¤78.54.
Participation certificates also include ¤1,505 (2,035) mn issued by the Dresdner Bank Group which entitle holders to annual interest payments, which take priority over Dresdner shareholders’ dividend entitlements. They are subordinated to obligations for all other creditors of the issuer, except those similarly subordinated, and share in losses of the respective issuers in accordance with the conditions attached to the certificates. The profit participation certificates will be redeemed subject to the provisions regarding loss sharing.
Aggregate policy reserves Aggregate policy reserves at the balance sheet date – split by the various profit participation systems – were as follows: Reserves for loss and loss adjustment expenses The gross reserves for loss and loss adjustment expenses of the Group’s insurance business are as follows: The reserves for loss and loss adjustment expenses (loss reserves) have changed in Property/Casualty insurance during the year under review as follows: No retrospective back-payments of premiums have been demanded. No exceptional events have occurred since the balance sheet date which would have material affects on the net worth, financial position or results of the Group. The balance sheet amount includes ¤2,664 (2,743) mn in annuity reserves for existing annuity agreements.
Through its American subsidiaries, mainly Fireman’s Fund, the Allianz Group is affected by the further increase of claims observable industry-wide in the U.S. relating to insurance benefits in connection with injury to health arising from the use of asbestos, and arising from environmental damage.
¤ mn ¤ mn 1. Loss reserve as of January 1 b. Amount ceded to reinsurers – 16,156 – 12,571 2. Plus claims (net) a. Claims in the year under review 27,130 27,295 b. Previous years’ claims 646 76 3. Less claims paid (net) a. Claims in the year under review – 12,642 – 11,895 b. Previous years’ claims – 12,143 – 12,462 4. Currency translation adjustments – 3,367 407 5. Change in the group of consolidated companies 122 423 6. Loss reserve as of December 31 b. Amount ceded to reinsurers 14,588 16,156 12/31/2002 12/31/2001 ¤ mn ¤ mn
Reserve for premium refunds The reserve for premium refunds includes the amounts to which policyholders are entitled under the relevant local statutory or contractual regulations in the form of experience-rated or other participation in profits. In addition, the reserve for premium refunds includes amounts arising from the valuation of certain assets and liabilities of the Group’s life and health insurance enterprises at market value (the “latent” reserve for premium refunds).
Liabilities due within one year total ¤133,793 (134,766) mn, those due after more than one year total ¤13,473 (42,557) mn.
Liabilities to customers are classified according to the following customer groups: 12/31/2002 12/31/2001 ¤ mn ¤ mn
The Group issues fixed and floating rate debt denominated in various currencies, although predominantly in euros. Fixed and floating rate debt outstanding as of December 31, 2002 matures at various dates through 2054 and carries contractual interest rates ranging from 1.25 % to 9.80 %. Certificated liabilities include Allianz Finance B.V. for an amount of ¤7,130 mn and Allianz Finance II B.V. for an amount of ¤4,915 mn. The interest rates for the floating rate debt issues are generally based on LIBOR, although in certain instances they are subject to minimum interest rates as specified in the agreements governing the respective issues.
The following table provides an overview of the Group’s certificated liabilities according to maturity: 12/31/2002 12/31/2001 Due after
Due 2003 Due 2004 Due 2005 Due 2006 Due 2007 2007 Total Total ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn
Under defined benefit pension plans, the beneficiary is promised a particular level of retirement benefit by the enterprise or by a pension fund, while the premiums payable by the enterprise are not fixed in advance.
The main pension fund is Allianz Versorgungskasse VVaG, Munich, which insures most of the employees of Group enterprises in Germany. It is not included in the consolidated financial statements.
Defined contribution pension plans are funded through independent pension funds or similar organizations. Contributions fixed in advance, based e.g. 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 (premiums). The main pension fund is the Versicherungsverein des Bankgewerbes a. G., Berlin, which insures most of the banking employees in Germany.
Amounts totaling ¤123 (108) mn were expensed in the year under review.
Accounts payable on direct insurance business and accounts payable on reinsurance are due within one year. Of the remaining liabilities stated under other liabilities, ¤8,044 (11,882) mn are due within one year, and ¤4,525 (6,712) mn are due after more than one year.
