D Consolidated financial Statements 218 Content 219 Consolidated Balance Sheets 220 Consolidated Income Statements 221 Consolidated Statements of Comprehensive Income 222 Consolidated Statements of Changes in Equity 223 Consolidated Statements of Cash Flows 226 Notes to the Consolidated Financial Statements e further information 369 Joint Advisory Council of the Allianz Companies 370 International Advisory Board 371 Mandates of the Members of the Supervisory Board 372 Mandates of the Members of the Board of Management 374 Glossary 379 Indexes
thereof: attributable to shareholders € mn 5,169 103.1 % 2,545 5,053 4,207 (2,363) 7,966 7,021 128
Balance sheet as of 31 December 1 thereof: Reserves for insurance and thereof: Reserves for loss and loss
Other data Return on equity after income tax 1,8,9 % 10.5 4.8 %-p 5.7 11.9 12.5 9.9 15.0 15.0 56
3 Figures do not reflect changes in the presentation implemented in 2009. 4 The Allianz Group uses operating profit as a key financial indicator to assess the performance of its business segments and the Group as a whole.
in over 70 COUNTRIES. Our solidity, service and competence is supported by the commitment of approximately 144,000 EMPLOYEES worldwide. Whether property or casualty insurance – we are among the global leaders – also in asset management. We provide life and health solutions to a world in demographic change.
Shareholders’ equity page 166 AA Standard & Poor’s rating since 2007
2 Gross premiums written from our specialty lines have been allocated to the respective geographic regions.
Gross premiums written increased 4.7 % to € 46.9 BN. Solid operating performance: operating profit grew
/ S eg m en t o ve rv ie w
Operating profit € 3,014 mn Total assets under management € 1,852 Bn
Another excellent year. Third-party net inflows of € 114 BN. Strong operating profit development.
Successful in growing Markets allianz is on hand worldwide, especially where it can generate lasting success. Allianz recognizes trends and transforms them into growth opportunities by serving markets that promise profitable, sustainable growth. Agents like Alp Gül, who heads one of Allianz’s most successful agencies in Turkey, benefit from the Allianz brand.
Regular discussions and close cooperation with colleagues from Allianz’s local subsidiary provide useful ideas.
Istanbul already has a population of more than 14 million. A sign of the country’s new standard of living is that people are buying significantly more new cars.
“People are getting used to rising prosperity, and to having their money keep its value better,” says 40-year old Alp Gül, whose insurance agency in Istanbul is one of Allianz’s most successful in Turkey. Many Turks suffered for three decades from serious inflation that began in the early 1970s and only eased at the beginning of the millennium. But the economy has been on the up for nearly a decade now – with gross domestic product tripling during this period and living standards rising fast.
That good reputation is very valuable – it has enabled Allianz to rise above its competitors in the Turkish market, where price competition is tough and has become even tougher over the last two to three years. “Allianz is taking a long-term view with its pricing and underwriting policy to grow profitably and sustainably. And I’ve been finding it easier and easier to explain to clients what real benefits that brings them,” says Gül, who works closely with Allianz Sigorta A.S., the subsidiary in Turkey. One of those benefits is fast, reliable claims adjustment when things get really serious.
“ first someone will take out liability insurance and comprehensive coverage for their car. if they are satisfied with that, they come back to us for health insurance or are interested in providing for retirement”
Alp Gül, owner of An AlliAnz AGency in istAnbul, turkey year BN Try iNcrease1
1 compared to previous year 2 estimation Source insurance association of turkey
The Turkish population is younger than the European average. Half the country’s nearly 75 million people are under the age of 30. “Of course young people first of all want to enjoy their new prosperity,” Gül explains from practical experience. But many, he says, understood long ago that they have to plan for old age, and think about the potential consequences of a serious illness. “First someone will take out liability insurance and comprehensive coverage for their car. If they are satisfied with that, they come back to us for health insurance or are interested in providing for retirement. That way we can pass on the advantages we gain from the synergies within Allianz’s insurance portfolio.”
To keep his clients’ trust over the long term, Gül also has to rely on highly capable employees. His business stands and falls with his staff’s professional qualifications and the excellent level of service they provide. “That’s one of the biggest challenges our industry faces here in Turkey these days. There’s a shortage of qualified personnel that would enable us to mine a bigger share of the growing insurance market.” So for some time now, Gül has taken to training new employees himself. “Anybody who starts work with us gets training from me for a year. Then they attend continuing training events held by Allianz.” The results speak for themselves. That’s the reason why Gül’s agency is one of the most successful in Turkey.
