◼ i n t e R n a l R i s k c a p i t a l M o D e l our internal risk capital model is based on a value-at-Risk (vaR) approach using Monte carlo simulation. Following this approach, we determine the maximum loss in the portfolio value of our businesses in the scope of the model (“covered businesses”) within a specified timeframe (“holding period”) and probability of occurrence (“confidence level”). at Group level, we assume a confidence level of 99.97 %, which is assumed to be equivalent to an “aa” rating of standard & poor’s. We apply a holding period of one year because it is generally assumed that it may take up to one year to identify a counterparty to which we can transfer the assets and liabilities in our portfolio.
the required internal risk capital is defined as the difference between the current portfolio value and the portfolio value under adverse conditions dependent on the chosen confidence level. Because we consider the impact of an adverse event on all sources of risks and all covered businesses at the same time, diversification effects across sources of risk and regions are also taken into account.
◼ y i e l D c u R v e a n D l i q u i D i t y p R e M i u M a s s u M p t i o n s
◼ D i v e R s i F i c a t i o n a n D c o R R e l a t i o n a s s u M p t i o n s our internal risk capital model considers concentration and correlation effects when aggregating results at the Group level, in order to reflect that not all potential worst case losses are likely to be realized at the same time. this effect is known as diversification and forms a central element of our risk management framework.
Where possible, we develop correlation parameters for each pair of market risks through statistical analysis of historical market data, considering weekly observations over several years. if insufficient or no historical market data or other portfolio specific observations are available, we use professional judgment, governed by a conservative approach taking into account standard assumptions as for example those proposed by eiopa. in general, we set the correlation parameters to represent the co-movement of risks under adverse conditions. Based on these correlations, we use an industry standard approach, the Gaussian copula approach, to determine the dependency structure of quantifiable sources of risk within the applied Monte carlo simulation.
◼ n o n - M a R k e t a s s u M p t i o n s our internal risk capital model also includes non-market assumptions such as claims trend and inflation, mortality, morbidity, policyholder behavior, etc. to the extent available, we use own internal historical data for our non-market assumptions and also consider suggestions from supervisory authorities and actuarial associations.
◼ a s s e s s M e n t o F a s s u M p t i o n s internal controls exist within our internal risk capital and financial reporting frameworks which cover the use of estimates and assumptions. 1 acknowledging the potential impact on our economic capital, we consider the assumptions made for our internal risk capital calculations and for reserving to be appropriate and adequate.
1 | For additional information regarding our internal controls over financial reporting, please refer to the section controls and procedures.
By design, our internal risk capital model takes into account the following sources of risk, classified as risk categories per segment: x x x x x x 1 x x x x x x x x x x x x x x x x x x possible losses caused by changes in interest rates, equity prices and real estate values or their volatilities as well as by changes in credit spreads and foreign exchange rates.
possible losses in the market value of the portfolio due to deterioration in the credit quality of counter parties including their failure to meet payment obligations or due to non-performance of instruments (i. e. overdue payment).
strategic asset allo c ation benchmarks, equity and duration limits country limits, single counterparty concen tration limits
M a R k e t R i s k ◾ interest rate including volatility ◾ credit spread ◾ equity including volatility ◾ real estate including volatility ◾ currency c R e D i t R i s k unexpected financial losses due to the inadequacy of premiums for natural catastrophe, terror and non-catastrophe risks, due to the inadequacy of reserves or due to the unpredictability of mortality or longevity.
B u s i n e s s R i s k ◾ operational ◾ cost ◾ lapse
◾ substantially all of our assets (including bonds, mortgages, investment funds, loans, equities and real estate) and liabilities (including the cash flow profile of all technical reserves as well as deposits and issued securities). if applicable for the l i f e / H e a l t H segment, the model reflects the interaction between assets and liabilities driven by local management decisions such as investment strategies and policyholder participation rules.
◾ substantially all of our derivatives (options, swaps and futures), in particular if they are part of the operating entity’s regular business model (e. g. at allianz life insurance company of north america) or if they have a significant impact on the resulting internal risk capital (e. g. in the l i f e / H e a l t H segment, if material obligations to policyholders are hedged through financial derivatives). in general, embedded derivatives contained in a host contract are also included. 3
1 | the internal risk capital requirements for the asset Management segment only reflect business risk (please see below for further information). the evaluation of market risk and credit risk on the account of third parties is an integral part of the risk management process of our local operating entities.
2 | the premium risk which our credit insurance entity euler Hermes is exposed to due to its business model is also covered here, as this type of risk is a special form of credit risk. 3 | For further information about additional risk disclosure regarding derivative financial instruments please refer to note 44 of our consolidated financial statements.
◼ l i M i t a t i o n s our internal risk capital model expresses the potential “worst case” amount in economic value that we might lose at a certain level of confidence. However, there is a statistically low probability of 0.03 % that actual losses could exceed this threshold at Group level.
as described previously, insurance liability values are derived from replicated portfolios of standard financial market instruments in order to allow for effective risk management. in particular for life portfolios with embedded guarantees, the available replicating instruments may be too simple or too restrictive to capture all factors affecting the change in value of insurance liabilities. therefore, the optimal replicating portfolio, which is used to calculate internal risk capital, is subject to the set of available replicating instruments. its value and behavior under market movements may deviate from the actual liabilities' characteristics. However, we believe that overall the liabilities are adequately represented by the replicating portfolios due to our stringent data and process quality controls.
We apply derivative valuation tools which are suitable to our business to reflect substantially all of our derivatives in internal risk capital. the internal risk capital model used for most of our major insurance operations only allows for the modeling of common derivatives such as equity calls, puts, forwards and interest rate swaps. For internal risk capital calculations, non-standardized instruments, such as derivatives embedded in structured financial products, are represented by the most comparable standard derivative types, because the volume of non-standard instruments is not material on either the local or the Group level. a more precise modeling of these instruments might change the fair value and resulting internal risk capital for these derivatives. However we also believe that any such change would not be material.
With respect to investments, top-down indicators such as strategic asset allocation benchmarks are defined and closely monitored to ensure balanced investment portfolios. Financial vaR limits are in place for the l i f e / H e a l t H and the P r o P e r t y - C a s u a l t y segments at Group level based on the internal risk capital model, in order to protect the economic capital position and manage peak risks.
For example, the Management Board of allianz se has implemented a framework of natural catastrophe limits at both the operating entity and Group levels in an effort to reduce potential earnings volatility and restrict potential losses from single events as well as on an annual aggregate basis. the exposure is limited to losses having an occurrence probability of once in 250 years. these limits are subject to an annual review. traditional reinsurance coverage and dedicated financial transactions at Group level are examples of two instruments to mitigate the peak risks and to limit the potential adverse impact on our financial results and shareholders’ equity (e. g. severe natural catastrophe losses). in 2011, for example, we renewed the risk swaps by which we exchange european windstorm, u.s. hurricane and earthquake risks – which are among our largest natural catastrophe exposures – for Japanese typhoon and earthquake risks, to which we have less exposure as our P r o P e r t y - C a s u a l t y operations are smaller in this region. in addition, we issued a new catastrophe Bond (“Blue Fin 4”), protecting us against u.s. hurricane and earthquake risks.
Business risks total € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
in order to limit the impact of any of these financial market changes, to ensure that assets adequately back policyholder liabilities and that they are held to provide investment income in line with policyholders’ expectations we have a limit system in place. the limit system is defined at the Group level separately for the l i f e / H e a l t H and the P r o P e r t y -
Furthermore we have defined standards for hedging activities in place due to exposures to fair value options embedded in life insurance products. l i f e / H e a l t H operating entities carrying these exposures are required to follow these standards including a conscious decision on the amount of hedging.
Regional diversification also helps mitigate market risks across individual market places. 1
We have allocated a significant part of the Group’s internal risk capital for market risk to the l i f e / H e a l t H segment whereas we do not consider market risk related to our banking operations to be significant at the Group level.
the allianz Group’s internal market risk capital model is an integral part of the overall internal risk capital framework. it is centrally developed, parameterized and controlled.
� p o l i c y H o l D e R p a R t i c i p a t i o n traditional l i f e / H e a l t H products sold in Western europe generally feature policyholder participation in the profits (or losses), subject to management discretion and typically floored at a minimum guaranteed crediting rate. the majority of our life/Health contracts in Western europe comprise a significant level of policyholder participation, reducing major sources of risk, including market, credit, underwriting and cost risks. 2 1 | For further information about the concentration of life business please refer to note 20 of our consolidated financial statements. 2 | For further information about participating life business please refer to note 20 of our consolidated financial statements.
total Group-diversified internal market risk capital increased significantly due to the impact of changed market conditions on the l i f e / H e a l t H segment. the increase is driven by a higher value and sensitivity of options and guarantees due to the low interest rates in combination with high implied volatilities. the existence of minimum guaranteed crediting rates also limit our ability to participate policy holders in large losses under the overall prevailing low yield environment.
We also strive to leverage the diversification effect: While the potential payments related to our liabilities in the
P r o P e r t y - C a s u a l t y segment are typically shorter in maturity than the financial assets backing them, the opposite usually holds true for our l i f e / H e a l t H segment due to the long-term life insurance contracts. this provides us with a natural hedge on an economic basis at the Group level.
Due to the fact that we manage our net interest rate risk exposure from a Group perspective including securities issued to fund the capital requirements of the allianz Group, the assets and liabilities of the C o r P o r a t e a n d o t H e r segment are not necessarily matched in terms of interest rate duration.
� e q u i t y R i s k the allianz Group’s insurance operating entities hold equity investments usually to diversify their portfolios and take advantage of attractive long-term returns. strategic asset allocation benchmarks and investment limits are used to manage and monitor these exposures. in addition, they come within the scope of the Group-wide country and obligor group limit management framework (cRisp) to avoid disproportionately large concentration risk. 80.9 % of the prediversified internal risk capital allocated to the P r o P e r t y - C a s u a l t y and l i f e / H e a l t H segments for equity risk is assigned to our entities operating locally in Germany, italy, France and the united states.
the C o r P o r a t e a n d o t H e r segment manages the equity investments of allianz se including strategic participations and its finance subsidiary holding companies.
� R e a l e s t a t e R i s k
� c u R R e n c y R i s k in addition to any local regulatory requirements, the Group’s policy is to generally require each operating entity to match the currency of their material assets and liabilities or to hedge foreign currency risk. From the perspective of the operating entity’s balance sheet, this leaves only a small amount of currency risk exposure related to the respective local currency.
� c R e D i t s p R e a D R i s k our internal model framework fully acknowledges the risk of declining market values of our fixed income assets such as bonds due to any widening of credit spreads. However, for internal risk management and appetite, we take into account the underlying economics of our business model, i.e. the fact that the cash flows of our insurance liabilities are to a large degree predictable, limiting to a large extent the risk that we are forced to sell these bonds prior to maturity at a loss and allowing us to keep the bonds as a long-term investor till the maturity date. as a consequence, we view the more relevant risk to be credit default risk rather than credit spread risk.
◼ c R e D i t R i s k
Total Group internal credit risk capital: 8,694 [6,871] Share of total Group internal risk capital: 17.4 % [15.2 %]
total Group-diversified internal credit risk capital rose for the l i f e / H e a l t H segment because the exposure increased due to lower policy holder participation driven by lower interest rate levels, downgrades of financial institutions as well as changes in foreign exchange rates.
in the P r o P e r t y - C a s u a l t y and l i f e / H e a l t H segments, credit risk arises from reinsurance counterparties as well as from issuers and counterparties related to our investment activities. For the C o r P o r a t e a n d o t H e r segment, our internal risk capital model covers only investment credit risk, as reinsurance activities are generally allocated to the
2 | scenarios are applied only to investment and reinsurance exposure positions in portfolios of allianz operating entities. 3 | a notch is referred to rating sub-classes, such as aa+, aa, aa- at s&p scale or aa1, aa2, aa3 at Moody's scale.
Different sources of allianz credit risk exposure are described in the table below: investment portfolio premiums collected from our customers and shareholders’ capital, which is required to support the risks underwritten, are invested to a great extent in fixed income instruments. these investment portfolios ultimately cover the future claims to our customers. However, for certain life insurance products, losses due to credit events can be shared with the policyholder, as described in the context of market risks.
� c R e D i t R i s k – i n v e s t M e n t as of December 31, 2011, 87.5 % of our total Group pre-diversified internal credit risk capital is allocated to investment exposures of the P r o P e r t y - C a s u a l t y , l i f e / H e a l t H as well as C o r P o r a t e a n d o t H e r segments, 63.3 % of which is related to issuers and counterparties in the united states and Germany. We limit the credit risk of our fixed income investments by setting high requirements on the creditworthiness of our issuers, by diversifying our investments and by setting obligor concentration limits.
as of December 31, 2011, approximately 93.8 % (2010: 94.4 %) of the fixed income investment portfolio (€ 400.3 bn) of the insurance companies of the allianz Group had an investment grade rating and approximately 80.6 % (2010: 84.6 %) of the fixed income investments were distributed among obligors that had been assigned at least an “a” rating by standard & poor’s. only 2.8 % of this portfolio is non-rated, half of which is due to commercial mortgage loans in Germany (less than € 3 bn) and the united states (less than € 5 bn).
in addition to these fixed income investments, the allianz Group also has non-tradable self-originated residential mortgage loan portfolios mainly in Germany (€ 10.7 bn). as of December 31, 2011, 84.5 % of the German mortgage portfolio is considered to be equivalent to a standard & poor’s investment grade rating based on an internal scoring model.
Not assigned 1 | a deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower) conveys all interest in a real property, such as land and associated structures, to the mortgagee (i.e. the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.
as of December 31, 2011, 8.7 % of our total Group pre-diversified internal credit risk capital is allocated to credit insurance exposures of euler Hermes.
◼ u n D e R W R i t i n G R i s k underwriting risks consist of premium and reserve risks in the property-casualty segment as well as biometric risks in our life/Health segment. For the asset Management segment and our banking operations, underwriting risks are not relevant. although the corporate and other segment provides some guarantees that transfer small parts of the underwriting risk away from local entities. Risks transferred by internal reinsurance are allocated to the property-casualty segment.
our P r o P e r t y - C a s u a l t y insurance businesses are exposed to premium risk related to the current year’s new and renewed business as well as reserve risks related to the business in force. a substantial portion of the property-casualty segment’s pre-diversified internal underwriting risk capital is assigned to our entities operating locally in Germany, italy, France and the united states (34.8 % as of December 31, 2011).
1 | as risks are measured by an integrated approach on an economic basis, internal risk capital takes reinsurance effects into account. 2 | as risks are measured by an integrated approach on an economic basis, internal risk capital takes reinsurance effects into account. allowing for a defined deductible, there are contingent liabilities of up to u.s. Dollar 263 mn in connection with certain insurance reserves of Fireman's Fund insurance co., novato, allocated to the corporate and other segment.
the table below presents the average internal risk capital calculated for underwriting risks over the four quarters of 2011 and 2010, as well as the high and low quarterly internal risk capital amounts calculated in both years.
We face the risk that underwriting profitability is lower than expected. the volatility of the underwriting profitability measured over a one-year time horizon defines our premium risk.
1 | please refer to the section property-casualty insurance operations – property-casualty operations by Business Division for a regional breakdown of loss ratios over the past three years. 2 | Represents claims and insurance benefits incurred (net) divided by premiums earned (net).
an ag em en t R ep or t the Group’s net exposure to natural catastrophes remained within our risk appetite in 2011. in order to further reduce some potential earnings volatility, we purchased slightly more reinsurance capacity for scenarios in some of our smaller business regions, taking advantage of lower prices.
1 | Based on most recent estimates, exposures are calculated using either vendor or proprietary models developed by in-house experts. all models are subject to uncertainty arising from scientific assumptions and underlying data.
Due to the offsetting effects of mortality risk, morbidity risk and longevity risk inherent in the combined portfolios of life insurance and annuity products, as well as due to a geographically diverse portfolio, our l i f e / H e a l t H segment does not have significant concentrations of biometric risk as of December 31, 2011. 2
Business risks consist of operational risks, cost risks and policyholder behavior risks. operational risks represent the loss resulting from inadequate or failed internal processes, from personnel and systems, or from external events such as interruption of business operations due to a breakdown of electricity or a flood, damage caused by employee fraud or the losses caused by court cases. operational risks also include legal risk. strategic risk and reputational risks are excluded in accordance with the capital requirements of solvency ii and Basel ii/iii. cost risks consist of unexpected changes in business assumptions and unanticipated fluctuations in earnings arising from a decline in income without a corresponding decrease in expenses. they also include the risk of budget deficits resulting from lower revenues or higher costs than budgeted.
policyholder behavior risks represent losses related to early termination of contracts and unanticipated use of options such as renewals and annuitization.
12/31/2010 12/31/2011 total Group-diversified internal business risk capital slightly increased in the a s s e t M a n a g e M e n t segment mainly driven by positive market returns and net inflows which lead to an increase in third-party assets under management.
the internal risk capital requirements for the asset Management segment only reflect business risk, because substantially all of the investments managed by the asset Management operating entities are held for third parties or allianz insurance entities, reflected in their own capital requirement. 3 1 | For further information regarding biometric assumptions please refer to internal Risk capital Framework – non-market assumptions. 2 | For further information about insurance risk in the life/Health segment please refer to note 20 of our consolidated financial statements. 3 | internal risk capital for guarantees in our asset Management segment is not significant.
Dedicated minimum security standards are in place for the it systems across the allianz Group to ensure the proper use and protection of the Group’s information assets. With respect to financial statements, our system of internal control is designed to mitigate operational risks. 1 in general, we aim to reduce process failures by clearly documenting relevant methods, procedures, structures and processes across the Group. comprehensive and timely documentation across the Group is one of the fundamental principles of the allianz Group Risk policy.
these risks are evaluated and analyzed quarterly in the same way as reputational risk. the Board of Management of allianz se formulates the business objectives. strategic goals are translated into a three-year business plan, which is approved by the supervisory Board of allianz se. to ensure proper implementation of these goals, strategic controls are carried out through monitoring of respective business targets. We also constantly monitor market and competitive conditions, capital market requirements, regulatory conditions, etc. with respect to changes which may require strategic adjustments. in addition, strategic decisions are discussed in various Board of Management level committees (e. g. Group capital committee, Group Risk committee, Group Finance committee). the assessment of the associated risks is a fundamental element of these discussions. For example, large merger and acquisition transactions are subject to review by the Group Finance committee if the size exceeds the defined thresholds set for the type of transaction.
1 | For additional information regarding our internal control over financial reporting please refer to the section controls and procedures.
Detailed information regarding the allianz Group’s liquidity risk exposure, liquidity and funding including the change in cash and cash equivalents is provided, for instance, in the chapter liquidity and Funding Resources and the notes 17, 23, 24 and 44 of our consolidated financial statements.
on the Group level, liquidity risks arise mainly from capital requirements of subsidiaries and necessary refinancing of expiring financial liabilities.
the accumulated short-term liquidity forecast is updated daily and is subject to an absolute minimum strategic cushion amount and an absolute minimum target liquidity. Both are defined for the allianz se cash pool in order to be protected against short-term liquidity crises. as part of the strategic planning, contingent liquidity requirements and sources of liquidity are taken into account to ensure that allianz se is able to meet any future payment obligations even under adverse developments. Major contingent liquidity requirements include non-availability of external capital markets, combined market and catastrophe risk scenarios for subsidiaries as well as lower than expected profits and dividends from subsidiaries.
liquidity risk relating to our banking operations is deemed not to be significant at the Group level. this is because of the small size and defensive risk profile of allianz banks reflected in risk-weighted assets and total assets (as of December 31, 2011, € 9.0 bn and € 19.4 bn, respectively).
our insurance operating entities manage liquidity risk locally, using local asset-liability management systems designed to ensure that assets and liabilities are adequately matched. this decentralized approach ensures sufficient flexibility in providing liquidity.
liquidity risk in our P r o P e r t y - C a s u a l t y and l i f e / H e a l t H segments is a secondary risk following external events, such as natural disasters, that are generally reflected in our internal risk capital model. therefore, limiting and monitoring the associated primary risks (such as through the use of reinsurance) also helps limit our liquidity risk related to such events. extreme adverse changes in business assumptions such as lapse or renewal rates or costs may cause liquidity risk as well. these effects are also covered by our internal risk capital model.
