Munich. Think global, act local. The big picture, as shown here, has its own charm, even if the Allianz headquarters on Munich’s Koeniginstrasse can’t be seen. A global vision supported by local knowledge is the best approach to adding value on a worldwide basis. This was the path that Allianz chose to take years ago and by the way it was on Koeniginstrasse.
Group Management Report 47 Detailed Index 48 Allianz Group Profile 57 Business Operations and Steering 63 Strategy 68 Local Presence and Global Diversification 82 Controls and Procedures 90 Other Information
Management Discussion and Analysis of 2009 104 Business Environment 106 Changes in Segment Structure, Presentation and Accounting Policies 107 Executive Summary of 2009 Results 120 Property-Casualty Insurance Operations 128 Life/Health Insurance Operations 134 Asset Management 138 Corporate and Other 146 Reconciliations 149 Balance Sheet Review 171 Liquidity and Funding Resources 178 Risk Report
In its core businesses Property-Casualty insurance, Life/Health insurance and Asset Management, Allianz ranks among the top five players in 32 markets around the globe.
Share price as of December 31 € 87.15 16.2 % 75.00 147.95 154.76 127.94 34 Market capitalization as of December 31 € mn 39,557 16.4 % 33,979 66,600 66,880 51,949 35 Other Data Return on equity after income taxes 6) % 12.7 7) 3.0 pts 9.7 7) 15.0 7) 15.0 7) 12.9 35 Third-party assets under management as of December 31 € mn 925,699 31.6 % 703,478 764,621 763,855 742,937 134 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).
Property-Casualty • Development in gross premiums written reflects recession and selective underwriting • Solid operating profit of € 4.1billion in a difficult environment
Third-party assets under management by regions as of December 31, 2009 (December 31, 2008) 3)
Dresdner Bank (approximately € 9 bn as of December 31, 2008).
In the midst of profound economic upheaval during the year under review, we achieved a solid operating profit and strong net income. While some financial services providers are being hurt by the market situation, your company fulfils its promises – day after day, week after week, year after year.
The stock market rewarded this performance and our share price rose 16.2 % – an above-average performance for the industry, but not enough to offset the valuation losses of last year. Are we satisfied with this result? Of course not! We are trying hard to convince analysts and investors of Allianz’ strength. However “buy” recommendations until now have not led to a resounding effect on the share price. We have not let this discourage us and are concentrating on areas we can influence directly. We continue to strengthen our business model and improve our competitive position in all markets. We are proposing to you that the dividend per share be increased from € 3.50 to € 4.10. This is 17 % more than the previous year and a figure that is only exceeded by our record dividend of 2007.
The answer can be found in my last shareholder letter. There is no more important factor in the success of your Allianz than the knowledge, dedication and reliability of our 153,203 employees. It is primarily their commitment, their daily decisions and their dedication to our customers that determine the results at the end of the year. I thank them sincerely for their outstanding work and extend my thanks also to our distribution networks, who have to cope with significant challenges in difficult economic times.
In my last letter to you, I also wrote that we would place particular emphasis on risk management in 2009. Concentration risks have been reduced and risk management strengthened. Our solid capital base represents a high level of security for customers, employees, investors and the company. In a changing economic order, this is indispensable for the success of our company.
From today’s perspective, we expect moderate economic growth for the current financial year and reduced income from investments as a result of historically low interest rates. We are seeing a greater risk aversion and an increasing desire for security among all market participants and we will soon see important regulatory decisions that affect the entire financial industry.
Our responsibility is to generate solid results and to create value for all our stakeholders. At the last Annual General Meeting, I showed you the cash flows from us to our customers, employees, distributors, third parties and to you, the owners of the company. I did this because the focus these days is too often entirely on market failures, shortcomings in the economic system and biased views of shareholder interests. This criticism fails to recognize the socially desirable achievements of companies that are oriented towards growth and balance – not to mention the creation of jobs. Selfishness, vested interests and flash-in-the-pan earnings were never part of our attitude. This was made extremely clear during the year under review by the revision of our remuneration structure (for more information, see page 17).
• In life and health insurance we intend to retain and build on the solid performance of 2009. How ever, in 2010 we probably may not be able to match the performance achieved in the year under review, which was influenced by the recovery of credit spreads in the bond markets. The performance of the labor markets will be an important factor in the development of our revenue volume.
• Our investment strategy remains focused on generating attractive returns in spite of an environment of low interest rates and on minimizing vulnerability to price fluctuations.
Will we be able to expand the business, too? Despite the sputtering global economy, we believe in organic growth. Customers have gained a better understanding of risk in this crisis and see clearly that Allianz has stood firm and has invested strongly in its systems, distribution and employees. We see opportunities for continued expansion, particularly in life insurance, asset management and in Asia. People know that government pension schemes are reaching their limits and that private pensions are indispensable. Our global presence and our strong position in all major countries will drive growth, particularly for corporate and private retirement plans.
Within the scope of our monitoring and advisory activities we were regularly provided by the Board of Management, both verbally and in writing, with timely and comprehensive information on the course of the business, the financial and economic development of the Allianz Group and of Allianz SE, including the risk situation and risk management, compliance issues as well as basic issues of company strategy. Based on the reports provided by the Board of Management, in the Supervisory Board meetings, we discussed in detail the development of the business as well as decisions and processes of importance to the company. In addition, we were involved in the Board of Management’s planning for the 2010 fiscal year and medium-term planning as well as areas in which actual business development deviated from plan. We also discussed in depth the remuneration of the Board of Management, adopted a new remuneration system to begin in 2010 and established the future total compensation of the individual members of the Board of Management.
After being involved in several meetings in 2008 regarding the sale of Dresdner Bank to Commerzbank, the Supervisory Board held another extraordinary conference call on this topic on January 6, 2009. Given the market trends of the fourth quarter of 2008, we gave advice on the participation of Allianz in additional capital strengthening of the bank in connection with the sale and adopted a resolution in which the Supervisory Board gave its approval of the proposed measures. This brought the Dresdner Bank transaction to a quick conclusion on January 12, 2009.
With Ms. Eggert-Lehmann having left the Supervisory Board with the sale of Dresdner Bank, at the meeting on March 11, 2009 the Supervisory Board elected Mr. Rolf Zimmermann as an additional deputy chairman of the Supervisory Board at the recommendation of the employee representatives. The Supervisory Board approved the extension of the mandates of Dr. Achleitner and Dr. Zedelius to December 31, 2014. With Dr. Faber reaching his 60th birthday in 2010, his mandate was extended to December 31, 2010. In the following meeting, we dealt primarily with the annual and the consolidated financial statements and the Board of Management ’s recommendation for the appropriation of profits from the 2008 fiscal year. On the basis of the Board of Management ’s report, we continued to give advice on the implications of the sale of Dresdner Bank. KPMG reported on the material findings of the audit. The Supervisory Board gave the necessary approval to the profit transfer agreement of Allianz SE with Allianz Shared Infrastructure Services SE on the basis of the written and verbal explanations provided by the Board of Management. In addition, the Supervisory Board dealt with the agenda for the 2009 General Meeting of Allianz SE and adopted the resolutions proposed by the Supervisory Board regarding the General Meeting. A written and verbal report provided by the Board of Management also gave us a detailed picture of the structure and organization of the investment management function within the Allianz Group.
On April 29, 2009, just before the General Meeting, we were briefed by the Board of Management on business in the first quarter and on the current situation of the Allianz Group. We also used the meeting to prepare for the upcoming General Meeting.
Allianz Group Annual Report 2009 Supervisory Board Report who resigned his Supervisory Board position effective December 31, 2009. The Supervisory Board followed the recommendation of the Nomination Committee to have Mr. Peter Sutherland appointed by the court to the Supervisory Board effective January 1, 2010 and to decide in March 2010 on the proposal to the General Meeting of his election to the Supervisory Board. Furthermore, we approved the appointment of Dr. Christof Mascher effective September 10, 2009 and Mr. Jay Ralph effective January 1, 2010 to the Board of Management of Allianz SE. Upon completion of the Executive Session, the Board of Management reported in detail on the business performance and financial condition of the Allianz Group and the development of the individual segments. The Supervisory Board welcomed the decision by the Board of Management to give employees of the Allianz Group in 19 countries the opportunity to buy Allianz shares under favorable conditions. The Standing Committee approved the use of Authorized Capital 2006/II to issue these employee shares.
At the meeting on December 9, 2009, we once again held an Executive Session to review the proposed changes to the compensation structure for the Board of Management. Following extensive consultations, the Supervisory Board approved the amended compensation system, which is adapted to the regulations of the German Act on Appropriateness of Management Remuneration, and used this as the basis to establish the targets for variable compensation and total remuneration of individual members of the Board of Management. We also approved an adjustment to the Board of Management’s pensions. Finally, the Supervisory Board issued the proposed changes in the Directors and Officers Liability Insurance, particularly the application of the minimum deductibles, required by law and by the German Corporate Governance Code for the Board of Management and the Supervisory Board. We then used the meeting for our regular review of the efficiency of the Supervisory Board. Having been prepared by the Standing Committee, we discussed existing opportunities for improvement and then established appropriate measures for the future. Later in the meeting, the Board of Management informed us about the performance and the position of the Allianz Group. We then discussed planning for fiscal 2010 as well as mediumterm planning and issued the Declaration of Compliance with the German Corporate Governance Code.
Audit Committee Dr. Franz B. Humer (Chairman) (until December 31, 2009) Dr. Wulf H. Bernotat (Chairman since January 1, 2010) Igor Landau Dr. Henning Schulte-Noelle (since January 1, 2010) Jean-Jacques Cette Jörg Reinbrecht
Nomination Committee Dr. Henning Schulte-Noelle (Chairman) Dr. Gerhard Cromme Dr. Franz B. Humer (until December 31, 2009) Prof. Dr. Renate Köcher (since January 1, 2010)
Risk Committee Dr. Henning Schulte-Noelle (Chairman) Dr. Wulf H. Bernotat (until December 31, 2009) Prof. Dr. Renate Köcher Peter Sutherland (since January 1, 2010) Godfrey Robert Hayward Peter Kossubek
The Personnel Committee met four times. The meetings dealt with staffing matters as well as the structure and amount of Board of Management remuneration. The Personnel Committee prepared the review of the Board of Management’s remuneration system, including the main elements of the contract, and submitted a proposal for a revision of the remuneration system to the plenary Supervisory Board. Furthermore, the committee also arranged for the setting of the total remuneration of individual members of the Board of Management, including the targets for variable remuneration. The committee also concerned itself with the achievement of targets by members of the Board of Management during the 2009 fiscal year. In February 2010, based on the recommendations submitted by the Personnel Committee, the plenary Supervisory Board dealt with the achievement of targets by individual members of the Board of Management and set the variable remuneration for the 2009 fiscal year.
The Audit Committee held six meetings in fiscal 2009, which took place in February, twice in March, in May, August and November. Together with the auditors, the committee discussed the Allianz SE and Allianz Group annual financial statements, the management reports, the auditor’s reports and, for the year 2008, the U.S. Form 20-F report for 2008 was also examined. In addition, the committee checked the semiannual financial report and the other quarterly financial statements and, together with the auditors, went through details of the auditor’s review of these financial statements. After carrying out these checks the Audit Committee saw no reason to raise objections. The committee also covered the auditor’s engagement and established priorities for the audit, as well as internal control issues and, for the 2008 fiscal year, compliance with the provisions of section 404 of the Sarbanes-Oxley Act. The Board of Management informed the committee about the deregistration of Allianz shares on the New York Stock Exchange and its effects in particular on accounting and internal controls. In addition,
The Risk Committee held two meetings in 2009. At both meetings, the Board of Management presented the current risk situation of the Allianz Group and we discussed the issues with the Board of Management. Other areas of focus of the committee’s work included the effects of the financial market crisis and the treatment of risks arising from natural disasters. We also dealt in detail with the effects of the planned risk-oriented changes to European solvency regulations (equity finance requirements) for insurance companies (Solvency II). We also dealt with the regulatory minimum requirements of the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) on the risk management of insurance companies (MaRisk VA) and discussed their implementation within the Allianz Group. We reviewed the particular riskrelated statements in the annual accounts and consolidated financial statements as well as in the management reports, and reported to the Audit Committee on the results of this preliminary review.
The Nomination Committee met once during the fiscal year. In August 2009, the committee agreed on the selection criteria for shareholder representatives on the Supervisory Board and discussed possible candidates for a successor to Dr. Humer. The committee nominated Mr. Peter Sutherland to the plenary Supervisory Board as his successor.
The committees of the Supervisory Board received regular comprehensive reports on the activities of the committees.
The financial statements and the KPMG auditor’s report for fiscal year 2009 were made available to all members of the Supervisory Board in a timely manner. The financial statements and the results of the KPMG audit were discussed on a provisional basis by the Audit Committee in their meeting held on February 24, 2010. There was also a Supervisory Board meeting held on this day, in which the dividend proposal of the Board of Management was discussed.
On the basis of our own review of the financial statements, the management report and the Group management report and the recommendation for appropriation of earnings, we made no objections and agreed with the result of the KPMG audit. We approved the financial statements drawn up by the Board of Management; the company financial statements are therefore adopted. We concur with the proposal of the Board of Management as to the appropriation of earnings.
Effective September 10, 2009, the Supervisory Board has appointed Dr. Christof Mascher to the Board of Management of Allianz SE. Dr. Mascher, also a member of the Board of Management of Allianz Deutschland AG, is the Board member responsible for the Operations Division as well as for Assistance and Travel Insurance. In addition, the Supervisory Board appointed Mr. Jay Ralph to the Board of Management of Allianz SE, effective January 1, 2010. Mr. Ralph is also Chairman of the U.S. Group companies Allianz of America, Allianz Life Insurance Company of North America and Fireman ’s Fund Insurance Company. On the Board of Management of Allianz SE, Mr. Ralph is responsible for the insurance business in North America and Mexico. Both men have worked for the Allianz Group for many years. Mr. Enrico Cucchiani will assume the regional responsibilities previously held by Mr. Thierry effective January 1, 2010, which include the insurance business in Europe, South America and Africa. The credit insurance business has been handed over to Mr. Clement B. Booth, in addition to his current responsibilities. Mr. Oliver Bäte assumed responsibility for the area of Controlling, Reporting, Risk on September 1, 2009.
The Supervisory Board would like to thank all Allianz Group employees for their great effort over the past year.
Good Corporate Governance is essential for sustainable business performance. For this reason it is important that the existing Corporate Governance structures are constantly reviewed and developed further, whenever necessary. In the last year, this continued development primarily resulted from the German Accounting Law Modernisation Act (BilMoG) and the German Act on Appropriateness of Management Remuneration (VorstAG). These acts emphasize the impor­ tance of the Audit Committee in the review of our internal control systems and strengthen the role of the plenary Super­ visory Board in determining Board of Management remu­ neration.
The members of the Board of Management have joint re­ sponsibility for overall management. Notwithstanding the overall responsibility of all members of the Board of Man­ agement, the individual members of the Board head the departments they have been assigned independently and on their own responsibility. Rules of procedure specify in more detail the work of the Board of Management. In these rules the Board has in particular regulated the specific responsibilities of Board members, matters reserved for the whole Board and other ways to pass resolutions.
The Board meets regularly at Board of Management meet­ ings convened by the Chairman of the Board. Each member of the Board may request that a meeting be convened while providing notification of the agenda. Under the Board’s rules of procedure, the entire Board makes decisions by resolution by a simple majority of the members participating in the resolution.
The chairman of the Board of Management coordinates the Board’s activities. As a consequence of the transformation into Allianz SE, the position of the chairman was strength­ ened by providing him with a right of veto under the Stat­ utes with respect to the Board of Management’s decisions. If he objects to a decision, that decision is cancelled. However, the chairman of the Board of Management cannot impose any decision against the majority vote on the Board of Man­ agement. In the event of a tied vote, the chairman has the casting vote.
Statement on Corporate Management, Corporate Governance Report and Remuneration Report Good Corporate Governance and transparency are key elements for gaining the trust of our shareholders, business partners and employees.
The German Co­Determination Act (Mitbestimmungs­ gesetz) no longer applies to Allianz SE because it has the legal form of a European Company (SE). The size and the members of the Supervisory Board are now based on the European general regulations on European Companies. These regulations have been implemented by provisions in the Statutes and by the Agreement Concerning the Par­ ticipation of Employees in Allianz SE, which was signed on September 20, 2006 with representatives of European Allianz employees. This agreement can be found on our website under www.allianz.com/se.
The Supervisory Board oversees and advises the Board of Management on managing the business. Furthermore, the Supervisory Board is responsible for appointing the members of the Board of Management, determining the remuneration of the members of the Board of Management
Certain important decisions of the Board of Management require approval from the Supervisory Board. Some of these decisions subject to special approval are stipulated by law or are included in decisions of the General Meeting, such as approval for the Board of Management to increase the share capital (Authorized Capital), acquire treasury stock, or issue convertible bonds or bonds with warrants. In addition to these decisions, in accordance with § 9 of the Statutes the Supervisory Board also must approve intercompany agree­ ments and the launch of new business segments or closure of existing ones, insofar as such actions are material to the Group. Approval is also required for acquiring companies and holdings in companies as well as divestments of equity stakes in a Group company, whenever such divestment results in the company leaving the Group. In these instances approval is required if it does not involve a financial equity investment and if in a particular case the market value or, in the absence of the market value, the book value of the acquired or divested investment amounts to at least 10.0 % of the equity in the most recent consolidated balance sheet. Pursuant to the Supervisory Board’s rules of procedure, the appointment of the member of the Board of Management responsible for employment and social welfare by the Board of Management also requires the approval of the Supervi­ sory Board. An overview of the Board of Management’s members can be found on page 31 of this report.
Allianz Group Annual Report 2009 Statement on Corporate Management, Corporate Governance Report and Remuneration Report and reviewing Allianz SE’s and Allianz Group’s annual financial statements. The Supervisory Board’s activities in the 2009 business year are described in the Supervisory Board Report.
The Supervisory Board regularly reviews the efficiency of its activities. The efficiency review is prepared by the Standing Committee. The plenary Supervisory Board then offers rec­ ommendations for improvements and, where appropriate, adopts corresponding measures.
A part of the Supervisory Board’s activities is delegated to the committees of the Supervisory Board. The composition of the committees and the tasks assigned to these commit­ tees are regulated in the Supervisory Board’s rules of proce­ dure. The Supervisory Board receives regular reports on the activities of the committees.