S U P P L E M E N TA R Y I N F O R M AT I O N T O T H E C O N S O L I D AT E D I N C O M E S TAT E M E N T 1 )
Gross premiums written in the year under review totaled ¤60,408 (58,331) mn for direct insurance business and ¤2,745 (3,257) mn for reinsurance business assumed.
Change in unearned premiums (net) – 669 – 1,024 6 19 – 663 – 1,005 2) After eliminating intra-Group transactions between segments 25 Interest and similar income
Interest and similar income includes dividend income of ¤1,806 (2,147) mn.
Net interest margin after loan loss allowance 1,785 1,817 2) After eliminating intra-Group transactions between segments 1) The figures for 2001 include the Dresdner Bank Group only from the time of its initial consolidation (July 23, 2001 to December 31, 2001).
Realized losses on investments in affiliated enterprises, joint ventures, and associated enterprises – 708 – 119
Real estate used by third parties 14 87 28 Trading income
Other trading activities 91 136 *) After eliminating intra-Group transactions between segments 29 Fee and commission income, and income from service activities
Out of the total fee and commission income, and income from service activities, ¤2,784 (1,383) mn are attributable to banking business*)
Gains from the disposal of real estate used for own activities and of property, plant and equipment 115 12
Insurance benefits in Property/Casualty*) comprise the following: Insurance benefits in Life/Health*) comprise the following: Gross Ceded in reinsurance Net
Change in reserves for loss and loss adjustment expenses – 2,659 – 5,871 – 332 2,857 – 2,991 – 3,014
Change in other reserves *) After eliminating intra-Group transactions between segments
The figures for fiscal year 2002 include interest expenses for certificated liabilities of Allianz Finance B.V. (¤363 mn) and Allianz Finance II B.V. (¤80 mn).
All personnel and operating expenses in the banking business are reported under “Acquisition costs and administrative expenses”.
Less commissions and profit-sharing received on reinsurance business ceded 1,001 1,389 179 198
Total acquisition costs and administrative expenses – 10,418 – 9,949 – 4,269 – 4,249
Expenses for increasing miscellaneous or accrued liabilities – 761 – 389
Amortization of capitalized loyalty bonuses to senior management of the PIMCO Group – 155 – 173
Interest on accumulated policyholder dividends – 110 – 108 37 Taxes
Group taxes are comprised of the following: The actual tax charge for the fiscal year includes a gain of ¤175 mn related to prior periods. The transfer of losses incurred during the fiscal year to earlier years produced a gain of ¤57 mn included in this amount.
The tax rates used in the calculation of deferred taxes are the applicable national rates, which in 2002 ranged from 12.5 % to 45.5 %. Changes to tax rates already adopted on the balance sheet date are taken into account. For reasons of commensurability and because of our current tax loss situation in Germany, we refrained from applying the increased corporate tax rate of 26.5 %, which was adopted as part of the Flood Victim Solidarity law and concerns the year 2003 only.
Due to a devaluation of deferred tax claims, a deferred tax charge of ¤347 arose in the fiscal year. Due to the use of tax losses carried forward for which no deferred tax was recognized as an asset, the actual tax charge on earnings diminished by ¤31 mn. The recognition of deferred tax claims on losses carried over from earlier periods, for which no deferred taxes had yet been recognized, resulted in deferred tax income of ¤55 mn.
The recognized tax charge for 2002 is ¤391 mn less than the anticipated tax charge. The following table shows the reconciliation of the anticipated tax charge on income with the effectively recognized tax charge. The Group reconciliation statement is a summary of the individual company-related reconciliation statements which are based on the respective country-specific tax rate after consolidation effects are taken into account.
In addition to the above mentioned effects of devaluations or the delayed use or recognition of losses carried forward from earlier periods, the item “effects of tax losses” also includes effects that arise from not recognizing deferred taxes on tax losses for the current fiscal year, which increase charges by ¤794 mn.
Deferred tax assets and liabilities comprise the following balance sheet headings: Deferred tax income recognized as equity in fiscal 2002 amounts to ¤589 mn.