Only a well-qualified field sales team will enable Alp Gül to grow his business faster than the insurance market itself. Turkey’s economic upswing will slow down but is likely to continue, and insurance will remain a product with high growth potential there. “Allianz is an ideal partner for us,” says Gül. “It offers one of the largest insurance portfolios which means we’ll be able to keep satisfying our clients’ rising expectations in the future.”
providing ideal Support for clients allianz’s broad portfolio provides synergies that offer clients major advantages. Allianz has an exceptionally wide range of insurance and asset management products and services that leaves it almost without competition. Which means that general agents like Wolfgang Hiller can provide exactly the kind of support their private and corporate clients need.
“There aren’t all that many people who can list everything that Allianz has on offer worldwide,” says Wolfgang Hiller, owner of an Allianz agency in Biberach an der Riß, Germany. But the 45-year-old agent is one of that elite informed group. “Allianz products like homeowners’, life and health insurance, insurance for vehicle fleets and company retirement plans are probably well known to most people. But with Allianz, my employees and I can cover really practically all areas – including credit insurance and real estate financing,” the agent says. “Allianz products let me serve any client, whether private individuals or corporates, in unique, personalized ways. I take advantage of synergies within the Allianz portfolio and can sell my clients tailor-made products.”
The team talks over all the clients’ current needs once a week. Each of Hiller’s 24 employees specializes in a particular line of insurance.
A single contact person for all a client’s concerns – that is the philosophy at his agency, and it’s been that way ever since he took the place over at the age of 23. “Every client has different requirements. As an agent, we want to understand what the client really needs, what products out of Allianz’s broad portfolio will benefit him or her.”
In a sense, Hiller’s success makes him a real son of his home town. Biberach, located on a sightseeing route that passes major baroque monuments in Upper Swabia, is unique in many ways. And not just because of the splendid aristocratic houses that adorn its old town.
With just short of 32,000 residents, the city has a healthy economy dominated by medium-sized companies, and is second in per capita local business income tax revenue only to Volkswagen’s home town of Wolfsburg in Germany – in other words, more successful than Frankfurt, Munich and Stuttgart. Many of the companies that make Biberach so successful are advised by Hiller and his team.
1 allianz global corporate & Specialty, ART, euler hermes, allianz global assistance totAl revenues AlliAnz Group 2012: eur 106.4 bn
Last May, the Emilia-Romagna region was shaken by earthquakes measuring 5.8 to 6 on the Richter scale. Twenty-five people lost their lives and 15,000 were made temporarily homeless. Titan Italia, a leading maker of wheels for agricultural utility vehicles, was among those affected. An Allianz claims adjuster was on site just a short time later. “We can be practically anywhere in the world within 24 hours,” explains Shell, Global Head of Claims for Property Insurance at Allianz Global Corporate & Specialty (AGCS), the Allianz Group’s industrial insurer. “As soon as we hear of a major loss or natural disaster, we contact our clients, get on site, work out the necessary emergency steps with them and organize the claims handling process.”
When it comes to adjusting major losses, quick interim measures by the insurer can decide whether a company will continue to hold its own in the market or lose market share. The longer it takes to get a business back to normal, the more expensive it is for both
Other parts were at serious risk of collapsing. But even worse for the company was the business interruption. Joachim Hufenreuter, the AGCS claims adjuster for the area, was quickly on location to coordinate measures for a quick restart of production with Ms. La Manna. Some production steps had to be outsourced to ensure deliveries to clients were still on time. The insurer was able, right away and right on the spot, to give assurances about settling the claim.
Titan Italia is an example of how much a client can benefit from working hand in hand with Allianz. Close cooperation between the insured and the insurer made it possible for us to provide advance payments for additional costs so that production could restart quickly. Less than a year after the quake, Titan Italia is back in the market at full strength.
Solvency ratios demonstrate how agcs companies are backed by substantial excess capital. These are calculated at year end (31 December) and are shown below for each of agcs’s primary operating companies: gross premiums wriTTeN 2012 By BusiNess LiNe1 gross premiums wriTTeN 2012 By regioN (iNcL. arT)1
business portfolio of AlliAnz GlobAl corporAte & speciAlty 1 excludes other business premiums outside core lines of business.
always early in every Market in the world first-class asset management with meticulous analysis and on-site research. Projections from the fund managers at pimco – Pacific Investment Management company, LLc, Allianz’s largest asset management company – about developments in the capital market are so important to business, top management’s doors are wide open to them. The company is recognized more and more widely as an authority.
By that time, Mark Kiesel and his team have already been at work for hours (right).
Mark kiesel PiMco, NewPort Beach Mark Kiesel, 43, has been a fund manager at PIMCO for 17 years. Doors are open for him at every company. Because the work that he and his staff do has a direct impact on business.
A few hundred meters inland from the beach is the office of PIMCO, one of Allianz’s asset management companies (bottom).