The Risk Committee has five members to be elected by the Supervisory Board. Three members are nominated by the shareholders and two members are nominated by the em­ ployee representatives on the Supervisory Board. The chair­ man of the committee is also elected by the Supervisory Board. The Risk Committee monitors the overall risk situa­ tion and the specific risk developments in the Allianz Group. This committee is also responsible for prior verifi­ cation of any particular risk­related statements within the annual financial statements and management report, and for reporting to the Audit Committee on the results of this preliminary review. The Risk Committee also has rules of procedure, which govern the responsibilities of the commit­ tee and its activities on the basis of the rules of procedure of the Supervisory Board.
Members of the Supervisory Board are elected in General Meetings. As regards the election of employee representa­ tives General Meetings are bound by the proposals of the employees. General Meetings also approve actions taken by the Board of Management and the Supervisory Board. The General Meeting decides on the appropriation of earnings, capital transactions, approval of intercompany agreements, the remuneration of the Supervisory Board, and on changes to the Company’s Statutes. Unless at least half of the share capital is represented in adopting a resolution on a change to the Statutes, such resolutions require a majority of at least two thirds of the votes cast, in accordance with Euro­ pean regulations and the Statutes. Each year, an ordinary General Meeting takes place at which the Board of Manage­ ment and Supervisory Board give an account of the preced­ ing financial year. For special decisions, the German Stock Corporation Act provides for the calling of an extraordinary General Meeting.
The consolidated financial statements of the Allianz Group have been prepared in conformity with International Finan­ cial Reporting Standards (IFRS), as adopted under European Union (EU) regulations in accordance with § 315 a of the German Commercial Code (Handelsgesetzbuch). The finan­ cial statements of Allianz SE have been prepared in accor­ dance with German law, in particular the German Commer­ cial Code (HGB).
The sustained success of the Allianz Group is based on trust, respect and the responsible, integrity­enriched behaviour of all Group employees. In 2008, the Ethisphere Institute named Allianz one of the world’s most ethical companies.
With its compliance and anti­money laundering program, Allianz supports and follows internationally and nationally recognised guidelines and standards for rules­compliant and value­based corporate leadership. These include, among others, the German Corporate Governance Code, the UN Global Compact Program, OECD Guidelines for Multinational Enterprises and the recommendations of the Financial Action Task Force on Money Laundering (FATF). By recognizing and supporting these international and national principles, Allianz manages the risk of violating legal and regulatory provisions and requirements (com­ pliance risk). This also means that our customers benefit from the fact that sustainability and social responsibility are integrated into corporate behaviour.
The standards for conduct established by the Allianz Group’s Code of Conduct for Business Ethics and Compliance serve to implement these guidelines and principles, and are obligatory for all employees worldwide.
The Code of Conduct and the internal guidelines adopted on its basis provide all employees with clear guidance on conduct that is in accordance with the values of Allianz. They provide employees with practical guidelines for mak­ ing their own decisions and avoiding potential conflicts of interest. These guidelines also help employees recognise when they are approaching a critical limit, such as the acceptance of gifts or invitations from business partners. The Code of Conduct also forms the basis for guidelines and controls to ensure fair dealings with Allianz customers (Sales Compliance).
In cases of doubt, the designated compliance department can provide advice. The tasks of the employees of the com­ pliance departments include advising the business units on laws, provisions and other regulations, the creation, implementation and monitoring of compliance with inter­ nal guidelines and standards as well as regular training of employees on the rules which are applicable to them.
In almost all countries in which Allianz has a presence, there are legal provisions against corruption and bribery. For this reason, a global Anti­Corruption Program was established in the summer of 2009, which guarantees the continuous monitoring and improvement of internal anti­ corruption controls.
A major component of the compliance program of Allianz is a whistleblower system that allows employees to alert the relevant compliance department confidentially about irregularities. Employees who voice concerns about irregu­ larities in good faith should not fear retribution in any form, even if the charge later turns out to be unfounded.
To transmit the principles of the Code of Conduct and other compliance guidelines and controls effectively, Allianz has developed interactive training programs around the world.
Group Compliance is responsible, in close cooperation with local compliance departments, for ensuring the effective implementation and monitoring of compliance and anti­ money laundering programs within Allianz.
The German Accounting Law Modernization Act served to further strengthen the role of the Audit Committee in the Supervisory Board. This Act stipulates that at least one independent member of the Audit Committee must have expertise in the fields of accounting or auditing. In addition, the Act describes the duties of the Audit Committee explic­ itly for the first time. The German Act on Appropriateness of Management Remuneration increases the requirements for the structure of remuneration and assigns responsibility for the total remuneration of individual Board of Management members to the plenary Supervisory Board.
The Law on Strengthening the Supervision of the Financial Market and Insurance Sector of July 29, 2009 (Gesetz zur Stärkung der Finanzmarkt­ und Versicherungsaufsicht) more closely regulates the requirements for the qualifica­ tions of members of the supervisory boards of insurance companies. In this connection, the new provision in § 7 a Insurance Regulatory Act (VAG) stipulates that Supervisory Board members must be reliable and must possess the professional expertise required to carry out their control function as well as to assess and monitor the operations of the insurance company.
The German Risk Limitation Act (law on limiting risks aris­ ing from financial investments, Risikobegrenzungsgesetz) of August 2008 also introduces new aspects to Corporate Governance. The primary objective of the changes to stock corporation law is to ensure greater transparency in equity holdings. The 2009 General Meeting of Allianz SE adopted a rule in its Statutes in this regard, under which nominees who reach a certain threshold in the share register of Allianz SE are required to disclose for whom they hold shares. This improved transparency should in future reduce obstacles to the transmission of General Meeting documents and to the exercise of voting rights, particularly internationally. The benefits offered by registered shares can thus be better used.
The German Corporate Governance Code is effective as amended dated June 18, 2009. Besides repeating important legal provisions, the Code also contains recommendations and suggestions for proper Corporate Governance. There is no legal obligation to comply with these standards. Under § 161 of the German Stock Corporation Act, listed compa­ nies are, however, obliged to make an annual Declaration of Compliance with the terms of the Code’s recommendations on the basis “comply or explain”. This declaration explains any deviations from the Code’s recommendations.
In Germany the Code is taken as the benchmark of good Corporate Governance and control. Surveys show that acceptance of the German Corporate Governance Code remains high. At 2009 year end, the DAX­30 companies met an average of 96 % of all recommendations, while in the M­DAX around 92 % and in the S­DAX about 86 % of the rec­ ommendations had been followed by the companies.
1. Allianz SE will comply with all the recommendations made by the Government Commission on the German Corpo­ rate Governance Code (Code version dated June 18, 2009).
The listed Group company Oldenburgische Landesbank AG issued its own declaration of compliance in December 2009 which states that in future Oldenburgische Landesbank AG will comply with all recommendations of the German Cor­ porate Governance Code.
Our Audit Committee will continue to carry out those tasks which it was originally assigned in accordance with U.S. law. This includes in particular the continuation of the estab­ lished procedures for handling complaints relating to accounting or financial reporting, and special procedures to ensure auditor independence. The condition that at least one of the members of the Audit Committee meet the re­ quirements established under U.S. law for an “Audit Com­ mittee Financial Expert” no longer applies. Instead, the above requirement for stock corporations concerning inde­ pendent, expert members of the Audit Committee apply.
In compliance with the provisions of the Sarbanes­Oxley Act, Allianz SE has, in addition to the Code of Conduct, which applies to all employees, also adopted a special Code of Ethics for members of the Board of Management and senior management of certain departments, primarily in the financial area. This Code remains unchanged.
Members of the Board of Management and the Supervisory Board are required, pursuant to § 15 a of the German Secu­ rities Trading Act (Wertpapierhandelsgesetz, WpHG), to disclose any acquisitions or divestments of Allianz SE securities, if the value of such acquisitions or divestments made by the Board member or any person close to him or her amounts to at least € 5,000 in one calendar year. These declarations are published on our website under www.allianz.com/corporate-governance. On February 27, 2009, Dr. Ute Geipel­Faber, the wife of Dr. Joachim Faber, member of the Board of Management of Allianz SE, bought 2,000 Allianz shares at a price of € 54.30 each. On February 27, 2009, Mr. Nicolas Faber, the son of Dr. Joachim Faber, member of the Board of Management of Allianz SE, bought 1,000 Allianz shares at a price of € 54.30 each. On March 3, 2009, Mr. Jean­Jacques Cette, member of the Supervisory Board of Allianz SE, bought 800 Allianz shares at a price of € 50.30 each. On May 14, 2009, Mr. Gustav Diekmann, other relative of Mr. Michael Diekmann, Chairman of the Board of Management of Allianz SE, bought 1,800 shares at a price of € 69.00 each. On December 22, 2009, Ms. Magda Svoboda­ Mascher, the wife of Dr. Christof Mascher, member of the Board of Management of Allianz SE, sold 67 Allianz shares at a price of € 86.38 each.
This Remuneration Report outlines the strategic principles, structure and level of remuneration for top executives of Allianz SE, which covers the Board of Management and senior executives. It describes the remuneration arrange­ ments in effect until December 31, 2009 and gives a summary of the changes introduced for the Board of Management and senior executives from January 1, 2010.
The report also sets out the remuneration system and pay­ ments for the Supervisory Board.
• Incentive remuneration is structured to operate effec­ tively in different performance scenarios and business circumstances. The mix and weight of incentives aims to optimally balance risk and opportunity as well as the time horizon of potential payouts.
Remuneration structure The remuneration for individual Board Members is depen­ dent upon their designated role, accountability and perfor­ mance. It comprises the following elements: Fixed salary Base salary is a fixed amount, paid in twelve monthly in­ stalments. Salaries were last reviewed in December 2009.
Performance-based remuneration The three­tier incentive system aims for an appropriate balance between short­term financial performance, longer­ term success and sustained shareholder value creation. The target performance expectation and key performance indi­ cators take risk into account by reference to EVA®1). This significantly reduces the likelihood of rewarding profit with­ out appropriately considering the underlying business risk.
1) EVA® (Economic Value Added) – whether positive or negative – is the difference between profit and the cost of capital (see page 61 for further details).
Annual bonus (short-term) The annual bonus is a variable component payable upon the achievement of challenging annual goals. The above table shows typical goal categories. Goals are set at the beginning of the year, with performance measured and assessed after completion of the one­year performance period. The bonus payout amount depends on the extent to which targets and objectives have been met. The Super­ visory Board sets the target bonus for members of the Board of Management. For 2009, it amounts to 150 % of base salary. The maximum bonus achievable is capped at 165 % of the target annual bonus.
In anticipation of the new German law on the appropriate­ ness of Board remuneration (Gesetz zur Angemessenheit der Vorstandsvergütung, VorstAG), which stipulates a four­ year vesting period for stock options from January 2010, the vesting for the 2009 SAR was extended from two to four years.
To align the interests of management with those of share­ holders the Supervisory Board has established two perfor­ mance conditions for the exercise of the SAR. Subject to the performance conditions (please refer to footnote below the GEI grant table on page 21) the SAR may be exercised during the three years following their vesting. In recognition of the SAR leverage profile, the potential payout at exercise is capped at 150 % of the grant price.
If a member of the Board of Management holds a mandate in another company within the Allianz Group, the full com­ pensation amount is transferred to Allianz SE. If the man­ date is from a company outside the Allianz Group, 50 % of the compensation received is paid to Allianz SE. A Board Member retains the full compensation only if the Super­ visory Board qualifies the mandate as a personal one. Com­ pensation paid by companies outside the Allianz Group is shown in the Annual Reports of the companies concerned. For a list of Supervisory Board mandates in companies outside the Allianz Group please refer to page 348.
Allianz Group Annual Report 2009 Statement on Corporate Management, Corporate Governance Report and Remuneration Report 2009 Remuneration The following table sets out the fixed and performance based remuneration for the Board of Management of Allianz SE for 2009.
Board of Management Fixed salary Perquisites 1) Annual bonus (short-term) 2)
Total € thou € thou € thou € thou € thou € thou € thou 2008 — — — — — — —
5) Dr. Christof Mascher joined the Board of Management of Allianz SE on September 10, 2009. For the period from September 10 to December 31, 2009 he received a pro-rata fixed salary amounting to € 216,000, a pro-rata annual bonus and a pro-rata three-year bonus.
The individualized remuneration table shows the 2009 annual tranche of the three­year bonus 2007 to 2009 per member of the Board of Management to provide the dis­ closed individual remuneration information in a way com­ parable to prior years. However, regulation requires to also disclose the final cash payout. As a consequence, this remu­ neration component is disclosed twice over the relevant period: once by showing the bonus tranche for the year 2009 (see previous remuneration table) and once by show­ ing the total payout for the performance period 2007 to 2009. Following the final assessment of performance for the three­year bonus plan, a total payout of € 7,277 thousand was approved by the Supervisory Board.
The total remuneration of the Board of Management of Allianz SE for 2009 including the three­year bonus 2007 to 2009 payout amounts to € 36 million (2008: € 24 million excluding the interim assessment value for the three­year bonus tranche).
If service is terminated as a result of a so­called “change of control”, the following special terms apply: Definition of a change of control requires that a shareholder of Allianz SE acting alone or together with other shareholders holds more than 50 % of voting rights in Allianz SE. If the appointment of a member of the Board of Management is unilaterally revoked by the Supervisory Board as a result of such a change of control within a period of twelve months after the event, all contracted benefits for the duration of the employment contract are payable in the form of a lump sum. The same applies if the Board member terminates service by resignation due to a substantial decrease in man­ agerial responsibilities and without giving cause for termi­ nation. The amount payable is based on the fixed salary at the time of the change of control, the annual and current three­year bonus, in each case discounted according to market conditions at the time of payment. A target achieve­ ment of 100 % is the basis for the annual and three­year bonus. If the remaining duration of the service contract is less than three years at the time of change of control,
The following table sets out the 2009 service cost and contri­ butions arising in relation to the current pension plans for each member of the Board of Management of Allianz SE. For enhanced transparency, we have separated the current service cost for the defined benefit plan (redeemed as of December 31, 2004) from the current pension plan.
Michael Diekmann (Chairman) 157 571 728 Dr. Paul Achleitner 233 292 525 Oliver Bäte — 294 294 Clement B. Booth — 260 260 Enrico Cucchiani — 286 286 Dr. Joachim Faber 133 288 421 Dr. Christof Mascher — 247 247 Dr. Helmut Perlet ¹) 0 211 211 Dr. Gerhard Rupprecht ¹) 0 356 356 Jean-Philippe Thierry — 18 18 Dr. Herbert Walter — — — Dr. Werner Zedelius 81 277 358
The total remuneration of the Board of Management of Allianz SE for 2009 including pension service costs amounts to € 40 million.
1) No current service cost for the defined benefit pension plan of Dr. Perlet and Dr. Rupprecht, as above age 60.
Three-year bonus (mid-term) 11 25 700 1,180 Equity-related remuneration (long-term) 272) 25 700 1,180
The annual bonus payout depends on the target achieve­ ment for the respective financial year, as determined by the Supervisory Board.
The three­year bonus recognizes sustained target achieve­ ment over the three­year period. At the end of each three­ year performance period, the Supervisory Board assesses the target achievement based on the set three­year targets. Payout takes place following the Supervisory Board’s deter­ mination of the appropriate amounts.
Equity­related remuneration is granted in the form of vir­ tual shares, so­called Restricted Stock Units (RSU). Grants take place after the end of the financial year in conjunction with the determination of the annual bonus amounts. The number of RSU results from dividing the annual bonus amount for the completed financial year by the calculated market value of an RSU at time of the grant. The exercise of the RSU is subject to a four­year vesting period starting with the day of grant; after expiry of the vesting period the Com­ pany pays out the equivalent amount in cash for the RSU based on the then current market price of the Allianz SE stock. Virtual stock options, so­called Stock Appreciation Rights (SAR), previously part of the equity­related remu­ neration, are no longer granted under the new remuneration system.
The qualitative goals, which are weighted at 25 % for both the annual bonus and the three­year­ bonus, are composed of five categories essential to the Group strategy. Within these categories, more concrete targets are assigned to each respective Board member.
The information provided below refers to the circular of the German BaFin for remuneration systems in the insurance sector dated December 21, 2009. For the purposes of this report, senior executives are defined as holders of key positions. Allianz’ overall governance and control system ensures that only appropriate levels of risk are assumed. Remuneration structures and incentives are designed to encourage sustainable value-creating activities for Allianz.
Regarding the pension provisions and fringe benefits please refer to the above explanations (sections “Pensions and similar benefits” and “Miscellaneous”, see page 19). The principles detailed above also apply to the provisions for early termination of a Board of Management mandate with the condition that the basis for calculation of the maximum severance pay amount (cap) has been changed to the annual fixed remuneration plus 50 % of the variable target remuneration.
Sustainability assessment based on qualitative criteria: • Actual growth versus expectations • Profitability development • Comparison with peers • Extraordinary events • Capital situation against internal risk capital model • Additional sustainability criteria
2010 operating profit of the Business Division 2010 specific targets for Finance, Investment and Chief Operating Officer (COO) functions
Qualitative Targets 25 % 5 categories that are essential to the 2010 - 2012 Group strategy • “Partner of Choice” for Stakeholders
Supervisory Board remuneration is designed primarily to sustain and support shareholder interests and to ensure appropriate separation of remuneration practices between the Supervisory Board and the Board of Management, accounting for the difference in roles. The remuneration structure of the Supervisory Board is designed to allow for proper oversight of the business and independent decision making on the remuneration of the Board of Management.
Allianz deploys a number of different remuneration struc­ tures and strategies across the Group. They take into ac­ count the particular roles of executives, business activities and local remuneration and regulatory environments. This enables the business divisions to effectively compete in their respective markets, observing relevant market practice while adhering to the global principles and boundaries defined by Allianz Group. Based on the specific nature, scale and scope of each business the Board of Management has defined the appropriate level of compensation committee oversight. In general, these committees are comprised of members of the Board of Management of Allianz SE, other Regional Chief Executive Officers (CEOs), Business Division Heads, Chief Financial Officers (CFOs) or Chief Operating Officers (COOs), usually with the Human Resources head acting as adviser and/or secretary. Attention is paid to ensuring that each compensation committee also includes independent members to mitigate against potential conflicts of interest.
For the minority of operations that have either asset man­ agement or alternative investment businesses for Allianz or third­party assets, there are also tailored incentive pro­ grams and reward structures. These may deviate from the general Allianz incentive program descriptions and may include profit sharing, co­investment and other cash­based incentive plans. These businesses use both appropriate risk control measures and oversight through their respective compensation committees whose members have the com­ petence and industry expertise.
The remuneration for senior executives is primarily com­ posed of the following elements, though not everyone in this group receives all of them, nor in the same proportions: • Fixed salary • Performance­based remuneration • Short­ and, where applicable, medium­term incentives • Long­term incentives in form of equity­related remu­
Senior executives may also participate in the global Em­ ployee Stock Purchase Plan (as discussed in the “Our Em­ ployees” section on page 52) though these amounts are not significant relative to their total remuneration.