II. Investments in affiliated enterprises, joint ventures, and associated enterprises 5,087 6,988 1,888 1,073 6,975 8,061
Collateral pledged for own liabilities of banking business For the following liabilities and contingencies, assets having the indicated value were pledged as collateral: Structure of residual terms for banking business The following presents loans and advances and liabilities in the banking business according to their final maturity or call date.
Savings deposits and home-loan savings deposits 6,128 2,420 864 1,591 1,253
Other term liabilities to customers 81,375 65,241 5,988 4,461 5,685 1) Loans and advances to customers with residual terms of up to 3 months include ¤8,510 mn of undated claims. These claims include credit lines available until further notice, overdraft facilities, loans called or overdue, unauthorized overdrafts, call money and internal account balances.
Trustee business in banking business The table below presents a breakdown of trustee business in banking business not reported in the balance sheet.
_ An amount of ¤287 (381) mn eligible for refinancing with the central bank is held in cash funds.
Liabilities incurred as a trustee 9,471 7,928 *) Including ¤8,847 (5,078) mn of trustee loans.
The settlement risk is virtually excluded in the case of exchange-traded products, which are standardized products. By contrast, overthe -counter products, which are individually traded contracts, carry a theoretical credit risk amounting to the positive market values. The Allianz Group therefore closely monitors the credit rating of counterparties for OTC derivatives.
The following table shows the distribution of derivative positions on the balance sheet date.
The major exposures in equity trading are in the form of options used for hedging the portfolio against market fluctuations. In managing interest rate risk long-term interest income is primarily controlled by the use of interest rate caps. In addition, exchange rate fluctuations are hedged by synthetically transforming financial assets and liabilities in foreign currencies into ¤-denominated financial instruments through foreign exchange deals and currency swaps.
Maturity as of 12/31/2002 2002 2001 up to 1 – 5 over Notional Positive Negative Notional Net 1 year years 5 years principal market market principal market amounts values values amounts values ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn
Exchange traded Futures – – – – – – 217 –
Derivative financial instruments used for hedge transactions are classified as follows. The risk of changes in the fair value of reported assets or liabilities is hedged by a fair value hedge. Changes in the fair value of a hedging instrument are recognized in the current period income, while for the hedged item only the pro rata share of the profit or loss attributable to the hedged risk is recognized in the income statement.
Foreign exchange hedging transactions with a fair value of ¤107 (46) mn were entered into to hedge currency risks related to a net investment in a foreign entity. Application of hedge accounting increased other reserves by ¤164 (– 61) mn.
The Group uses the following methods and assumptions to determine fair values: Cash and cash equivalents Owing to the short-term nature of these instruments, the carrying amount corresponds to the fair value.
Separate accounts assets and liabilities The fair values of separate accounts assets were determined using the market value of the underlying investments. Fair values of separate accounts liabilities were determined using cash surrender values of the policyholders’ and contractholders’ account.
Investment contracts with policyholders Fair values for life insurance investment contracts were determined using the cash surrender values of the policyholders’ and contract holders’ accounts.
Certificated liabilities The fair value of long-term traded bonds and loans payable is estimated using discounted cash flow analyses, using interest rates currently being offered for similar loans and other borrowings.
Certain assets and liabilities are specifically excluded from the disclosure requirements of financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the Group’s total value.
Liabilities to banks and customers 284,598 284,659 312,725 313,144 42 Related party disclosures
These business relationships are stated as of December 31, 2002 unless otherwise indicated.
The Principles of Cooperation of May 2000 can be terminated as of December 31, 2005. On December 19, 2002, this termination agreement was amended by a supplementary agreement which stipulates the terms of termination of the Principles of Cooperation to be ineffective until December 31, 2003 and shortens the termination notice set forth therein from three to two years. This means that the Principles of Cooperation will be automatically renewed for another ten years only if they are not terminated prior to December 31, 2003.