We employ actuarial methods for estimating our liabilities arising from insurance contracts. in the course of standard liquidity planning we reconcile the cash flows from our investment portfolio with the estimated liability cash flows.
an ag em en t R ep or t these analyses are performed on the operating entity level and aggregated at the Group level. excess liquidity is centrally pooled at the Group level and can be transferred to single operating entities if necessary.
With respect to our a s s e t M a n a g e M e n t business, forecasting and managing liquidity is a regular process, designed to meet both regulatory requirements and Group standards. this process is supported by liquidity guidelines for new products, implemented at our allianz Global investors entities.
our operating entities identify, assess and manage reputational risks predominately within their business processes (e. g. as part of the underwriting or product development processes). Management of reputational risks solely relevant at the level of a single operating entity is based on the local risk governance framework. planned activities which might endanger the reputation of the allianz Group as a whole have to be reported to allianz se for pre-approval. in addition, Group Risk and the local risk functions identify and assess reputational risks qualitatively as part of a quarterly evaluation (“top Risk assessment”). on the basis of this evaluation, an overview of local and glo bal risks is created, which also includes reputational risks. Group Risk analyzes the allianz Group’s risk profile and regularly informs management about the current situation.
◾ consistent application of an integrated risk capital framework across the Group to protect our capital base and to support effective capital management.
this comprehensive framework ensures that risks are properly identified, analyzed and assessed, in a consistent manner across the Group (“top Risk assessment”). the Group’s risk appetite is defined by a clear risk strategy and limit structure. close risk monitoring and reporting allows us to detect potential deviations from our risk tolerance at an early stage at both the Group and operating entity levels.
r i s k s t r a t e g y a n d r i s k a P P e t i t e : our risk strategy clearly defines our risk appetite. it ensures that rewards are appropriate for the risks taken and that the delegated authorities are in line with our overall risk bearing capacity. the risk-return profile is improved through the integration of risk considerations and capital needs into decision-making processes. this also keeps risk strategy and business objectives consistent with each other and allows us to take opportunities within our risk tolerance. 1
R i s k G o v e R n a n c e s t R u c t u R e as a key element of our risk management framework, the allianz approach to risk governance enables integrated management of our local and global risks and ensures that the allianz Group’s risk profile remains consistent with our risk strategy and our capacity to bear risks.
◼ s u p e R v i s o R y B o a R D a n D B o a R D o F M a n a G e M e n t
◾ the Risk committee focuses on the allianz Group’s overall risk profile and monitors risk-related developments as well as general risks and specific risk exposures.
◾ the Board of Management formulates business objectives and a corresponding, consistent risk strategy. the core elements of the risk framework are set down in the allianz Group Risk policy, which has been approved by the Board of Management.
◾ the Group capital committee supports the Board of Management with recommendations regarding risk strategy, capital and limit allocation.
◾ the Group Risk committee defines risk standards and forms the major limit setting authority within the framework set by the Board of Management.
◼ o v e R a l l R i s k o R G a n i z a t i o n a n D R o l e s i n R i s k M a n a G e M e n t a comprehensive system of risk governance is achieved through standards related to organizational structure, risk strategy, written policies, limit systems, documentation and reporting. these standards ensure the accurate and timely flow of risk-related information, as well as disciplined approach towards decision making and execution, at both the global and local level.
Group Risk is headed by the Group chief Risk officer (Group cRo) and reports to the board member responsible for controlling, Reporting and Risk. Group Risk supports the mentioned allianz Group committees responsible for risk oversight, through (i) the analysis and communication of risk management related information and (ii) by facilitating the communication and implementation of committee decisions.
For example, Group Risk is operationally responsible for monitoring limits and accumulation of specific types of risks across business lines, such as natural disasters and exposures to financial markets and counterparties.
in addition, Group Risk independently supports the adequacy of the operating entity (oe) risk management (i) through the development of a common risk management framework and (ii) by monitoring adherence to Group minimum requirements for methods and processes.
Group Risk strengthens and maintains the Group’s risk network through regular and close interaction with the operating entities’ management and key areas such as the local finance, risk, actuarial and investment departments. a strong risk network across the Group allows us to identify risks early and bring them to management’s attention.
the oe Board of Management is responsible for (i) setting and approving an oe risk strategy during the annual strategic and planning Dialogues with the Group and (ii) ensures oe adherence to this risk strategy.
a Risk Function that is independent from the business line management has to be established by the oe. this function operates under the direction of the oe cRo who is responsible for overseeing the oe Risk Function. in addition, an oe Risk committee supports both the oe Board of Management and oe cRo by acting as the primary risk controlling body within the oe. Group Risk is also represented in the local Risk committees to enhance the risk dialogue between the Group and the operating entities.
Group legal services seeks to mitigate legal risks with support from other departments. legal risks include legislative changes, major litigation and disputes, regulatory proceedings and contractual clauses that are unclear or construed differently by the courts. the objectives of Group legal services are to ensure that developments in laws and regulations are observed, to react appropriately to all impending legislative changes or new court rulings, to attend to legal disputes and litigation, and to provide legally appropriate solutions for transactions and business processes.
in order to adapt a continually changing environment, the Global issues Forum (GiF) supports the Group in the assessment of long-term trends and its early awareness of changes in the risk landscape. this includes activities such as desk research, interviews with internal and external experts and workshops to evaluate the impact for us and propose necessary actions to take. the process is coordinated with the Group Risk department, the Group Risk committee and other risk assessing entities like our emerging Risk initiative Working Group, which focuses on emerging risks relevant for our underwriting.
Disclosures Relating to Financial instruments the risk disclosure requirements of iFRs 7 are reflected in the consolidated financial statements and the preceding Risk Report in the group management report.
solvency ii is a major european initiative that is expected to lead to significant changes in european insurance solvency requirements in the coming years. the allianz Group is actively participating in the process and is continuously providing feedback regarding the proposals and analysis of the european insurance and occupational pensions authority (eiopa) and the e.u. commission. Furthermore, we give technical advice, for instance, through the chief Risk officer Forum and the chief Financial officer Forum. We also participate actively in the voluntary pre-approval process for solvency ii with the relevant european supervisors. Given the remaining uncertainty surrounding the final implementation measures and their interpretation, we are constantly reviewing our internal risk capital framework and risk processes, and we enhance them as necessary to comply with the evolving solvency ii standards.
Based on the various initiatives underway, we are confident, that we will achieve full compliance with the final solvency ii requirements once they become binding.
r i s k r e p o r t A n d f i n A n c i A l c o n t r o l iii. controls and procedures statements pursuant to § 289 (5) and § 315 (2) no. 5 of the german commercial code (“Handelsgesetzbuch – HgB”) and explanatory report.
i n t e r n A l c o n t r o l A p p r o A c H
◾ k e y c o n t r o l s are then put in place over the reporting process to ensure that if a potential risk materializes, the likelihood and potential impact of it resulting in a financial misstatement is mitigated. in addition to these focused controls, we also establish controls over the group as a whole, with an emphasis on the control environment, the effectiveness of information and communication flows, the risk assessment process and the ongoing monitoring of the internal control system. given the heavy dependence of financial reporting processes upon it systems, establishing controls around these systems is also vitally important.
◾ finally, we focus not only on ensuring that controls are appropriately designed to mitigate risk, but also that they are effectively executed. We have set consistent documentation requirements across the Allianz group for elements such as processes, related key controls and their execution. We conduct an annual a s s e s s m e n t of our system of controls to continuously maintain and enhance the process effectiveness. group Audit and local internal audit functions ensure that the overall quality of our internal control system is kept under continuous scrutiny.
gr ou p m an ag em en t r ep or t g o v e r n A n c e responsibility for ensuring the completeness, accuracy and reliability of our consolidated financial statements rests with the chairman of the Board of management and the board member responsible for controlling, reporting and risk of Allianz se, supported by group center functions, the group disclosure committee and operating entities.
f u r t H e r c o n t r o l m e c H A n i s m s
We view a strong internal control environment as critical to managing our company successfully and reinforcing trust with our stakeholders. We have therefore implemented an enhanced internal control environment similar to the system we currently have for financial reporting across our largest life insurance operating entities in our market consistent embedded value (mcev) computation and reporting process.
in 2011, we rolled out an enhanced internal control environment for the computation of our internal risk capital in anticipation of the future solvency ii regime. We will continue to make further refinements as the solvency ii requirements evolve during 2012.
overall, just as with estimates and assumptions involving financial reporting, the management reporting processes that underpin our risk capital framework are well controlled, consistently applied and prudent.
270 26 Premiums earned (net) 271 27 Interest and similar income 272 28 Income from financial assets and liabilities carried at fair value through income (net) 273 29 Realized gains/losses (net) 274 30 Fee and commission income 274 31 other income 275 32 Income and expenses from fully consolidated private equity investments 276 33 Claims and insurance benefits incurred (net) 277 34 Change in reserves for insurance and investment contracts (net) 278 35 Interest expenses 278 36 loan loss provisions 278 37 Impairments of investments (net) 279 38 Investment expenses 280 39 acquisition and administrative expenses (net) 281 40 Fee and commission expenses 281 41 other expenses 281 42 net income (loss) from discontinued operations, net of income taxes 282 43 Income taxes
236 7 Cash and cash equivalents 236 8 Financial assets carried at fair value through income 240 10 loans and advances to banks and customers 242 11 Reinsurance assets 243 12 deferred acquisition costs 244 13 other assets 246 14 non-current assets and assets and liabilities of disposal groups classified as held for sale 248 15 Intangible assets 252 16 Financial liabilities carried at fair value through income 252 17 liabilities to banks and customers 253 18 Unearned premiums 253 19 Reserves for loss and loss adjustment expenses 261 20 Reserves for insurance and investment contracts 264 21 Financial liabilities for unit-linked contracts 265 22 other liabilities 266 23 Certificated liabilities 266 24 Participation certificates and subordinated liabilities
C o n S o l I d a t e d B a l a n C e S h e e t S 182
C o n S o l I d a t e d I n C o m e S t a t e m e n t S 183
C o n S o l I d a t e d S t a t e m e n t S o F C h a n G e S I n e q U I t y 185
A s s e t s Cash and cash equivalents 7 10,492 8,747 financial assets carried at fair value through income 1 8 8,466 9,843 loans and advances to banks and customers 10 124,738 122,678 financial assets for unit-linked contracts 63,500 64,847 deferred acquisition costs 12 20,772 20,733 deferred tax assets 43 2,321 2,663 non-current assets and assets of disposal groups classified as held for sale 14 14 299
As of december 31, 2011 2010 note € mn € mn l i A B i l i t i e s A n d e Q u i t Y financial liabilities carried at fair value through income 16 6,610 5,013 liabilities to banks and customers 17 22,155 21,155 reserves for loss and loss adjustment expenses 19 68,832 66,474 reserves for insurance and investment contracts 20 361,954 349,793 financial liabilities for unit-linked contracts 21 63,500 64,847 deferred tax liabilities 43 3,881 3,976 liabilities of disposal groups classified as held for sale 14 — 188 participation certificates and subordinated liabilities 24 11,173 8,998 Total liabilities 594,219 578,383 shareholders’ equity 44,915 44,491 non-controlling interests 2,338 2,071
Ceded premiums written (5,136) (4,873) (5,061) Change in unearned premiums (495) (372) (172)
interest and similar income 27 20,502 19,428 18,233 income from financial assets and liabilities carried at fair value through income (net) 28 (1,287) (38) 874 realized gains/losses (net) 29 3,435 3,708 3,416 fee and commission income 30 8,406 7,920 6,239 income from fully consolidated private equity investments 32 1,618 1,701 1,910
Claims and insurance benefits incurred (gross) (51,376) (48,038) (47,879) Claims and insurance benefits incurred (ceded) 2,509 1,942 2,233 Claims and insurance benefits incurred (net) 33 (48,867) (46,096) (45,646) Change in reserves for insurance and investment contracts (net) 34 (10,993) (13,871) (9,760)
Basic earnings per share 51 5.63 11.20 9.33 from continuing operations 5.63 11.20 10.21 from discontinued operations — — (0.88)
Consolidated statements of Comprehensive income € mn € mn € mn
Share of other comprehensive income of associates reclassifications to net income — (2) 6 Changes arising during the year 46 41 26
Total comprehensive income attributable to: non-controlling interests 307 169 79 for further details concerning income taxes relating to components of the other comprehensive income please see note 43.
Consolidated statements of Changes in equity paid-in capital retained earnings foreign currency translation adjustments unrealized gains and losses (net)
equity non- controlling interests total equity € mn € mn € mn € mn € mn € mn € mn paid-in capital 66 — — — 66 — 66 paid-in capital 50 — — — 50 — 50 paid-in capital 78 — — — 78 — 78 transactions between equity holders — (53) — — (53) 126 73 1 | includes € (1,738) mn changes in non-controlling interests from the derecognition of dresdner Bank and € 337 mn related to capital movements of subsidiaries in which the Allianz group owns less than 100 %.
Cash and cash equivalents at end of period 10,492 8,747 6,089
C A s h f l o w f r o m o p e r A t i n g A C t i v i t i e s
depreciation and amortization 1,053 1,098 902 loan loss provisions 121 50 141 interest credited to policyholder accounts 4,686 4,747 4,166 net change in financial assets and liabilities held for trading 399 (1,525) 100 reverse repurchase agreements and collateral paid for securities borrowing transactions 277 (189) 751 repurchase agreements and collateral received from securities lending transactions 900 346 47 deferred acquisition costs (899) (821) 3 reserves for loss and loss adjustment expenses 1,921 74 (117) reserves for insurance and investment contracts 5,399 8,138 5,190 deferred tax assets/liabilities 163 159 (612)
Co ns ol id at ed fi na nc ia l s ta te m en ts € mn € mn € mn
C A s h f l o w f r o m f i n A n C i n g A C t i v i t i e s policyholders’ account deposits 17,508 20,061 20,162 policyholders’ account withdrawals (15,116) (12,958) (12,233) net change in liabilities to banks and customers 378 (272) (1,097) proceeds from the issuance of certificated liabilities, participation certificates and subordinated liabilities 7,486 7,157 12,541 repayments of certificated liabilities, participation certificates and subordinated liabilities (5,953) (7,428) (14,189) Cash inflow from capital increases 70 44 56 transactions between equity holders (64) (75) 276 dividends paid to shareholders (2,198) (1,978) (1,701) net cash from sale or purchase of treasury shares 12 (21) (135)
Fi na nc ia l S ta te m en ts iv. notes to the Consolidated Financial Statements 1 nature of operations and basis of presentation
the consolidated financial statements of the allianz Group for the year ended december 31, 2011, were authorized for issue by the Board of management on February 20, 2012.
iFrS does not provide specific guidance concerning all aspects of the recognition and measurement of insurance contracts, reinsurance contracts and investment contracts with discretionary participation features. therefore, as envisioned in iaS 8, accounting policies, Changes in accounting estimates and errors, the provisions embodied under accounting principles generally accepted in the united States of america (uS Gaap) have been applied to those aspects where specific guidance is not provided by iFrS 4, insurance Contracts.
◼ p r i n C i p l e S o F C o n S o l i d a t i o n
Subsidiaries are consolidated from the date that control is obtained by the allianz Group. Subsidiaries are consolidated until the date that the allianz Group no longer maintains control. accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the allianz Group. the effects of intra- allianz Group transactions have been eliminated.
Goodwill is measured as the difference at the acquisition date between the cost of the acquisition and the fair value of the net assets acquired. the acquirer recalculates any previously-held equity interest to fair value at the date of obtaining control, with the difference being recorded in the consolidated income statement. if the allianz Group’s proportionate share in the fair value of the net assets exceeds the acquisition cost, the allianz Group reassesses the identification and measurement of the identifiable assets, liabilities and contingent liabilities, as well as the measurement of the cost of the combination and recognizes any excess remaining after that assessment immediately in income.
B u s i n e s s c o m B i n a t i o n s p r i o r t o J a n u a r y 1 , 2 0 1 0 are accounted for using the purchase method. the purchase method requires that the allianz Group allocates the cost of a business combination on the date of acquisition by recognizing the acquired’s identifiable assets, liabilities and certain contingent liabilities at their fair values. the cost of a business combination represents the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the acquisition date, plus any costs directly attributable to the acquisition. if the acquisition cost of the business combination exceeds the allianz Group’s proportionate share of the fair value of the net assets of the acquiree, the difference is recorded as goodwill. any non-controlling interest is recorded at the non-controlling interest’s proportion of the fair value of the net identifiable assets of the acquiree.
associated enterprises are entities over which the allianz Group can exercise significant influence and which are neither subsidiaries nor joint ventures. Significant influence is the power to participate in, but not to control, the financial and operating policies of an enterprise. Significant influence is presumed to exist where the allianz Group has at least 20 % but not more than 50 % of the voting rights unless it can be clearly demonstrated that this is not the case. if the allianz Group holds less than 20 % of the voting power of the investee, it is presumed that the allianz Group does not have significant influence unless such influence can be clearly demonstrated. in general, the allianz Group accounts for its investments in limited partnerships with ownership interests of 20 % or greater using the equity method due to the rebuttable presumption that the limited partner has no control over the limited partnership. Joint ventures are entities over which the allianz Group and one or more other parties have joint control.
in the event that significant influence or joint control over an associate or jointly controlled entity is lost, a gain or loss equal to the difference between (i) the sum of any proceeds from interests disposed of, fair value of any interests retained and any amounts reclassified from equity and (ii) the carrying amount of the investment at the date significant influence or joint control was lost, is recognized in profit or loss.
� t r a n S l a t i o n F r o m a n y F o r e i G n C u r r e n C y i n t o F u n C t i o n a l C u r r e n C y the individual financial statements of each of the allianz Group’s subsidiaries are prepared in the prevailing currency in the primary economic environment where the subsidiary conducts its ordinary activities (its functional currency). transactions recorded in currencies other than the functional currency (foreign currencies) are recorded at the exchange rate prevailing on the date of the transaction. at the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the closing exchange rate. nonmonetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated at historical rates and non-monetary items that are measured at fair value are translated using the closing rate. Foreign currency gains and losses arising from foreign currency transactions are reported in income from financial assets and liabilities carried at fair value through income (net), except when the gain or loss on a non-monetary item measured at fair value is recognized directly in other comprehensive income. in this case, any foreign exchange component of that gain or loss is also directly recognized in other comprehensive income.
are translated at the quarterly average exchange rate. any foreign currency translation differences, including those arising from the equity method, are recorded directly in other comprehensive income, as foreign currency translation adjustments.
◼ C a S h a n d C a S h e Q u i v a l e n t S
◼ F i n a n C i a l i n S t r u m e n t S
Financial assets within the scope of iaS 39 are either classified as
Financial instruments are generally recognized and derecognized on trade date, i.e. when the allianz Group commits to purchase or sell securities or incur a liability.
� F a i r v a l u e o F F i n a n C i a l i n S t r u m e n t S
the allianz Group applies the iaS 39 fair value measurement rules to determine the fair value of financial instruments.
� r e C o G n i t i o n o F a d a y o n e p r o F i t o r l o S S
◼ S u B S e Q u e n t m e a S u r e m e n t o F F i n a n C i a l i n S t r u m e n t S
the subsequent measurement of financial instruments depends on their classification as follows: � F i n a n C i a l a S S e t S a n d l i a B i l i t i e S C a r r i e d a t F a i r v a l u e t h r o u G h i n C o m e
Financial assets and liabilities carried at fair value through income are measured at fair value. Changes in fair value are recognized directly in the consolidated income statement. the recognized net gains and losses include dividends and interest of the underlying financial instruments. a financial instrument may only be designated at inception as held at fair value through income and cannot be subsequently changed.
available-for-sale investments comprise debt and equity securities that are designated as available-for-sale or are not classified as held-to-maturity, loans and advances to banks and customers, or financial assets carried at fair value through income. available-for-sale investments are measured at fair value. unrealized gains and losses, which are the difference between fair value and cost or amortized cost, are recognized as a separate component of other comprehensive income, net of deferred taxes and the latent reserve for premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual regulations when they are realized. when an available-for-sale investment is derecognized or determined to be impaired, the cumulative gain or loss previously recorded in other comprehensive income is transferred and recognized in the consolidated income statement. realized gains and losses on securities are generally determined by applying the average cost method at the subsidiary level.
held-to-maturity investments are debt securities with fixed or determinable payments and fixed maturities for which the allianz Group has the positive intent and ability to hold to maturity. these securities are recorded at amortized cost using the effective interest method over the life of the security, less any impairment losses. amortization of a premium or discount is included in interest and similar income.
loans and advances to banks and customers include reverse repurchase (“reverse repo”) agreements and collateral paid for securities borrowing transactions. reverse repo transactions involve the purchase of securities by the allianz Group from a counterparty, subject to a simultaneous obligation to sell these securities at a certain later date, at an agreed upon price. if all of the risks and rewards of the securities remain substantially with the counterparty over the entire lifetime of the agreement of the transaction, the securities concerned are not recognized as assets. the amounts of cash disbursed are recorded under loans and advances to banks and customers. interest income on reverse repo agreements is accrued over the duration of the agreements and is reported in interest and similar income.