As part of the changes discussed earlier­on for the Board of Management, the remuneration changes for executives below the Board principally also become effective from January 1, 2010.
The remuneration of the Supervisory Board is governed by § 11 of the Statutes of Allianz SE. In line with § 113 of the German Stock Corporation Act, the Supervisory Board’s remuneration is determined by the Company’s General Meeting. Accordingly, the provisions of § 11 of the Statutes governing the amount and structure of Supervisory Board remuneration were ratified by the Annual General Meeting in 2005. They were adopted without changes when Allianz AG was converted into Allianz SE in 2006.
The remuneration program is regularly reviewed in light of additional German, European and international recom­ mendations and regulations.
Fixed remuneration The fixed remuneration amounts to € 50,000 per year.
• Short­term performance­based remuneration depends on the growth of consolidated earnings­per­share (EPS) compared to the previous year 1). Zero payout occurs if no growth (0 %) is achieved, and a maximum payout of € 24,000 occurs if 16 % EPS growth is achieved.
• Long­term performance­based remuneration depends on the growth of the consolidated earnings­per­share (EPS) compared to the value of the same measure three years ago 2). There is no payout if there is no EPS growth. The maximum payout amounts to € 24,000 and is reached upon the achievement of 40 % EPS growth.
The Chairperson and Deputy Chairpersons of the Super­ visory Board as well as the Chairperson and members of Supervisory Board committees receive additional remu­ neration as follows: Chair
Deputy Chairperson of Supervisory Board receives 1.5 times basic remuneration 1) € 150 for each tenth percentage point by which the Group’s earnings-per-share increased in comparison to the preceding year.
With the two performance­based remuneration compo­ nents being capped at a maximum of € 24,000 and a fixed remuneration sum of € 50,000, the maximum total basic remuneration for a Supervisory Board member amounts to € 98,000 per year. It is reached when the previous year’s earnings­per­share measure has risen by 16 % and when this indicator has further improved by a total of 40 % over the prior three years.
The members of the Supervisory Board receive a € 500 fee for each Supervisory Board or committee meeting attended in person. No additional attendance fees are paid if several meetings occur on one day or on consecutive days.
There is a cap on the total remuneration of each member of the Supervisory Board. Fees for the Chairman of the Supervi­ sory Board must not exceed 300 % of the basic remuneration of a member. For other members, the limit is set at 200 % of the basic remuneration.
Fixed remuneration 50,000 50,000 Short-term performance-based remuneration 24,000 0 Long-term performance-based remuneration 0 0 Total basic remuneration 74,000 50,000
Statement on Corporate Management, Corporate Governance Report and Remuneration Report Allianz Group Annual Report 2009 1) Total remuneration (excl. attendance fees) is capped at € 222,000 (for Chairperson, the limit is three times the 2009 basic remuneration). 2) Total remuneration (excl. attendance fees) was capped at € 150,000 (for Chairperson, the limit is three times the 2008 basic remuneration). 3) Total remuneration (excl. attendance fees) was capped at € 100,000 (limit of twice the 2008 basic remuneration).
Remuneration for mandates in other Allianz Group subsidiaries As a member of the supervisory board of the former Allianz Group company Dresdner Bank AG, Claudia Eggert­Lehmann received € 45,000. As member of the supervisory board (until April 2, 2009) of Allianz Deutschland AG, Mr. Karl Grimm received € 20,000.
Claudia Eggert-Lehmann until January 12, 2009 Vice Chairwoman Employee, Dresdner Bank AG
Dr. Wulf H. Bernotat Chairman of the Board of Management, E.ON AG
Jean-Jacques Cette Secretary of the Group Commission, Allianz France S. A.
Clement B. Booth Insurance Anglo Broker Markets/Global Lines until December 31, 2009 Global Insurance Lines & Anglo Markets since January 1, 2010
1 Terry Towell, Allianz Australia, Sydney 2 Gerhard Rupprecht, Allianz SE, Munich 3 Manfred Knof, Allianz Suisse, Zurich 4 Jay Ralph, Allianz SE, Munich 5 Christof Mascher, Allianz SE, Munich 6 Clement B. Booth, Allianz SE, Munich 7 Maximilian Zimmerer, Allianz Deutschland AG, Munich 8 Thomas Pleines, Allianz Deutschland AG, Munich 9 Markus Rieß, Allianz Deutschland AG, Munich 10 Paul Achleitner, Allianz SE, Munich 11 Karl-Hermann Lowe, Allianz Investment Management SE, Munich 12 Oliver Bäte, Allianz SE, Munich 13 Gary C. Bhojwani, Allianz Life Insurance, Minneapolis 14 Marna Whittington, Allianz Global Investors, Munich
In the first few months of 2009 there were still concerns about the effects of the global recession. This sentiment put pressure on equity market prices. However, fuelled by hopes that the recession might be short-lived, investors grew more optimistic and the global equity markets registered significant gains. The EURO STOXX 50 was up by 21.1 % compared to previous year and the DAX increased by 23.8 % in 2009.
Development of the Allianz share price versus EURO STOXX 50 and STOXX Europe 600 Insurance indexed on the Allianz share price in €
Allianz Share – After recording losses at the beginning of the year, global equity markets ended 2009 with strong gains. – The Allianz share price rose by 16.2 %, outperforming the sector index. – We propose to the Annual General Meeting to pay a dividend of € 4.10 per share to the shareholders.
However, the increase in the Allianz share price in 2009 did not compensate for last year’s major drop. As a result, the longer-term performance of Allianz shares is negative for most comparison periods. In the five- and ten-year comparisons, the performance of our shares is approximately in line with the overall insurance sector.
We want our shareholders to participate in our positive results and for this reason we propose to the Annual General Meeting to increase the dividend payment from € 3.50 to € 4.10 per share. This equals a dividend yield of 4.7 %. As measured by net income from continuing operations, the payout ratio is 40 %.
Return on equity after income tax 3) 4) % 12.7 9.7 15.0 1) In comparison with EURO STOXX 50; source: Bloomberg.
2) Proposal. 3) Based on net income from continuing operations after minority interests. 4) Based on average shareholders‘ equity. Average shareholders‘ equity has been calculated based upon the average of the current and the preceding year’s shareholders’ equity.
Weighting of the Allianz share in major indices as of December 31, 2009
Shareholder structure as of December 31, 2009 in % of subscribed capital
Our work in the area of Investor Relations was again recognized by analysts and portfolio managers in 2009. Amongst others, our work was ranked best in the European insurance sector in the prestigious Extel Pan European Survey by Thomson Reuters. A cross-sector study by the German Investor Relations Association (DIRK) named our head of Investor Relations the best IR Professional; the Association awarded him the “German Investor Relations Award”.
• We want to ensure that as many shareholders as possible exercise their voting rights at the Annual General Meeting. At www.allianz.com/agm, you can authorize proxies of Allianz SE, banks or shareholders’ associations, participating in our online service. The law implementing the EU Shareholders’ Rights Directive (ARUG) took effect on September 1, 2009. It adapts the German stock corporation law to the internet age and makes it easier for investors to exercise their shareholder rights, particularly in crossborder voting. At the next Annual General Meeting on May 5, 2010 we enable our shareholders to exercise their voting rights by mail or online. For more information on this topic, please see the Statement on Corporate Management, Corporate Governance Report on pages 10 to 17.
February 24, 2011 Financial press conference for the financial year 2010
May 4, 2011 Annual General Meeting 1) The German Securities Trading Act (Wertpapierhandels gesetz) obliges issuers to announce immediately any information which may have a substantial price impact, irrespective of the communicated schedules. Therefore we cannot exclude that we have to announce key figures of quarterly and fiscal year results ahead of the dates mentioned above.
Warsaw. No opportunities without risk. “The new Europe”, part of the continent on the move, a place where the entrepreneurial spirit got a new chance twenty years ago. When the call came to “Go East!” many feared the risks and let opportunities pass them by. Not Allianz. We had faith in our ability to bring together the courage of the entrepreneur with the caution of the risk manager, to everyone’s benefit. That’s how we found our way in a fast-growing region. Good business for us and for everyone who works with Allianz.
Cautionary note regarding forward-looking statements The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words “may”, “will”, “should”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Allianz Group’s core business and core markets, (ii) performance of financial markets, including emerging markets, and including market volatility, liquidity and credit events (iii) the frequency and severity of insured loss events, including from natural catastrophes and including the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changing levels of competition, (x) changes in laws and regulations, including monetary convergence and the European Monetary Union, (xi) changes in the policies of central banks and/or foreign governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures, and (xiv) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The company assumes no obligation to update any forwardlooking statement.
Detailed Index 48 Allianz Group Profile 48 The Allianz Brand 49 Customer Focus at Allianz 51 Our Employees 55 Corporate Social Responsibility 57 Business Operations and Steering 57 Insurance Operations 58 Asset Management Operations 59 Banking Operations 59 Steering (incl. EVA®)
63 Strategy 63 Developments in 2009 63 Opportunities 64 Management Priorities 67 Fundamental Principles 68 Local Presence and Global Diversification 68 Our Business Divisions 71 Our Largest Insurance Markets and Companies 82 Controls and Procedures 82 Financial Reporting Framework 84 Use of Estimates and Assumptions 88 Risk Capital Framework 90 Other Information 90 Takeover-related Statements and Explanations 93 Principal Accountant Fees and Services
Management Discussion and Analysis of 2009 104 Business Environment 104 Economic Environment 106 Changes in Segment Structure, Presentation and Accounting Policies 106 New Segment Structure to Reflect Lines of Business 106 Changes in Presentation and Accounting Policies 107 Executive Summary of 2009 Results 107 Earnings Summary 112 Recommendation for Appropriation of Profit 112 Events After the Balance Sheet Date 114 Highlights 2009: Actual versus Prior Year Outlook 116 Economic Outlook 117 Outlook for the Allianz Group
The Allianz brand stands for trust, identification and orientation for our actual and prospective customers.
• Allianz is ranked among the top 100 most valuable brands. In the renowned global brand value rankings (such as Interbrand or Millward Brown) Allianz holds one of the leading positions for insurance companies.
Brand strategy All brands in our portfolio are set within a solid brand architecture and underpinned by a corporate identity framework. Our long-term brand strategy follows a one-brand vision, but leaves room also for renowned specialty brands such as PIMCO, the largest fixed-income asset manager in the U.S., as well as Euler Hermes, the world’s number one credit insurance provider.
Allianz Group Profile Founded in 1890 and with over 100 years of experience in the financial services industry, the Allianz Group is committed to providing financial security to a broad base of customers ranging from private individuals to large multinational corporations.
Brand building Our global brand building is based on internal as well as external communication. Our internal brand-building is driven by employees sharing their personal moments as part of a global intranet community. This platform carries some 400 stories and has hosted approximately 180,000 visits from Allianz colleagues worldwide. Our external brand building uses public communication approaches of all types. Not only does Allianz run global and local campaigns – using channels such as out-of-home media at airports, and advertisements in magazines and on television – we are also active in high-profile sports sponsoring such as Formula OneTM, golf, FC Bayern Munich and the well known Allianz Arena. Changing needs and the lessons of the global financial crisis are prompting customers to look for new ways to relate to financial institutions and be better informed about their financial planning. Therefore Allianz is taking a pro-active role in promoting financial literacy.
Brand monitoring Monitoring the brand is important for understanding its key drivers in local markets and for providing constant feedback into our brand management. In addition, it is crucial for steering activities and optimizing our resource allocation. Our brand evaluation system is based on: • Annual brand performance monitoring • Brand investment efficiency analysis and budget simu lation • Brand strength evaluation and identification of value drivers
Our customer is in the focus of the strategy in all our business segments. In order to achieve our objective of building a strong community of satisfied customers, we seek excellence in all areas: • our objective is cost leadership through efficient organizational structures and business processes – we aim to achieve this by implementing our Target Operating Model; • we want motivated employees who are committed to the needs of their customers – we aim to achieve this with a new remuneration model attaching equal importance to financial parameters and customer satisfaction; • our constant goal is transparent and comprehensible products – we aim to achieve this by gearing our product development work to what the customer actually wants; • we want to provide fast, straightforward contact with the Allianz Group – we aim to achieve this by integrating all sales channels; • we must have a solid capital base to lend credibility to our service promise – we aim to achieve this by maintaining a prudent investment strategy and meticulous risk management.
The Net Promoter Score (measurement of customers’ willingness to recommend Allianz) is our key global metric for measuring customer loyalty.
Secondly we have established NPS in 40 Allianz companies (representing approximately 90 % GPW) to systematically collect feedback from almost 1,000,000 customers in 2009 on key interactions such as claims and sales. Since frontline Allianz employees made customer calls, NPS served as a optimal change management and mobilization tool for supporting ongoing improvements on all levels.
We take our customers’ feedback seriously. To ensure that NPS feedback as well as customer complaints are addressed with the high proficiency required by global quality standards, Allianz companies went through an internal certification process that enabled us to make good practice common practice.
Building on all these valuable insights we are well positioned to continuously improve our services, processes and products according to customer requirements.
Our NPS measurement shows that our efforts are successful: the number of Allianz companies with customer loyalty significantly above peer average has continuously increased since the first NPS measurement in 2006.
In order to further understand our strengths and potential weaknesses in the sales process, we started to measure the quality of service to our customers at the point of sale via Mystery Shopping (test visits by trained observers in the role of potential customers). We will further enhance those activities in 2010.
As of December 31, 2009, 153,203 employees worked for the Allianz Group. This was a 16 % fall in overall headcount as a result largely of the sale of Dresdner Bank.
As part of the new Allianz Target Operating Model (TOM), we have developed a functional blueprint for the human resources function. This standardization of the HR organization (job roles, functions, objectives) is key to sustainably increasing the efficiency and quality of HR-related services.
Supporting this effort, a benchmarking exercise with respect to the efficiency and service quality of HR functions was carried out across our largest operational units. The results of this analysis were used to identify potential savings some of which will be reinvested in improving HR service quality. While aligning itself to the requirements of TOM, HR at the same time supported the business in implementing its own transformation to TOM worldwide. New operational workforce deployment tools, requisite training measures, and change management action plans all helped to make this transition an efficient and swift exercise.
After successfully implementing a new system of talent analysis, talent assessment and succession planning worldwide in 2007 – 2008, we further refined this approach by setting new standards in all areas concerning talent management, including recruiting, performance and reward, career management, learning and development, and even the way we handle people leaving the company.
In our tested and proven Career Development Conferences (CDCs), we continued to address succession planning issues and define development plans for more than 4,000 leaders and high potentials across our operating entities. These CDCs also facilitate global, cross-company career planning and help open up international opportunities for our top talents. Reflecting our matrix organization, CDCs are organized along hierarchical business lines and functions.
Executive Reward management to meet challenges in a new regulatory environment
In 2009 we took the simultaneous occurrence of substantial regulatory changes and the end of the three-year performance period 2007 – 2009 of the mid-term bonus plan for our top managers as an opportunity for a more comprehensive review of our executive remuneration system. Building on our existing remuneration principles, the review focused on a simplification of different reward components as well as their further harmonization to establish a more consistent approach across the Group. These changes apply to the Board of Management of Allianz SE and several hundred top managers at the next two management levels. The new concept becomes effective in most locations as of January 1, 2010. For details regarding these changes please refer to the Remuneration Report for Executives on pages 17 to 26.
All of the changes to our remuneration systems are in accordance with our business strategy, aimed at reducing complexity, increasing transparency and consistency across the Group, supporting our performance culture, and strengthening our attractiveness as an employer of choice.
Total payments made by the Group to its employees worldwide in 2009 amounted to € 7.7 (9.2 1)) billion. Of this figure, € 1.5 billion or approximately 20 % was solely performancerelated. Social security contributions, pensions and other additional employee benefits amounted to € 2.2 (2.5 1)) billion.
We compete for talent worldwide, an increasingly scarce resource given global demographic trends and an everincreasing competition for well educated, high-performing people. To compete successfully, we aim to improve our standing as an employer, both in external labor markets and towards our existing employees, where fair and equal career opportunities are a key element of employee engagement.
Competing for external talent To communicate our employer value proposition globally we have completely redesigned the internet careers section of our Allianz Group Portal. Prospective applicants can access information on a wide range of jobs, ranging from actuary to sales representative.The portal profiles interviews with over 50 Allianz colleagues from 20 different countries who talk about opportunities at Allianz which have shaped their careers.
Our online group-wide job search and application management platform was further expanded to ten companies globally, who posted more than 2,200 jobs and received more than 420,000 job views. Our global pool has more than 97,000 registered people of whom 27 % are internal employees worldwide.
• recruitment programs such as “Women Choice” to recruit more women into sales.
As an indicator of our focus on diversity and career development opportunities, we currently have female incumbents in 32 % of our management positions group-wide. For our senior management positions, we have set a target to increase the current 16 % ratio of women by ensuring that we have an adequate share of female potential candidates for succession planning at all levels in the hierarchy.
Allianz Group spent a total of € 147 million on all types of training, or on average € 1,100 per employee worldwide. In addition, learning through international job transfers continues to be an integral part of our development concept. In 2009, 379 employees were sent on longer-term secondments to different countries.
For the seventh consecutive year, we have conducted a global Leadership Survey, covering over 5,900 managers in 63 Allianz companies. The remarkably high response rate of 90 % demonstrates the significance our leaders and managers place on this feedback instrument.
The strategic workforce planning initiative at Allianz identifies and addresses future workforce opportunities and challenges globally and/or locally. Workforce planning aims to ensure that we will always be able to allocate sufficient skilled employees in the right place and at the right time. Influencing factors to be considered range from the retirement -related outflow of professional expertise to future shortages of crucial skills in key labor markets. Possible changes in employee behaviors, evolving loyalty patterns, work-life balance demands as well as productivity patterns have to be assessed against our strategic business objectives. Initial pilots in our key German market already offer important insights into the opportunities that such workforce planning brings.
Managing our clients risks and protecting their assets requires us to take social and environmental issues into consideration. This is why the idea of corporate responsibility is embedded into our core business.
A number of initiatives translate our strategic approach into action, ranging from Allianz’ efforts to mitigate the effects of climate change through our renewable energy portfolio, to helping people in poor countries to build up assets to secure education for their children. Here are some examples of our contributions: Climate change Climate change is closely linked to our core business with an estimated 40 % of Allianz’ industrial claims being caused by natural catastrophes. Allianz offers over 50 ecoproducts, such as the “Green Card” from Fireman’s Fund, an Allianz subsidiary based in the United States, and has built up an investment portfolio exceeding € 500 million in wind parks across Italy, Germany and France. In an effort to reduce our own carbon emissions by 20 % in 2012 some Allianz subsidiaries (Allianz Australia, Mondial Assistance, Allianz Ireland) have already achieved their individual targets.