In May 2000, Allianz AG and Munich Re signed a letter of intent which, among other things, provides that Allianz AG and Munich Re will reduce their shareholdings in each other to a level of approximately 20 %. This reduction is to be achieved, or initiated, by December 31, 2003. As of December 31, 2002, the Allianz
On January 15, 2002, the 40.5 % ownership interest in Allianz Lebensversicherungs-AG (Allianz Leben) previously held by Munich Re was sold to Allianz AG. The reinsurance relationships between Allianz Leben and Munich Re will continue on the basis of existing contracts until 2010.
Effective as of June 30, 2002, Munich Re transferred its ownership interest of 50,0 % in Franfurter Versicherungs-AG and its ownership interest of 45,0 % in Bayerische Versicherungsbank AG to Allianz Versicherungs-AG. Allianz transfered its ownership interest of 36.1 % in Karlsruher Lebensversicherung AG, a subsidiary of Munich Re, to Munich Re. These transfers were made in fulfillment of the agreement in the letter of intent signed between Allianz AG and Munich Re on May 4, 2000.
Allianz AG and its subsidiaries terminated the existing cooperation agreement with HypoVereinsbank concerning the distribution of insurance products in the course of the year 2001.
Loans to shareholders As part of the normal course of business, the Group also grants loans to non-employee shareholders. These are granted at market conditions. Employees may obtain the preferential conditions usually granted in the industry.
Loans to Members of the Board of Management and the Supervisory Board In the normal course of business, members of the Board of Management and the Supervisory Board may be granted loans by Dresdner Bank. Such loans are subject to the usual conditions in the industry. No additional loans were granted in the past year. On December 31, 2002, loans to board members granted in previous years and amounting to ¤0.5 (1) mn were still outstanding, including ¤0.5 (1) mn to board members of subsidiaries.
Contingent liabilities and other commitments resulting primarily from our banking business include the Group’s potential future liabilities under loan commitments to customers not yet drawn upon, with the term of such commitments being limited. The Group engages in providing open credit facilities to allow customers quick access to funds required to meet their short-term obligations as well as their long-term financing needs. Such credit facilities can take the form of guarantees, whereby the Group might guarantee repayment of a loan taken out by a client with a third party, stand-by letters of credit which are credit enhancement facilities enabling customers to engage in trade finance at lower cost, documentary letters of credit which are payments related to foreign trade finance made on behalf of a customer and
The figures disclosed in the accompanying tables represent the amounts at risk should customers draw fully on all facilities and then default, excluding the effect of any collateral. The majority of these commitments may expire without being drawn upon and are not representative of actual future credit exposure or liquidity requirements for such commitments.
On the balance sheet date commitments to pay up shares, bonds and other capital interests totaled ¤85 mn; secondary liability under clause § 24 of the German Limited Liability Companies Act (GmbH-Gesetz) were ¤16 mn, and obligations arising from hire, rental and leasing agreements existed in an aggregate amount of ¤2,920 mn.
In addition, Dresdner Bank is a member of the German banks’ Joint Fund for Securing Customer Deposits, which covers liabilities to each creditor up to specified amounts. As a member of the Joint Fund, which is itself a shareholder in LIKO, Dresdner Bank is severally liable with the other members of the Fund for additional capital contributions, with the maximum being the amount of Dresdner Bank’s annual contribution. In the year 2002, the Joint Fund did not levy a contribution (2001: no contribution). Under section 5 (10) of the Statutes of the Joint Fund for Securing Customer Deposits we have undertaken to indemnify the Federal Association of German Banks (Bundesverband deutscher Banken e.V.) for any losses it may incur by reason of measures taken on behalf of any banks in which we own a majority interest.
Letters of credit 2,092 2,297 of which: letters of credit opened 1,107 1,189 letters of credit confirmed 985 1,108
For Allianz of America Inc., Wilmington, Allianz AG posted a surety declaration for obligations in connection with the acquisition of PIMCO Advisers L.P. The Allianz Group acquired a 69.5 % interest in PIMCO, whereby minority partners have the option of offering their 30.5 % share to the majority partner. On December 31, 2002, these commitments amounted to a total of USD 2.054 bn.
In the course of the purchase of Nicholas Applegate, San Diego, an agreement was reached that part of the purchase price would fall due in 2005 and that the amount would depend on the income growth of Nicholas Applegate: _ if average income growth during this period is at least 25 %, this purchase price component will be USD 1.09 bn, with bonus payments of USD 150 mn.