Securities borrowing transactions generally require the allianz Group to deposit cash with the security’s lender. Fees paid are reported as interest expenses.
� l i a B i l i t i e S t o B a n K S a n d C u S t o m e r S
liabilities to banks and customers are subsequently measured at amortized cost. herein included are repurchase (“repo”) agreements and securities lending transactions. repo transactions involve the sale of securities by the allianz Group to a counterparty, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed upon price. if all of the risks and rewards of the securities remain substantially with the allianz Group over the entire lifetime of the transaction, the securities concerned are not derecognized by the allianz Group. the proceeds of the sale are reported under liabilities to banks or customers. interest expenses from repo transactions are accrued over the duration of the agreements and reported in interest expenses.
in securities lending transactions, the allianz Group generally receives cash collateral which is recorded as liabilities to banks or customers. Fees received are recognized as interest income.
Fair values for investment and annuity contracts are determined using the cash surrender values of policyholders’ and contract holders’ account balances.
Financial liabilities for puttable equity instruments include the non-controlling interests in shareholders’ equity of certain consolidated investment funds. these interests qualify as a financial liability of the allianz Group, as they give the holder the right to put the instrument back to the allianz Group for cash or another financial asset (puttable instrument). these liabilities are generally required to be recorded at the redemption amount with changes recognized in income.
� C e r t i F i C a t e d l i a B i l i t i e S , p a r t i C i p a t i o n C e r t i F i C a t e S a n d S u B o r d i n a t e d l i a B i l i t i e S
� F i n a n C i a l G u a r a n t e e C o n t r a C t S
◼ i m p a i r m e n t o F F i n a n C i a l a S S e t S
a held-to-maturity or available-for-sale debt security, as well as a loan is impaired if there is objective evidence that a loss event has occurred after initial recognition of the security and up to the relevant date of the allianz Group’s consolidated balance sheet, and that loss event has negatively affected the estimated future cash flows, i.e. amounts due according to the contractual terms of the security are not considered collectible.
if an available-for-sale debt security is impaired, the related impairment loss is measured as the difference between the security’s amortized cost and current fair value, less any previously recognized impairment losses.
in a subsequent period, if the fair value of an available-for-sale debt security instrument increases and the increase can be objectively related to an event occurring after the recognition of an impairment loss, such as an improvement in the debtor’s credit rating, the impairment is reversed through impairments of investments (net).
if an available-for-sale equity security is impaired, any further declines in the fair value at subsequent reporting dates are recognized as impairments. therefore, at each reporting period, for an equity security that was determined to be impaired, additional impairments are recognized for the difference between the fair value and the original cost basis, less any previously recognized impairments. reversals of impairments of available-for-sale equity securities are not recorded through the income statement but recycled out of other comprehensive income when sold.
once a financial instrument has been classified into a particular category at initial recognition, transfers into or out of that category from or to another category are prohibited for some categories and are expected to be rare in all other circumstances.
the 2008 amendments to iaS 39 permit an entity to reclassify certain non-derivative financial assets out of the “held for trading” (at fair value through income) category and out of the “available-for-sale” category if the following specific conditions are met.
at the reclassification date, non-derivative financial assets have to be reclassified at their fair value, which becomes the new cost or amortized cost of the financial asset, as applicable. previously recognized gains and losses cannot be reversed. after the reclassification date, the existing requirements of iaS 39 for measuring financial assets at cost or at amortized cost apply.
Financial assets and liabilities are offset and the net amount reported in the balance sheet only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.
the allianz Group uses derivative financial instruments such as swaps, options and futures to hedge against market risks (i.e. interest rates, equity prices or foreign exchange rates) or credit risks in its investment portfolios.
Fair value hedges are hedges of a change in the fair value of a recognized financial asset or liability or a firm commitment due to a specified risk. Changes in the fair value of a derivative financial instrument, together with the change in fair value of the hedged item attributable to the hedged risk, are recognized in income from financial assets and liabilities carried at fair value through income (net).
� C a S h F l o w h e d G e S
the allianz Group discontinues hedge accounting prospectively when it is determined that the derivative financial instrument is no longer highly effective, when the derivative financial instrument or the hedged item expires, or is sold, terminated or exercised, or when the allianz Group determines that designation of the derivative financial instrument as a hedging instrument is no longer appropriate. after a fair value hedge is discontinued, the allianz Group continues
iFrS 7, Financial instruments: disclosures, requires the grouping of financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. the scope of iFrS 7 includes recognized and unrecognized financial instruments. recognized financial instruments are those financial assets and financial liabilities within the scope of iaS 39. unrecognized financial instruments, such as loan commitments, are financial instruments that are outside of the scope of iaS 39 but within the scope of iFrS 7. the classes of financial instruments within the allianz Group are mainly in line with the categories according to iaS 39.
the risk disclosure requirements of iFrS 7 and the requirements of iaS 1, presentation of Financial Statements, with regard to capital disclosures are reflected in the consolidated financial statements and the risk report in the group management report.
Balance sheet line items, iaS 39 categories and iFrS 7 classes of financial instruments measurement basis
F i n a n C i a l l i a B i l i t i e S Financial liabilities carried at fair value through income
– derivative financial instruments used for hedging purposes that meet the criteria for hedge accounting and firm commitments Fair value – Financial liabilities for puttable equity instruments redemption amount
the allianz Group’s consolidated financial statements reflect the effects of ceded and assumed reinsurance contracts. assumed reinsurance refers to the acceptance of certain insurance risks by the allianz Group that other companies have underwritten. Ceded reinsurance refers to the transfer of insurance risk, along with the respective premiums, to one or more reinsurers who will share in the risks. when the reinsurance contracts do not transfer significant insurance risk according to the related reinsurance accounting provisions of uS Gaap, deposit accounting is applied as required under the related reinsurance accounting provisions of uS Gaap or under iaS 39.
premiums ceded for reinsurance and reinsurance recoveries on benefits and claims incurred are deducted from premiums earned and insurance and investment contract benefits, respectively. assets and liabilities related to reinsurance are reported on a gross basis. the amount of reserves ceded to reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured risks. revenues and expenses related to reinsurance agreements are recognized in a manner consistent with the underlying risk of the business reinsured.
to the extent that the assuming reinsurers are unable to meet their obligations, the allianz Group remains liable to its policyholders for the portion reinsured. Consequently, allowances are made for receivables on reinsurance contracts which are deemed uncollectible.
◼ d e F e r r e d a C Q u i S i t i o n C o S t S
deferred acquisition costs (daC), present value of future profits (pvFp) and deferred sales inducements comprise the deferred acquisition costs in the consolidated balance sheets.
the value of an insurance business or an insurance portfolio acquired is measured by the pvFp, which is the present value of net cash flows anticipated in the future from insurance contracts in force at the date of acquisition. it is amortized over the life of the related contracts. pvFp was determined using discount rates ranging from 8.0 % to 12.0 %. interest accrues on the pvFp balance based upon the policy liability rate or contract rate. interest currently accrues on pvFp at rates between 2.0 % and 6.5 %.
◼ S h a d o w a C C o u n t i n G
For insurance contracts and investment contracts with discretionary participation features, shadow accounting is applied to daC, pvFp and deferred sales inducements. the allianz Group uses eGps or eGms, which include realized gains and losses in measuring these assets. Shadow accounting is applied in order to include the effect of unrealized gains or losses in the measurement of these intangible assets in the same way as it is done for realized gains or losses. accordingly, the assets are adjusted with corresponding charges or credits recognized directly in other comprehensive income as a component of the related unrealized gain or loss. when the gains or losses are realized, they are recorded in the income statement through recycling and prior adjustments due to shadow accounting are reversed.
◼ u n e a r n e d p r e m i u m S
Currently, the allianz Group has recognized all rights and obligations related to issued insurance contracts according to its accounting policies. as a result, the allianz Group has not recognized an unbundled deposit component in respect of any of its insurance contracts, and accordingly the allianz Group has not recorded any related provisions in its consolidated financial statements.
reserves are established for the payment of losses and loss adjustment expenses (lae) on claims which have occurred but are not yet settled. reserves for loss and loss adjustment expenses fall into two categories: case reserves for reported claims and reserves for incurred but not reported losses (iBnr).
the process of estimating loss and lae reserves is by nature uncertain due to the large number of variables affecting the ultimate amount of claims. the allianz Group reduces the uncertainty in reserve estimates through the use of multiple actuarial and reserving techniques and certain Group-wide processes and controls. For further information please see note 3.
the aggregate policy reserves for participating life insurance contracts are computed in accordance with the related insurance accounting provisions under uS Gaap using the net level premium method. the method uses assumptions for mortality, morbidity and interest rates that are guaranteed in the contract or used in determining the policyholder dividends (or premium refunds). daC and pvFp for traditional participating insurance products are amortized over the expected life of the contracts in proportion to eGms based upon historical and anticipated future experience, which is determined on a best estimate basis and evaluated at the end of each reporting period. the present value of eGms is
� a G G r e G a t e p o l i C y r e S e r v e S F o r t r a d i t i o n a l l o n G - d u r a t i o n i n S u r a n C e C o n t r a C t S
aggregate policy reserves for traditional long-duration insurance contracts, such as traditional life and health products, are computed in accordance with the related insurance accounting provisions under uS Gaap using the net level premium method, which represents the present value of estimated future policy benefits to be paid including future claims handling costs and administration fees less the present value of estimated future net premiums to be collected from policyholders. the method uses best estimate assumptions adjusted for a provision for adverse deviation for mortality, morbidity, expected investment yields, surrenders and expenses at the policy inception date, which remain locked in thereafter unless a premium deficiency occurs. daC and pvFp for traditional life and health products are amortized over the premium paying period of the related policies in proportion to the earned premium using assumptions consistent with those used in computing the aggregate policy reserves.
the aggregate policy reserves for universal life-type insurance contracts in accordance with the related insurance accounting provisions under uS Gaap are equal to the account balance, which represents premiums received and investment return credited to the policy less deductions for mortality costs and expense charges. the aggregate policy reserve for universal life-type contracts includes insurance reserves for unit-linked insurance contracts and investment contracts with discretionary participation features. daC and pvFp for universal life-type contracts are amortized over the expected life of the contracts in proportion to eGps based upon historical and anticipated future experience, which is determined on a best estimate basis and evaluated at the end of each reporting period. the present value of eGps is computed using the interest rate that accrues to the policyholders, or the credited rate. eGps include margins from mortality, administration, investment income including realized gains and losses and surrender charges. the effect of changes in eGps are recognized in net income in the period revised.
aggregate policy reserves also consider liabilities for guaranteed minimum death and similar mortality and morbidity benefits related to non-traditional contracts with annuitization options. these liabilities are calculated based on contractual obligations using actuarial assumptions.
Current and historical client data, as well as industry data is used to determine the assumptions.
assumptions for interest reflect expected earnings on assets, which back the future policyholder benefits. the information used by the allianz Group’s actuaries in setting such assumptions includes, but is not limited to, pricing assumptions, available experience studies, and profitability analyses.
the interest rate assumptions used in the calculation of deferred acquisition costs and aggregate policy reserves were as follows: traditional long-duration insurance contracts participating life insurance contracts deferred acquisition costs 2.5 – 6.0 % 2.2 – 5.0 % aggregate policy reserves 2.5 – 6.0 % 1.5 – 4.3 %
reserves for premium refunds include the amounts allocated under the relevant local statutory or contractual regulations to the accounts of the policyholders and the amounts resulting from the differences between these iFrS based financial statements and the local financial statements (latent reserve for premium refunds), which will reverse and enter into
methods and corresponding percentages for participation in profits by the policyholders are set out below for the most significant countries for latent reserves: Country Base percentage germany life all sources of profit 90 % health all sources of profit 80 %
liability adequacy tests are performed for each insurance portfolio on the basis of estimates of future claims, costs, premiums earned and proportionate investment income. For short-duration contracts, a premium deficiency is recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, capitalized daC, and maintenance expenses exceeds related unearned premiums while considering anticipated investment income. For traditional long-duration contracts and limited payment contracts, if actual experience regarding investment yields, mortality, morbidity, terminations or expense indicate that existing contract liabilities, along with the present value of future gross premiums, will not be sufficient to cover the present value of future benefits and to recover capitalized daC, a premium deficiency is recognized. For other long-duration contracts, if the present value of estimated gross profits or margins, plus unearned revenue liability if applicable, will not be sufficient to recover capitalized daC, a premium deficiency is recognized.
property and equipment includes real estate held for own use, software, equipment and fixed assets of fully consolidated private equity investments and alternative investments.
real estate held for own use (e.g. real estate and buildings, including buildings on leased land) is carried at cost less accumulated depreciation and impairments. the capitalized cost of buildings is calculated on the basis of acquisition cost and depreciated on a straight-line basis over a maximum of 50 years in accordance with their useful lives. an impairment is recognized when the recoverable amount of these assets is less than their carrying amount. where it is not possible to identify separate cash flows for estimating the recoverable amount of an individual asset, an estimate of the recoverable amount of the cash generating unit to which the asset belongs is used.
the allianz Group also records the fixed assets of its fully consolidated private equity investments and alternative investments, e.g. wind parks, solar parks and vending machines, within property and equipment. these assets are carried at cost less accumulated depreciation and impairments. depreciation is generally computed using the straight-line method over estimated useful lives of the assets. the estimated useful life for the wind parks ranges from 20 to 25 years and for the vending machines from 4 to 8 years.
◼ n o n - C u r r e n t a S S e t S a n d d i S p o S a l G r o u p S C l a S S i F i e d a S h e l d F o r S a l e non-current assets or disposal groups are classified as held for sale if their carrying amounts will be principally recovered through a sale transaction rather than through continuing use. this requires that the asset or disposal group must be available for immediate sale in its present condition and its sale must be highly probable. the appropriate level of management must be committed to a plan to sell the asset or disposal group and the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.
intangible assets include intangible assets with indefinite useful lives like goodwill and brand names and intangible assets with finite useful lives like long-term distribution agreements and customer relationships.
the allianz Group conducts an annual impairment test of goodwill during the fourth quarter or more frequently if there is an indication that goodwill is not recoverable. the impairment test includes comparing the recoverable amount to the carrying amount, including goodwill, of all relevant cash generating units. a cash generating unit is impaired if the carrying amount is greater than the recoverable amount. the impairment amount is allocated to first reduce any goodwill, followed by allocation to the carrying amount of any remaining non financial assets of the cash generating unit. impairments of goodwill are not reversed. Gains or losses realized on the disposal of subsidiaries include any related goodwill. please refer to note 3, where the processes and controls for ensuring an appropriate use of estimates and assumptions are explained.
indefinite life intangibles are not amortized but are tested for impairment at least annually or more frequently if events or changes in circumstances indicate that impairment may have occurred. intangible assets with finite useful lives are amortized over their useful lives and are subsequently recorded at cost less accumulated amortization and impairments. an intangible asset is impaired and a respective impairment amount is recognized if the carrying amount is greater
◼ o t h e r l i a B i l i t i e S
◼ e Q u i t y issued capital represents the mathematical per share value received from the issuance of shares.
retained earnings comprise the net income of the current year, not yet distributed earnings of prior years and treasury shares as well as any amounts directly recognized in equity according to iFrS. treasury shares are deducted from shareholders’ equity. no gain or loss is recognized on the sale, issuance, acquisition or cancellation of these shares. any consideration paid or received is recorded directly in shareholders’ equity.
unrealized gains and losses (net) include unrealized gains and losses from available-for-sale investments and derivative financial instruments that meet the criteria for hedge accounting, including cash flow hedges and hedges of a net investment in a foreign entity.
long-duration contracts are contracts that are non-cancelable by the insurance company and guaranteed renewable and that are expected to remain in force over an extended period of time. premiums for long-duration contracts are recognized as earned when due. long-duration contracts can comprise property-Casualty, life and health insurance contracts.
income from financial assets and liabilities carried at fair value through income includes all investment income, and realized and unrealized gains and losses from financial assets and liabilities carried at fair value through income. in addition, commissions attributable to trading operations and related interest expenses and transaction costs are included in this line item. Foreign currency gains and losses are also reported within income from financial assets and liabilities carried at fair value through income (net).
all of the income and expenses from fully consolidated private equity investments are presented in separate income and expense line items. revenue from fully consolidated private equity investments is recognized upon customer acceptance of goods delivered and when services have been rendered.
◼ i n C o m e t a X e S
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.
Contributions to defined contribution plans are recognized as an expense when employees have rendered services entitling them to the contributions.
any unrecognized actuarial net gain or loss exceeding the greater of these two values is generally recognized as an income or expense in the consolidated income statements over the expected average remaining working lives of the employees participating in the plans.
◼ r e S t r u C t u r i n G p l a n S
at the allianz Group level, processes and committees have been established to ensure sound judgment and consistent application of the allianz Group’s standards. Furthermore, the allianz Group has a culture that is strongly committed to reliability, encourages open and transparent discussions, provides a venue for asking questions and admitting mistakes, recognizes experts and expertise, and respects the four eyes principle of review. Committees, none of which are chaired by the CFo of the allianz Group, ensure that judgmental decisions and selection of assumptions are discussed in an open setting among experts and that inconsistencies are identified and resolved.
◼ r e S e r v e S F o r l o S S a n d l o S S a d J u S t m e n t e X p e n S e S , i n S u r a n C e a n d i n v e S t m e n t C o n t r a C t S a n d d e F e r r e d a C Q u i S i t i o n C o S t S
◾ reserves for loss and loss adjustments expenses of € 68,832 mn mainly for the property-Casualty operations, including run-off business and reinsurance business assumed,
◾ reserves for insurance and investment contracts of € 361,954 mn mainly for the life/health operations and
◾ deferred acquisition costs of € 20,772 mn for both insurance operations.
Fi na nc ia l S ta te m en ts n o t e 3 in a first stage, in each jurisdiction, reserves are calculated for individual lines of business, taking into consideration a wide range of local factors. this local reserving process begins with local reserving actuaries gathering data, typically dividing reserving data into the smallest possible homogeneous segments, while maintaining sufficient volume to form the basis for stable projections. once data is collected, they derive patterns of loss payment and emergence of claims based on historical data organized into development triangles arrayed by accident year versus development year. loss payment and reporting patterns are selected based on observed historical development factors and also on the judgment of the reserving actuary using an understanding of the underlying business, claims processes, data and systems as well as the market, economic, societal and legal environment. expected loss ratios are then developed, which are derived from the analysis of historical observed loss ratios, adjusted for a range of factors such as loss development, claims inflation, changes in premium rates, changes in portfolio mix and change in policy terms and conditions.
estimates for the current accident year determine the loss ratios and profitability of the business of the most recent year. For all prior accident years the change in estimates is reported as a run-off – adverse or favorable – in the consolidated income statement.
as loss reserves represent estimates of uncertain future events, the local reserving actuaries determine a range of reasonably possible outcomes. to analyze the variability of loss reserve estimates, actuaries employ a range of methods and approaches, including simple sensitivity testing using alternative assumptions, as well as more sophisticated stochastic techniques. the allianz Group’s reserving standards require that all local reserve committees in allianz subsidiaries meet quarterly to discuss and document reserving decisions as well as to select the best estimate of the ultimate amount of reserves within a range of possible outcomes and to document the rationale for that selection for the particular entity.
in a second stage, the allianz Group actuarial department regularly reviews the local reserving processes, including the appropriateness and consistency of assumptions. Significant aspects are reported to the allianz Group reserve Committee to initiate actions when necessary.
For life/health, as well as for property-Casualty the central oversight process includes the following key components: g r o u p - w i d e s t a n d a r d s a n d g u i d e l i n e s : they define the reserving practices which must be conducted by each subsidiary including aspects of assumptions and estimates. this includes the organization and structure, data, methods, and reporting. the allianz Group actuarial department monitors compliance with these standards and guidelines.