Microinsurance Over 3.5 million people in Africa, Asia and Latin America are insured against disability, accident, or property damage through an Allianz microinsurance program. By helping financial inclusion in developing countries Allianz is not only making a social contribution but also entering in the early stages of potentially large markets
Financial literacy In the year under review, Allianz started a wide-ranging program to promote financial literacy amongst youths aged 11 to 16. The goal of the program is to provide the basic skills needed to make educated financial decisions in an era of increased financial self-responsibility. The program is delivered by Allianz employee volunteers in close cooperation with partner schools and their teachers. Our goal is to reach over 50,000 youths.
Community engagement In the year under review, Allianz also started a program offering the services of Allianz “Black Belt” process improvement experts to social entrepreneurs. By bringing our core business expertise to community work, we aim to help civil society organisations to achieve their social targets more effectively.
Partnerships In order to take better account of environmental and social criteria in its business decisions, Allianz cooperates with a number of selected organisations for different purposes: Care International helped us to understand the product needs of low-income clients that we now serve through microinsurance; with the environmental group WWF we defined the risks and opportunities that climate change has in store for our business and with the United Nations Environmental Programme, we are defining “Principles of Sustainable Insurance”.
Our insurance products are distributed via a broad network of self-employed agents, brokers, banks and other channels. The particular distribution channels vary by product and geographic market. Increasingly, we distribute our insurance products in cooperation with car manufacturers and dealers in Europe and Asia-Pacific and also have direct distribution operations in Central Europe, India and Australia.
Allianz SE, the Allianz Group’s parent company, acts on an arm’s length basis as reinsurer for most of our insurance operations and assumed 27.4 % and 25.2 % of all reinsurance business ceded by Allianz Group companies for the years ended December 31, 2009 and 2008, respectively. Allianz SE also assumes a relatively small amount of reinsurance from external cedents and cedes risk to third-party reinsurers. The Allianz Group has established a pooling arrangement that offers reinsurance coverage to the Group’s subsidiaries against natural catastrophes, which provides the benefit of internal Group diversification.
Allianz continues to develop its business via a number of major initiatives. These are energetically pursued with the goal of building the world’s strongest financial community.
We have in place a Sustainability Program for our insurance segments as well as for distribution. This program is designed to identify and redefine best practices for products, processes and services to make them common practice throughout the Group’s insurance operations and thereby maintain an institutional improvement process. In an effort to optimize the management of our client segments and sales channels, we analyze the development of proprietary sales channels, brokers and market management. This includes a continuous focus on customers and on innovation.
In the insurance industry Allianz wants to be the first insurance company that takes full advantage of its scale by leveraging a superior operating model. This is the reason why we are modernizing our entire organization following a shared Target Operating Model (TOM). In order to drive these change processes and to ensure that the findings from the Sustainability Program are brought into practice, an Operational Transformation Program (OTP) has been established.
As a result of OTP we have created the investment management function Allianz Investment Management (AIM), to handle the investments of Allianz insurance companies worldwide in order to enhance the capability to invest proactively on a global scale. We consider it important to separate the responsibilities for managing our insurance businesses from managing the investments covering their reserves and capital. Given the huge volume of investments, their management is one of the most important factors for an insurance group as the investment result has a big impact on our overall value creation. To accomplish this value creation AIM is asked to drive investment management decision-making with a systematic and efficient focus on the most relevant value drivers and to ensure best practice investment management operations at all of our insurance entities.
Our retail asset management business is primarily conducted under the brand name Allianz Global Investors (AGI) through our operating companies worldwide. In our institutional asset management business, we operate under the brand names of our investment management entities (PIMCO, RCM, AGI Capital), with AGI serving as an endorsement brand. With € 902 billion of third-party assets as of December 31, 2009, AGI managed 97.4 % (2008: 95.7 %) of our total third-party assets on a worldwide basis. AGI operates on a global basis with investment and distribution capacities in all major markets with particular strongholds in the U.S., Germany, France, Italy, United Kingdom and in the AsiaPacific region. Effective January 12, 2009, we acquired cominvest, the former asset management division of Commerzbank AG, which added € 49 billion of assets, predominantly domiciled in Germany, to our third-party assets under management.
• Systematic • Sector funds • Country funds • Stocks Plus
• Money Market • Low Duration • Real Return • Global • Investment Grade • Diversified Income • High Yield • Emerging Markets • Convertible Bonds
Following the sale of Dresdner Bank AG (Dresdner Bank) to Commerzbank AG (Commerzbank), our banking operations now comprise operations in Germany, Italy, France and New Europe. Allianz Banking Germany is a division of Allianz Deutschland AG (ADAG) and contains Oldenburgische Landesbank AG (Oldenburgische Landesbank) and the banking customers originally introduced to Dresdner Bank through the tied agents network. Oldenburgische Landesbank is Allianz’s main banking product and service provider in Germany. The bank offers a wide range of products for corporate and retail clients with its main focus on the latter. In addition to our banking activities, the distribution of banking products through our German insurance agents network is important. As of December 2009, we owned 130 banking agencies. Due to their limited size, banking operations are reported as part of the Corporate and Other segment.
Each member of the Board of Management of Allianz SE is responsible for a particular division within the Allianz Group. There are four functional divisions and these are part of the Corporate and Other segment: the Chairman’s division, the Controlling/Reporting/Risk division, the Finance division and the Chief Operating Officer’s division. The Corporate and Other segment’s activities include the management and support of Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial control, communication, legal, human resources and technology functions, as well as Banking and Alternative Investments.
The other divisions reflect business responsibilities, which are either regionally- or operationally-oriented. Until December 31, 2009, these were Europe I, Europe II, German Speaking Countries, Growth Markets, Anglo Broker & NAFTA Markets / Global Lines and Asset Management.
Our main business activities can be classified in: PropertyCasualty, Life/Health and Asset Management.
Business Operations and Steering Group Management Report Allianz Group Annual Report 2009
The Allianz Group steers its operating entities and business segments via an integrated management and control process. The management process starts with the definition of the business-specific strategy and goals, which are discussed and agreed between the Holding and the operating entities. According to this strategy, a corresponding plan is prepared by our operating entities and aggregated to form the plans for the business divisions as well as the Allianz Group. This plan is then presented to the Supervisory Board for approval and the Supervisory Board sets corresponding targets, which form the basis for the performance based remuneration of the Board of Management (for further details please refer to the Remuneration Report on page 17 to 29). The control process ensures that progress against these targets is continuously monitored and that appropriate measures can be taken in the event of negative developments.
Throughout these processes financial and operational key figures are important factors. Important financial performance indicators, which we use across all business segments, are for example the operating profit and the EVA® 1) (Economic Value Added). Additionally, we also use segment specific figures – for example the combined ratio in the Property-Casualty segment and the new business value in the Life/Health segment. Apart from these financial performance indicators, operational performance indicators yield additional information about the future development of our business. For example in the property-casualty business information about price and volume change are important in order to assess the development of our underwriting profitability. The contents of the methodology are constantly being refined.
Value-based management The goal of our value-based management approach is to sustainably meet over the long run our shareholders’ expectations of return. Furthermore, we want shareholders, employees, customers and other stakeholders to profit from the value our company creates.
To create value, the capital used by a company must yield a higher return than a comparable alternative investment. In order to accomplish this objective and to measure our success, we apply the EVA® concept, adapted to our specific needs, across the operating entities of the Allianz Group. EVA® involves profit compared to cost of capital, representing the return an investor can expect from an alternative investment with comparable risk. EVA® – whether positive or negative – is the difference between profit and the cost of capital. A positive EVA® means that an added value has been achieved and a negative EVA® indicates that a shareholder would have received a greater return from another risk-equivalent investment than from Allianz SE shares.
EVA® in the Allianz Group EVA® is an all-encompassing tool for coordination and steering which connects our internal management approach with a capital market orientation. To compute the EVA® we take normalized profit minus capital charges, where capital charges are defined as our capital multiplied by our cost of capital.
2) For detailed information on the determination of our internal risk capital please refer to our Risk Report on pages 178 to 203.
It is our role to ensure that the sum of our risks is affordable for the Group and that the achieved return justifies the amount of capital employed. Therefore we assign available capital to our operating entities based on their risk-return profile and their strategic position. Using this process, our companies can only ensure that they receive growth capital if they: • operate in a profitable market or business; • transform their market position into a leading one and into sustainable creation of value
The requirement to meet the cost of capital is just the minimum we demand. Over the medium-term, our objective is to generate a return of 15 % or more on the capital employed. Therefore, our companies must determine what business activities will increase their value and concentrate their efforts and resources on these activities. Further, new value drivers must be created, for example, through new products, more cost-effective processes and optimized distribution channels. Local management must also prevent value being destroyed along the complete value chain. If value diminishes, countermeasures must be implemented immediately.
The year 2009 saw our industry challenged in fundamental ways. The severe situation on the financial markets in the fourth quarter of 2008 created significant spill-over effects well into 2009. Moreover, the real economy contracted by 2 % globally and 4 % in Europe creating high pressure for our property-casualty business in many core markets.
On top of this we suffered significant losses from weatherrelated events, so that property-casualty operating profit fell from € 5.6 billion to € 4.1 billion. Widening credit spreads and sharply falling interest rates exercised further pressure on industry economics. With the revitalization of equity markets and the step-by-step reduction in volatilities and spreads in the second half of 2009, financial pressure eased somewhat.
Demographic change continues to be another key driver of our growth. Governments in many countries are increasingly overwhelmed by their duty to offer all-round old-age and healthcare provision, all the more so in the wake of the financial crisis. Hence, it is a must for individuals to organize additional provision on their own initiative. In this respect, the Allianz Group recognizes the fact that demographic changes go hand-in-hand with fundamental changes to social structures and lifestyles. More and more older people are living alone and living their lives as they choose, remaining active well into old age. We want to help this group remain in control of their own lives by expanding the range of assistance products that we offer.
Strategy We have successfully steered Allianz through another year of financial market turmoil and global economic contraction by executing our strategy consistently. Determined to always deliver on our promises and become the most trusted global brand in financial services, we are more than ever dedicated to financial resilience, operational excellence and customer focus.
Allianz Group Annual Report 2009 Group Management Report Strategy exceeded a certain income level. As these groups continue to accumulate assets, the demand for security and professional management then rises disproportionately. Many emerging markets are currently breaking through this income threshold, giving birth to a new global middle class whose insurance product requirements need to be addressed. The Allianz Group has a strong presence and long experience in many of these markets, that will allow us to benefit from this trend.
Our customers have to be our priority. We have been on the path to a more customer-focussed organization for a few years and the implementation of our target operating model puts market management and customer value at centerstage. While customer preferences and service models may vary across markets, it will be essential for us to further strengthen customer value on a global basis. And the economic crisis has once more underlined the growing attention on “value for money” and better customer advice and services at all points of contact. Allianz’ continuing efforts in these domains will further strengthen our brand, already trusted for competence, security and stability.
We cannot excel in customer service and market success without the support and commitment of our employees. We are strongly investing in our talent pool, providing local and global opportunities for personal and institutional development. With our annual leadership culture and employee engagement surveys we are measuring staff development progress globally and regularly. In addition, we are going to achieve both better talent development and higher productivity through the roll out of our workforce planning approach, optimizing skill demand and supply on a consistent group-wide basis.
With more than 5 % revenue growth we have clearly achieved our growth target in 2009. And this despite a contraction of global gross domestic product (GDP) of 2 % and a continuing severe soft cycle in a number of our core propertycasualty markets.
In life/health insurance we can build on a strong capital position, growing asset base and attractive new business margins. As in property-casualty we will not write business to create top line only. We are committed to drive value growth and we are going to leverage our retirement and risk management expertise on behalf of those clients and distribution partners who reward competence and financial stability.
Our strategy has served us well in asset management where we are diversifying revenues and risks into different asset classes with an overweight in fixed income investments and regions. With the significant growth in assets under management in 2009, our highly esteemed fixed income expertise, competitive equity track records and dedicated distribution capacities we are strongly positioned for further profitable growth.
In life/health insurance we are going to leverage our leading position to manage biometric risks and financial guarantees even more systematically for superior value growth. We carefully steer new and in-force business with market consistent metrics and incentives, avoiding bets on excess asset returns and volatility.
And across all businesses we are careful to avoid markets and business models which appear to generate revenue and accounting earning growths, but do not create economic value.
To date we have successfully steered Allianz through one of the most severe financial crises ever. Our solvency is strong and our capital base grew almost 20 % to more than € 40 billion. We have further strengthened our risk management function and de-risked our investment portfolio to appropriately adjust to the rising uncertainty in the real economy. Our “AA” rating is sound and stable.
We are further integrating our global investment, capital, accounting and cash management functions at the holding level to more strongly leverage our scale. By pur suing our five management priorities together with the adherence to our fundamental principles, we continue to grow the value of Allianz significantly.
We are convinced that we earn the trust of our customers and other stakeholders by offering the highest level of expertise, integrity and sustainability.
Our services need to set the standard in our markets. Our highly qualified employees enjoy the respect of our customers and competitors and we are successful in our efforts to achieve continuous improvement at Allianz through a combination of global capabilities and local entrepreneurship.
For us, integrity means more than just keeping our promises, it means only making commitments that we can keep. We continue to maintain a strong focus on securing our financial stability in all circumstances, which is especially important in the current environment. In addition, we review our services regularly to ensure an appropriate balance between the needs of our customers and distributors and the interests of our shareholders.
We remain convinced that Allianz can and will make significant contributions towards improving the management of rising retirement and investment risks in our society. In doing this, we not only create sustainable value for our customers and shareholders, we also assume social responsibility in our areas of expertise.
As a global financial services provider we offer insurance and asset management products and services to approximately 75 million customers in about 70 countries. Allianz has a strong international prescence and is among the top five in 32 markets.
Allianz Group Annual Report 2009 Group Management Report Local Presence and Global Diversification
1) Source: Own estimations based on published annual reports from 2008.
Property-Casualty Life/Health Market position by gross premiums written5): I. Position 1 II. Position 2 to 5 III. Position 6 to 10 IV. not in the top 10
Germany We operate in the German insurance market mainly through our insurance companies Allianz Versicherungs-AG (Allianz Sach), Allianz Lebensversicherungs-AG (Allianz Leben) and Allianz Private Krankenversicherungs-AG (Allianz Private Kranken). In addition, in 2009 Allianz in Germany (including Oldenburgische Landesbank AG) began to offer a variety of banking products. The Allianz Beratungs- und Vertriebs-AG serves as a distribution company. All entities are organized under the umbrella of the holding company Allianz Deutschland AG.
4) Including agents and financial advisors. This applies also for the following pages. 5) Source: Own local estimations as of 2008. This applies also for the following pages.
Therefore, our key challenge is to maintain profitability by enforcing a strong underwriting discipline as well as effective claims management. We will furthermore expand our sales capacity and extend our cooperation with the automobile industry.
For life insurance, we are active in the private and commercial markets and offer a comprehensive range of life insurance and related products. The main classes of coverage offered include annuity, endowment and term insurance. In our commercial lines, we offer group life insurance and provide companies with services and solutions in connection with pension arrangements and defined contribution plans. For our life business, we anticipate strong growth opportunities as we see an increasing demand for private retirement products and retirement provisions in general.
In order to further strengthen our German market position, we intend to further develop our customer-focused organization and aim to provide our clients with more integrated products from all our segments for every stage of their lives. Our products are distributed mainly through a network of full-time tied agents, although distribution through our new bank agencies and brokers is increasing. From 2010 onwards, Commerzbank will be a further sales channel for Allianz products.
Switzerland We serve the Swiss property-casualty market through Allianz Suisse Versicherungs-Gesellschaft, Alba Allgemeine Versicherungsgesellschaft AG, Phenix IART, CAP Rechtsschutz AG and Quality 1 . The biggest and most important line of business in property-casualty is motor with a market share of 15 %. Besides motor, property, liability, accident and health are part of our broad product range which we offer to private and commercial customers. In 2009, the propertycasualty market was highly affected by strong price pressure, especially in motor. With the implementation of the “FIT for the future” program, the focus has been set on improving customer focus and on a new cost efficient structure which is compliant with the Group’s target operating model. We expect the market to remain soft in 2010. We will remain focused on profitability and expect to return to a growth path in 2011.
We conduct our life operations in this region through Allianz Suisse Lebensversicherungs-Gesellschaft and Phenix Vie. In the life market, we provide a wide range of individual and group life insurance products, including retirement, death and disability products. In 2009 we observed a shift in the market from unit-linked to traditional products with minimum guarantees. We were able to overcompensate the pressure on the unit-linked products and outperformed the market in both individual life and group life products. With the need for financial precaution increasing and the high levels of disposal income and per capita wealth in Switzerland, we believe that the market environment there offers further potential for growth in our retirement and investment products. For 2010 we expect growth opportunities in the individual life business, as group life could suffer from the economic downturn.
Austria With our Austrian companies Allianz Elementar Versicherungs -AG and Allianz Elementar Lebensversicherungs-AG, we offer a broad range of property-casualty and life/health products to individual and group customers primarily through salaried sales forces, tied agents and brokers.
The Austrian property-casualty market is very competitive. In 2009 Allianz Austria and all peers faced a significant decline in premium volumes and deterioration in profitability. Drivers were strong price pressure in motor and the brake put on the indexation of existing business bylow inflation. We believe this unfavorable development will continue in 2010 when we will put our short term focus on maintaining our good levels of profitability and benefiting from our excellent technical know-how.
The most important line of business in property-casualty is motor. We also have a strong presence in fire, general liability and personal accident insurance. In 2009, pricing in the motor market was under heavy pressure reflecting the technical impact of the Bersani law while distribution costs have increased considerably (on account of the same new law). At the same time, claims costs also increased due to the new Milan indemnification tables for bodily damages. The negative impact of market developments has been mitigated by savings realized through synergies from integration of further entities into Allianz S.p.A., and prudent underwriting. We expect for 2010 a general market hardening, with insurance companies strongly increasing tariffs to recover profitability. That will allow us to re-start growth and further improve our combined ratio, which is already considerably better than the market average.
The life market has rebounded after 2008, particularly in the bancassurance business, by far the predominant sales channel. Here we could benefit from our strong distribution partners. We believe that there is potential for growth in the
Italian life market, as financial market conditions improve. We are ready to benefit from this and in particular to exploit high-value growth in our proprietary sales channel (agents and financial advisors).
Spain and Portugal We serve the Spanish property-casualty market through our operating entities Allianz Compañía de Seguros y Reaseguros S.A. and Fénix Directo S.A. Life products are provided through Allianz Compania de Seguros y Reaseguros S.A. and Eurovida, our joint venture with Banco Popular. Our Portugese company is Allianz Companhia de Seguros.