_ if average income growth is between 10 % and 25 % payments will be scaled down.
General information about the parent company The parent company of the Group is Allianz AG, Munich. The company is an “Aktiengesellschaft” (public stock corporation) incorporated in Germany. It is recorded in the German Commercial Register under its registered address at Koeniginstrasse 28, 80802 Munich. Besides serving as holding company for the Group, Allianz AG also acts as reinsurance carrier for the Group.
Number of employees At the end of 2001, the Group employed a total of 181,651 (179,946) people. 86,768 (87,589) were employed in Germany and 94,883 (92,357) abroad. The number of employees undergoing training decreased by 657 to 7,588.
Long-term Incentive Plan Long-term Incentive Plans (LIP) were set up in 1999 for senior management, in order to reward the contribution made by this level of management toward increasing corporate value and to promote the long-term success of the company.
_ during their contractual term, the price of Allianz AG shares has outperformed the Dow Jones Europe STOXX Price Index (600) at least once for a period of five consecutive stock exchange days and
_ the Allianz share price outperforms the reference price by at least 20.0 % at the time when the rights are exercised. The reference price for the LIP 2002 (¤265.00)is the average price of Allianz shares for the first ten trading days after April 18, 2002, the date of the Financial Statements press conference for fiscal 2001.
No rights were exercised for any LIP as of December 31, 2002. The two-year restricted period had not yet expired on December 31, 2002. None of the plans met the second condition defined above (20 % increase of the share price).
Events after the balance sheet date In 2003, Allianz Group plans to integrate the activities of Advance Bank and Finanzplaner into the joint distribution model of Allianz and Dresdner Bank. This will allow the Group to reach its objectives in the growth markets of retirement provision and the constitution of personal assets more rapidly. Already, Allianz and Dresdner Bank are the market leaders in private and corporate retirement provision.
Total remuneration for members of the Board of Management includes a fixed-component (the basic salary) and a variable component. Up to the year 2002, the latter comprises a component depending on the dividend. From 2002 on, the variable component consists of the annual bonus which includes an individual element and an element based on company performance, and a 3-year bonus, from which payments to members of the Board of Management can be made for the first time in 2004. In case the objective-linked bonus is attained, the variable compensation amounts to 65 % of the total compensation of board members.
The compensation paid to the Board of Management is comprised as follows: In addition to the amounts reported above, Allianz AG and its affiliated enterprises paid an amount of ¤9 (1) mn to increase pension reserves and reserves for similar obligations in favor of active members of the Board of Management.
Under the LIP 2002, a total of 47,200 Stock Appreciation Rights (SARs) were issued to members of the Board of Management during the year under review. Based on standard option valuation methods (Black-Scholes or Binomial Method), the value of these rights at the point of their issue was ¤5.2 mn. The value of these rights at the end of the fiscal year is ¤0.3 mn. At an intrinsic value of ¤0, the full amount specified is a time value.
On December 31, 2002 the members of the Board of Management held a total of 119,739 SARs issued from 1999 to 2002. Based on standard option valuation methods (Black-Scholes or Binomial Method) these rights had a value of ¤0.5 mn on the balance sheet date. None of the SARs has an intrinsic value at December 31, 2002, so that the full amount specified is a time value.
The following table includes key information on current LIPs in favor of active members of the Board of Management: In the year 2002, pensions and other benefits for former members of the Board of Management as well as payments to compensate the claims of former members of the Board of Management amount to ¤13 (3) mn. In 2002 , ¤7 mn were set aside for compensating the claims of former members of the Board of Management.