◾ € 229,555 mn of the financial assets and € 64,660 mn of the financial liabilities carried at fair value are classified within level 1 of the fair value hierarchy (quoted prices in active markets)
◾ € 168,932 mn of the financial assets and € 4,659 mn of the financial liabilities carried at fair value are classified within level 2 of the fair value hierarchy (valuation technique with observable market inputs)
the evaluation of whether a financial debt security is impaired requires analysis of the underlying credit of the relevant issuer and involves significant management judgment. in particular, current publicly available information relating to the issuer and the particular security is considered relating to factors including, but not limited to, evidence of significant financial difficulty of the issuer and breach of contractual obligations of the security, such as a default or delinquency on interest or principal payments. the allianz Group also considers other factors which could provide objective evidence of a loss event, including the probability of bankruptcy and the lack of an active market due to financial difficulty. the presence of either a decline in fair value below amortized cost or the downgrade of an issuer’s credit rating does not by itself represent objective evidence of a loss event, but may represent objective evidence of a loss event when considered with other available information.
◼ G o o d w i l l as of december 31, 2011, the allianz Group reported total goodwill of € 11,722 mn, of which: 2
◾ € 2,072 mn related to the property-Casualty business ◾ € 2,174 mn related to the life/health business ◾ € 6,985 mn related to the asset management business ◾ € 491 mn related to the business segment Corporate and other
Fi na nc ia l S ta te m en ts n o t e 3 the allianz Group’s processes and controls around the estimation of recoverable values are generally applied at the allianz Group level and are designed to minimize subjectivity. For example, the assumptions used are required to be consistent with the parameters of the well defined planning and controlling processes. the recoverable amounts of all cash generating units are generally determined on the basis of value in use calculations. important input factors for those calculations are the business plan, the estimate of the sustainable returns and eternal growth rates as is further explained in note 15. the allianz Group also performs sensitivity tests with regard to key value drivers, such as projected long-term combined ratios or discount rates. Furthermore, the allianz Group reviews market-based business transaction multiples where available. this information is used to assess reasonableness since directly comparable market value information is not generally available. although the allianz Group believes short-term fluctuations in the market capitalization do not reflect the long-term value of the aggregate of the CGus, the market capitalization is also compared to the aggregate of the CGu’s realizable values as a high level test of the entire process. the allianz Group believes that the controls over assessing the recoverability of goodwill ensure both consistent and reliable results.
◼ d e F e r r e d t a X a S S e t S
as of december 31, 2011, the allianz Group reported deferred tax assets of € 2,321 mn. € 2,081 mn thereof resulted from tax losses which are carried forward to future periods. 1 deferred taxes are determined based on tax loss carry forwards, unused tax credits and on temporary differences between the allianz Group’s carrying amounts of assets and liabilities in its consolidated balance sheet and their tax bases. deferred tax assets are recognized only to the extent it is probable that sufficient future taxable income will be available for their realization. assessments as to the recoverability of deferred tax assets require the use of judgment regarding assumptions related to estimated future taxable profits. this includes the character and amounts of taxable future profits, the periods in which those profits are expected to occur and as well as the availability of tax planning opportunities.
the analysis and forecasting required in this process, and in result the determination of the deferred tax assets, is performed for individual jurisdictions by qualified local tax and financial professionals. Given the potential significance surrounding the underlying estimates and assumptions, Group-wide policies and procedures have been designed to ensure consistency and reliability around the recoverability assessment process. Forecasted operating results are based upon approved business plans which are themselves subject to a well defined process of control. as a matter of policy, especially strong evidence supporting the recognition of deferred tax assets is required if an entity has suffered a loss in either the current or preceding period.
◼ p e n S i o n l i a B i l i t i e S a n d S i m i l a r o B l i G a t i o n S
as of december 31, 2011, the allianz Group reported a provision for restructuring programs of € 280 mn.1 provisions for restructuring programs are recognized when the allianz Group has a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or by announcing its main features. the detailed formal plan of a restructuring program is in particular based on estimates and assumptions, such as the number of employees to be dismissed, amount of compensation payments, impacts of onerous contracts, possibilities of sub-leases, timing of the various steps of the program and in consequence timing of the expected cash flows.
◾ iFriC 14, iaS 19 , the limit on a defined Benefit asset, minimum Funding requirements and their interaction – amendments
◼ r e C e n t l y i S S u e d a C C o u n t i n G p r o n o u n C e m e n t S | ef fe c t i ve on or af ter Januar y 1, 2012 and not adopte d ear l y iFrS 9, Financial instruments: Classification and measurement, was issued by the iaSB in november 2009 and is part of the project to replace iaS 39 with a new standard. the project is divided into four components, classification and measurement of financial instruments, impairment and provisioning, hedge accounting as well as asset and liability offsetting. in 2011, the iaSB issued an amendment that postpones the effectiveness date for iFrS 9 from January 1, 2013 to annual periods starting on or after January 1, 2015. the iaSB also decided to reopen iFrS 9 in order to consider interaction with insurance contracts projects as well as the FaSB’s classification and measurement model for financial instruments. the allianz Group is currently evaluating the impact of iFrS 9 on its consolidated financial statements. early adoption is generally allowed but not intended by the allianz Group.
as part of the consolidation project, the iaSB issued iFrSs 10, 11 and 12 as well as amendments to iaS 27 and iaS 28 in 2011. these new standards and amendments are effective for periods beginning on or after January 1, 2013. the aim of the consolidation project was to develop a single consolidation model that applies the same criteria for all entities. in this context, the iaSB reaffirmed the control concept as primary determinant for consolidation, revised the definition of ‘control’ and enhanced related disclosure requirements. iFrS 10, Consolidated Financial Statements, supersedes the requirements of iaS 27, Consolidated and Separate Financial Statements, for consolidated financial statements as well as SiC-12, Consolidation – Special purpose entities. Financial reporting in separate financial statements is set out by the amended version of iaS 27. the revised version of iaS 28, investments in associates and Joint Ventures, supersedes the former iaS 28, investments in associates. it defines ‘significant influence’, provides guidance on the application of the equity method of accounting and describes how impairment is assessed in associates and joint ventures. iFrS 11, Joint arrangements, supersedes iaS 31, interests in Joint Ventures, as well as SiC-13, Jointly Controlled entities – non-monetary Contributions by Ventures. the standard requires entities to define their rights and obligations arising from a joint arrangement such as joint operations or joint ventures and provides guidance on how to account for these rights and obligations. iFrS 12, disclosure of interests in other entities, contains disclosure requirements previously set out in iaSs 27, 28 and 31. the allianz Group is currently evaluating the impact of iFrS 10, 11 and 12 as well as iaS 28 on its consolidated financial statements. early adoption is generally allowed but not intended by the allianz Group.
iFrS 13, Fair Value measurement, was issued in may 2011 and is effective for annual periods beginning on or after January 1, 2013. it defines the term ‘fair value’, sets out a framework how fair value is to be measured as well as the disclosure requirements when fair value is applied. However, the standard with a few exceptions does not determine when an asset, a liability or an entity’s own equity instrument is required or permitted to be measured at fair value. the requirements of iFrS 13 regarding measurement and disclosure apply when another iFrS requires or permits an item to be measured at fair value. the adoption of this standard is not expected to have a material impact on the financial position and financial results of the allianz Group. early adoption is generally allowed but not intended by the allianz Group.
� F u r t H e r a m e n d m e n t S a n d i n t e r p r e t a t i o n S
S C o p e o F C o n S o l i d a t i o n Number of fully consolidated companies (subsidiaries) 1
Number of fully consolidated Special Purpose Entities (SPE) 7 4 4 Total number of fully consolidated entities 908 986 949 Number of joint ventures valued at equity 16 17 14 Number of associated entities valued at equity 112 125 146 1 | includes 5 (2010: 6; 2009: 8) subsidiaries, where the allianz Group owns less than the majority of the voting power, including Creditras Vita S.p.a. and Creditras assicurazioni S.p.a. (Creditras) as well as antoniana Veneta popolare Vita S.p.a. and antoniana Veneta popolare assicurazioni S.p.a. (antoniana). the allianz Group controls these entities on the basis of shareholder agreements between the allianz Group subsidiary owning 50.0 % of each such entity and the other shareholders. pursuant to these shareholder agreements, the allianz Group has the power to govern the financial and operating policies of these subsidiaries and the right to appoint the general manager, in the case of Creditras, and the Ceo, in the case of antoniana, who have been given unilateral authority over all aspects of the financial and operating policies of these entities, including the hiring and termination of staff and the purchase and sale of assets. Furthermore, all management functions of these subsidiaries are performed by the employees of the allianz Group. the allianz Group also develops all insurance products written through these subsidiaries. although the allianz Group and the other shareholders each have the right to appoint half of the directors of each subsidiary, the rights of the other shareholders are limited to matters specifically reserved to the board of directors and shareholders under italian law, such as decisions concerning capital increases, amendments to articles and similar matters. in addition, in the case of antoniana, the allianz Group has the right to appoint the Chairman.
◼ S i G n i F i C a n t a C q u i S i t i o n S
Segment Goodwill 1 transaction europensiones S.a. entidad Gestora de Fondos de pensiones, madrid 60.0 9/8/2011 asset management — purchase popular Gestión S.G.i.i.C. S.a., madrid 60.0 9/8/2011 asset management — purchase
Cominvest asset management GmbH, Frankfurt am main 100.0 1/12/2009 asset management 452 purchase ayudhya allianz C.p. life public Company limited, Bangkok 62.6 6/29/2009 life/Health — obtain control 1 | at the date of first-time consolidation.
to strengthen the existing partnership with Banco popular, on march 23, 2011, the allianz Group signed a share purchase agreement to acquire 11 % of the shares in the pension fund manager europensiones S.a., madrid, and 60 % of the shares in the asset manager popular Gestión S.G.i.i.C. S.a., madrid. after the approval of the relevant regulatory and competition authorities the transactions were closed on September 8, 2011, so that the allianz Group now holds 60 % of the shares in each company.
the fair value of the contingent consideration arrangement is € 1 mn.
immediately before the acquisition date, the acquisition-date fair value of the interest in europensiones S.a. amounted to € 120 mn. as a result of remeasuring to fair value the interest in europensiones S.a., a gain of € 99 mn was recognized in the consolidated income statement and is reported in the line realized gains/losses (net).
Cash and cash equivalents 15 15 loans and advances to banks and customers 78 78 other assets 8 8 intangible assets 368 — Total assets 469 101 deferred tax liabilities 111 — other liabilities 17 17 total equity 341 84 Total liabilities and equity 469 101 as of the acquisition date, the non-controlling interests in europensiones and popular Gestión, both unlisted companies, amounted to € 137 mn and were measured at the non-controlling interest’s proportionate share of the acquirees’ identifiable net assets.
the total revenues of the combined entity ( allianz Group including europensiones and popular Gestión) for the year ended december, 31, 2011, would have been € 103,595 mn if the acquisition date had been January 1, 2011. the net income of the combined entity for the year ended december 31, 2011, would have been € 2,824 mn if the acquisition date had been January 1, 2011.
� C o m i n V e S t on January 12, 2009, the allianz Group acquired, as part of the consideration received for the sale of dresdner Bank to Commerzbank, 100 % of the fund manager cominvest (including cominvest asset management GmbH, cominvest asset management S.a. (luxembourg), cominvest Vertriebs aG and mK luxinvest S.a. (luxembourg)).
� C o m p o n e n t S o F C o S t S
the acquisition of cominvest was part of the consideration received from Commerzbank for the sale of dresdner Bank on January 12, 2009. the fair value of the cominvest entities was determined to be € 700 mn and was recognized as the cost of this acquisition.
Cash and cash equivalents 48 48 deferred tax assets 14 8 other assets 42 41 intangible assets 239 — Total assets 529 283 deferred tax liabilities 72 1 other liabilities 147 128 participation certificates and subordinated liabilities 57 50 total equity 253 104 Total liabilities and equity 529 283 at the date of the acquisition, goodwill reflects to a large extent the strengthening and expansion of the market position of the allianz Group’s asset management operations.
the impact of cominvest on the allianz Group’s net income for the year ended december 31, 2009, was € (23) mn.
the cost of the investment in ayudhya allianz C.p. life public Company limited amounted to € 71 mn.
the amounts recognized for major classes of assets and liabilities were as follows: Fair value Carrying amount € mn € mn
the impact of ayudhya on the allianz Group’s net income for the year ended december 31, 2009, was € 4 mn.
◼ S i G n i F i C a n t d i S p o S a l S a n d d e C o n S o l i d a t i o n S
Segment Goodwill transaction allianz Bank polska S.a., Warsaw 100.0 5/31/2011 38 Corporate and other — Sale to third party Coparc, paris 100.0 12/21/2011 27 life/Health — Sale to third party allianz asset management a.s., Bratislava 100.0 11/30/2011 — asset management — Sale to third party W Finance, paris 100.0 12/21/2011 27 life/Health — Sale to third party allianz takaful, manama 100.0 11/30/2011 — property-
7 Sale to third party manroland aG, offenbach 74.0 11/25/2011 — Corporate and other 28 deconsolidation
due to insolvency alba allgemeine Versicherungs-Gesellschaft aG, Basel phenix Compagnie d’assurances Sa, lausanne phenix Compagnie d’assurances sur la vie Sa, lausanne 11/1/2010 219 propertyCasualty
— Sale to third party dresdner Bank aktiengesellschaft, Frankfurt am main 100.0 1/12/2009 5,140 Corporate and other 1,511 Sale to third party
in december 2011, the allianz Group sold Coparc, paris. the impact of the disposal, net of cash disposed, on the consolidated statement of cash flows for the year ended december 31, 2011, was: € mn
Financial assets carried at fair value through income 4 investments 529 Financial assets for unit-linked contracts 490 other assets 11 reserves for loss and loss adjustment expenses (7) reserves for insurance and investment contracts (519) Financial liabilites for unit-linked contracts (490) deferred tax liabilities (1) other liabilities (1) other comprehensive income (2) realized gain from the disposal 1 less non-cash components: impairment losses (3) Disposal of subsidiary, net of cash disposed 12
� m a n r o l a n d a G , o F F e n B a C H
on november 1, 2010, the allianz Group sold alba, phenix and phenix Vie. the impact of the disposal, net of cash disposed, on the consolidated statement of cash flows for the year ended december 31, 2010, was: € mn investments 686 reinsurance assets 29 deferred acquisition costs 16 other assets 39 unearned premiums (38) reserves for insurance and investment contracts (548) other liabilities (80) other comprehensive income (27) realized gain from the disposal 130 Consolidation (7) Disposal of subsidiaries, net of cash disposed 200 in September 2010, the allianz Group completed the sale of allianz Bank zrt., Budapest. the impact of the disposal, net of cash disposed, on the consolidated statement of cash flows for the year ended december 31, 2010, was: € mn investments 284 other assets 15 liabilities to banks and customers (173) other liabilities (32) other comprehensive income 2 less non-cash components: available-for-sale investments received (8) impairment losses (42)
the transfer of ownership of dresdner Bank to Commerzbank was completed on January 12, 2009. according to the agreement allianz received a total of € 3.215 bn in cash plus cash and cash equivalents of the asset manager cominvest of € 48 mn.
◼ a C q u i S i t i o n S a n d d i S p o S a l S o F S i G n i F i C a n t n o n - C o n t r o l l i n G i n t e r e S t S
Asset management activities represent a separate reportable segment. due to differences in the nature of products, risks and capital allocation, corporate and other activities are divided into three reportable segments: Holding & treasury, banking and Alternative investments. in total, the Allianz group has identified 15 reportable segments in accordance with ifrs 8, operating segments.
in the life/Health category, reportable segments offer a comprehensive range of life and health insurance products on both individual and group basis, including annuity, endowment and term insurance, unit-linked and investment-oriented products as well as full private health and supplemental health and long-term care insurance.
A s s e t s financial assets carried at fair value through income 1,187 1,852 6,518 6,867 726 729 312 826 (277) (431) 8,466 9,843 loans and advances to banks and customers 17,842 17,697 98,019 97,377 1,443 358 17,717 16,443 (10,283) (9,197) 124,738 122,678 financial assets for unit-linked contracts — — 63,500 64,847 — — — — — — 63,500 64,847 non-current assets and assets of disposal groups classified as held for sale 3 28 4 24 7 — — 248 — (1) 14 299 property-Casualty life/Health Asset management Corporate and other Consolidation group € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn l i A b i l i t i e s A n d e Q u i t y financial liabilities carried at fair value through income 122 79 6,302 4,905 — — 516 461 (330) (432) 6,610 5,013 liabilities to banks and customers 1,488 1,368 2,348 796 2,231 876 20,112 20,499 (4,024) (2,384) 22,155 21,155 reserves for loss and loss adjustment expenses 59,493 57,509 9,357 8,984 — — — — (18) (19) 68,832 66,474 reserves for insurance and investment contracts 9,520 9,338 352,558 340,539 — — — 42 (124) (126) 361,954 349,793 financial liabilities for unit-linked contracts — — 63,500 64,847 — — — — — — 63,500 64,847 liabilities of disposal groups classified as held for sale — — — — — — — 241 — (53) — 188 participation certificates and subordinated liabilities — 398 65 65 14 14 11,349 8,778 (255) (257) 11,173 8,998
property-Casualty life/Health Asset management Corporate and other Consolidation group € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
Income (loss) from continuing operations before income taxes 4,017 4,320 4,142 1,932 2,783 2,613 1,999 1,605 902 (3,055) (1,660) (1,703) (47) 125 (764) 4,846 7,173 5,190
Net income (loss) from continuing operations 2,812 3,104 2,779 1,198 1,849 1,957 1,312 946 543 (2,501) (885) (640) (17) 195 11 2,804 5,209 4,650 Net income (loss) from discontinued operations, net of income taxes — — — — — — — — — — — (395) — — — — — (395)
Net income (loss) attributable to: 1 | total revenues comprise statutory gross premiums written in property-Casualty and life/Health, operating revenues in Asset management and total revenues in Corporate and other (banking). 2 | in 2011 includes expenses for premium refunds (net) in property-Casualty of € (110) mn (2010: € (181) mn; 2009: € (253) mn).
7 | represents acquisition and administrative expenses (net) divided by premiums earned (net). 8 | represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net). 9 | presentation not meaningful.