Our life/health companies managed to capture market opportunities through the launch of innovative investment products and successful individual pension solutions, marketed both through the agent and bank channels.
The Iberian region is expected to recover more slowly than other Euro countries from the economic crisis. Spain will have to deal with a high rate of unemployment and a depressed construction sector, once its growth driver. Uncertain economic perspective and budget deficit are further burdens for both countries. In Spain, the so-called “crisis package” supporting new car sales should allow us to further grow our customer base in the first half of 2010. In 2010, we will fully leverage our Iberian platform and further grow our customer base in Spain and Portugal by increasing our sales network.
We believe that our efficient platforms and processes, along with a strong and growing agents channel and our partnerships with banks in both countries – Banco Popular in Spain and our minority shareholding of Banco BPI in Portugal – should enable Allianz to further gain competitive edge in property-casualty and life.
The broad range of Allianz-branded property-casualty and life/health products for both individuals and corporate customers, including property, injury and liability insurance as well as short-term investment and savings products, are distributed primarily through a network of agents, brokers, partnership channels and salaried sales forces. In addition to the traditional sales channels, in 2009 we started to distribute our products through the new direct sales channel AllSecur. We also market our products through Allianz Banque, formerly AGF Banque.
The French property-casualty market has seen limited growth in recent years and was significantly impacted by natural catastrophes in 2009. Therefore, we focus on maintaining operating profitability and triggering tariff adjustments for 2010, including for major mutual companies, while simultaneously implementing selective initiatives aimed at generating growth. In 2009, we maintained our focus on reducing costs by rationalizing the structure of the company. This is planned for completion by 2011. In 2010, we will introduce 32 new actions in accordance with our strategic plan based on four main topics, financial & technical performance, profitable growth, operational excellence and performance culture.
Netherlands The most important lines of property-casualty business in the Netherlands are motor and fire insurance. Allianz Nederland Group N.V. distributes its products through brokers and a direct sales channel. In 2009 we extended the range of products of our direct insurance business. In the Netherlands, we also offer a broad range of life insurance products.
The Dutch insurance market is characterized by intense compe tition. Here we expect continuing pressure on the motor tariffs. The Dutch unit-linked market suffered from discussions in the media about the transparency of cost loadings, which raised the pressure on new business profitability.
Belgium Allianz Belgium S.A. markets a wide range of life and property-casualty insurance products. As we distribute our products and services only through brokers, winning the Brokers Award and being designated by them as their reference life insurance company in 2009 is a strong symbol of trust and a major achievement. For the fifth time in six years, Invest for Life, our leading life product, was nominated best life insurance product in 2009. Our new motor insurance product launched in 2008 was favorably selected by more and more brokers in 2009.
Through Fireman’s Fund, we underwrite personal, commercial and agribusiness lines, selling these products through independent agents and brokers. Our personal business unit focuses on affluent and high net worth individuals, while our commercial business unit offers specialized property and casualty coverage for small and medium-sized businesses. Our agribusiness unit offers crop, farm and ranch insurance.
Overall, the U.S. property-casualty insurance market experienced a benign year which was mainly due to a relatively mild catastrophe season in 2009 and favorable investment market developments. Market conditions for the U.S. property -casualty business remained challenging and, in aggregate, price levels continued to decline in 2009, although at a steadily slowing rate over the course of the year.
significantly larger part of the market and provide additional attractive growth opportunities.
Our life and annuity business primarily underwrites fixed, fixed-indexed and variable annuities, which are sold through independent distribution channels, as well as large financial institutions such as banks and wirehouses.
Market conditions for the U.S. life insurance industry remained challenging in 2009. The industry as a whole reacted to the economic crisis by re-designing their product offerings, in particular the Variable Annuity products. Our life insurance business in the U.S. made significant changes to its product portfolio this year, with the aim of continuing to create and offer value-added products to help our customers address their financial needs, particularly in the retirement market.
Australia The large majority of our property-casualty business in Asia-Pacific is generated by Allianz Australia, which serves the Australian and New Zealand markets. Since 2006, Allianz has sold life insurance products in Australia under the company name Allianz Australia Life Insurance Ltd.
Our Australian insurance operations include a variety of products and services, with strong positions in the workers’ compensation market, as well as in rehabilitation and occupational health, safety and environment services. We also operate in certain niche markets, including premium financing and pleasure craft insurance. Allianz Australia markets products through brokers and non-tied agents, as well as directly to customers. Further, we expanded our premium financing business to include receivables financing.
The fall in economic activity in the Irish economy had a material impact on market premium and renewal levels. In 2009, markets hardened slightly but rates remained at unsustainable levels in certain lines. We faced strong price competition throughout the year.
We offer a broad range of property-casualty products, including a number of specialty products, which we sell to retail and commercial customers through a range of distribution channels, including affinity groups. In 2009, we agreed partnerships with major car manufacturers like BMW, Volkswagen and Audi Group as well as with car retailers.
Selected markets motor/non-motor as % of total property-casualty gross premiums traditional/non-traditional as % of total life statutory premiums
We continue to combine our international corporate and specialty business under a single structure and framework, thereby managing a diversified portfolio of risk management solutions and services while realizing synergies and increasing efficiency. During 2009 we integrated the U.S. marine business from Fireman’s Fund and the French corporate & specialty portfolio from Allianz France. Furthermore, we started to expand our operations and reach into Asia beginning with Japan, and have initiated underwriting activities in Brazil and Mexico. Additionally, Allianz Global Corporate & Specialty works closely with Allianz Risk Transfer to develop and deliver customized non-traditional risk transfer solutions for complex risks.
While 2009 was a profitable year, there were a number of large losses, particularly in aviation resulting from wellpublicized events worldwide. Large losses, however, are an inherent and expected occurrence in corporate and specialty business. Overall, our outlook remains positive while we further expand our reach around the world. We expect the market for corporate and specialty, as a whole, to be stable in terms of pricing with rates particularly strong in aviation and financial lines.
We consider that the recovery of the world economy in 2010 will remain fragile as internal demand in all major industrialized countries is weakened by rising unemployment and insecurity among consumers fearing the loss of purchasing power. The direct consequence of the weak recovery scenario is that corporate insolvencies, which already reached a historic peak in 2009, will continue to stay at very high levels in 2010. Nevertheless, even if Euler Hermes needs to remain prudent in the current environment, it will support its policyholders in this economic recovery phase by increasing its risk exposures whenever it can afford to.
The majority of our life/health business in this region is written in South Korea through Allianz Life Insurance Co. Ltd. (Allianz Life Korea) and in Taiwan through Allianz Taiwan Life Insurance Company. We also maintain operations in Malaysia, Indonesia, China, Thailand and since last year also in Japan. Allianz Life Insurance Japan broadened its market reach following new distribution partnerships with several major banks.
We are seeking to expand in all of our selected markets in the region through further organic growth and selected acquisitions. We will strengthen our distribution capabilities and use the hub-and-spoke approach in order to increase operational effectiveness. China is one of the group’s three core global growth markets. In the course of our further expansion in China we opened a Branch in Shangdong in 2009. The Asian capital market recovery is ahead of the U.S. and Europe, and we see this developing further in 2010. We aim to take advantage of this opportunity by strengthening our distribution and product propositions.
New Europe Allianz is active in 11 countries and ranks among the top 3 players in 6 of the largest markets in New Europe, serving 7.3 million customers. We offer life, health, property-casualty products as well as pension fund products and banking services. Our operating subsidiaries are located in Bulgaria, Croatia, the Czech Republic, Hungary, Kazakhstan, Poland, Russia, Romania, Slovakia, Slovenia and Ukraine. Within two decades we have become the leading international insurer in the region with a market share of over 8 %. New Europe is one of our most important growth regions in the world.
In property-casualty primary products sold are motor third party liability, motor own damage, property, liability and marine insurance lines for retail as well as commercial and industrial clients. Our motor business was seriously affected by the difficult economic conditions in 2009, in particular due to the slow-down of new car sales in most of the markets. In addition we experienced intensifying price competition in many countries. Therefore we implemented several initiatives to secure our strong market share and profitability, like new product launches, re-pricing and strict underwriting. Following our endeavors, Allianz New Europe is still well on course despite the challenging economic environment.
The fast growth of life insurance markets in New Europe slowed down in 2009. Following the capital market crisis we experienced a lack of demand due to lower available incomes as well as a shift from investment-oriented to traditional life products. In health, where the New Europe region represents the third biggest portfolio within the Allianz Group, we were confronted with strong pricing pressure, especially in Russia. Despite these trends we successfully defended our strong position. As New Europe represents one of the fastest growing insurance markets in the world we believe that the markets will soon pick up due to rising ages of population and increasing needs for financial security including retirement, death and health products.
Allianz in India is ranked second, based on gross premiums written, in property-casualty and life business among private insurance companies. India is by far the largest premium contributing country for Allianz in the MENA region, writing more than 90 % of total gross premiums written. With our multi-channel distribution, and with our 153,000 agents working for us, we serve our customer base of around 14 million clients in 2009 through commercial, industrial and retail business. We reach more than 2.5 million insured people with our micro-insurance products. The direct channel is growing in importance, therefore we recently started to sell a customized unit-linked product through the internet. Despite a more intensified competition, with our strategy of promoting our distribution channels, product innovations and customer segmentation we aim to outperform the market and gross domestic product growth in 2010.
1) In 2009, India and Sri Lanka were part of MENA section, from 2010 onwards India and Sri Lanka are directed via Singapore as part of the Asia-Pacific section.
In Bahrain, we started the Takaful business being the first international player with protection, savings, group health and property-casualty products. Takaful denominates Shariacompliant insurance, which carries a business risk similar to conventional insurance companies, but does not comprise an insurance risk. In 2009, we branched out with Allianz Takaful Bahrain into Qatar.
Governance Responsibility for ensuring the completeness, accuracy and reliability of the Allianz Group’s consolidated financial statements rests with the Chief Executive Officer and Chief Financial Officer of Allianz SE, who are supported by the Group Financial Control department (Group Financial Control) and the Group Financial Reporting and Disclosure Committee (Disclosure Committee).
The Disclosure Committee has been established to ensure that the Chief Executive Officer and Chief Financial Officer of Allianz SE are aware of all material information that could affect our disclosures and to ascertain the completeness and accuracy of the information provided in the financial reports. The committee meets on a quarterly basis before the issuance of financial reports and is comprised of the heads of key departments, such as Group Risk and Group Accounting.
In-scope operating entities are additionally required to maintain a certain standard of entity level controls. Entity level controls include those controls affecting an operating entity’s entire internal control structure and therefore do not correspond to specific accounts. In accordance with the COSO framework, these include controls relating to the control environment of an organization, the effectiveness of information and communication flows, the risk assessment process and the ongoing monitoring of the system of internal control.
On an annual basis we conduct an assessment of our system of internal control by testing the effectiveness of the most important process level, entity level and IT controls.
Determination of significant accounts and operating entities to be covered by systems of internal control
Identification of key controls that prevent or detect errors or fraud resulting from risk scenarios
The results reported for the year 2009, need to be understood in the light of accounting policies chosen and estimates and assumptions used that affect the reported figures.
As an insurance company, both sides of our balance sheet have a high degree of estimation and numerous assumptions embedded in the valuation of assets and liabilities. The estimation process and selection of appropriate assumptions requires significant judgment to be applied and management decisions to be taken in order to establish appropriate values for these assets and liabilities. Likewise, the inherent uncertainties which result from using assumptions and estimates means that these values can vary from period to period due to information evolving over time. Any change in the assumptions and estimates could, in certain circumstances, significantly affect the values and results we report. In addition, the actual results achieved when these uncertainties are resolved will often differ from those values reported in prior periods.
In addition to our financial statement results, certain of our management reporting processes are subject to the same inherent uncertainties involved in using assumptions and estimates. One such process is the determination of our risk capital. The Allianz Group internal risk capital framework plays a significant role in helping us to achieve our objective of being adequately capitalized as well as supporting capital management and allocation. Similar to our accounting estimates noted above, the determination of risk capital is significantly affected by the extent of assumptions and estimates that have to be used in its calculation.
As a leading player in our industry, we understand the degree of impact of these judgments and, therefore, the crucial importance of having a strong system of governance, controls and policies in place to ensure consistency and soundness over these judgments. As such, we have established policies and procedures intended to ensure that these estimates, including the techniques used and relevant assumptions made, are adequately controlled and independently reviewed.
The estimation process can be as much art as science and most often leads to a range of possible values. While we identify our best estimate of a value within a range, others might believe that amounts higher or lower than ours might be the ‘best estimate’. Additionally, you should be aware that the range of reasonable judgment in some cases may be very large. Given all of this inherent uncertainty and potentially broad ranges of possible results, we strive for consistency and generally tend toward prudence. We strongly believe that these thorough and strict policies and procedures reduce to the extent possible the subjectivity inherent in the estimation process.
Allianz Group accounting departments operate in a culture that is strongly committed to reliability. The tone from the top sets this culture which 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.
In addition, the Allianz Group has strong entity level controls which further promote a culture of good judgment and sound decision-making around accounting estimates. These include providing training programs, hiring people with the right background for the job (i.e., certified or experienced accountants, actuaries and finance professionals), providing formalized policies and procedures manuals for accounting and internal controls, creating a confidential and non-punitive avenue for complaints, and establishing reasonable targets.
Within the Allianz Group consolidated financial statements, there are three major line items related to our insurance business, all of which are very sensitive to the estimates and assumptions we make. As of December 31, 2009, the Allianz Group reported: • reserves for insurance and investment contracts of € 322,188 million for our Life/Health operations,
In order to ensure consistency in the application of actuarial methods and assumptions in the reserving process throughout the Group, we have designed a two stage reserving process which is applied for Life/Health operations. In a first stage, Life/Health reserves are set by qualified local staff experienced in the business of the operating entities become the basis for the Group’s reserves. The process follows Group-wide standards for applying consistent and plausible assumptions. The appropriateness of the reserves and compliance with the Group-wide applicable standards is confirmed by the local actuary. In a second stage, the Group Actuarial Department regularly reviews the local reserving processes, including the appropriateness and consistency of assumptions, validates the reserves, and reviews and/or conducts tests of the adequacy of the premiums and reserves to satisfy claims and expenses (premium deficiency tests and liability adequacy tests). Any adjustments to reserves and other insurance related reporting items are reported to and analyzed together with the Group Reserve Committee. 1)
The Property-Casualty reserving process is particularly characterized by the use of estimates and judgment regarding the loss reserves’ development. 2)
The Allianz Group applies significant management judgment when estimating the fair value of illiquid instruments, for which there is little or no market-based discovery of prices or related factors. Instruments of this nature are classified within level 3 of the fair value hierarchy, and, when appropriate, values adjusted on the basis of available market information including pricing, credit-related factors, volatility levels, and liquidity considerations. The availability of market information is determined by the relative trading levels of identical or similar instruments in the market, with emphasis placed on information that represents actual market activity or binding quotations from brokers or dealers. If sufficient market information is unavailable, management ’s best estimate of value is used. Consequently, the fair value we assign to a particular financial instrument may differ from the fair value another holder assigns to that same instrument. For investment assets carried at fair value, those classified within level 3 of the fair value hierarchy constitute no more than € 6,193 million, or less than 2 % of the Group’s total investment assets carried at fair value.3)
3) Please refer to the consolidated financial statements Note 2 Summary of significant accounting policies and Note 44 Financial instruments for further details regarding the fair value of our financial instruments.
Apart from the financial reporting controls the Group has procedures that ensure appropriate reporting of our financial instruments. On the Group level, all strategic or significant non-routine transactions are subject to the approval of the Group Finance Committee, which sets investment guidelines and guidelines for the internal rules of procedure of the finance committees of local operating entities. Additionally, investments for which the appropriate recognition and measurement involves significant uncertainty are subject to independent review and approval at the Group level.
1) Please refer to the consolidated financial statements Note 2 Summary of significant accounting policies and Note 37 Impairments of investments (net) for further details regarding impairment of financial assets.
Goodwill represents the excess of the cost of a business over the fair value of net assets acquired. Upon acquisition, goodwill is allocated to the business units that are expected to benefit from the acquisition. This allocation is based on how the business units are managed as well as how business unit performance is monitored by the Board of Management. At year end 2009, we had 18 business units with allocated goodwill. As of December 31, 2009, our total goodwill was € 12,014 million, of which € 6,690 million relates to our asset management business, € 4,544 million relates to our insurance businesses, and € 780 million relates to our banking business and corporate segment.
The determination of a unit’s estimated recoverable value requires significant judgment regarding the selection of appropriate valuation techniques and assumptions. These assumptions include selection of appropriate discount rates, planning horizons, capitalization requirements and the expected future business results. Since future business results become less predictable as periods move farther into the future, we also must estimate what the long-term, sustainable
Controls and Procedures Group Management Report Allianz Group Annual Report 2009 earnings of the unit will be. Additionally, for many of the business units within our Life/Health segment, recoverable value is based on industry-specific valuation methods.
Our processes and controls around the estimation of recoverable value are generally applied at the Group level and are designed to minimize subjectivity. For example, the assumptions inherent in estimating realizable value are required to be consistent with the parameters used in our well defined planning and controlling processes. Additionally, the valuation methods used within the Life/Health segment are based on our Market Consistent Embedded Value guidelines which are well controlled and designed to be both consistently applied and transparent.
We believe our controls over assessing the recoverability of goodwill and other intangible assets ensures both consistent and reliable results. Over the last six years, our write downs of goodwill have not been significant. 1)
1) Please refer to the consolidated financial statements Note 2 Summary of significant accounting policies and Note 15 Intangible assets for further details.
Deferred taxes are determined based on temporary differences between the Allianz Group’s carrying amounts of assets or liabilities in its consolidated balance sheet and their tax bases, on unused tax credits and on tax loss carryforwards. The tax rates applied for the calculation of the respective tax assets and liabilities is based on current tax laws of the respective jurisdiction; tax rate changes that are (substantively) enacted at the reporting date are taken into account. Deferred tax assets are recognized only to the extent it is probable that sufficient future taxable income will be available for their realization. If deferred tax assets are not expected to be recovered they are not recognized or a valuation allowance is recorded. As of December 31, 2009, the deferred tax assets amount to € 2.7 billion. Thereof, € 2.1 billion result from tax losses which may be carried forward to future periods.
Assessments as to the recoverability of deferred tax assets require the use of judgment regarding assumptions related to estimated future taxable profits. The assessment of future taxable profits includes the character and amounts of future profits as well as the periods in which those profits are expected to occur. The estimates and assumptions can change from period to period as the business environment and, therefore, projected operating results change. The analysis and forecasting required in this process is performed for individual jurisdictions in which we operate. The respective tax laws and regulations may be complex and subject to interpretations and changes. Since the effects of changes in assumptions and estimates are recorded in our results in the period of change, they may have a significant effect on the tax expense recognized in the respective year.