Fair value of SARs as of 12/31/2002 ¤342,200 ¤76,494 ¤18,940 ¤22,490
Intrinsic value of SARs as of 12/31/2002 ¤0 ¤0 ¤0 ¤0
Deutsche Lebensversicherungs-AG, Berlin 32 100.0 dit Deutscher Investment-Trust Gesellschaft für Wertpapieranlagen mbH, Frankfurt/Main 137 100.0
Allianz Compañía de Seguros y Reaseguros S. A., Madrid 269 99.7
Allianz (UK) Ltd., London 806 100.0 1) Including shares held by dependent subsidiaries 2) 99.99 % of the voting share capital 3) Controlled by Allianz
Arab International Insurance Company, Cairo 6 80.0 Arab International Life Company, Cairo 4 100.0
Companhia de Seguros Allianz Portugal S. A., Lissabon 108 64.8 dresdnerbank asset management S. A., Luxembourg 35 100.0
Riunione Adriatica di Sicurtà S. p. A., Milan 5,200 51.1 2)
Zwolsche Algemeene Schadeverzekering N. V., Nieuwegein 70 100.0 *) Including shares held by dependent subsidiaries
EUROPENSIONES S. A., Entidad Grestora de Fondos de Pensiones, Madrid 35 49.0
Sophia, Paris 989 27.7 1) Including shares held by dependent subsidiaries 2) Associated enterprises are all those enterprises other than affiliated enterprises or joint ventures, in which the Group has an interest of between 20 % and 50 %
Banco Portuguès de Investimento (BPI - SGPS) S. A., Porto 148 8.9 1,4223) 1333) 12/31/2001
Worms et Cie, Paris 250 13.4 2,4293) 2333) 12/31/2001 1) Market value > = ¤100 mn and percentage of shares owned > = 5 %, or market value > = ¤500 mn, without trading portfolio of banking business 2) Including shares held by dependent subsidiaries (incl. consolidated investment funds) 3) Source: IDS GmbH
Other interests Associated or other non-consolidated asset management companies hold the following shareholdings in the listed companies shown below.
Disclosure of equity investments Information is filed separately with the Commercial Register in Munich (HRB 7158) and published on our website together with the documentation for the Annual General Meeting.
Market value % Group equity Net profit Balance sheet % ¤ mn owned ¤ mn ¤ mn date owned
I N D E P E N D E N T A U D I T O R S ’ R E P O R T
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 Institut der Wirtschaftsprüfer (IDW, Institute of Independent Auditors), and in supplementary compliance with auditing standards generally accepted in the United States of America (U.S. GAAS). Those standards require that we plan and perform the audit such that it can be assessed with reasonable assurance whether the consolidated financial statements are free of material misstatements. Knowledge of the business activities and the economic and legal environment of the Group and the evaluations of possible misstatements are taken into account in the determination of audit procedures. The evidence supporting the amounts and disclosures in the consolidated financial statements are examined on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Our audit, which also extends to the group management report prepared by the Company’s management for the business year from January 1 to December 31, 2002, has not led to any reservations. In our opinion, on the whole, the group management report provides a suitable understanding of the Group’s position and suitably presents the risks of future development. In addition, we confirm that the consolidated financial statements and the group management report for the business year from January 1 to December 31, 2002, satisfy the conditions required for the Company’s exemption from its duty to prepare consolidated financial statements and the group management report in accordance with German law.
D R . K L A U S L I E S E N Chairman of the Supervisory Board E.ON AG
G E R H A R D F U L L Chairman of the Board of Management Linde AG
D R . J Ü R G E N H E R A E U S Chairman of the Supervisory Board Heraeus Holding GmbH
D R . D I E T E R H U N D T Managing Partner Allgaier Werke GmbH
P R O F E S S O R D R . H U B E R T S . M A R K L University of Konstanz, department of biology
H A R T M U T M E H D O R N Chairman of the Board of Management Deutsche Bahn AG
P R O F E S S O R D R . K L A U S P O H L E Deputy Chairman of the Board of Management Schering AG
D R . H . C . R U D O L F R U P P R E C H T Chairman of the Board of Management MAN AG
P R O F E S S O R D R . D R . H . C . H O R S T S I E B E R T President, Institute for World Economics,
D R . H . C . H E I N R I C H W E I S S Chairman of the Board of Management SMS AG
D R . M A R K W Ö S S N E R Chairman Citigroup Deutschland
A L F O N S O C O R T I N A D E A L C O C E R
A A R N O U T L O U D O N
J A V I E R V A L L S T A B E R N E R
P E T E R H A I M E R L
GEWOBA AG Wohnen und Bauen in Bremen, Howaldtswerke Deutsche Werft AG,
D R . D I E T H A R T B R E I P O H L
Axel Springer Verlag AG, Deutsche Lufthansa AG, E.ON AG, Ruhrgas AG, Siemens
New York Stock Exchange (NYSE), South African Coal, Oil and Gas Corporation
Membership in Group bodies DaimlerChrysler of South Africa (Pty) Ltd. S. A.