Co ns ol id at ed fi na nc ia l s ta te m en ts n o t e 6 reportable segments – property-Casualty business german speaking Countries 1 europe incl. south America 2, 3 nAftA markets 3 global insurance lines & Anglo markets 2, 3, 4 growth markets 1, 2 Assistance Consolidation and other 4 property-Casualty € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
Gross premiums written 11,328 11,292 11,432 13,353 13,094 12,950 3,653 3,576 3,713 15,593 15,093 13,664 3,117 3,191 3,156 1,686 1,540 1,355 Gross premiums written (3,958) (3,891) (3,747) 44,772 43,895 42,523 Ceded premiums written (1,892) (1,956) (2,133) (1,415) (1,356) (1,452) (1,033) (895) (847) (3,510) (3,343) (3,106) (659) (690) (785) (14) (9) (9) Ceded premiums written 3,971 3,903 3,758 (4,552) (4,346) (4,574) Change in unearned premiums 34 18 (58) (138) (18) 100 84 119 220 (195) (237) (332) (24) (84) (12) (83) (44) (39) Change in unearned premiums — — — (322) (246) (121) Premiums earned (net) 9,470 9,354 9,241 11,800 11,720 11,598 2,704 2,800 3,086 11,888 11,513 10,226 2,434 2,417 2,359 1,589 1,487 1,307 Premiums earned (net) 13 12 11 39,898 39,303 37,828 interest and similar income 1,216 1,180 1,185 1,086 1,037 1,002 284 343 350 1,068 1,016 961 156 160 166 31 24 28 interest and similar income (70) (80) (80) 3,771 3,680 3,612 operating income from financial assets and liabilities carried at fair value through income (net) (8) 28 37 82 60 115 — — — (31) (71) (40) 3 1 1 1 (2) 2 operating income from financial assets and liabilities carried at fair value through income (net) 1 2 3 48 18 118 operating realized gains/losses (net) 21 42 57 — — — — — — — — — — — — — — — operating realized gains/losses (net) — — — 21 42 57 fee and commission income 152 131 182 22 33 49 — — — 626 584 528 61 60 59 367 358 336 fee and commission income (74) (67) (79) 1,154 1,099 1,075
Change in reserves for insurance and investment contracts (net) — — — (272) (300) (355)
loan loss provisions — — (9) — — — — — (1) — — — — — (8) — — — loan loss provisions — — — — — (18) operating impairments of investments (net) (46) (9) (75) — — — — — — — — — — — — — — — operating impairments of investments (net) — — — (46) (9) (75)
Operating profit (loss) 710 843 964 1,680 1,136 926 (117) 278 355 1,478 1,844 1,453 224 106 267 94 97 95 Operating profit 127 — 4 4,196 4,304 4,064 loss ratio 6 in % 74.1 73.1 70.8 68.6 72.2 73.9 85.9 69.8 69.7 68.6 64.5 67.1 61.1 65.0 59.8 60.3 59.6 60.1 loss ratio 6 in % — 9 — 9 — 9 69.9 69.1 69.5 expense ratio 7 in % 26.9 26.5 27.0 26.1 26.3 26.3 28.7 32.3 29.8 27.6 27.6 27.5 35.3 36.0 33.8 35.9 36.0 35.4 expense ratio 7 in % — 9 — 9 — 9 27.9 28.1 27.9 Combined ratio 8 in % 101.0 99.6 97.8 94.7 98.5 100.2 114.6 102.1 99.5 96.2 92.1 94.6 96.4 101.0 93.6 96.2 95.6 95.5 Combined ratio 8 in % — 9 — 9 — 9 97.8 97.2 97.4
reportable segments – life/Health business german speaking Countries 1 europe incl. south America 1 nAftA markets global insurance line & Anglo markets growth markets 1 Consolidation life/Health € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn deposits from insurance and investment contracts (5,246) (5,095) (5,576) (12,365) (14,510) (13,416) (7,091) (7,456) (5,788) — — — (3,550) (5,312) (3,429) — — — (28,252) (32,373) (28,209)
Claims and insurance benefits incurred (net) (14,944) (12,974) (13,408) (4,242) (4,479) (4,557) (94) (103) (81) (331) (307) (355) (1,336) (1,092) (925) — — — (20,947) (18,955) (19,326) Changes in reserves for insurance and investment contracts (net) (6,378) (8,640) (5,062) (1,890) (2,216) (1,495) (1,582) (1,574) (1,219) 38 48 (21) (806) (947) (702) — — — (10,618) (13,329) (8,499)
Margin on reserves 3 in basis points 57 68 52 70 78 97 50 67 91 126 102 127 28 104 80 — 4 — 4 — 4 58 73 74
reportable segments – Asset management business € mn € mn € mn net fee and commission income 1 5,470 4,927 3,590 income from financial assets and liabilities carried at fair value through income (net) (11) 19 40
Administrative expenses (net), excluding acquisition-related expenses (566) (621) (574) (512) (591) (634) (148) (145) (142) 6 7 2 (1,220) (1,350) (1,348)
Cost-income ratio 1 for the reportable segment Banking in % 90.7 101.4 122.5 1 | represents investment expenses, administrative expenses (net), excluding acquisition-related expenses and other expenses divided by interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), fee and commission income, other income, interest expenses, excluding interest expenses from external debt and fee and commission expenses.
interest expenses, excluding interest expenses from external debt (438) (383) (445) (374) (333) (395) (2) (1) — 3 3 2 (811) (714) (838)
iv. supplementary information to the Consolidated Balance sheets 9 investments As of december 31, 2011 2010 € mn € mn
As of december 31, 2011, compulsory deposits on accounts with national central banks under restrictions due to required reserves from the european Central Bank totaled € 389 mn (2010: € 279 mn).
Financial assets held for trading debt securities 238 546 equity securities 135 139 derivative financial instruments 2,096 1,416
Debt securities Government and agency mortgagebacked securities (residential and commercial) 5,095 300 (1) 5,394 5,043 235 (6) 5,272 Corporate mortgage-backed securities (residential and commercial) 10,868 863 (182) 11,549 10,023 625 (174) 10,474
Amortized Cost unrealized gains unrealized losses fair value Amortized Cost unrealized gains unrealized losses fair value € mn € mn € mn € mn € mn € mn € mn € mn government and government agency bonds 2,462 196 (31) 2,627 2,264 165 (5) 2,424 1 | Also includes corporate mortgage-backed securities.
the following table sets forth gross unrealized losses on available-for-sale investments and held-to-maturity investments and the related fair value, segregated by investment category and length of time such investments have been in a continuous unrealized loss position as of december 31, 2011 and 2010.
As of december 31, € mn € mn € mn € mn € mn € mn
Debt securities government and agency mortgage-backed securities (residential and commercial) 22 (1) — — 22 (1) Corporate mortgage-backed securities (residential and commercial) 1,333 (101) 455 (81) 1,788 (182)
� C o r p o r A t e B o n d s total unrealized losses amounted to € 4,315 mn as of december 31, 2011. the Allianz group holds a large variety of bonds issued by corporations mostly domiciled in oeCd countries. for the vast majority of the Allianz group’s corporate bonds, issuers and/or issues are of “investment grade”. the unrealized losses have increased by € 1,568 mn, primarily due the negative bond market performance of the financial sector. Based on a detailed analysis of the underlying securities the Allianz group did not consider these investments to be impaired as of december 31, 2011.
◼ C o n t r A C t u A l t e r m t o m A t u r i t y the amortized cost and estimated fair value of available-for-sale debt securities and held-to-maturity debt securities as of december 31, 2011, by contractual term to maturity, are as follows: Amortized Cost fair value As of december 31, 2011 € mn € mn due in 1 year or less 24,638 24,856 due after 1 year and up to 5 years 96,790 97,766 due after 5 years and up to 10 years 80,189 81,845 due after 10 years 99,950 103,225 due in 1 year or less 175 203 due after 1 year and up to 5 years 1,664 1,754 due after 5 years and up to 10 years 930 924 due after 10 years 1,451 1,541
As of december 31, 2011, fair values could not be reliably measured for equity investments with carrying amounts totaling € 418 mn (2010: € 352 mn). these investments are primarily investments in privately held corporations and partnerships. during the year ended december 31, 2011, such investments with carrying amounts of € 96 mn (2010: € 52 mn) were sold leading to gains of € 1 mn (2010: € 1 mn) and losses of € 1 mn (2010: € — mn).
◼ i n v e s t m e n t s i n A s s o C i A t e s A n d j o i n t v e n t u r e s
Cost as of january 1, 11,630 10,413 10,139 Accumulated depreciation as of january 1, (2,958) (2,899) (2,588) Carrying amount as of January 1, 8,672 7,514 7,551
Collateral paid for securities borrowing transactions and derivatives 264 — 264 38 — 38
As of december 31, 2011 up to 3 months > 3 months up to 1 year > 1 year up to 3 years > 3 years up to 5 years greater than 5 years total € mn € mn € mn € mn € mn € mn loans and advances to banks 6,466 3,583 9,854 8,879 47,722 76,504 loans and advances to customers 2,612 3,536 6,765 6,094 29,424 48,431
As of december 31, 2011 2010 germany other countries total germany other countries total € mn € mn € mn € mn € mn € mn short-term investments and certificates of deposit 1,510 4,831 6,341 1,165 4,051 5,216
As of december 31, 2011 2010 € mn € mn g e r m A n y Corporate Customers manufacturing industry 1,063 1,353 wholesale and retail trade 423 450 financial institutions (excluding banks) and insurance companies 370 439 service providers 3,200 2,171
◼ r e C o n C i l i A t i o n o f A l l o w A n C e s f o r C r e d i t l o s s e s B y C l A s s o f f i n A n C i A l A s s e t s
Changes in the consolidated subsidiaries of the Allianz group — (19) — — (1) — — (20) — Additions charged to the consolidated income statements 156 110 212 20 13 3 176 123 215 foreign currency translation adjustments — 1 2 — — — — 1 2 reclassifications to non-current assets and assets of disposal groups classified as held for sale — — — — (6) — — (6) —
Carrying amount as of December 31, 4,364 4,674 4,613 the Allianz group reinsures a portion of the risks it underwrites in an effort to control its exposure to losses and events and to protect its capital resources. for natural catastrophe events the Allianz group maintains a centralized program that pools exposures from a number of subsidiaries by internal reinsurance agreements. Allianz se limits exposures in this portfolio through external reinsurance. for other risks the subsidiaries of the Allianz group have individual reinsurance programs in place. Allianz se participates as a reinsurer on an arm’s length basis in these programs.
12 deferred acquisition costs As of december 31, 2011 2010 € mn € mn
◼ d e f e r r e d A C q u i s i t i o n C o s t s € mn € mn € mn p r o p e r t y - C A s u A l t y Carrying amount as of January 1, 4,121 3,789 3,721
As of december 31, 2011, the percentage of pvfp that is expected to be amortized in 2012 is 15.36 % (12.49 % in 2013, 11.58 % in 2014, 10.21 % in 2015 and 9.51 % in 2016).
◼ d e f e r r e d s A l e s i n d u C e m e n t s € mn € mn € mn
Carrying amount as of January 1, 821 693 688 foreign currency translation adjustments 43 46 (17)
Carrying amount as of December 31, 797 821 693 13 other assets As of december 31, 2011 2010 € mn € mn
Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 430 452 Property and equipment real estate held for own use 2,806 3,075 fixed assets of Alternative investments 1,113 1,117 1 | As of december 31, 2011, includes prepaid benefit costs for defined benefit plans of € 385 mn (2010: € 372 mn).
◼ p r o p e r t y A n d e q u i p m e n t
� r e A l e s t A t e H e l d f o r o w n u s e € mn € mn € mn
Cost as of january 1, 4,269 4,008 4,136 Accumulated depreciation as of january 1, (1,194) (1,092) (1,014) Carrying amount as of January 1, 3,075 2,916 3,122
Changes in the consolidated subsidiaries of the Allianz group (20) (5) (2)
reclassification out of/(into) non-current assets and assets of disposal groups classified as held for sale — (8) 18 foreign currency translation adjustments (2) 21 (3)
Carrying amount as of December 31, 1 1,393 1,287 1,297 Accumulated amortization as of december 31, 3,191 2,875 2,531 Cost as of december 31, 4,584 4,162 3,828 1 | As of december 31, 2011, includes € 865 mn (2010: € 829 mn; 2009: 812 mn) for software developed in-house and € 528 mn (2010: € 458 mn; 2009: 485 mn) for software purchased from third parties.
� e q u i p m e n t € mn € mn € mn
Changes in the consolidated subsidiaries of the Allianz group 3 3 6 reclassifications out of/(into) non-current assets and assets of disposal groups classified as held for sale — (22) — foreign currency translation adjustments 8 22 13
Cost as of january 1, 1,587 1,152 538 Accumulated depreciation as of january 1, (470) (330) (119) Carrying amount as of January 1, 1,117 822 419
Changes in the consolidated subsidiaries of the Allianz group (46) 248 164 reclassifications out of non-current assets and assets of disposal groups classified as held for sale — — 309 foreign currency translation adjustments 2 13 (4)
Carrying amount as of December 31, 1,113 1,117 822 Accumulated depreciation as of december 31, 460 470 330 Cost as of december 31, 1,573 1,587 1,152 1 | includes fixed assets of wind parks, solar parks, manroland and selecta.
� n o n - C u r r e n t A s s e t s C l A s s i f i e d A s H e l d f o r s A l e non-current assets classified as held for sale of € 10 mn comprise assets allocated to the property-Casualty and Asset management segment, none of which are individually material. the sale of these assets is expected to be completed during 2012. upon measurement of the non-current assets at fair value less costs to sell no impairment losses were recognized for the year ended december 31, 2011.
the following table provides an overview of all assets and liabilities of disposal groups classified as held for sale during the year ended december 31, 2011 or as of december 31, 2010, which were sold in 2011: period, in which classified as held for sale
Assets of disposal group liabilities of disposal group period, in which disposal was completed
segment disposal group € mn € mn € mn € mn
the following table provides an overview of all non-current assets classified as held for sale during the year ended december 31, 2011 or as of december 31, 2010, which were sold in 2011: period, in which classified as held for sale non-current assets period, in which disposal was completed
Casualty several office buildings held by Allianz deutschland Ag and german real estate fund q3 2011 —
Corporate and other several warehouses and industrial buildings held by Allianz life insurance of north America losses: (16)
◼ g o o d w i l l € mn € mn € mn
Cost as of january 1, 12,603 12,291 11,445 Accumulated impairments as of january 1, (583) (277) (224) Carrying amount as of January 1, 12,020 12,014 11,221 disposals (28) — — foreign currency translation adjustments 67 256 (113)
reclassifications out of/(into) non-current assets and assets of disposal groups classified as held for sale (7) — 491 Carrying amount as of December 31, 11,722 12,020 12,014 Accumulated impairments as of december 31, 805 583 277 Cost as of december 31, 12,527 12,603 12,291 disposals of 2011 include goodwill from the loss of control in manroland Ag, offenbach due to the opening of insolvency proceedings during the fourth quarter.
Additions of 2010 include goodwill from the acquisition of a 100 % participation in windpark werder zinndorf gmbH & Co. kg, sehestedt, the acquisition of a 100 % participation in solarpark Bps Brindisi s.r.l., Brindisi, and the acquisition of a 100 % participation in solarpark orsa maggiore pv s.r.l., milan.
Additions include goodwill from the acquisition of a 100 % participation in cominvest Asset management gmbH, frankfurt am main.
the allocated goodwill of the Cgu Banking was impaired as a result of the annual impairment test.
� i m p A i r m e n t t e s t f o r g o o d w i l l A n d i n t A n g i B l e A s s e t s w i t H i n d e f i n i t e u s e f u l l i v e s for the purpose of impairment testing, the Allianz group has allocated goodwill to Cash generating units (Cgu). these Cgu represent the lowest level at which goodwill is monitored for internal management purposes.
in this regard, the Allianz group uses the capitalized earnings method to derive the value in use for all Cgu in the property-Casualty segment, for the Cgu Asset management as well as for the Cgu Banking germany and Banking europe. generally, the basis for the determination of the capitalized earnings value is the business plan (“detailed planning period”) as well as the estimate of the sustainable returns and eternal growth rates which can be assumed to be realistic on a long-term basis (“terminal value”) for the companies included in the Cgu. the capitalized earnings value is calculated by discounting the future earnings using an appropriate discount rate. the business plans applied in the value in use calculations are the results of the structured management dialogues between the Board of management of the Allianz group and the operating entities in connection with a reporting process integrated into these dialogues. generally, the business plans comprise a planning horizon of three years and are based on the current market environment. the terminal values are largely based on the expected profits of the final year of the detailed planning period. where necessary, the planned profits are adjusted to reflect long-term sustainable earnings. the financing of the assumed eternal growth in the terminal values is accounted for by appropriate profit retention.
p r o p e r t y - C A s u A l t y german speaking Countries 7.4 1.0 south America 16.3 3.0 Asia-pacific and middle east 9.5 3.0 Central and eastern europe 10.5 2.4 global insurance lines & Anglo markets 8.1 1.0 nAftA markets 8.0 1.0 specialty lines i 7.7 1.0 specialty lines ii 7.9 1.0
B A n k i n g Banking germany 8.5 1.0 sensitivity analyses were performed with regard to discount rates and key value drivers of the business plans. in the segments property-Casualty and Asset management, sensitivity analyses were performed in respect to the long-term sustainable combined ratios and cost income ratios.
An increase of 0.5 % points in the discount rate or the combined ratio could result in the recoverable amount for the Cgu Asia-pacific and middle east reaching its carrying value. the recoverable amount of the Cgu Central and eastern europe almost equals its carrying value.
for taiwan and the united states, instead of the market Consistent embedded value, the Appraisal value was derived from a traditional embedded value and new business value calculation as no adequate valuation reflecting a long-term view in line with management judgment and market experience could be derived from market consistent methodology.
sensitivity analyses were performed with regard to considered new business values. for all Cgu in the life/Health segment with appraisal values exceeding their carrying values except nAftA markets even a significant reduction in the applied new business multiple would lead to respective Appraisal values which still exceed the respective carrying values. with respect to the Cgu nAftA markets the appraisal value exceeds its carrying value assuming eight times the new business value.
south America 22 — 21 — nAftA markets — — 94 — global insurance lines & Anglo markets 317 — 312 — Asia-pacific and middle east 88 — 87 — Central and eastern europe 454 24 467 25 specialty lines i 38 — 38 — specialty lines ii 18 — 18 —
l i f e / H e A l t H german speaking Countries 592 — 590 — Health germany 325 — 325 —
nAftA markets 444 — 440 — Asia-pacific and middle east 171 — 320 —
◼ i n t A n g i B l e A s s e t s w i t H f i n i t e u s e f u l l i v e s
Amortization expenses of intangible assets with finite useful lives are estimated to be € 151 mn in 2012, € 126 mn in 2013, € 120 mn in 2014, € 123 mn in 2015 and € 123 mn in 2016. thereof, the amortization expenses relating to the intangible assets of selecta Ag are included in the line item “expenses from fully consolidated private equity investments”.
the customer relationships of cominvest and selecta have useful lives of 4 years and 10 years, which were determined by average customer retention period for german mutual funds and by the multi-period excess earnings method. they are amortized on a straight line basis over the remaining useful lives of 1 year and 5.5 years.
16 financial liabilities carried at fair value through income As of december 31 2011 2010 € mn € mn
17 liabilities to banks and customers As of december 31, 2011 2010
Banks Customers total Banks Customers total € mn € mn € mn € mn € mn € mn term deposits and certificates of deposit 1,107 2,234 3,341 1,328 2,301 3,629
Collateral received from securities lending transactions and derivatives 2,151 — 2,151 591 — 591
◼ l i A B i l i t i e s t o B A n k s A n d C u s t o m e r s B y C o n t r A C t u A l m A t u r i t y
As of december 31, 2011 up to 3 months > 3 months up to 1 year > 1 year up to 3 years > 3 years up to 5 years greater than 5 years total € mn € mn € mn € mn € mn € mn
As of december 31, 2011, liabilities to customers include € 1,049 mn (2010: € 987 mn) of non-interest bearing deposits.
Co ns ol id at ed fi na nc ia l s ta te m en ts 18 unearned premiums As of december 31, 2011 2010 € mn € mn property-Casualty 14,697 14,206 life/health 2,562 2,291 Consolidation (4) —
19 reserves for loss and loss adjustment expenses As of december 31, 2011 2010 € mn € mn property-Casualty 59,493 57,509 life/health 9,357 8,984
◼ r e C o n C i l i A t i o n o f B e g i n n i n g A n d e n d i n g r e s e r v e s f o r l o s s A n d l o s s A d j u s t m e n t e x p e n s e s the following table reconciles the beginning and ending reserves of the Allianz group, including the effect of reinsurance ceded, for the property-Casualty segment for each of the years in the three-year period ended december 31, 2011.
Calendar year 2003 & prior € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
As of december 31, 2003 & prior € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
1 | includes effects from foreign currency translation adjustments and other changes. 2 | presentation not meaningful.
Accident year the ultimate loss of an accident year comprises all payments made for that accident year up to the reporting date, plus the loss reserve at the reporting date. given complete information regarding all losses incurred up to the balance sheet date, the ultimate loss status for each accident-year period would remain the same. in practice, however, the ultimate loss status (based on estimates) is exposed to fluctuations that reflect the growth in knowledge about the loss cases. the loss ratio varies slightly from the reported loss ratio because the ultimate loss in the table above is based on the sum of the payments plus the loss reserve, and not the incurred loss from the profit and loss account.
each column of this table shows reserves as of a single reporting date and subsequent development of these reserves. the top section of each column shows net reserves as initially established at the end of each stated year. the next section, reading down, shows the cumulative net amounts paid as of the end of the successive years with respect to the reserve initially established. the next section shows the retroactive re-estimation of the initially established net reserves for loss and lAe as of the end of each successive year. this re-estimation results primarily from additional facts and circumstances that pertain to open claims.
given that the table below presents calendar year data and not, like the one above, accident year data, conditions and trends that have affected development of liability in the past may or may not necessarily occur in the future. Consequently, conclusions about future results may not be derived from information presented in this table.