Given the potential significance surrounding these estimates and assumptions, we have policies and procedures designed to ensure consistency, rigor 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 a tax asset is required if an entity has suffered a loss in either the current or preceding periods and the utilization of deferred tax asset is dependent on future taxable profits in excess of the profits resulting from the reversal of existing taxable temporary differences. Assessments of realizability of deferred tax assets are made by qualified local tax and financial professionals and, depending upon significance, are subject to further review by the Allianz Group tax professionals and the Group Tax Committee of Allianz SE. The Group Tax Committee consists of senior Group financial staff and is chaired by the Head of Group Tax. The processes and controls are thoroughly documented.
We believe that the established processes and the scope of people involved ensure that tax related estimates are consistently applied and the judgmental aspects are minimized. 1)
Allianz has a number of pension plans covering a significant number of its domestic and international employees as well as tied agents in Germany. The pension liability for our defined benefit plans amounted to € 13.7 billion which is offset by the fair value of plan assets of € 8.9 billion as of December 31, 2009. Pension expense was € 571 million in 2009. In order to determine the pension expenses and liabilities associated with these plans, extensive use of assumptions is necessary. The key assumptions, which include discount rate, inflation rates and expected return, are centrally defined at the Allianz Group level involving experts from the actuarial and economic disciplines. The input parameters are discussed and defined taking into 1) Please refer to the consolidated financial statements Note 2 Summary of significant accounting policies and Note 42 Income taxes for further details.
The actuarial assumptions used by Allianz Group are best estimates of the actual and future situation. These best estimates may vary and change e.g. due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of the participants. Such differences could have a significant impact on the amount of pension expense recorded. We are required to estimate the expected rate of return on plan assets, which is then used to compute pension expenses. Estimating future returns is particularly subjective as the estimate requires an assessment of possible future market returns based on the plan asset mix and observed historical returns. Central review ensures consistency throughout the Group. 2)
As described in the risk report, we have a robust risk governance structure surrounding all of our risks. This governance structure is supported by audit, compliance and independent review functions – similar to our financial reporting governance. However, since our risk capital determination incorporates economic factors not fully reflected in accounting results, we have also implemented additional controls within our management reporting processes intended to ensure that these additional estimates, including the techniques used and relevant assumptions taken, are adequately controlled.
These controls include the validation of models and assumptions by independent external reviews and continuous benchmarking to market and/or peer assumptions and practices. To the extent available, we also require to use non-market assumptions approved by supervisory authorities and actuarial associations to enhance our models. To the extent we are using internal data, we help the market understand our assumptions by making transparent key drivers like MCEV.
The share capital of Allianz SE was € 1,161,984,000 as of December 31, 2009. It was divided into 453,900,000 registered shares with no-par value and a corresponding share capital amount of € 2.56 per share. The shares are fully paid in. All shares carry the same rights and obligations. Each no-parvalue share carries one vote.
Restrictions on voting rights or transfer of shares; exercise of voting rights in case of employee participations in the share capital
The restriction on share transferability goes right back to the foundation of Allianz in 1890. This practice is widespread in the insurance industry in Germany. For several decades the Company has in no case withheld its transfer approval. With the standardization of share transfer processes, the restriction on share transferability does not cause any delay in the registration in the share register and does not impede in any way the quotation of the shares on stock exchanges.
Amendments to the Statutes must be adopted by the General Meeting. § 13 (4) sentence 2 of the Statutes of Allianz SE stipulates that, unless this conflicts with mandatory legal provision, changes to the Statutes require a majority of two-thirds of the votes cast, or, as the case may be, if at least half of the share capital is represented, a simple majority of the votes cast. The Statutes thereby make use of the option stipulated in § 51 sentence 1 SE Implementation Act (SEAusführungsgesetz ) which is based upon Article 59 (1) and (2) SE Regulation. A larger majority is, inter alia, required for a change in the corporate object or the relocation of the registered office to another Member State (§ 51 sentence 2 SE Implementation Act). The Supervisory Board may alter the wording of the Statutes (§ 179 (1) sentence 2 German Stock Corporation Act and § 10 of the Statutes).
The Board of Management has the following authority to issue shares as well as to acquire and use treasury shares: • The Board of Management is authorized to increase the Company’s share capital on or before February 7, 2011, upon approval of the Supervisory Board, by issuing new registered no-par value shares against contributions in cash and/or in kind, on one or more occasions, up to a total of € 406,545,646.08 (Authorized Capital 2006/I). The Board of Management is authorized to exclude shareholders ’ subscription rights with the consent of the Supervisory Board for fractional amounts, for safeguarding the rights pertaining to holders of convertible bonds or bonds with warrants, and in the event of a cash capital increase of up to 10 % if the issue price of the new shares is not significantly less than the stock market price. The Board of Management is furthermore authorized to exclude shareholders’ subscription rights with the consent of the Supervisory Board in the event of a capital increase against contributions in kind (§ 2 (3) of the Statutes).
• The Board of Management has the authority to buy back and use Allianz shares for other purposes on the basis of the authorization of the General Meeting of April 29, 2009 (§ 71 (1) no. 8 German Stock Corporation Act). On that basis, the Company is authorized, on or before October 28, 2010, to acquire treasury shares. Together with other treasury shares that are in the possession of Allianz SE or which are attributable to it under Sections 71a et seq. German Stock Corporation Act, such shares may not exceed 10 % of the share capital at any time. The shares acquired according to this authorization may be used, under exclusion of subscription rights, for any legally admissible purposes and in particular those specified in the authorization. According to the authorization of the General Meeting of April 29, 2009, in connection with the acquisition of treasury shares (§ 71 (1) no. 8 German Stock Corporation Act) also derivatives may be used provided that such derivatives do not exceed 5 % of the share capital at the time the resolution was passed.
• There is also an authorization to acquire treasury shares for the purposes of securities trading (§ 71 (1) no. 7 German Stock Corporation Act) that is valid until October 28, 2010. The trading position in shares acquired for this purpose shall not, at the end of any day, exceed 5 % of the share capital of Allianz SE. The treasury shares acquired, together with other treasury shares, shall at no time exceed 10 % of the share capital.
Compensation agreements and essential agreements with conditions for the case of a change of control
The following compensation agreements have been entered into by the Company with members of the Board of Management or employees in the event of a takeover bid: The service contracts of the members of the Allianz SE Board of Management contain a change of control clause. If, within 12 months after acquisition of more than 50 % of the share capital by one shareholder or several shareholders acting in concert (change of control), the appointment as a member of the Board of Management is revoked unilaterally by the Supervisory Board, or if the mandate is ended by mutual agreement, or if the Management Board Member resigns his or her office because the responsibilities as a
For further details please refer to note 48 to our consolidated financial statements.
KPMG charged the Allianz Group an aggregate of € 5.0 million (2008: € 6.1 million) for assurance and related services that are reasonably related to the performance of the audit or review of the financial statements and are not reported 1) As of December 31, 2008 KPMG AG and affiliated entities comprised KPMG operations in Germany, the United Kingdom, Spain and Switzerland. Effective April 1, 2009 and October 1, 2009 KPMG operations in Belgium and KPMG operations in the Netherlands, Luxemburg and Turkey joined. Fee amounts pertaining to the year 2008 have been adjusted accordingly.
Allianz Group Annual Report 2009 Group Management Report Other Information within audit fees. These services consisted primarily of advisory and consulting services related to accounting and financial reporting standards and financial due diligence services.
KPMG fees for professional services, rendered for tax advice and tax compliance, amounted to € 1.6 million (2008: € 3.3 million) and resulted primarily from tax advice.
Vienna. Excellent skiing and climbing. More than recreation awaits athletes who heed the call of the Austrian Alps. As the accident statistics show, there are always risks. To ease the pain, a new safety concept was developed in the lowlands, down in Vienna. It is offered by Allianz Elementar. It covers expensive recovery costs at a price that is no higher than a lift or funicular ticket. With protection like this, sports fans will be even happier to hear the call of the mountains.
The economic crisis reached its peak in the first half of 2009, with gross domestic product taking a particularly heavy tumble in export-driven economies like Germany and Japan. However, economic expectations in the corporate sector started to stabilize as early as the spring of 2009 – a precursor to the economic recovery that began to take root in many economies from the middle of the year onwards. Slowly but surely, world trade started to get back into gear as well.
Steep decline in gross domestic product – industrialized nations in %
The economic stabilization that emerged in the course of 2009 owed its success not only to very expansive fiscal policy and the low interest rate environment engineered by the central banks, but also to a more temperate mood in the financial markets. The stock markets, which had reached a low point in March, actually clocked up substantial gains by the end of the year. Long-term interest rates in the U.S. and the euro area remained at historically low levels, while the high spreads on corporate bonds and emerging market bonds narrowed considerably in the course of the year. Spreads in some EMU member states, however, were unable to benefit from this general decline in risk premiums. Concerns among investors at the deterioration of public finances in these countries meant they were only able to borrow on the capital market on relatively unfavorable conditions. As 2009 progressed, the immense scale of the challenge posed by public budget consolidation in the wake of the economic and financial market crisis became increasingly apparent.
2.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
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In the property-casualty sector, the general trend of falling prices and lower underlying margins persisted. Hopes for an upturn in pricing at the beginning of the year faded rapidly as the year progressed: investment values recovered rapidly to rebuild balance sheets, there was an absence of major catastrophe-related losses, and buyer demand dropped back due to the global economic recession. As a consequence, industry’s capital increased, but premium income fell. In essence, there was and there remains overall an excess of supply (insurers’ capital) over demand; and, as a consequence insurance pricing has continued its downward drift in most markets. This softening in the market is reflected in January 1, 2010 reinsurance price renewals. Rates either fell or were flat in most lines, like property cat in the U.S. and Europe, U.S. casualty, European motor liability, and marine. There were only few exceptions to this downward trend, such as political risk, credit and aviation. Without a large contraction in available capital this situation may persist for some years to come.
In order to better reflect Allianz Group’s core business activities, we implemented a new segment reporting structure in the fourth quarter of 2009. Asset Management is shown on a stand-alone basis. Banking and Alternative Investments are reflected together with the Holding function under a new segment Corporate and Other. 1)
With year-end reporting 2009, we changed the presentation of net income (loss). Allianz Group now includes all interests in net income (loss). The allocation attributable to shareholders and attributable to minority interests is disclosed just below net income (loss).
1) For further details on our segment structure and steering please refer to the Business Operations and Steering chapter on pages 57 to 62.
Executive Summary of 2009 Results – Revenue growth of 5.2 %, driven by double-digit growth in Life/Health and
Asset Management. – Strong operating profit of € 7.2 billion, despite challenging economic environment.
– Net income from continuing operations of € 4.7 billion, up by 13.2 %. – Solvency ratio of 164 %.
In 2009, we generated total revenues of € 97,385 million. On an internal basis, growth amounted to 5.1 %. Our Life/ Health business delivered the majority of the growth with an additional € 5,158 million of revenues. Asset Management achieved a high double-digit increase in operating revenues. As expected, in Property-Casualty, premiums decreased compared to 2008.
Total revenues from our Corporate and Other segment, which are entirely attributable to our Banking operations, amounted to € 517 million, down from € 555 million in the previous year, driven by lower net fee and commission income.1)
Reconciliation of nominal total revenue growth to internal total revenue growth 2009 Internal growth
Property1 ) For further information on the composition of total revenues please refer to page 148.
Executive Summary of 2009 Results Group Management Report Allianz Group Annual Report 2009
In Asset Management operating profit grew by 51.3 % to € 1,401 million. This development was driven by significantly increased management and performance fees as well as 1) Includes € (63) mn, € (129) mn and € (76) mn from consolidation in 2009, 2008 and 2007 respectively.
tight cost management. Our cost-income ratio dropped by 6.0 percentage points to 62.0 %.
The aggregate operating loss from Corporate and Other amounted to € 1,028 million. The additional loss of € 705 million compared to 2008 was driven by a lower net interest result and a significant unfavorable swing in foreign currency exchange movements. Furthermore, the Banking set-up cost for Allianz Bank in Germany added to the development.
Net income from continuing operations improved substantially by 13.2 % to € 4,740 million.
Shareholders’ equity amounted to € 40,166 million as of December 31, 2009, up 19.2 % compared to year-end 2008. Net income attributable to shareholders and unrealized gains increased our equity by € 4,297 million and € 3,446 million respectively. The dividend for 2008 paid in the second quarter 2009 reduced equity by € 1,580 million.
As of December 31, 2009 the Allianz Group’s eligible capital for the solvency margin, required for the insurance segments and the asset management and banking business, was € 34.8 billion (2008: € 31.8 billion) including off-balance sheet reserves 4) of € 2.0 billion (2008: € 2.2 billion), surpassing the minimum legally stipulated level by € 13.6 billion (2008: € 11.5 billion). This margin resulted in a preliminary cover ratio 5) of 164 % (2008: 157 % 6)) as of December 31, 2009.
3) Does not include minority interests. 4) Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not submitted an application so far. The solvency ratio excluding off-balance sheet reserves would be 155 (2008: 146) %.
6) Available funds and requirement as of December 31, 2008 including discontinued operations were adjusted to reflect a pro-forma view, assuming the completion of the Dresdner Bank transaction prior to year end of 2008. For example, we removed hybrid capital related to Dresdner Bank from available funds and adjusted the deduction of goodwill and other intangible assets. Furthermore, we deleted the requirement of our discontinued operations.
Inclusive of discontinued operations, we achieved net income for 2009 of € 4,345 million compared to a net loss of € 2,187 million for 2008, mostly stemming from the sale of Dresdner Bank. The 2009 loss from discontinued operations of € 395 million was the final effect from the sale and deconsolidation of Dresdner Bank and, in accordance with IFRS, had to be recorded at the completion of the transaction on January 12, 2009.1) The loss reflects the recognition of unrealized gains and losses and foreign exchange movements resulting from the sale of Dresdner Bank. The 2008 loss from the sale was computed on the basis of the transactional values as of the closing date. Therefore, the losses of Dresdner Bank during the first twelve days of 2009 were already reflected in our financial statements as of December 31, 2008.
2) For further information please refer to Note 50 to our consolidated financial statements.
Total revenues and reconciliation of operating profit to net income (loss)
Premiums earned (net) 59,857 60,444 59,362 Interest and similar income 18,233 19,072 18,624 Operating income from financial assets and liabilities carried at fair value through income (net) 806 (413) (854) Operating realized gains/losses (net) 1,799 947 3,629 Fee and commission income 6,239 6,032 6,553
Claims and insurance benefits incurred (net) (45,646) (45,659) (43,122) Change in reserves for insurance and investment contracts (net) (9,560) (5,140) (10,685) Interest expenses, excluding interest expenses from external debt (579) (948) (1,019) Loan loss provisions (141) (59) (18) Operating impairments of investments (net) (1,738) (6,199) (891)
The Board of Management and the Supervisory Board propose that the available net earnings (“Bilanzgewinn”) of Allianz SE of € 1,860,990,000 for the fiscal year 2009 shall be appropriated as follows: • Distribution of a dividend of € 4.10 per no-par share entitled to a dividend: € 1,860,990,000.
In February 2010 the Allianz Group sold 1 billion ICBC shares with a capital gain of approximately € 0.4 billion.
For further information please refer to Note 52 to the consolidated financial statements.
On February 28, 2010 the storm “Xynthia” has caused great damage in parts of Western Europe, mainly France, Spain and Germany. The Allianz Group with its Property and Casualty subsidiaries is engaged in those countries. Currently a reliable forecast of net claims arising from this storm is not possible 1).
Allianz is well positioned, with a solid platform for delivering earnings in the core insurance and asset accumulation businesses.
Preliminary solvency ratio improved by 7 percentage points to 164 %.
Gross premiums written down by € 864 million, net premiums earned down by € 385 million. Operating profit effect approximately
On the sales side we will continue to focus on profitability and resist the temptations of an irrational race for market share.
Estimated positive price effect on gross premiums written of 0.8 %.
Interest and similar income (net of interest expenses) at € 3,508 million, down 16.1 %.
Premiums from investment-oriented products up by 23.6 % to € 28,181 million.
Fixed-income side is expected to remain resilient to the financial crisis.
We intend to offset the decreased sales above all in some life insurance markets via enhanced customer retention in Europe, in the U.S. and in growth markets.
Operating investment income increased from € 8,007 million to € 14,157 million as capital markets improved significantly.
In the year under review the world economy experienced the steepest slide in output for decades, although the situation did stabilize appreciably in the second half of the year. We expect the economic recovery to continue in the course of 2010, particularly as fiscal and monetary policy will still be having an expansionary impact. However, in a host of countries it will take several years until output is back at pre-crisis levels. The financial markets, which by and large re-gained their composure surprisingly quickly, are likely to remain sensitive for a while. In view of the risks stemming from the ongoing need for adjustment and consolidation, financial services providers will continue to operate in an uncertain environment.
Having shrunk by around 2 % last year, the world economy is likely to see growth in the region of 3 % in 2010. The picture in the industrial countries is not quite so favorable. Expected growth of 2 – 2.5 % this year will still not fully offset last year’s drop of almost 3.5 %. The importance of the emerging markets in the world economy has continued to grow. They have become the global growth engine. Their overall output is set to rise by 5 % in 2010 following stagnation in 2009.
The U.S. economy has shaken off the crisis in the second half of 2009. There are now indications that it will record slightly higher growth than the Euro area in 2010. In Europe, the German economy is likely to record a slightly aboveaverage performance.
Just as important as the immediate economic outlook, however, are the medium-term economic prospects. The financial market crisis will have a lasting impact on growth momentum and growth patterns in the world economy. Given the need for public-sector debt consolidation, along with higher capital requirements and tighter regulation for banks, growth will be more moderate than in the years before the crisis. The catching-up process of emerging markets in Asia, Latin America, and, with a time lag, also in Eastern Europe, will continue and the attractiveness of these markets for the insurance industry will increase further.
The economic environment developed less severe than expected. Resolute intervention on the part of the central banks and financial policymakers contributed to the stabilization of the financial markets and as a result created better conditions for financial services providers. 2010 is not, however, expected to herald the unperturbed continuation of this positive trend. As the numerous stimulus programs gradually start to peter out, the markets will become more nervous and volatile again.
The economic recovery looks set to remain fragile, while the varying tempo of the upswing, coupled with escalating government debt, will cause tension. Last but not least, the political pressure on the finance industry is mounting. Efforts to establish a new global financial market architecture are nearing the critical phase, and there is no doubt that they will place an additional strain on financial institutions. In this difficult environment, the main challenge facing all providers will be to win back the trust of their customers and re-establish themselves as reliable partners for the long haul.