*) We regard foreign memberships as “comparable”, if the foreign company is listed on a stock exchange or has more than 500 employees.
Deutscher Investment-Trust Gesellschaft für Wertpapieranlagen mbH (Chairman, since March 14, 2003)
BASF AG, E.ON AG, Linde AG (Deputy Chairman), Siemens AG, ThyssenKrupp AG
(Chairman), Allianz Nederland Groep N. V., Allianz Portugal S. A. Companhia de
Adriatico S. p. A., Riunione Adriatica di Sicurtà S. p. A., Zwolsche Algemeene N. V.
Membership of Board of Management members in other corporate management bodies *) We regard foreign memberships as “comparable”, if the foreign company is listed on a stock exchange or has more than 500 employees.
D R . G E R H A R D R U P P R E C H T
Co. Ltd., Allianz Hungária Biztositó Rt. (Chairman), Allianz Life Insurance Co. Ltd.
Acquisition cost The amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition.
Allowance for loan losses The overall volume of provisions includes allowance for credit loss – deducted from the asset side of the balance sheet – and provisions for risks associated with hedge derivatives and other contingencies, such as guarantees, loan commitments or other obligations, which are stated as liabilities.
Identified counterparty risk is covered by specific credit risk allowances. The size of each allowance is determined by the probability of the borrower’s agreed payments regarding interest and installments, with the value of underlying collateral being taken into consideration.
Assets under management The total of all investments, valued at current market value, which the Group has under management with responsibility for maintaining and improving their performance. In addition to the Group’s own investments, they include investments held for variable annuity policyholders, bank loans and advances, and investments held under management for third parties.
At amortized cost Under this accounting principle the difference between the acquisition cost and redemption value (of an investment) is added to or subtracted from the original cost figure over the period from acquisition to maturity and credited or charged to income over the same period.
Benefits (net) payable to policyholders The expense of policyholder benefits (less amounts ceded in reinsurance) comprises loss and loss adjustment expenses, premium refunds, and the net change in insurance reserves.
Corridor approach Under this approach to pension plans, actuarial gains and losses are not recognized immediately. Only when the cumulative gains or losses fall outside the corridor is a specified portion recognized in the income statement from the following year onwards. The corridor is 10 % of the present value of the pension rights accrued or of the independent pension fund assets at market value, if greater.
Deferred acquisition costs Expenses of an insurance company which are incurred in connection with the acquisition of new insurance policies or the renewal of existing policies. They include commissions paid and the costs of processing proposals.
Defined contribution pension plans The central feature of these post-employment benefit plans is the contribution which an enterprise pays into an independent pension fund. The enterprise has no further obligations beyond the amount that it agrees to contribute to the fund and has no interest in the financial results of the independent pension fund. Benefits have to be claimed from the independent pension fund.
Funds held by/for others under reinsurance contracts Funds held by others are funds to which the reinsurer is entitled but which the ceding insurer retains as collateral for future obligations of the reinsurer. The ceding insurer shows these amounts as “funds held under reinsurance business ceded.”
Gross/Net In insurance terminology the terms gross and net mean before and after deduction of reinsurance respectively. (Net is also referred to as “for own account”). In connection with income from interests in affiliated enterprises, joint ventures and associated enterprises, the term “net” is used where the relevant expenses (e.g. depreciations and losses on the disposal of assets) have already been deducted. In the context of investments the term “net” is used where the relevant expenses (e.g. for investment management or valuation write-downs) have already been deducted from the income. This means that investment income (net) from investments in affiliated enterprises, joint ventures and associated enterprises signifies the net result from these investments.