Calendar year € mn € mn € mn € mn € mn € mn € mn € mn reserves for loss and loss adjustment expenses (gross) 55,528 60,259 58,664 56,943 55,616 55,715 57,509 59,493 reserves for loss and loss adjustment expenses (ceded) 10,048 10,603 9,333 8,266 7,820 7,176 6,659 6,658 Reserves for loss and loss adjustment expenses (net) 45,480 49,656 49,331 48,677 47,796 48,539 50,850 52,835 Net paid (cumulative) as of five years later 25,145 26,812 25,997 six years later 26,719 28,254 seven years later 27,867 Net liabilities re-estimated as of five years later 41,187 43,086 43,562 six years later 41,181 43,379 seven years later 41,550 Cumulative surplus
Net surplus before adjustments as a % of initial reserves 8.6 % 12.6 % 11.7 % 9.5 % 1.9 % 1.8 % 2.7 %
1 | gross/net surplus before adjustments represents the cumulative surplus from re-estimating the reserves for loss and loss adjustment expenses for prior years claims and includes foreign currency translation adjustments of gross € 295 mn (2010: € 1,999 mn) and net € 247 mn (2010: € 1,707 mn), changes in the consolidated subsidiaries of the Allianz group, reclassifications and other changes. this leads to an effective run-off result of gross € 2,080 mn (2010: € 2,551 mn) and net € 1,660 mn (2010: € 1,544 mn) which can be found in the table “Change in the reserves for loss and loss adjustment expenses for the property-Casualty segment” within this section.
� l o s s A n d l A e r e s e r v e s B y l i n e o f B u s i n e s s , g r o s s o f r e i n s u r A n C e
As noted above, prior year loss and lAe reserves of the Allianz group developed favorably during 2011 by € 2,080 mn gross of reinsurance and € 1,660 mn net of reinsurance, representing 3.6 % of gross reserves and 3.3 % of net reserves as of december 31, 2010. the following table provides a breakdown of these amounts by line of business.
Below, the major highlights of the reserve developments in 2011 are discussed by line of business. the discussion is based on net loss and lAe reserves in the local currency of the relevant local operating entity before consolidation and converted into euro for uniform presentation. individual explanations of amounts in the following discussion, which includes only significant developments for our major operating entities, do not fully reconcile to the line of business totals in the above table.
� g e n e r A l l i A B i l i t y for general liability, net loss and lAe reserves developed unfavorably during 2011 by € 197 mn, or 2.1 % of reserves at december 31, 2010. this development was seen for different effects across several operating entities. the following subsidiaries were the largest contributors:
€ 46 mn at the Allianz group’s german subsidiary due to adverse claim trends, in particular above-average claim severity for several accident years in the commercial business.
� W o r k e r s C o m p e n s A t i o n / e m p l o y e r s l i A B i l i t y for Workers Compensation/employers liability, net loss and lAe reserves developed unfavorably during 2011 by € 123 mn, or 2.8 % of reserves at december 31, 2010. this development was seen for different effects across several operating entities. the following subsidiary was the largest contributor: € 126 mn at fireman’s fund insurance Company due to updating of the reserving assumptions and methodologies to reflect the on-going trends in the Workers Compensation market.
� p r o p e r t y for property insurance, net loss and lAe reserves developed favorably during 2011 by € 91 mn, or 2.9 % of reserves at december 31, 2010. favorable development was seen for different effects across several operating entities. the following subsidiary was the largest contributor: € 58 mn at our french entity on its property business, mainly driven by favorable development on large losses and better than expected experience on older accident years.
� i n W A r d s r e i n s u r A n C e for inwards reinsurance, net loss and lAe reserves developed favorably during 2011 by € 327 mn, or 7.6 % of reserves at december 31, 2010. favorable development was seen for different effects across several operating entities. the following subsidiary was the largest contributor: € 100 mn at Allianz re significantly driven by the positive development of the reinsured book of euler hermes.
� C r e d i t i n s u r A n C e
Credit insurance is underwritten in the Allianz group by euler hermes. during 2011, euler hermes experienced favorable development of € 210 mn, or 20.4 % of reserves at december 31, 2010, mainly driven by less insolvencies than expected on previous years and favorable development on large losses.
� A l l i A n z g l o B A l C o r p o r A t e A n d s p e C i A l t y
€ 82 mn from the swiss branch due to commutation of one contractual relationship.
€ 76 mn from the german branch engineering portfolio due to better than expected results mostly from the 2009 accident year.
the following table shows, by line of business, the carrying amounts of reserves for claims and claim adjustment expenses that have been discounted, and the interest rates used for discounting for the years ended december 31: � d i s C o u n t i n g o f r e s e r v e s f o r l o s s A n d l o s s A d j u s t m e n t e x p e n s e s discounted reserves Amount of the discount interest rate used for discounting 1 € mn € mn € mn € mn € mn € mn % % %
Changes in aggregate policy reserves for participating life insurance contracts and traditional long-duration insurance contracts for the years ended december 31, 2011 and 2010 were as follows: partici pating life insurance contracts traditional long-duration insurance contracts partici pating life insurance contracts traditional long-duration insurance contracts € mn € mn € mn € mn foreign currency translation adjustments 151 124 748 1,220 Changes in the consolidated subsidiaries of the Allianz group — — — (67) Changes recorded in consolidated income statements 2,037 1,170 4,265 929 dividends allocated to policyholders 1,023 123 1,135 461 1 | for the year ended december 31, 2011, includes changes of shadow accounting of € (26) mn (2010: € (9) mn) for participating life insurance contracts.
� g r o s s A n d n e t l o s s A n d l A e r e s e r v e s f o r A & e C l A i m s € mn € mn € mn
� A s B e s t o s A n d e n v i r o n m e n t A l g r o s s l o s s A n d l o s s A d j u s t m e n t e x p e n s e s € mn € mn € mn
Changes in aggregate policy reserves for universal life-type insurance contracts and non-unit-linked investment contracts for the years ended december 31, 2011 and 2010 were as follows: universal life-type insurance contracts non-unitlinked
investment contracts € mn € mn € mn € mn foreign currency translation adjustments 1,912 (16) 3,606 23 Changes in the consolidated subsidiaries of the Allianz group (513) — (85) —
Latent reserves for premium refunds foreign currency translation adjustments 29 150 (6) Changes in the consolidated subsidiaries of the Allianz group (22) (7) — Changes due to fluctuations in market value (2,886) (682) 6,599 Changes due to valuation differences charged to income 386 1,755 691
◼ C o n C e n t r A t i o n o f i n s u r A n C e r i s k i n t h e l i f e / h e A l t h s e g m e n t the Allianz group’s life/health segment provides a wide variety of insurance and investment contracts to individuals and groups in approximately 30 countries around the world. individual contracts include both traditional contracts and unit-linked contracts. Without consideration of policyholder participation, traditional contracts generally incorporate significant investment risk for the Allianz group, while unit-linked contracts generally result in the contract holder assuming the investment risk. traditional contracts include life, endowment, annuity, and health contracts. traditional annuity contracts are issued in both deferred and immediate types. in addition, the Allianz group’s life insurance operations in the united states issue a significant amount of equity-indexed deferred annuities. in certain markets, the Allianz group also issues group life, group health and group pension contracts.
As of december 31, 2011 and 2010, the Allianz group’s deferred acquisition costs and reserves for insurance and investment contracts for the life/health segment are summarized as follows: deferred acquisition costs
As of december 31, € mn € mn € mn € mn € mn € mn € mn other Western and southern europe 307 2,529 15 4 2,548 4,649 7,197 other Western and southern europe 335 2,352 25 5 2,382 4,661 7,043 the majority of the Allianz group’s life/health segment operations are conducted in Western europe. insurance laws and regulations in Western europe have historically been characterized by legal or contractual minimum participation of contract holders in the profits of the insurance company issuing the contract. in particular, germany, switzerland and Austria, which comprise approximately 48 % of the Allianz group’s reserves for insurance and investment contracts as of december 31, 2011 and 2010, include a substantial level of policyholder participation in all sources of profit including mortality/morbidity, investment and expense. As a result of this policyholder participation, the Allianz group’s exposure to insurance, investment and expense risk is mitigated.
the Allianz group’s life/health segment is exposed to significant investment risk as a result of guaranteed minimum interest rates included in most of its non-unit-linked contracts. the weighted average guaranteed minimum interest rates of the Allianz group’s largest operating entities in the life/health segment (comprising 87 % of non-unit-linked reserves in both 2011 and 2010) can be summarized by country as follows: As of december 31, 2011 2010 guaranteed rate non-unitlinked
1 | excludes l’Assicuratrice italiana vita s.p.A. (€ 283 mn of non-unit-linked reserves).
21 financial liabilities for unit-linked contracts As of december 31, 2011 2010 € mn € mn unit-linked insurance contracts 43,446 43,027 unit-linked investment contracts 20,054 21,820
Changes in financial liabilities for unit-linked insurance contracts and unit-linked investment contracts for the years ended december 31, 2011 and 2010 were as follows: unit-linked insurance contracts unit-linked investment contracts unit-linked insurance contracts unit-linked investment contracts € mn € mn € mn € mn foreign currency translation adjustments 697 (71) 1,677 241 Changes in the consolidated subsidiaries of the Allianz group (588) — (4) —
1 | these transfers mainly relate to insurance contracts when policyholders change their contract from a unit-linked to a universal life-type contract.
Co ns ol id at ed fi na nc ia l s ta te m en ts 22 other liabilities As of december 31, 2011 2010 € mn € mn
Payables for social security 469 434 Tax payables income taxes 1,504 1,661 other taxes 1,086 1,086
Accrued interest and rent 695 659 Unearned income interest and rent 6 13
As of december 31, 2011, other liabilities due within one year amounted to € 23,181 mn (2010: € 24,748 mn) and those due after more than one year amounted to € 8,028 mn (2010: € 8,465 mn).
Contractual interest rate 1.10 % — — — — — — —
Contractual interest rate — — — — — 7.34 % — —
Current interest rate — — — — — 5.68 % — —
Contractual interest rate — — — — — 4.63 % — — Hybrid equity
2 | includes subordinated bonds issued by Allianz finance ii B.v. and guaranteed by Allianz se. 3 | Change due to the issuance of a € 2.0 bn subordinated bond in the first quarter of 2011, the repayment of a usd 0.5 bn subordinated bond in the second quarter of 2011 and the issuance of a € 0.5 bn convertible subordinated note in the third quarter of 2011.
Co ns ol id at ed fi na nc ia l s ta te m en ts 25 equity As of december 31, 2011 2010 € mn € mn
◼ i s s u e d C A p i t A l issued capital as of december 31, 2011, amounted to € 1,165,568,000 divided into 455,300,000 registered shares. the shares have no par value but a mathematical per share value of € 2.56 each as a proportion of the issued capital.
As of december 31, 2011, Allianz se had authorized capital for the issuance of 214,843,750 shares until may 4, 2015, with a notional amount of € 550,000,000 (Authorized Capital 2010/i). the shareholders’ subscription rights can be excluded for capital increases against contribution in kind. for a capital increase against contributions in cash, the shareholders’ subscription rights can be excluded either for fractional amounts, or if the issue price is not significantly below the market price and the shares issued under exclusion of the subscription rights pursuant to § 186 (3) sentence 4 of the german stock Corporation law (Aktiengesetz) do not exceed 10 % of the share capital. finally, shareholders’ subscription rights can be excluded to the extent necessary to grant a subscription right for new shares to the holders of bonds that carry conversion or option rights or provide for mandatory conversion. An overall limit for the exclusion of subscription rights of up to € 232,396,800 (corresponding to 20 % of the share capital at year-end 2009) applies for the Authorized Capital 2010/i and the Conditional Capital 2010.
Convertible subordinated notes totaling € 500,000,000 which may be converted into Allianz shares were issued against cash in july 2011. the subscription rights of the shareholders for these convertible notes have been excluded with the consent of the supervisory Board pursuant to the authorization of the general meeting on may 5, 2010. the issue price for the convertible notes was not significantly lower than the theoretical market value of the notes, as calculated using recognized finance-mathematical methods. the granting of new shares to persons entitled under such convertible notes is secured by the Conditional Capital 2010. on or before december 31, 2011, there was no conversion of any such notes into new shares.
Issued shares outstanding as of January 1, 451,548,760 451,197,223 451,490,223 Capital increase for employee shares 800,000 600,000 850,000 Change in treasury shares held for non-trading purposes 124,265 (248,463) (2,038,558) Change in treasury shares held for trading purposes — — 895,558 Issued shares outstanding as of December 31, 452,473,025 451,548,760 451,197,223
◼ d i v i d e n d s for the year ending december 31, 2011, the Board of management will propose to shareholders at the Annual general meeting the distribution of a dividend of € 4.50 per qualifying share. for the years ended december 31, 2010 and 2009, Allianz se paid a dividend of € 4.50 and € 4.10, respectively, per qualifying share.
Changes in the treasury shares were: Acquisition costs number of shares issued capital As of december 31, € mn %
As of december 31, 2011 2010 € mn € mn unrealized gains and losses (net) (13) 36 share of earnings 259 156 other equity components 2,092 1,879
◼ C A p i t A l r e q u i r e m e n t s the Allianz group’s capital requirements are primarily dependent on the growth and the type of business that it underwrites, as well as the industry and geographic locations in which it operates. in addition, the allocation of the Allianz group’s investments plays an important role. during the Allianz group’s annual planning dialogues with its operating entities, capital requirements are determined through business plans regarding the levels and timing of capital expenditures and investments. regulators impose minimum capital rules at the level of the Allianz group’s operating entities and the Allianz group as a whole.
As of december 31, 2011, the Allianz group’s eligible capital for the solvency margin, required for the insurance segments and the Asset management and Banking business, was € 42.6 bn (2010: € 39.6 bn) including off-balance sheet reserves 1 of € 2.2 bn (2010: € 2.1 bn), surpassing the minimum legally stipulated level by € 18.8 bn (2010: € 16.7 bn). this margin resulted in a preliminary cover ratio of 179 % (2010: 173 %) as of december 31, 2011.
in addition to regulatory capital requirements, Allianz se also uses an internal risk capital model to determine how much capital is required to absorb any unexpected volatility in results of operations.
some insurance subsidiaries are subjected to regulatory restrictions on the amount of dividends which can be remitted to Allianz se without prior approval by the appropriate regulatory body. such restrictions provide that a company may only pay dividends up to an amount in excess of certain regulatory capital levels or based on the levels of undistributed earned surplus or current year income or a percentage thereof. By way of example only, the operations of the Allianz group’s insurance subsidiaries located in the united states are subject to limitations on the payment of dividends to their parent company under applicable state insurance laws. dividends paid in excess of these limitations generally require prior approval of the insurance commissioner of the state of domicile. the Allianz group believes that these restrictions will not affect the ability of Allianz se to pay dividends to its shareholders in the future.
Co ns ol id at ed fi na nc ia l s ta te m en ts 26 premiums earned (net) – continued property-Casualty life/Health Consolidation group € mn € mn € mn € mn
28 income from financial assets and liabilities carried at fair value through income (net)
� l i f e / H e A l t H s e g m e n t for the year ended december 31, 2011, income (expenses) from financial assets and liabilities held for trading (net) in the life/Health segment includes expenses of € 735 mn (2010: € 1,072 mn; 2009: € 615 mn) from derivative financial instruments. this includes income of € 276 mn (2010: expenses of € 366 mn; 2009: expenses of € 165 mn) of german entities from financial derivative positions held for duration management and protection against equity and foreign exchange rate fluctuations. Also included are expenses related to fixed-indexed annuity products and guaranteed benefits under unit-linked contracts of € 864 mn (2010: € 681 mn; 2009: € 328 mn) from u.s. entities.
Co ns ol id at ed fi na nc ia l s ta te m en ts for the year ended december 31, 2011, income (expenses) from financial assets and liabilities designated at fair value through income (net) in the life/Health segment includes expenses from equity investments of € 217 mn (2010: income of € 132 mn; 2009: income of € 586 mn) and income of € 48 mn (2010: € 736 mn; 2009: € 913 mn) from debt investments.
1 | during the year ended december 31, 2011, includes realized gains from the disposal of subsidiaries and businesses of € 18 mn (2010: € 224 mn; 2009: € 14 mn). 2 | during the year ended december 31, 2011, includes realized losses from the disposal of subsidiaries of € 27 mn (2010: € 15 mn; 2009: € 2 mn).
Income from non-current assets and and assets and liabilities of disposal groups classified as held for sale 1 — — Income from alternative investments 1 118 78 —
1 | beginning in 2010, income and expenses from alternative investments are shown gross in other income and other expenses.
33 Claims and insurance benefits incurred (net) property-Casualty life/Health Consolidation group € mn € mn € mn € mn
Claims and insurance benefits paid (28,690) (19,537) 16 (48,211) Change in loss and loss adjustment expenses 580 (248) — 332
Aggregate policy reserves (157) (6,210) — (6,367) other insurance reserves 10 (152) — (142) expenses for premium refunds (118) (4,388) (103) (4,609)
Ceded Aggregate policy reserves (16) 113 — 97 other insurance reserves 1 12 — 13 expenses for premium refunds 8 7 — 15
Aggregate policy reserves (146) (8,126) — (8,272) other insurance reserves 3 (255) — (252) expenses for premium refunds (185) (5,010) (242) (5,437)
Net Aggregate policy reserves (123) (8,094) — (8,217) other insurance reserves 4 (243) — (239) expenses for premium refunds (181) (4,992) (242) (5,415)
Ceded Aggregate policy reserves 3 70 — 73 other insurance reserves 1 9 — 10 expenses for premium refunds 6 — — 6
Net other insurance reserves — (89) — (89) expenses for premium refunds (253) (3,444) (907) (4,604)
35 interest expenses € mn € mn € mn liabilities to banks and customers (389) (379) (483) deposits retained on reinsurance ceded (47) (74) (72)
Held-to-maturity investments (33) (1) — Investments in associates and joint ventures — — (4) Real estate held for investment (52) (106) (199) Loans and advances to banks and customers (26) (28) — Non-current assets and assets and liabilities of disposal groups classified as held for sale (33) (82) —
r e v e r s A l s o f i m p A i r m e n t s Available-for-sale investments
◼ i m p A i r m e n t s o f g r e e k s o v e r e i g n b o n d p o r t f o l i o
38 investment expenses € mn € mn € mn investment management expenses (477) (466) (394) depreciation of real estate held for investment (185) (171) (174) other expenses from real estate held for investment (190) (190) (187)
Amortization of deferred acquisition costs (5,186) — (5,186) (4,966) — (4,966) (4,807) — (4,807)
l i f e / H e A l t H Acquisition costs
Commissions and profit received on reinsurance business ceded 99 (1) 98 94 (1) 93 79 (1) 78
Co ns ol id at ed fi na nc ia l s ta te m en ts 40 fee and commission expenses segment Consolidation
group € mn € mn € mn € mn € mn € mn € mn € mn € mn p r o p e r t y - C A s u A l t y fees from credit and assistance business (612) 4 (608) (597) — (597) (594) — (594)
l i f e / H e A l t H
C o r p o r A t e A n d o t H e r investment advisory and banking activities (222) 2 (220) (209) 1 (208) (202) 1 (201)
41 other expenses € mn € mn € mn realized losses from disposals of real estate held for own use — (3) — expenses from alternative investments 1 (64) (51) —
42 net income (loss) from discontinued operations, net of income taxes € mn € mn € mn
Net income (loss) from discontinued operations, net of income taxes — — (395)
Deferred income taxes for the years ended december 31, 2011, 2010 and 2009, the income taxes relating to components of the other comprehensive income consist of the following: € mn € mn € mn foreign currency translation adjustments (1) 41 (13) Available-for-sale investments 81 (146) (1,312) Cash flow hedges 4 (9) 3 share of other comprehensive income of associates (1) (6) —
due to the transition from the imputation system to the classical tax system in germany (so called “Halbeinkünfteverfahren ”), provided by the tax reduction Act 2001, Allianz lost potential tax savings. this has been corrected by the Annual german tax Act published in december 2010 leading to a tax income of € 110 mn from the recognition of additional corporate tax credits. this tax benefit is included in current income taxes related to prior years in 2010.
of the deferred income taxes for the year ended december 31, 2011, expenses of € 224 mn (2010: income of € 69 mn; 2009: income of € 197 mn) are attributable to the recognition of deferred taxes on temporary differences and income of € 25 mn (2010: expenses of € 117 mn; 2009: income of € 452 mn) is attributable to tax losses carried forward. Additionally, changes of applicable tax rates due to changes in tax law produced deferred tax expenses of € 46 mn (2010: income of € 5 mn; 2009: income of € 6 mn).