Due to the magnitude of mark-to-market valuations in our profit and loss account, a precise prediction of net income for the year 2010 is not possible at this point.
Allianz Group summary Our 2009 operating profit amounted to € 7.2 billion, and we believe that our 2010 operating profit will be around the same level. Operating profit is sensitive to changes in interest rates and foreign exchange rates: A 100 bps increase (decrease) of interest rates will boost (reduce) operating profit by of approximatly € 0.2 billion. A 10 % weakening (strengthening) of the U.S. Dollar versus our planned rate of 1.45 to the Euro has a negative (positive) impact of approximatly € 0.2 billion. While operating profit can vary, we expect the variation not to exceed € 0.5 billion, except in case of huge deviations from the assumptions stated here and the segment-specific sensitivities mentioned below.
The operating profit from the Property-Casualty segment amounted to € 4.1 billion in 2009, with a combined ratio of 97.4 %. In 2010, we anticipate that the aggregate effect of improvements in pricing, claims management and productivity gains is going to more than compensate for underlying claims inflation and a slight decline of investment income.
We assume that natural catastrophe and other weather-related claims experience will return to normal levels. We expect large claims stemming from natural catastrophes to be around € 900 million. It must be noted however that higher frequencies of weather-related and manmade claims can occur unexpectedly, as was the case for our large operating entities in Germany, France and Italy in 2009. It is important to recognize that investment income for this business is sensitive to interest rate movements, especially at the short end of the yield curve. We expect operating profit to be in the range € 4.0 billion to € 5.0 billion.
Operating profit increased in 2009 by € 1.6 billion to € 2.8 billion, benefiting from catch-up effects such as credit spread narrowing and positive equity markets, worth an estimated € 0.4 billion. The observed level of recovery impacts in France and the U.S. may not be repeated in 2010. On the other hand, 2009 with € 0.1 billion gross realized gains net of impairments was below the level seen in a calmer capital market environment, leaving room for improvement in 2010.
Whilst the very strong development experienced in 2009 is unlikely to be repeated, we expect to deliver another high operating profit in 2010 in the range € 1.1 billion to € 1.3 billion, subject to inflows, markets, investment performance and investor sentiment. The cost-income ratio is expected to remain below 65 %.
Corporate and Other and consolidation In 2009, our Corporate segment made a negative operating profit of slightly more than € 1 billion. Contained in this result was a negative foreign exchange impact of € 0.2 billion, and set-up costs for Allianz Bank of more than € 0.1 billion. Management actions are underway to mitigate the risk of further foreign exchange variances in the Corporate segment, and there will be a significant reduction of banking set-up costs. However, due to the current low interest rate environment and the volatility in the fair value of assets and liabilities, we expect the run rate for Corporate for the year 2010 to be a loss in the range € 0.8 billion to € 1.0 billion, comprised mainly of expenses in the Holding & Treasury function and interest on debt. Consolidation effects at the group level normally reduce operating profit by around € 0.1 billion.
Overall, gross premiums written were down by 0.9 % on an internal basis. This development was mainly driven by lower volume from our operations in Germany (down by 3.0 %), France (down by 3.0 %), Italy (down by 8.6 %) and our credit insurance business (down by 17.6 %). The positive price effect amounted to 0.8 %.
Gross premiums written by regions as of December 31, 2009 (December 31, 2008) 2)
1) In the following section we comment on the development of our gross premiums written on an internal basis, meaning adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information.
We analyze our property-casualty internal premium growth according to ‘price’ and ‘volume’-effects. This produces the following combination of clusters: Cluster 1: Both price and volume effects are negative Cluster 2: Either price or volume effects are positive Cluster 3: Both price and volume effects are positive
3) Before elimination of transactions between Allianz Group companies in different geographic regions and different segments.
Cluster 2 At Allianz Sach in Germany revenues fell by 1.2 % to € 9,235 million. This decline was driven by a reduction of volume, mainly relating to our motor business and to continued portfolio cleaning activities, particularly in the non-profitable fleet business. While prices remained flat in our motor business, we recorded rising prices in our non-motor business. We estimate the positive overall price effect to be 1.9 %.
In the United Kingdom revenues stood at € 1,783 million. On an internal basis, excluding a negative foreign currency effect of € 213 million stemming from a weaker sterling exchange rate, premiums went up by 3.7 %. This was mainly due to increased rates in personal and commercial lines. Active portfolio cleaning to improve our profitability had a slightly offsetting effect leading to a reduction in volume. We estimate the positive price effect to be 7.0 %.
Revenues in Spain were impacted by the strong economic recession and declined by 2.6 % to € 2,101 million. We recorded higher volume due to an increase in the number of policies and customers, supported by the recovery of private car sales at the end of the year. However, prices fell, mainly due to a combination of tough competition in motor and in commercial lines and a generally soft market environment. Despite the negative price impact – we estimate it to be around 5.7 % – our Spanish operation is one of our most profitable businesses.
Operating profit on a quarterly basis in € mn 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
However, on a quarterly basis we saw a positive development in operating profit in the second half of the year. Especially our operations in Germany, France and the credit insurance business recovered significantly in the second half of 2009, mainly with regards to the underwriting result. Operating profit in the fourth quarter was the best quarterly result of the year at € 1,169 million, up by 13.4 % compared to the third quarter and up by 30.6 % compared to the second quarter.
Some of the large business operations experienced a difficult year notably in Germany, France and Italy, as did the credit insurance business. Nonetheless, during the third and fourth quarters we observed a recovery in Germany and France as well as in the credit insurance business. Although partly due to negative non-recurring effects at the beginning of the year, this also indicated a positive trend.
• Some relief, (0.2) percentage points to the development of our combined ratio, came from our business operations in the United States. Improvements were attributable to a lower natural catastrophe loading in 2009 and a reduced impact from our Crop Insurance Program which had suffered a big loss related to falling commodity prices in the third quarter of 2008.
Our accident year loss ratio has considerably improved throughout 2009, starting at a level of 73.4 % in the first quarter and ending at a level of 71.5 % in the fourth quarter. However, on a year-over-year basis, the accident year loss ratio went up from 71.8 % to 72.3 %.
Releases of prior years’ loss reserves were down by € 376 million to € 1,067 million, significantly below the previous year. Consequently, our run-off ratio was 2.8 %, one percentage point lower than last year, but at a level we consider as normal.
The expense ratio went up by 0.5 percentage points to 27.9 %.
Acquisition and administrative expenses remained largely flat with a slight increase of 0.6 % to € 10,540 million, mainly stemming from investments in our sales capacity in Germany and in IT infrastructure in the United States. These effects amounted to approximately € 140 million. In addition, we recorded a positive one-off effect for our reinsurance business in 2008 from continuing to cede less business to external reinsurers. If we exclude these effects, as well as cost inflation and the consolidation of our subsidiary in Turkey from July 2008, we can see that the benefits of expenditure savings are beginning to show through.
Net investment income decreased 15.6 % to € 3,117 million, mainly due to a decline of € 674 million in interest and similar income (net of interest expenses) to € 3,508 million. Interest rate-related impacts on our net investment income from Property-Casualty accounted for approximately € 0.3 billion of the decline. During 2009, as part of our risk reduction strategy, we further sold equities and reinvested the proceeds into interest-bearing securities. However, given the level of interest rates in 2009, investment opportunities yielding high returns were limited which meant we exchanged the high dividend yields of 2008 for relatively low interest rates of 2009. To be well positioned for potential interest rate increases in the coming years, we slightly reduced duration and reinvested the proceeds at the lower end of the interest rate curve.
Investment expenses decreased by € 16 million to € 238 million, due to lower real estate related expenses within our German entity.
Interest and similar income (net of interest expenses) 3,508 4,182 4,071 Operating income from financial assets and liabilities carried at fair value through income (net) 118 9 178 Operating realized gains/losses (net) 57 37 46 Operating impairments of investments (net) (75) (437) (67)
Ceded premiums written (4,574) (4,972) (5,320) Change in unearned premiums (121) (202) (416) Premiums earned (net) 37,828 38,213 38,553 Interest and similar income 3,612 4,477 4,473 Operating income from financial assets and liabilities carried at fair value through income (net) 118 9 178 Operating realized gains/losses (net) 57 37 46 Fee and commission income 1,075 1,247 1,178
Claims and insurance benefits incurred (net) (26,320) (25,986) (25,485) Changes in reserves for insurance and investment contracts (net) (355) 3 (339)
1) For the Property-Casualty segment, total revenues are measured based upon gross premiums written. 2) Represents claims and insurance benefits incurred (net) divided by premiums earned (net). 3) Represents acquisition and administrative expenses (net) divided by premiums earned (net). 4) Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net).
Allianz Group Annual Report 2009 Group Management Report Property-Casualty Insurance Operations 1) Reflect gross premiums written on an internal basis (adjusted for foreign currency translation and (de-)consolidation effects). 2) Reinsurance business of Allianz Suisse was transferred to Reinsurance PC. From 1Q 2008, renewal business is shown in Reinsurance PC, and run-off business is shown in Switzerland. 3) Net change of reserves related to savings component of UBR-business now included in claims (claims reduction of € 48.9 mn). Prior periods have not been retrospectively adjusted. 4) From July 21, 2008, Koç Allianz Sigorta AS was consolidated following the acquisition of approximately 47.1 % of the shares in Koç Allianz Sigorta AS by the Allianz Group, increasing our holding to approximately 84.2 %.
5) From 1Q 2008, health business in France and Belgium is shown within Life/Health segment. Prior year balances have not been adjusted. 6) Corporate customer business in France transferred to AGCS in 2009.
7) Contains € 14 mn and € 16 mn for 2009 and 2008, respectively, from a management holding located in Luxembourg and also € 8 mn and € 10 mn for 2009 and 2008, respectively, from the former operating entity AGF UK.
Gross premiums written Premiums earned (net) Operating profit 2009 internal 1)
New Europe 11) 2,615 3,040 2,723 2,953 3,040 2,065 2,312 2,067 230 300 255 Asia-Pacific (excl. Australia) 472 426 349 460 426 259 226 170 36 23 16 Middle East 69 54 40 66 54 35 25 21 1 3 2 Growth Markets 3,156 3,520 3,112 3,479 3,520 2,359 2,563 2,258 267 326 273
Property-Casualty Insurance Operations Group Management Report Allianz Group Annual Report 2009 8) In the beginning of 2009 the marine business of the United States was transferred to Allianz Global Corporate & Specialty. 9) We adjusted our internal growth figure for 2008 for the change in our Crop Insurance Programm with an impact of € 406 mn. 10) Effective February 21, 2007, Russian People’s Insurance Society “Rosno” was consolidated following the acquisition of approximately 49.2 % of the shares in ROSNO by the Allianz
Anglo Broker Markets/ Global Lines 94.4 94.3 94.9 66.3 66.2 65.3 28.1 28.1 29.6
Consolidation 12) — — — — — — — — —
1) In the following section we comment on the development of our statutory premiums written on an internal basis; meaning adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information. 2) After elimination of transactions between Allianz Group companies in different geographic regions and different segments.
Premiums in our German life business grew by 11.6 % to € 15,049 million. Growth was mainly driven by the high demand for single premium investment products from private and commercial customers. Regular premium business declined due to a high level of maturities in the year. The German health business recorded a small but stable revenue growth.
In Switzerland premiums increased to € 1,364 million. The growth rate amounted to 7.0 % and was mainly driven by single premiums from traditional life products with minimum guarantees and group life contracts.
Life/Health Insurance Operations – Double-digit revenue growth to € 50.8 billion. – Strong operating profit of € 2,808 million. – Investment result recovered.
Life/Health Insurance Operations Group Management Report Allianz Group Annual Report 2009
Premiums in Italy were up by 44.5 % to € 8,664 million, driven by higher sales of products with minimum guarantees and a participating component sold via our bancassurance channel. This channel responded well to changing consumer demand and gained market share with new investment contracts. The increase in products with minimum guarantees and a participating component compensated for the continued low demand for pure unit-linked business with equity participation.
Operating profit recovered after the sharp drop in 2008, increasing from € 1,208 million to a strong € 2,808 million. In 2008, our result was heavily impacted by difficult capital market conditions with exceptionally high impairments in the last two quarters. This difficulty continued in the first quarter of 2009 and was then followed by a significant improvement of capital market conditions. Overall, investment income before policyholder participation increased by € 6.3 billion to € 14.0 billion and is now back to a more normal level. Positive market development in the United States and France due to higher fair value income 1), was offset by low harvesting income of only € 92 million. After policyholder participation, investment income increased by € 1.7 billion to € 2.0 billion. This is in line with our expected share of gross investment income for our shareholders. Our technical result decreased by € 134 million to € 888 million. The expense result increased marginally by € 8 million.
2) On debt securities including cash components, based on an average asset base of € 270.9 bn.
Net harvesting amounted to € 92 million in 2009 and remained at a low level. The increase of € 4,965 million is driven by lower impairments compared to 2008. Improved market conditions allowed for net realized gains, which increased by € 881 million to € 1,755 million as our harvesting activity returned to a more normal level.
Operating realized gains and losses (net) 1,755 874 Operating impairments of investments (net) (1,663) (5,747) Net harvesting 92 (4,873)
Net impairments of investments decreased significantly by € 4,084 million to € 1,663 million. Last year’s high impairments, especially in Germany and France, were not repeated this year as financial markets rebounded. Remaining impairments arose primarily in the first quarter of 2009 and were mostly attributable to our available-for-sale equity portfolio. Impairments in the following quarters mainly related to private equity investments, for which valuation is lagging behind actively traded markets.
Our cost-income ratio improved by 2.1 percentage points to 95.6 % due to better investment performance compared to the premiums generated in the period.
Claims and insurance benefits incurred (net) (19,326) (19,673) (17,637) Changes in reserves for insurance and investment contracts (net) (8,299) (5,122) (10,268)
Acquisition and administrative expenses (net) (5,798) (4,391) (4,591) Fee and commission expenses (246) (253) (209) Operating restructuring charges (15) 1 (16) Other expenses — (7) (2)
Operating profit (loss) 2,808 1,208 2,995 1) For the Life/Health segment, total revenues are based upon statutory premiums. Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction.
2) Represents deposits from insurance and investment contracts, claims and insurance benefits incurred (net), changes in reserves for insurance and investment contracts (net) and acquisition and administrative expenses (net) divided by statutory premiums (net), interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), operating realized gains/losses (net), fee and commission income, other income, interest expenses, loan loss provisions, operating impairments of investments (net), investment expenses, fee and commission expenses, operating restructuring charges and other expenses.
Germany Life 15,049 13,487 13,512 15,049 13,487 10,137 10,313 10,381 Germany Health 3) 3,176 3,120 3,123 3,176 3,120 3,176 3,120 3,123 Switzerland 1,364 1,205 992 1,289 1,205 577 478 432
2) Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects.
Anglo Broker Markets/Global Lines 5) 603 (220) 411 93.3 103.4 95.2 3) Loss ratios were 73.5 %, 74.7 % and 71.6 % for 2009, 2008 and 2007, respectively. 4) Effective July 21, 2008, Koç Allianz Hayat ve Emeklilik AS was consolidated following the acquisition of approximately 51 % of the shares in Koç Allianz Hayat ve Emeklilik AS by the
Allianz Group, increasing our holding to approximately 89 %. 5) Contains run-off € 0 mn, € (1) mn and € (3) mn for 2009, 2008 and 2007, respectively, from our former life insurance business in the United Kingdom which we sold in December 2004. 6) Represents elimination of transactions between Allianz Group companies in different geographic regions.
Total assets managed by our Asset Management operations as of December 31, 2009 were € 1,202 billion. Of this total, € 926 billion related to third-party assets under management and € 276 billion to Allianz Group assets. The third-party asset base of € 926 billion was, including cominvest, up by € 223 billion or 32 % compared to December 31, 2008.
This development reflected very high net inflows of € 84 billion with a positive contribution from fixed-income products of € 91 billion, partly offset by net outflows from our equity business. Additionally, rebounding markets over the year led to market-related appreciations of € 109 billion, which lifted equities by € 28 billion and fixed-income securities by € 81 billion. Negative foreign currency translation effects amounted to € 7 billion, resulting primarily from a weaker U.S. Dollar versus the Euro.
Third-party assets under management by geographic region as of December 31, 2009 (December 31, 2008) 3)
From the beginning of the year, the acquisition of cominvest increased the proportion of investments originated in Germany. At year-end these accounted for nearly 14 % of Allianz’s third-party assets under management.
The split between equity and fixed-income assets remained unchanged. The latter made up for 85 % of third-party assets under management with equity assets accounting for the balance.
3) Based on the origination of assets. 4) Consists of third-party assets managed by other Allianz Group companies (approximately € 24 bn as of December 31, 2009 and € 22 bn as of December 31, 2008, respectively) and Dresdner Bank (approximately € 9 bn as of December 31, 2008).
1) Allianz Global Investors (AGI) account-based, asset-weighted 3-year investment performance of 3rd party assets vs. benchmark including all accounts managed on a discretionary basis by equity and fixed income managers of AGI. CPM-accounts, fund-offunds and NBK-funds at AGI Germany as well as funds/accounts at Allianz GTJA China are not considered. For some retail equity funds the net of fee performance is compared to the median performance of an appropriate peer group (Morningstar or Lipper; 1st and 2nd quartile mean out-performance). For all other retail funds and for all institutional accounts performance is calculated gross of fees using closing prices (revaluated) where appropriate and compared to the benchmark of each individual fund or account. Other than under GIPS, the performance of closed funds/accounts is not included in the analysis. Not included until Q3 2009: AGI Taiwan, AGI Singapore, AGI Korea, AGI France, AGI Netherlands and AGI Italy.
Fee and commission expenses (850) (1,158) (1,270) Net fee and commission income 3,590 2,874 3,133
On an internal basis2), operating revenues rose 20.3 % yearon -year to € 3,481 million. Including cominvest (€ 132 million ) and favorable foreign currency exchange effects (€ 67 million) mainly resulting from the U.S. Dollar, we recorded operating revenues of € 3,689 million on a nominal basis, up 27.5 %.
Performance fees reached a record level of € 432 million, up by € 349 million. This development was mainly driven by our fixed-income business, predominantly stemming from products with high water marks.
2) In the following section we comment on the development of our revenue growth on an internal basis, meaning adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information.
Income from financial assets and liabilities carried at fair value through income amounted to € 40 million and was a € 111 million improvement on the previous year. This can be largely explained by a swing in income from seed money from a loss of € 66 million last year to an income of € 36 million in 2009.
Our operating profit grew strongly by 51.3 % to € 1,401 million, reflecting higher management and performance fees and the increase in seed money profitability, previously referred to. In addition, foreign currency exchange benefits contributed € 18 million to the increase and the acquisition of cominvest another € 35 million.