Interest income from reverse repos and interest expenses from repos are accrued evenly over the lifetime of the transactions and reported under interest income/interest expenses and similar income/expenses.
Securities available for sale Securities available for sale are securities which are neither held with the intent that they will be held to maturity nor have been acquired for sale in the near term; securities available for sale are shown at their market value on the balance sheet date.
Securities held to maturity Securities held to maturity comprise debt securities held with the intent and ability that they will be held to maturity. They are valued at amortized cost.
Segment reporting Financial information based on the consolidated financial statements, reported by business segments (life/health, property/casualty, and financial services) and by regions and products.
Trading assets Trading assets are debt issues and stocks as other financing instruments (essentially derivatives, note loans und precious metals holding) which have been acquired solely for sale in the near term. They are shown in the balance sheet at fair value.
Trading liabilities Trading liabilities include primarily negative market values from derivatives and short selling of securities. Short sales are made to generate income from short-term price changes. Shorts sales of securities are recorded at market value on the balance sheet date. Derivatives shown as trading liabilities are valued the same way as trading assets.
Unrecognized gains/losses Amount of actuarial gains or losses, in connection with defined benefit pension plans, which are not yet recognized as income or expenses (see also “corridor approach”).
(ADAM) 68-69 Allianz Dresdner pension funds 69 Allianz General Insurance Malaysia 50 Allianz Global Risks Rückversicherungs-AG
Allianz Life Insurance Korea 64 Allianz Life Insurance Malaysia Berhad 64 Allianz Life of North America 30, 63 Allianz Management Institute (AMI) 80 Allianz Marine & Aviation
Allianz Risk Transfer (ART) 46 Allianz Sachgruppe Deutschland (SGD) 41 Allianz share 20 Allianz Suisse Lebensversicherungsgesellschaft 61 Allianz Suisse Versicherungs-Gesellschaft 45 Annual General Meeting on the Internet 23 Antoniana Veneta Popolare Vita 59 Appropriation of profit, recommendation for 37
Banking industry 30 Basel Capital Accord (Basel II) 78 Bayerische Versicherungsbank AG 35
Commercial papers 25 Commerzbank 66 Committees of the Supervisory Board 5,
D “Deal of the Year” 25 Declaration of conformity 5, 8 Deutsche Bank 25, 66 Deutsche Hyp 66 Deutsche Lebensversicherungs-AG 57 Diekmann, Michael 3, 6 Directors & Officers Liability Insurance 11
Greece 47 Group Risk Controlling 72 ff. Growth markets 28 Guotai Junan Allianz Fund Management 69
Institutional Restructuring Unit (IRU) 67, 76 Integration 4 Interest rates, development of 29, 66, 81 Interest, guaranteed 61, 63 International corporate business 40, 42 International Executive Committee 12-13 International Financial Reporting
Stock markets 4, 30 Stock markets, development of 20, 67, 68 Strategy 17 Supervisory Board 4-11 Sustainability 2
Thailand 64 Training programs 79-80 Transparency and Disclosure Law 8 Travel insurance and assistance services
Dear Readers, for this year’s edition, we revamped the look and content of our Annual Report. Please tell us, what you liked and what we could do better in the future. And send us your suggestions for additional topics we should cover. If you reply by mail, we’ll be glad to pay the postage.
_ The report is organized in such a way that I easily found the topics that interested me most.
Company : Name, first Name: Address: Please send me the following publications: Annual Report 2003 as a separate issue: Corporate Responsibility Magazine – Edition Three
For any further questions about the distribution of our reports, you can reach us: by e-mail to gballianz@biering.de by personally contacting Adolf Rabitzer
Content Small cause, big effect. Our cover photo shows a microscopic view of a corroded microvalve on an offshore drilling platform, which caused the shut-down of an entire platform in March 2001, although it only weighs a few milligrams. The Allianz Technical Center identified the cause of the problem.
Net revenue from asset management ¤bn 2.3 12.7 2.0 1.1 0.5 – – 35
Participation certificates, subordinated liabilities ¤bn 14 16.1 12 1 1 1 1 116
Other 1) 1997 without IAS SIC 12 and SEC adjustment 2) Including banking