Co ns ol id at ed fi na nc ia l s ta te m en ts the effective tax rate is determined on the basis of the effective income tax expenses on income from continuing operations before income taxes.
the tax rates used in the calculation of the Allianz group deferred taxes are the applicable national rates, which in 2011 ranged from 10.0 % to 40.0 %. Changes to tax rates already adopted on december 31, 2011, are taken into account.
deferred tax assets on losses carried forward are recognized to the extent to which it is more likely than not that sufficient future taxable profits will be available for realization. entities which suffered a tax loss in either the current or the preceding period recognized deferred tax assets in excess of deferred tax liabilities amounting to € 846 mn.
◼ d e f e r r e d t A x A s s e t s A n d l i A b i l i t i e s
◼ t A x l o s s e s C A r r i e d f o r w A r d tax losses carried forward at december 31, 2011, of € 11,551 mn (2010: € 10,829 mn) resulted in recognition of deferred tax assets to the extent there is sufficient certainty that the unused tax losses will be utilized. € 10,518 mn (2010: € 9,572 mn) of the tax losses carried forward can be used without time limitation.
derivatives used by individual subsidiaries in the allianz Group comply with the relevant supervisory regulations and the allianz Group’s own internal guidelines. the allianz Group’s investment and monitoring rules exceed regulations imposed by supervisory authorities. in addition to local management supervision, comprehensive financial and risk management systems are in force across the allianz Group. risk management is an integral part of the allianz Group’s controlling process that includes identifying, measuring, aggregating and managing risks. risk management objectives are implemented at the allianz Group level and by the local operational units. the use of derivatives is one key strategy used by the allianz Group to manage its market and investment risks.
Within the allianz Group’s Banking business, derivatives are used both for trading purposes and to hedge against movements in interest rates, currency rates and other price risks of the allianz Group’s investments, loans, deposit liabilities and other interest-sensitive assets and liabilities.
Negative fair values up to 1 year years years € mn € mn € mn € mn € mn € mn € mn € mn € mn
Exchange traded 1 | as of december 31, 2011, includes embedded derivatives related to equity-indexed annuities with negative fair values of € (3,513) mn (2010: € (3,861) mn).
◼ d e r i v a t i v e F i N a N C i a l i N S t r u m e N t S u S e d i N a C C o u N t i N G h e d G e S
important hedging instruments are equity forward contracts, equity options, total returns swaps, interest rate swaps, interest rate forwards, currency swaps and currency forwards. hedging instruments may be implemented for individual transactions (micro hedge) or for a portfolio of similar assets or liabilities (portfolio hedge).
� F a i r v a l u e h e d G e S
For the year ended december 31, 2011, the allianz Group recognized for fair value hedges a net gain of € 249 mn (2010: net loss of € 1 mn; 2009: net loss of € 412 mn) on the hedging instrument and a net loss of € 311 mn (2010: net loss of € 30 mn; 2009: net gain of € 390 mn) on the hedged item attributable to the hedged risk.
during the year ended december 31, 2011, cash flow hedges were used to hedge variable cash flows exposed to interest rate, exchange rate fluctuations and inflation. as of december 31, 2011, the derivative instruments utilized had a negative fair value of € 2 mn (2010: positive fair value of € 17 mn). unrealized gains and losses (net) in shareholders’ equity decreased by € 5 mn (2010: increased by € 9 mn).
� h e d G e o F N e t i N v e S t m e N t i N F o r e i G N o p e r a t i o N S
� d e t e r m i N a t i o N o F F a i r v a l u e F o r F i N a N C i a l i N S t r u m e N t S N o t C a r r i e d a t F a i r v a l u e the determination of the fair value for financial instruments that are not carried at fair value in the consolidated balance sheet, but for which a fair value has to be disclosed under iFrS 7, is described below: � C a S h a N d C a S h e q u i v a l e N t S : Cash and cash equivalents comprises cash and demand deposits with banks together with short-term highly liquid investments that are readily convertible to known amounts of cash and subject to insignificant risk of change in value. they are carried at nominal value, which represents a reasonable estimate of the fair value for these short-term financial instruments.
� l o a N S a N d a d v a N C e S t o B a N k S a N d C u S t o m e r S : For loans and advances to banks and customers quoted market prices are not available as there are no active markets where these instruments are traded. the fair value is determined using generally accepted valuation techniques with current market parameters. For short-term loans the carrying amount represents a reasonable estimate of the fair value. For long-term loans the fair value is estimated by discounting future contractual cash flows using risk-adjusted discount rates. additionally, the individually assessed component of the allowance for loan losses and the recoverable amounts of collateral is considered in the fair value determination of loans.
� l i a B i l i t i e S t o B a N k S a N d C u S t o m e r S : For short-term liabilities the carrying amount represents a reasonable estimate of the fair value. For long-term ins truments the fair value is determined by discounting future cash flows. the fair value determination reflects current market interest rates and the credit rating of the allianz Group.
� C e r t i F i C a t e d l i a B i l i t i e S , p a r t i C i p a t i o N C e r t i F i C a t e S a N d S u B o r d i N a t e d l i a B i l i t i e S : the fair value of certificated liabilities, participation certificates and subordinated liabilities is determined using quoted market prices, if available. if quoted prices are not available, for short-term liabilities the carrying amount represents a reasonable estimate of the fair value. For long-term instruments the fair value is determined by discounting the remaining contractual future cash flows at a discount rate at which allianz Group could issue debt with a similar remaining maturity. the fair value determination reflects current market interest rates and considers the credit rating of the allianz Group.
� d e t e r m i N a t i o N o F F a i r v a l u e F o r F i N a N C i a l i N S t r u m e N t S C a r r i e d a t F a i r v a l u e
For the following financial instruments, carried at fair value in the consolidated balance sheets, the fair value is determined as described in note 2 Summary of significant accounting policies: ◾ Financial assets and liabilities held for trading ◾ Financial assets and liabilities designated at fair value through income ◾ available-for-sale investments ◾ Financial assets and liabilities for unit-linked contracts ◾ derivative financial instruments and firm commitments included in other assets and other liabilities ◾ investment contracts with policyholders ◾ Financial liabilities for puttable equity instruments ◾ assets and liabilities held in trust
◼ F a i r v a l u e h i e r a r C h y o F F i N a N C i a l i N S t r u m e N t S
Government and agency mortgage-backed securities (residential and commercial) 33 5,361 — 5,394 Corporate mortgage-backed securities (residential and commercial) 10 11,320 219 11,549 other asset-backed securities 91 2,203 265 2,559 Government and government agency bonds 113,975 18,184 58 132,217
Financial liabilities for unit-linked contracts 61,082 2,235 183 63,500 Derivative financial instruments and firm commitments included in other liabilities — 237 — 237 Financial liabilities for puttable equity instruments 2,799 33 49 2,881 Liabilities held in trust 241 — 25 266 1 | excludes universal life-type contracts.
as of december 31, 2010 level 1 quoted prices in active markets level 2 valuation technique – market observable inputs level 3 valuation technique – non-market observable inputs total fair value € mn € mn € mn € mn
Financial assets for unit-linked contracts 62,641 2,054 152 64,847 Derivative financial instruments and firm commitments included in other assets — 452 — 452 Assets held in trust 221 — 25 246
F i N a N C i a l l i a B i l i t i e S Financial liabilities held for trading other trading liabilities — 1 — 1
Financial liabilities for unit-linked contracts 62,641 2,054 152 64,847 Derivative financial instruments and firm commitments included in other liabilities — 225 — 225 Financial liabilities for puttable equity instruments 3,008 26 77 3,111 Liabilities held in trust 221 — 25 246 1 | excludes universal life-type contracts.
2 | For the purpose of matching the disclosures made in note 9, the allianz Group‘s unlisted equity securities and investments in limited partnerships of € 352 mn, which are measured at cost less impairment charges because the fair value cannot be reliably measured, are included.
Financial assets transferred from Level 1 to Level 2 available-for-sale equity securities 156 available-for-sale corporate bonds 1,151
Financial assets transferred from Level 2 to Level 1 available-for-sale – Government and government agency bonds 252
Certain available-for-sale equity securities and corporate bonds transfered from level 1 to level 2 during the year ended december 31, 2011, because of decreased liquidity, trade frequency and activity of the markets, where those equity securities and corporate bonds are traded.
equity securities within financial assets designated at fair value through income and available-for-sale investments mainly comprise mainly private equity fund investments of the allianz Group. private equity fund investments are usually priced on net asset values calculated by the fund asset manager and are thus based on unobservable market data. as the allianz Group has only limited access to company specific data, the fund asset manager prices the underlying single portfolio companies generally on discounted cash flow or multiple approaches. Furthermore, any transaction of a fund, thus a further investment or divestment, has an impact on the sensitivity of a fund valuation. due to these constraints a reasonable sensitivity calculation is not feasible.
the fair value of € 2.0 bn of certain corporate bonds within available-for-sale investments is determined using matrix pricing, which is based on unobservable inputs. the remaining corporate bonds classified as level 3 consist of various porfolios for which different valuation techniques with non-observable inputs including broker quotes and pricing services are used. While in total the effect of changing the valuation assumptions to reasonable possible alternative values might have a significant impact on the fair values, when considered individually for each portfolio, the impact would not be significant.
� r e C o N C i l i a t i o N o F l e v e l 3 F i N a N C i a l i N S t r u m e N t S
Net gains (losses) recognized in other comprehensive income impairments Foreign currency transla tion adjustments
Net gains (losses) for financial instruments held at the reporting date € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
Corporate mortgage-backed securities (residential and commercial) 199 168 (146) (9) — (2) — 12 (3) 219 —
Government and government agency bonds 19 35 — — — 3 — 1 — 58 —
Financial assets for unit-linked contracts 152 19 24 (9) — — — — (3) 183 (2)
Net losses (gains) for financial instruments held at the reporting date € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
F i N a N C i a l l i a B i l i t i e S Financial liabilities held for trading
Financial liabilities for unit-linked contracts 152 19 24 (9) — — — — (3) 183 (2) Financial liabilities for puttable equity instruments 77 — — — — (28) — — — 49 —
◼ m a t u r i t y o F F i N a N C i a l l i a B i l i t i e S
� t a B u l a r d i S C l o S u r e o F C o N t r a C t u a l o B l i G a t i o N S
Insurance liabilities reserves for loss and loss adjustment expenses 17,857 22,719 18,917 59,493 Other liabilities 1 | For materiality reasons the carrying amount is split up into the different contractual maturities. 2 | including investment contracts with policyholders and financial liabilities for unit-linked contracts. 3 | the amount of € 2,568 mn is gross of € 43 mn related to subleases, which represent cash inflow to the allianz Group. 4 | purchase obligations only include transactions related to goods and services; purchase obligations for financial instruments are not included.
� F u t u r e p o l i C y B e N e F i t S
Furthermore, these amounts do not include € 166,206 mn of premiums and fees expected to be received, expenses incurred to parties other than the policyholders such as agents and administrative expenses; nor do they include investment income earned. in addition, these amounts are presented net of reinsurance expected to be received as a result of these cash flows. For further information on reserves for insurance and investment contracts, see note 20 of the consolidated financial statements.
◼ d e r e C o G N i t i o N o F F i N a N C i a l a S S e t S
the allianz Group enters into repurchase-agreement-transactions in which recognized financial assets, mainly availablefor -sale debt securities, are transferred, but substantially all of the risks and rewards of those assets are retained. as of december 31, 2011, the carrying amount of those assets amounted to € 226 mn (2010: € 868 mn) and the carrying amount of the related liabilities amounted to € 227 mn (2010: € 875 mn).
Business relations with joint ventures and associated enterprises are set on an arm’s length basis. due to reinsurance agreements with a joint venture and an associated enterprise in thailand, allianz Se recorded losses from the flood in thailand amounting to € 129 mn for the year ended december 31, 2011.
◼ C o N t i N G e N t l i a B i l i t i e S
allianz Global investors of america l.p. and certain of its subsidiaries have been named as defendants in multiple civil u.S. lawsuits commenced as putative class actions and other proceedings related to matters involving market timing in the mutual fund industry. these lawsuits have been consolidated into and transferred to a multi-district litigation proceeding in the u.S. district Court for the district of maryland. in april 2011 the Court approved the parties’ settlement that resolves all of the claims. the settlement does not have a material negative financial impact on the allianz Group.
Fi na nc ia l S ta te m en ts three members of the Fireman’s Fund group of companies in the united States, all subsidiaries of allianz Se, are among the defendants named in a class action filed on august 1, 2005 in the united States district Court of New Jersey in connection with allegations relating to contingent commissions in the insurance industry. the court dismissed with prejudice the federal court causes of action and dismissed without prejudice the state law causes of action. upon plaintiffs’ appeal the Court of appeals affirmed the dismissal of the majority of plaintiffs’ claims. it vacated and remanded the remainder of the claims. the defendant Fireman’s Fund Group companies reached a settlement with plaintiffs. the settlement does not have a material negative financial impact on the allianz Group.
allianz life insurance Company of North america ( allianz life) has been named as a defendant in various putative class action lawsuits in connection with the marketing and sale of deferred annuity products. two of those lawsuits are currently pending as certified class actions in California. the complaints allege generally that the defendant engaged in, among other practices, deceptive trade practices and misleading advertising in connection with the sale of such products. these lawsuits have not yet progressed to a stage at which the outcome or exposure can be determined. in a class action lawsuit in minnesota the Court, based upon a jury trial, entered final judgment in favor of allianz life in January 2010. in another California class action the parties reached settlement, which the court approved in 2011.
� o t h e r C o N t i N G e N C i e S
With the sale of dresdner Bank becoming effective on January 12, 2009, allianz terminated the indemnification undertaking issued in 2001 in favor of the Federal association of German Banks with respect to dresdner Bank. as a result, the indemnification is only relevant for supporting measures that are based on facts that were already existing at the time of the termination.
allianz and ht1 Funding Gmbh have signed a Contingent indemnity agreement in July 2006, pursuant to which allianz may, in certain circumstances, be obliged to make payments to ht1 Funding Gmbh. ht1 Funding Gmbh issued nominal € 1,000 mn tier 1 Capital Securities with an annual coupon of 6.352 % (as of June 30, 2017, the coupon will be 12-months euriBor plus a margin of 2.0 % p.a.). the securities have no scheduled maturity and the security holders have no right to call for their redemption. the securities may be redeemed at the option of the issuer on June 30, 2017, and thereafter. it is not possible for the allianz Group to predict potential payment obligations for the fiscal year 2012 and future periods at this time.
◼ C o m m i t m e N t S
� l o a N C o m m i t m e N t S
Stand-by facilities 29 28 Guarantee credits 97 89 mortgage loans/public-sector loans 100 59
as of december 31, 2011, the future minimum lease payments under non-cancelable operating leases were as follows: € mn thereafter 1,280 Subtotal 2,568 Subleases (43) Total 2,525
� p u r C h a S e o B l i G a t i o N S
other principal commitments of the allianz Group include the following: pursuant to §§ 124 ff. of the German insurance Supervision act (“versicherungsaufsichtsgesetz” – vaG), a mandatory insurance guarantee scheme (“Sicherungsfonds”) for life insurers is implemented in Germany. each member of the scheme is obliged to make annual contributions to the scheme as well as special payments under certain circumstances. the exact amount of obligations for each member is calculated according to the provisions of a Federal regulation (“Sicherungsfonds-Finanzierungs-verordnung (leben)” – SichlvFinv). as of december 31, 2011, the future liabilities of allianz lebens versicherungs-aktiengesellschaft and its subsidiaries to the insurance guarantee scheme amount to annual contributions of € 5.3 mn (2010: € 0.1 mn) and an obligation for special payments of € 118 mn (2010: € 101 mn).
in december 2002, protektor lebensversicherungs-aktien gesellschaft (“protektor”), a life insurance company whose role is to protect policyholders of all German life insurers was founded. allianz lebensversicherungs-aktiengesellschaft and some of its subsidiaries are obligated to provide additional funds either to the mandatory insurance guarantee scheme or to protektor, in the event that the funds provided to the mandatory insurance guarantee scheme are not sufficient to handle an insolvency case. Such obligation amounts to a maximum of 1 % of the sum of the net underwriting reserve with deduction of payments already provided to the insurance guarantee scheme. as of december 31, 2011, and under inclusion of the contributions to the mandatory insurance scheme mentioned above, the aggregate outstanding commitment of allianz lebensversicherungs-aktiengesellschaft and its subsidiaries to the insurance guarantee scheme and to protektor was € 1,071 mn (2010: € 905 mn).
◼ G u a r a N t e e S
Nearly all customers of the letters of credit and of the indemnification contracts have no external credit ranking.
� l e t t e r S o F C r e d i t a N d o t h e r F i N a N C i a l G u a r a N t e e S
the majority of the allianz Group’s letters of credit and other financial guarantees are issued to customers through the normal course of banking business in return for fee and commission income, which is generally determined based on rates subject to the nominal amount of the guarantees and inherent credit risks. once a guarantee has been drawn upon, any amount paid by the allianz Group to third parties is treated as a loan to the customer, and is, therefore, principally subject to collateral pledged by the customer as specified in the agreement.
market value guarantees represent assurances given to customers of certain mutual funds and fund management agreements, under which initial investment values and/or minimum market performance of such investments are guaranteed at levels as defined under the relevant agreements. the obligation to perform under a market value guarantee is triggered when the market value of such investments does not meet the guaranteed targets at predefined dates.
the allianz Group’s asset management segment, in the ordinary course of business, issues market value guarantees in connection with investment trust accounts and mutual funds it manages. the levels of market value guarantees and maturity dates differ based on the separate governing agreements of the respective investment trust accounts and mutual funds. as of december 31, 2011, the maximum potential amount of future payments of the market value guarantees was € 714 mn (2010: € 799 mn), which represents the total value guaranteed under the respective agreements including the obligation that would have been due had the investments matured on that date. the fair value of the investment trust accounts and mutual funds related to these guarantees as of december 31, 2011, was € 761 mn (2010: € 881 mn).
2011, the yearly contributions for the aGi companies have not yet been determined (2010: € 1 mn). With respect to the insolvency of phoenix kapitaldienst Gmbh, the German Federal Financial Supervisory authority (“Bundesanstalt für Finanzdienstleistungsaufsicht” – BaFin) has determined that certain investor claims will be covered under the compensation scheme and special contributions have been levied. in 2011, aGi companies have been requested to contribute € 4 mn (2010: € 3 mn) in special contributions. the aGi companies have appealed against the special contributions. payments have not been made, however adequate provisions – also for potential liabilities from future special contributions – have been accrued.
in connection with the sale of various of the allianz Group’s former private equity investments, subsidiaries of the allianz Group provided indemnities to the respective buyers in the event that certain contractual warranties arise. the terms of the indemnity contracts cover ordinary contractual warranties, environmental costs and any potential tax liabilities the entity incurred while owned by the allianz Group.
Credit derivatives consist of credit default swaps, which require payment in the event of default of debt obligations, as well as of total return swaps, under which the performance of underlying assets is guaranteed. the notional principal amounts and fair values of the allianz Group’s credit derivative positions as of december 31, 2011 are provided in note 44.
Collaterals with right to resell or repledge Financial assets carried at fair value through income — 613 as of december 31, 2011, the allianz Group has received collateral, consisting of fixed income and equity securities, with a fair value of € 799 mn (2010: € 567 mn), which the allianz Group has the right to sell or repledge. as of december 31, 2011 and 2010, respectively, no previously received collateral was sold or repledged by the allianz Group.