Our cost-income ratio consistently improved throughout the year, reaching its lowest level in the fourth quarter 2009 at 55.5 %, supported by performance fees. For the full year 2009, the ratio stood at 62.0 %, down 6.0 percentage points and was helped by the high volume of performance fees and the swing in capital market effects compared to 2008.
The Holding & Treasury’s operating loss amounted to € 849 million after € 330 million in 2008. This was due to a decrease of € 257 million in net interest as short term yields declined, and a lower foreign exchange result by € 327 million.
Net operating income from financial assets and liabilities carried at fair value through income turned from an income of € 135 million in 2008 to a loss of € 122 million in 2009. This swing was mainly driven by foreign currency movements in U.S. Dollar positions, offset to a large extent by foreign currency hedges, recorded within both the operating and non-operating trading result.
Corporate and Other – A new segment definition: Corporate and Other, including Holding & Treasury,
1) For more information about the new segment structure please refer to the chapter “Business Operations & Steering” on page 60. 2) Including consolidation in between the Corporate and Other segment as recorded in the segment information in note 6 to the consolidated financial statements. 3) Represents investment expenses, administrative expenses (net), excluding acquisition-related expenses, 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, fee and commission expenses. 4) Presentation not meaningful.
Corporate and Other Group Management Report Allianz Group Annual Report 2009
The operating loss totalled € 165 million after a loss of € 31 million in the previous year. This outcome was particularly affected by non-capitalized set-up costs of € 134 million for the Allianz Bank in Germany in 2009. Furthermore, an operating loss of € 52 million was generated since its start in June.
The operating loss amounted to € 13 million after a gain of € 22 million in 2008. The main reason for this shortfall was a decrease of € 27 million in the net interest income.
Hollywood. An Oscar for firemen. What would Hollywood be without dangerous stunts? Without explosions and natural disasters, without raging fires, building collapses and collisions? These risks exist in films, but they also exist in reality – when something goes wrong during the production of a film. Who assumes the costs when expensive technology malfunctions, when there is rain instead of sunshine on the set, when the dance star shows up wearing a cast on his leg? Our company Fireman’s Fund does. Fireman’s Fund is the world’s leading film insurer. That’s why we always have a keen professional interest in the Oscar awards show.
The previous analysis is based on our consolidated financial statements and should be read in conjunction with them. In addition to our stated figures according to the International Financial Reporting Standard (IFRS), Allianz Group uses operating profit and internal growth to enhance the understanding of our financials. These additional values should be viewed as complementary to, and not a substitute for our figures determined in according to IFRS.
Reconciliation of Income from Continuing Operations before Income Taxes to Operating Profit
In certain cases the policyholders participate in the tax benefits of the Allianz Group. IFRS requires that the consolidated income statements present all tax benefits in the income tax line item, even though these belong to policyholders. In the segment reporting the tax benefits are reclassified and shown as operating income in order to properly reflect the policyholder participation of tax benefits.
Reconciliation of operating profit to the Allianz Group’s income from continuing operations before income taxes € mn € mn € mn
Corporate and Other consisting of: Interest and similar income 708 989 884 Income from financial assets and liabilities carried at fair value through income (net) 17 6 8 Fee and commission income 389 430 528
We believe that an understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions and disposals (or “changes in scope of consolidation”) are excluded. Accordingly, in addition to presenting “nominal growth”, we also present “internal growth”, which excludes these effects.
3) We adjusted our figures for 2008 according to the definition of total revenues as stated on this page.
As of December 31, 2009, shareholders’ equity amounted to € 40,166 million and was up 19.2 % from December 31, 2008. The change was driven by net income attributable to share­ holders of € 4,297 million and unrealized gains of € 3,446 million. The dividend for 2008 paid in the second quarter of 2009 reduced equity by € 1,580 million.
Allianz Group is a financial conglomerate within the scope of the Financial Conglomerates Directive and the related German law effective since January 1, 2005. Under this direc­ tive, a financial conglomerate is defined as any financial parent holding company that, together with its subsidiaries, 1) Does not include minority interests of € 2.1 bn and € 3.6 bn as of December 31, 2009 and December 31, 2008, respectively. For further information please refer to note 25 to the consolidated financial statements.
As of December 31, 2009 the Allianz Group’s eligible capital for the solvency margin, required for the insurance seg­ ments and the asset management and banking business, was € 34.8 billion (2008: € 31.8 billion) including off­balance sheet reserves3) of € 2.0 billion (2008: € 2.2 billion), surpass­ ing the minimum legally stipulated level by € 13.6 billion (2008: € 11.5 billion). This margin resulted in a preliminary cover ratio4) of 164 % (2008: 157 %) as of December 31, 2009.
2) Available funds and requirement as of December 31, 2008, including discontinued operations, were adjusted to reflect a pro-forma view, assuming the completion of the Dresdner Bank transaction prior to year end of 2008. For example, we removed hybrid capital related to Dresdner Bank from available funds and adjusted the deduction of goodwill and other intangible assets. Furthermore, we deleted the requirement of our discontinued operations.
3) Off-balance sheet reserves are accepted from the authorities as eligible capital only upon request; Allianz SE has not submitted an application so far. The solvency ratio excluding off-balance sheet reserves would be 155 % (2008: 146 %).
4) Intangible assets in relation to fully consolidated private equity investments have been fully deducted from the available funds for the first time.
In the following sections, we show our asset allocation for our insurance portfolio and analyze important develop­ ments within the balance sheets of our Property­Casualty, Life/Health, Asset Management and Corporate and Other segments as presented on pages 150 and 157.
Equities During the period under review stock markets recovered from the crash of the second half of 2008. After another dip during the first quarter 2009 in which the downward­trend continued, stock markets gained around 40 % during the rest of the year, leading to an annual performance of more than 20 %.
Allianz Group's asset portfolio as of December 31, 2009: � 408.7 billion (as of December 31, 2008: � 365.0 billion)
Equities During 2009, our exposure to equities slightly decreased by € 3.2 billion to € 30.6 billion. We continued to sell selected equity stakes in line with our strategy of the last few years. However, we have materially slowed the pace of equity sales while market developments benefited our equity holdings. We have now reached our targeted comfort zone with a current equity share of 8 %. From an economic standpoint our share in equities is even lower, with a large part of our holdings being hedged. During the course of 2009, our equity gearing – which is a ratio of our equity holdings allo­ cated to the shareholder to shareholder’s equity plus off­ balance sheet reserves less goodwill – further decreased from 0.5 to 0.4.
Our exposure to equities remains strong in the financial sector. We consider most of our holdings in this area to be strategic. We constantly monitor and reassess our exposure and take decisions according to our risk assessment and risk appetite. A result of this strict investment monitoring strategy has been the sale of 50 % of our stake in the Industrial and Commercial Bank of China Ltd. (ICBC) during 2009.
Debt instruments The vast majority of our investment portfolio comprises debt instruments. Our exposure to this asset class rose from € 315.8 billion to € 364.8 billion during 2009, representing a portfolio share of 89 %. In line with the reduction in equities we have further expanded our exposure to fixed­income securities.
We consider our exposure in this asset class to be both high quality and well­diversified. A share of more than 60 % re­ lates to governments and covered bonds that help mitigate possible future deteriorations. According to our operating business profile, approximately 70 % of our fixed­income portfolio is invested in Eurozone bonds and loans. Similarly, approximately 95 % is invested in investment­grade bonds and loans.
Similarly, we believe our exposure in subordinated securities in banks of € 11.3 billion to be of good quality. Our tier 1 share remains low at less than 1 % of our total exposure to debt instruments. We selectively participated in exchange offers by banks, through which we realized losses of € 0.2 billion on tier 1 securities. Apart from this impact we re­ corded impairments of less than € 0.1 billion on tier 1 secu­ rities.
Interest and similar income 3) 17,654 18,124 (470) Inc. fr. fin. assets and liab. carried at fair value through income (net) 954 (341) 1,295 Realized gains/losses (net) 3,416 3,603 (187) Impairments of investments (net) (2,732) (9,495) 6,763
3) Net of interest expenses (excluding interest expenses from external debt).
Nearly 80 % of our government exposure is located in the Eurozone. Some countries and governments have started to struggle during 2009. Our exposure to those in difficulty is limited compared to our overall exposure, and we have not had any impairments in this sector.1)
Government exposure: as of December 31, 2009: � 130.5 billion (as of December 31, 2008: � 110.4 billion)
Our portfolio comprises ABS securities of € 20.8 billion. We closely monitor this exposure but feel comfortable with our holdings in this sector. We have seen rating downgrades in our ABS portfolio, mainly from AAA to AA or A, but we did not have significant impairments in this asset class. Around 37 % or € 7.6 billion of our ABS securities are formed by U.S. agency MBS which received a helping hand from the U.S. government.2)
1) For example, our exposure in Greece, Portugal and Ireland amounts to € 6.6 billion corresponds to a share in debt instruments of less than 2 %. 2) One major change in our ABS portfolio related to the purchase of CDOs in the context of Dresdner Bank transaction. These CDOs account for less than 1 % of our debt in- struments with a book value of € 0.9 billion.
Total IFRS return on equities resulted in 4.1 % , an increase of 11.2 percentage points compared to previous year. Total IFRS return, including change in unrealized, reached 17.6 %, an increase of almost 60 percentage points compared to 2008. Debt securities could reach a yield of 4.4 % , after a yield of 4.6 % in 2008. This figure not only reflects lower interest payments on bonds and loans but also lower dividend yields from equities. However, in the current interest rate environment we have taken such measures as increasing duration in our life/health segment with the aim of benefit­ ing from the steepening of the yield curve. Additionally, we have reduced our share in cash investments where the dramatic decline in short­term interest rates caused a fall in interest and similar income.
Volatile income drivers such as income from fair value option and trading have positively benefited from market recovery. Here, we observed positive one­offs from reduced credit spreads in our life/health operations in the United States as well as from positive equity markets in our opera­ tions in France.
Impairments for both equity and debt instruments have significantly decreased in 2009 compared to 2008. The downward trend of 2008 in the markets continued in the beginning of 2009, when we had to take equity impairments of considerable size. Thereafter equity markets rose and 1) Including income from fair value option, trading and real estate, investment expenses, FX gains / losses.
fair values 3) in € bn 2) We have changed the definition of the asset bases to better reflect the economic reality: since 1Q 2009 we include cash and cash equivalents and receivables from cash pooling net of liabilities from securities lending in our asset bases.
3) Loans and advances to banks and customers, held-to-maturity investments, and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending upon, among other factors, our share of ownership percentage.
5) After group consolidation. For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty segment please refer to note 19 to the consolidated financial statements.
During the year 2009 our Property­Casualty asset base in­ creased by € 0.3 billion. An increase in debt securities and loans of € 5.1 billion to € 74.3 billion outweighed the decline in equity investments, which were down by 21.9 % to € 5.0 billion, mainly due to disposals. In addition, cash and cash pool assets decreased by € 3.1 billion compared to the year­ end both due to a repayment of short­term cash liabilities, which decreased by the same amount, as well as our active reduction of cash holdings.
Debt securities 58.0 51.0 Cash and cash pool assets 4) 4.4 7.5
Loans and advances to banks and customers 16.3 18.2 Property-Casualty asset base 92.2 91.9
3) Do not include affiliates of € 10.9 bn and € 10.7 bn as of December 31, 2009 and December 31, 2008, respectively.
4) Including cash and cash equivalents as stated in our segment balance sheet of € 2.3 bn and € 2.7 bn and receivables from cash pooling amounting to € 2.1 bn and € 5.0 bn net of liabilities from securities lending of € 0 bn and € (0.2) bn as of December 31, 2009 and December 31, 2008, respectively.
In 2009, the Life/Health asset base increased by 10.8 % to € 379.3 billion. We recorded a significant increase in debt investments from € 245.0 billion up to € 282.5 billion. This development was driven by strong net inflows from our Life insurance business and by credit spread narrowing result­ ing in an increase in the value of our corporate bonds. A slight net reduction in equity investments of € 1.3 billion to € 20.9 billion was due to our equity reduction program, partially offset by strongly performing equity markets from the second quarter onwards. Cash and cash pool assets were down by € 5.0 billion to € 6.0 billion following our strategy for decreasing our cash position.
Loans and advances to banks and customers 100.3 91.4 Financial assets for unit-linked contracts 6) 57.0 50.4 Life/Health asset base 379.3 342.2
3) Comprises assets of € 1.2 bn and € 1.5 bn and liabilities of € (6.6) bn and € (5.8) bn as of December 31, 2009 and December 31, 2008 respectively.
5) Including cash and cash equivalents as stated in our segment balance sheet of € 2.5 bn and € 4.8 bn and receivables from cash pooling amounting to € 3.5 bn and € 6.6 bn net of liabilities from securities lending of € 0 bn and € (0.4) bn as of December 31, 2009 and December 31, 2008, respectively. Cash and cash pool assets were down by € 5.0 bn as cash was largely reinvested in longer-term debt or were used for repayment of short-term cash liabilities.
6) Financial assets for unit-linked contracts represent assets owned by, and managed on the behalf of, policyholders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts.
Asset Management assets Our Asset Management segment’s results of operations stem primarily from its management of third­party assets. 1) In this section we refer only to our own assets. In the year 2009, our own asset base of the Asset Management segment without third­party assets remained stable at € 3.0 billion.
Loans and advances to banks and customers 20.7 17.9 Corporate and Other asset base 40.4 36.8
Corporate and Other liabilities Our liabilities to banks and customers amounted to € 21.2 billion after € 20.4 billion at year end 2008. An increase of € 2.8 billion was attributable to the fact that liabilities with Dresdner Bank were external liabilities in 2009 and were no longer consolidated. This effect was slightly compensated by a decrease of term deposits and certificates of deposits from € 4.5 billion to € 3.5 billion.
4) Do not include affiliates of € 67.5 bn and € 63.7 bn as of December 31, 2009 and December 31, 2008, respectively.
5) Including cash and cash equivalents as stated in our segment balance sheet of € 1.1 bn and € 1.4 bn and receivables from cash pooling amounting to € 0.2 bn and € 1.2 bn net of liabilities from securities lending of € 0 bn and € 0 bn as of December 31, 2009 and December 31, 2008, respectively.
Corporate and Other assets In 2009, a new Corporate and Other segment formed, including Holding & Treasury, Banking and Alternative Investments
1) We have changed the definition of the asset bases to better reflect the economic reality: since 1Q 2009 we include cash and cash equivalents and receivables from cash pooling net of liabilities from securities lending in our asset bases.
2) Loans and advances to banks and customers, held-to-maturity investments, and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending upon, among other factors, our ownership percentage.
In the normal course of the business, the Allianz Group may enter into arrangements that do not lead to the recognition of assets and liabilities in the consolidated financial state­ ments under IFRS. The reason is that the Allianz Group does not substantially bear all the risks and rewards associated with these arrangements. These types of arrangements are recorded in the consolidated financial statements only to the extent of the Allianz Group’s involvement which can be, for example, in the form of derivatives, guarantees, or com­ mitments. When the Allianz Group incurs an obligation from the arrangements or becomes entitled to an asset, it is recorded in the consolidated financial statements together with the corresponding loss or gain. In the case of an obliga­ tion, the loss recorded does not always represent the full loss potential inherent in such arrangements. The Allianz Group does not rely on off­balance sheet arrangements as a significant source of revenue and, as such, our off­balance sheet exposure to loss is very small relative to our financial position.
In addition, we would like to especially draw your attention to the Risk Report for main concentrations of risk and other relevant risk positions and to the notes to the Consolidated Financial Statements.
IBNR reserves are established to recognize the estimated cost of losses that have occurred but where the Allianz Group has not yet been notified (incurred but not yet re­ ported, “IBNYR”) as well as additional development on case reserves (incurred but not enough reported, “IBNER”). IBNR reserves, similar to case reserves for reported claims, are established to recognize the estimated costs, including LAE, necessary to bring claims to final settlement. The Allianz Group relies on its past experience, adjusted for current trends and any other relevant factors, to estimate IBNR reserves.
IBNR reserves are estimates based on actuarial projections of the expected cost of the ultimate settlement and admin­ istration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other societal and economic factors. Trends in claim frequency, severity and time­lag in reporting are examples of factors used in pro­ jecting the IBNR reserves. IBNR reserves are reviewed and revised periodically as additional information becomes available.
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. Some of these variables are internal to the Allianz Group, such as changes in claims handling procedures, introduction of new IT systems or company acquisitions and divestitures. Others are external, such as inflation, judicial trends and legislative and regula­ tory changes. The Allianz Group attempts to reduce the uncertainty in reserve estimates through the use of mul­ tiple actuarial reserving techniques and analysis of the assumptions underlying each technique.
Within the Allianz Group, loss and LAE reserves are set locally by reserving actuaries, subject to central monitoring and oversight by the Allianz SE actuarial department (Group Actuarial). This two stage reserving process is de­ signed so that reserves are set by those individuals most familiar with the underlying business, but in accordance with central standards and oversight. Our central standards are designed to ensure that consistent reserving method­ ologies and assumptions are employed across the Allianz Group.
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, with our companies typically dividing reserving data into the smallest possible homogeneous segments, while maintaining sufficient vol­ ume to form the basis for stable projections. For longer­ tailed lines of business such as motor liability, development data going back for up to twenty years or more is used, while for shorter­tailed lines such as property, data going back five to ten years is typically considered sufficient. Once data is collected, we 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, econom­ ic, societal and legal environment. We then develop expect­ ed loss ratios, which are derived from the analysis of histori­ cal 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.
Using the above estimate of ultimate loss and LAE by acci­ dent year – i.e. with respect to the origin year of losses – we directly estimate total loss and LAE reserves by subtracting cumulative payments for claims and LAE through the rel­ evant balance sheet date. Finally, local reserving actuaries calculate the relevant entities’ IBNR reserves as the differ­ ence between (i) the total loss and LAE reserves and (ii) the case reserves as established by claims adjusters on a case­ by­case basis. Estimates for the current accident year deter­ mine 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 run­off – adverse or favorable – in the income statement.
Because loss reserves represent estimates of uncertain future events, our 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 sensi­ tivity testing using alternative assumptions, as well as more sophisticated stochastic techniques. Group reserving stan­ dards require that each company’s local reserve committee meet quarterly to discuss and document reserving deci­ sions and to select the best estimate of the ultimate amount of reserves within a range of possible outcomes and the rationale for that selection for the particular entity.
Minimum standards for actuarial loss reserving Group­wide minimum standards of actuarial reserving define the reserving practices which must be conducted by each operating entity. These standards provide guidance regarding all relevant aspects of loss reserving, including
The charts below show the net run­off triangles of our property­casualty business.
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