Amounts recognized in the Allianz Group’s consolidated balance sheets for defined benefit plans are as follows: As of December 31, 2011 2010 € mn € mn
C h A N G e I N D e F I N e D b e N e F I t o b l I G A t I o N Defined benefit obligation as of January 1, 15,320 13,727 Service costs 327 340 Interest costs 678 693 Plan participants’ contributions 93 72
C h A N G e I N F A I r v A l u e o F P l A N A S S e t S Fair value of plan assets as of January 1, 9,780 8,913 expected return on plan assets 456 454 Actuarial gains/(losses) (36) 53 employer contributions 322 392 Plan participants’ contributions 93 72 Foreign currency translation adjustments 71 229
Changes in the consolidated subsidiaries of the Allianz Group 4 (207) 61 Divestitures — (48) Assets distributed on settlement — (10) Fair value of plan assets as of December 31, 10,136 9,780 Funded status as of December 31, 5,483 5,540 unrecognized net actuarial gains/(losses) (2,182) (2,058) unrecognized past service costs 11 5 Amount not recognized due to asset ceiling 57 66 Net amount recognized as of December 31, 3,369 3,553 1 | For 2011, the amount mainly consists of the defined benefit obligation of the deconsolidated subsidiary manroland AG in the amount of € 411 mn. 2 | As of December 31, 2011, € 5,415 mn (2010: € 5,329 mn) of the defined benefit obligation are wholly unfunded, while € 10,204 mn (2010: € 9,991 mn) are wholly or partly funded. 3 | In addition, the Allianz Group paid € 263 mn (2010: € 257 mn) directly to plan participants. 4 | For 2011, the amount mainly consists of the plan assets of the deconsolidated subsidiary manroland AG in the amount of € 197 mn.
During the year ended December 31, 2011, the expense recognized in profit or loss includes expenses related to postretirement health benefits of € 1 mn (2010: € 1 mn; 2009: € (46) mn).
the actual return on plan assets during the year ended December 31, 2011, amounted to € 420 mn (2010: € 507 mn; 2009: € 723 mn).
A summary of amounts related to defined benefit plans is as follows: € mn € mn € mn € mn € mn
the calculations are based on current actuarially calculated mortality estimates. Projected turnover depending on age and length of service have also been used, as well as internal Allianz Group retirement projections.
the weighted average value of the assumptions for the Allianz Group’s defined benefit plans used to determine the defined benefit obligation and the expense recognized in profit or loss are as follows: expected long-term return on plan assets 4.8 5.0 5.4 rate of compensation increase 2.2 2.4 2.4 rate of pension increase 1.4 1.5 1.6 rate of medical cost trend 4.1 4.1 5.4 the expense recognized in profit and loss is recorded based on the assumptions of the corresponding previous year. For the assumptions regarding the expected long-term return on plan assets the value of the corresponding current year is relevant.
the discount rate assumptions reflect the market yields at the balance sheet date of high-quality fixed income investments corresponding to the currency and duration of the liabilities.
For the year ended December 31, 2011, the weighted expected long-term return on plan assets was derived from the following target allocation and expected long-term rate of return for each asset category: target allocation Weighted expected long-term rate of return equity securities 17.5 7.8 Debt securities 72.5 4.1 real estate 5.7 5.2 the determination of the expected long-term rate of return for the individual asset categories is based on capital market surveys.
the bulk of the plan assets are held by the Allianz versor gungskasse vvaG, Munich. this entity insures effectively all employees of the German insurance operations and is not part of the Allianz Group.
the Allianz Group plans to gradually increase its actual equity securities allocation towards the target allocation for plan assets of defined benefit plans in the long term.
� C o N t r I b u t I o N S
◼ D e F I N e D C o N t r I b u t I o N P l A N S
Defined contribution plans are funded through independent pension funds or similar organizations. Contributions fixed in advance (e.g. based on salary) are paid to these institutions and the beneficiary’s right to benefits exists against the pension fund. the employer has no obligation beyond payment of the contributions.
During the year ended December 31, 2011, the Allianz Group recognized expenses for defined contribution plans of € 185 mn (2010: € 163 mn; 2009: € 149 mn). Additionally, the Allianz Group paid contributions for state pension schemes of € 332 mn (2010: € 367 mn; 2009: € 373 mn).
◼ G r o u P e q u I t y I N C e N t I v e P l A N S
◾ the Allianz Se market price is in excess of the reference price by at least 20 % on the exercise date.
the fair value of the SAr at grant date is measured using a Cox-rubinstein binomial tree option pricing model. volatility was derived from observed historical market prices. In the absence of historical information regarding employee stock appreciation exercise patterns (especially all plans issued between 2005 and 2008 are significantly “out of the money”), the expected life has been estimated to equal the term to maturity of the SAr.
� r e S t r I C t e D S t o C k u N I t S
the rSu granted to a plan participant obligate the Allianz Group to pay in cash the average market price of an Allianz Se share in the ten trading days preceding the vesting date or to issue one Allianz Se share, or other equivalent equity instrument, for each unit granted. the rSu vest after five years. the Allianz Group will exercise the rSu on the first stock exchange day after their vesting date. on the exercise date, the Allianz Group can choose the settlement method for each unit.
In addition, upon death of a plan participant, a change of control or notice for operational reasons, the rSu vest immediately and will be exercised by the company.
As of December 31, 2011, the Allianz Group recorded a provision of € 106 mn (2010: € 121 mn) in other liabilities for the non-vested rSu.
In addition, upon death of a plan participant, a change of control or notice for operational reason, the rSu vest immediately and will be exercised by the company.
the rSu are virtual stocks without dividend payments and a capped payout. the fair value is calculated by subtracting the net present value of expected future dividend payments until maturity and the fair value of the cap from the prevailing share price as of the valuation date. the cap is valued as a european short call option, using prevailing market data as of the valuation date.
When acquiring Allianz Global Investors of America l.P. (AGI l.P.) during the year ended December 31, 2000, Allianz Se caused Pacific Investment Management Company llC (PIMCo llC), a subsidiary of AGI l.P., to enter into a Class b Purchase Plan (the “Class b Plan”) for the benefit of members of the management of PIMCo llC. the plan participants of the Class b Plan have rights to a 15 % priority claim on the adjusted operating profits of PIMCo llC.
the Class b equity units issued under the Class b Plan vest over 3 to 5 years and are subject to repurchase by AGI l.P. upon death, disability or termination of the participant prior to vesting. Starting January 1, 2005, AGI l.P. has the right to repurchase, and the participants have the right to cause AGI l.P. to repurchase, a portion of the vested Class b equity units each year. the call or put right is exercisable for the first time 6 months after the initial vesting of each grant. on the repurchase date, the repurchase price will be based upon the determined value of the Class b equity units being repurchased. As the Class b equity units are puttable by the plan participants, the Class b Plan is accounted for as a cash settled plan.
In 2008, Allianz Global Investors of America l.P. (AGI l.P.) launched a new management share-based payment incentive plan for certain senior level executives and affiliates of PIMCo llC. Participants in the plan are granted options to acquire a new class of equity instruments (M-units), which vest in one-third increments on approximately the third, fourth and fifth anniversary of the option grant date. upon vesting, options will be automatically exercised in a cashless transaction. Participants may elect to defer the receipt of M-units through the M-unit Deferral Plan until termination of their service as a maximum. With the M-unit Plan, participants can directly participate in PIMCo’s performance. Class M-units are non-voting common equity with limited information rights. they bear quarterly distributions equal to a pro-rata share of PIMCo’s net distributable income. Deferred M-units have a right to receive a quarterly cash compensation equal to and in lieu of quarterly dividend payments.
Fi na nc ia l S ta te m en ts the maximum of 250,000 M-units are authorized for issuance under the M-unit Plan.
A summary of the number and weighted average exercise price of the M-options outstanding and exercisable are as follows: Number of options
the M-options outstanding as of December 31, 2011 have an exercise price of between € 6,547.78 and € 14,351.19 and a weighted average remaining contractual life of 3.11 years.
the shares settled by delivery of PIMCo llC shares are accounted for as equity settled plans by PIMCo llC. therefore, PIMCo llC measures the total compensation expense to be recognized for the equity settled shares based upon their fair value as of the grant date. the total compensation expense is recognized over the vesting period.
During the year ended December 31, 2011, the Allianz Group recorded a compensation expense of € 52 mn (2010: € 28 mn; 2009: € 9 mn) related to these share options.
the fair value of the options at grant date was measured using a trinomial tree option pricing model. volatility was derived from observed historical market prices aligned with the expected life of the options. the expected life was estimated to be equal to the term to maturity of the options.
on the effective date of the merger between Allianz Se and rAS, the rAS share option plan was modified. the outstanding share options, which were granted in 2005, were replaced with Allianz Se share options on the basis of 1 Allianz Se option for every 5.501 rAS share options outstanding. the outstanding rAS Group options of 953,000 were replaced by 173,241 Allianz Se options. the Allianz Se share options have the same vesting period of 2 years; however, the former market conditions were replaced with a performance condition, which was already achieved on the date of the modification.
A summary of the number and weighted average exercise price of the options outstanding and exercisable are as follows: Number of options
the options outstanding as of December 31, 2011, have an exercise price of € 93.99 and a weighted average remaining contractual life of 1 month.
the shares settled by delivery of Allianz Se shares are accounted for as equity settled plans by Allianz S.p.A. and ACIF. therefore, these entities measure the total compensation expense to be recognized for the equity settled shares based upon their fair value as of the grant date. the total compensation expense is recognized over the vesting period.
As all share option plans are completely vested, the Allianz Group recorded no compensation expenses for the years ended December 31, 2011, 2010 and 2009.
◼ o t h e r S h A r e o P t I o N A N D S h A r e h o l D I N G P l A N S
Additions to existing provisions 3 — — — — 24 27 release of provisions recognized in prior years (53) — — — — (16) (69) utilization of provisions via payments (16) — (28) — — (121) (165) utilization of provisions via transfers (27) — (2) — — (57) (86) Foreign currency translation adjustments — — — — — 1 1
the development of the restructuring provisions reflects the implementation status of the restructuring initiatives. based on the specific IFrS guidance, restructuring provisions are recognized prior to when they qualify to be recognized under the guidance for other types of provisions. In order to reflect the timely implementation of the various restructuring initiatives, restructuring provisions, as far as they are already “locked in”, have been transferred to the provision type, which would have been used if a restructuring initiative were not in place. this applies for each single contract. For personnel costs, at the time an employee has contractually agreed to leave the Allianz Group by signing either an early retirement, a partial retirement (Altersteilzeit, which is a specific type of an early retirement program in Germany), or a termination arrangement, the respective part of the restructuring provision has been transferred to employee related provisions. In addition, provisions for vacant office spaces that result from restructuring initiatives have been transferred to “other” provisions after the offices have been completely vacated.
� A l l I A N z D e u t S C h l A N D A G ’ S r e S t r u C t u r I N G P l A N
the first phase of the restructuring initiated in the second quarter of 2011 included a voluntary retirement incentive program, involuntary reductions in force and closure of nine offices, which resulted in headcount decreasing by 7 % and the scope of business narrowing to focus on particular products, states and agents. the second phase of the restructuring initiated at the end of 2011 entailed the implementation of a customer centric structure that will facilitate better, more efficient decision-making in the field (versus at home office) and a decision to abandon development of a policy administration system to reduce expenses. In the fourth quarter of 2011, Fireman’s Fund started to consolidate unoccupied office space at the Novato, California, home office facility, which resulted in a vacant space provision for a long term lease expiring in 2018.
the execution of the restructuring activities initiated in 2009 and expanded in 2010, which affected all lines of business and several locations has been further promoted. until manroland AG filed petition for insolvency, € 27 mn of the provision for restructuring as of December 31, 2010, have been utilized. Due to loss of control as a result of manroland AG’s insolvency, the remaining portion of the provision for restructuring in the amount of € 63 mn was deconsolidated in the fourth quarter of 2011.
In 2009, the Abv AG announced restructuring plans for the reorganization of the sales division in Germany that will be completed in 2012. the objective of the restructuring program is to increase quality, efficiency and process stability of the office work and the special sales department. In the context of office work restructuring, the head office and local offices have been reorganized. Furthermore, the human resources administration and the contract processing have
As of December 31, 2011, the Abv AG restructuring provision for the plan announced in 2010 was € 28 mn (2010: € 42 mn). During the year ended December 31, 2011, Abv AG recorded restructuring charges of € 1 mn (2010: € 42 mn).
� e u l e r h e r M e S G r o u P ’ S r e S t r u C t u r I N G P l A N S
In addition, euler hermes belgium decided in 2010 to close its retail credit insurance business at the brussels office which is no longer profitable in the long run. this measure comprises a reduction of approximately 40 employees, mainly through early retirement. the program was finished in the third quarter of 2011 with ongoing payments occuring over the next years.
As of December 31, 2011, euler hermes belgium recorded a restructuring provision of € 8 mn (2010: € 10 mn). During the year ended December 31, 2011, euler hermes belgium recorded no (2010: € 10 mn) restructuring charges.
� o t h e r r e S t r u C t u r I N G P l A N S
In 2009, the board of Allianz belgium announced the realization of two major initiatives of the operational transformation Program: the closing of the headquarters of Antwerp and the outsourcing of the It developments. In 2011, the operational transformation Program was fully completed.
Basic earnings per share are calculated by dividing net income (loss) attributable to shareholders by the weighted average number of common shares outstanding for the period.
Net income (loss) attributable to shareholders used to calculate basic earnings per share 2,545 5,053 4,207 from continuing operations 2,545 5,053 4,602 from discontinued operations — — (395)
◼ D I l u t e D e A r N I N g S p e r S h A r e
Diluted earnings per share are calculated by dividing net income (loss) attributable to shareholders by the weighted average number of common shares outstanding for the period, both adjusted for the effects of potentially dilutive common shares. potentially dilutive common shares arise from the assumed conversion of participation certificates issued by Allianz Se and various share-based compensation plans of the Allianz group.
Weighted average number of common shares outstanding 451,764,842 451,280,092 450,845,024 Potentially dilutive common shares resulting from assumed conversion of: participation certificates — — 728,683 Share-based compensation plans 1,362,570 1,221,057 814,046
◼ e M p l o y e e I N F o r M A t I o N
As of December 31, 2011 2010 other countries 101,101 103,449 1 | the decrease is mainly due to the deconsolidation of manroland Ag.
the average total number of employees for the year ended December 31, 2011, was 147,990.
Salaries and wages 8,355 8,344 7,707 Social security contributions and employee assistance 1,136 1,107 1,051 expenses for pensions and other post-retirement benefits 1,034 1,100 1,123 on December 14, 2011, the Board of Management and the Supervisory Board of Allianz Se 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 Declaration of Compliance of the publicly traded group company oldenburgische landesbank Ag was issued in December 2011 and was made permanently available to the shareholders.
kpMg Ag wirtschaftsprüfungsgesellschaft (kpMg Ag) serves as the external auditing firm for the Allianz group.
kpMg billed the Allianz group an aggregate of € 34.6 mn (2010: € 34.4 mn) in connection with professional services rendered for the audit of the Allianz group’s consolidated financial statements, statutory audits of the financial statements of Allianz Se and its subsidiaries and services normally provided by kpMg in connection with statutory and regulatory filings or engagements. these services consisted mainly of periodic review engagements and the annual audit.
� A l l o t h e r F e e S
kpMg invoiced the Allianz group an aggregate of € 2.4 mn (2010: € 1.8 mn) for other products and services, which consisted primarily of services under the guidance of Allianz group management and general consulting services.
As of December 31, 2011, the Board of Management is comprised of 9 members. the following values reflect the full Board of Management active in the respective year.
the total remuneration of the Board of Management of Allianz Se for 2011, excluding the notional annual accrual of the three-year bonus for the period 2010 - 2012, amounted to € 22 mn 1 (2010: € 28 mn).
the equity-related remuneration is comprised in 2011 of 73,298 2 (2010: 117,818 3) restricted Stock units (rSu).
rSu with a total fair value of € 6.4 mn (2010: € 9.9 mn) were granted to the Board of Management for the year ended December 31, 2011.
remuneration to former members of the Board of Management and their beneficiaries totaled € 6 mn (2010: € 7 mn). reserves for current pensions and accrued pension rights totaled € 73 mn (2010: € 58 mn).
total compensation to the Supervisory Board amounted to € 2.0 mn (2010: € 1.5 mn).
In February 2012 the Allianz group issued a senior bond in the nominal amount of € 1.5 bn with a coupon of 3.5 % p.a. and a term of 10 years.
In January 2012, the Allianz group completed the sale of llC Allianz life, Moscow, which had been classified as disposal group held for sale in the fourth quarter of 2011.
on January 24, 2012, the Allianz group, acting through Allianz Capital partners, had already completed the acquisition of a 6.4 % stake in gassled. the total value of the transaction was Nok 4.639 bn (€ 606 mn).
◼ C o M M I t M e N t t o B u y D e g I S h A r e S
the Aberdeen Immobilien kapitalanlagegesellschaft mbh announced on october 25, 2011 that the DegI International Fund will be liquidated on october 15, 2014. Allianz germany has made an offer to Allianz customers (valid until February 15, 2012) to acquire their participation right at the repurchase price as of october 25, 2011 (€ 42.78). During the fourth quarter of 2011 the Allianz group recorded a loss provision to account for the difference between the offered repurchase price and the market price of as of December 31, 2011. on February 15, 2012 approximately 98 % of Allianz customers accepted the offer resulting in a repurchase volume of € 679 mn. the Allianz group will recognize the purchased shares in the first quarter of 2012 as available-for-sale equity instruments.
2 | Controlled by Allianz. 3 | mutual-, private equity- or specialfunds.
iv. list of participations of the Allianz group as of december 31, 2011 according to § 313 (2) HgB
Allianz ApKr pimco emerging markets fonds, frankfurt am main 100.0 10
Az-Argos 41 vermögensverwaltungsgesellschaft mbH, munich 100.0 Az-Argos 44 vermögensverwaltungsgesellschaft mbH & Co. Kg, munich 100.0 Az-Argos 50 vermögensverwaltungsgesellschaft mbH & Co. Kg, munich 100.0 Az-Argos 51 vermögensverwaltungsgesellschaft mbH & Co. Kg, munich 100.0
Windpark Werder zinndorf gmbH & Co. Kg, sehestedt 100.0 non-ConsolidAted AffiliAted entities Alida grundstücksverwaltung gmbH, Hamburg 55.0
Bürgel internationale inkassogesellschaft gmbH, Hamburg 100.0 Bürgel Wirtschaftsinformationen vertriebsgesellschaft mbH, Hamburg 100.0 dealis fund operations gmbH, munich 50.1 eurogrAfiCA systemplanungs-gmbH, Augsburg 100.0 euro-pro gesellschaft für data processing mbH, grävenwiesbach 75.2 grapho metronic mess- und regeltechnik gmbH, munich 100.0 grundstücksgesellschaft der vereinten versicherungen mbH, munich 100.0 ids gmbH - Analysis and reporting services, munich 100.0 infrastruktur putlitz ost gmbH, putlitz 70.8 infrastruktur putlitz ost ii g, Husum 100.0 manroland 1. verwaltungsgesellschaft mbH, offenbach 100.0 manroland Ag, offenbach 100.0 5,9 manroland Heusenstamm gmbH, Heusenstamm 100.0 manroland versicherungsvermittlungs gmbH, offenbach 100.0 manroland vertrieb und service deutschland gmbH, lauf, munich 100.0 manroland vertrieb und service gmbH, mühlheim am main 100.0 metA finanz-informationssysteme gmbH, munich 100.0 metallrente pensionsfonds Ag i.g., stuttgart 55.0 olB-immobiliendienst-gmbH, oldenburg 100.0 ppi media gmbH, Hamburg 100.0 rhein-main metallverarbeitung gmbH, mainhausen 100.0 supercheck gmbH, Cologne 100.0 Werner lies gmbH großhandel für die graphische industrie, neuhausen a.d.f. 100.0
AssoCiAted enterprises AlliAnz rCm deep vAlue europe, frankfurt am main 46.2 3
Allianz Annuity Company of missouri, Clayton, mo 100.0 Allianz Argentina Compania de seguros generales s.A., Buenos Aires 100.0
Allianz Australia services pty limited, sydney 100.0 Allianz Australia Workers Compensation (nsW) limited, sydney 100.0
7 | special purpose entity according to siC-12 (spe). 8 | Allocated as associated entity due to material influence. 9 | in insolvency. 10 | investment fund.
Allianz global Corporate & specialty france, s.A., la défense 100.0 Allianz global Corporate & specialty south Africa ltd., marshalltown 100.0
Allianz life insurance Company of new York, Corp., new York, nY 100.0 Allianz life insurance Company of north America, Corp., minneapolis, mn 100.0
Allianz zagreb d.d., zagreb 83.2 Allianz zB d.o.o. Company for the management of an obligatory pension fund, zagreb 51.0 Allianz zB d.o.o. company of the management of voluntary pension funds, zagreb 51.0
5 | group share through indirect holder roland Holding gmbH, munich: 74.1 %.
Co ns ol id at ed fi na nc ia l s ta te m en ts