Newport Beach, an hour’s drive south of Los Angeles, is especially well known to surfers. Early in the morning, before most people even get to work, you can see a surfer or two riding the waves out in the Pacific. A few hundred meters inland, in the middle of town, it is an entirely different scene. Mark Kiesel and his colleagues from PIMCO – Pacific Investment Management Company LLC – are sitting in a conference room contemplating a very different kind of risk than the surfers out at sea. Mark is the global head of the corporate bond portfolio management group and chairing today’s credit team portfolio review meeting, attended by a group of 14 men and women, with three more tuned in from New York via videoconference. As they do every Friday morning, the fund managers are discussing risk – and even more importantly, opportunities.
“The real estate market is probably picking up steam in the USA, and it could stay that way for several years. The U.S. housing market is in the beginning stages of a multi-year recovery and global central banks could continue to “reflate.” As such, the housing-related, building materials, lumber, title insurance, energy, pipeline, U.S. banking and gaming sectors are among the most promising,” says Kiesel, 43, who has spent 17 years at PIMCO, one of the world’s leading asset managers.
What Kiesel has just told his staff, puts him at odds with many other market watchers. But a tendency to swim against the tide is a trait shared by all fund managers at PIMCO, a company formed in 1971 as a subsidiary of a life insurer and financial service provider, and a part of the Allianz Group for 13 years now.
“Each of these trips is planned with military precision,” says Kiesel. “When we arrive on site, everybody knows exactly what to do and whom they need to talk to.” Because PIMCO’s projections are so important to
Group Managemant Report / Asset Management operating profit 2012 (in EUR) : allianz aSSet ManageMent 3,014 Mn
But the logic behind Kiesel’s investment philosophy becomes clear as he asks one staff member after another to present companies that meet his criteria. “Company XYZ has a leverage of 4.5x,” reports the first colleague he calls on. “And how high will their profit growth be in the next two years?,” he asks. “We expect 15 – 20 percent,” she answers. “XYZ gathers and processes oil and natural gas in the major ‘shale’ regions across America. So XYZ is profiting from the current boom in U.S. oil and natural gas production.”
As he does every Friday, Mark Kiesel (front) asks one staff member after another to suggest companies that meet all the criteria of PIMCO’s investment philosophy.
Via allianz SE, allianz asset Management has access to more than allianz aSSet ManageMent million clients
TOM WILSON ALLIANZ SE, MUNICH Tom Wilson has been in charge of risk management at Allianz for five years. “Risk Magazine”, an industry magazine, crowned him 2010 “Insurance Chief Risk Officer of the Year”.
Risk management is at the core of Allianz’s business. “We can’t create lasting value for our clients, shareholders and employees without taking risks. As such, one of our most important tasks as an insurance company is to take the ‘right’ risks in the ‘right’ amounts and at a fair price,” Wilson explains.
“ one of the biggest contributions allianz can make to society and as a partner in our local communities is through our products and services: our life insurance, savings and investment products help families protect themselves against many of life’s uncertainties”
Tom Wilson has initiated a very important process at Allianz: Employees in business operations in particular must come to understand that risk managment is a culture that must be part of their daily work.
As Chief Risk Officer, Tom Wilson has introduced stable, efficient and controlled risk reporting. He has also helped to ensure that risk management is actually put into practice.
Looking back on the risk management challenges he has faced at Allianz, Wilson says, “Since I joined, there’s been one external crisis after another – the banking crisis of 2008, the sovereign debt crisis of 2011 - 12 – each accompanied by highly volatile financial markets, slower economic growth and lower interest rates. Thanks to its disciplined risk management and culture, Allianz has remained one of the soundest financial service providers in the world and has performed solidly in its business operations during these periods of turbulence.”
“ thanks to its disciplined risk management and culture, allianz has remained one of the soundest financial service providers in the world”
The Allianz “Risk Barometer” survey was conducted among risk consultants, underwriters, senior managers and claims experts in the corporate insurance segment of both Allianz Global corporate & Specialty and local Allianz entities. figures represent the number of responses as a percentage of all survey responses (843).
Despite the continuing crisis in the eurozone and other problems in many regions, we have just completed our most successful year since the financial downturn began.
To Our Investors 35 Letter to the Investors 40 supervisory Board Report 49 supervisory Board 50 Board of Management 53 International executive Committee 54 Allianz share 59 services for Allianz Investors
From an Allianz perspective, the year started with significant changes to our management team: Paul Achleitner, Enrico Cucchiani and Joachim Faber left the Board of Management in the first half year of
From an economic perspective, 2012 was another challenging year. The continuing Euro crisis, subdued economic growth and interest rates falling further put pressure on financial service companies. I am nevertheless more confident regarding the future of the Euro now than I was a year ago, since the stepwise progress in dealing with the crisis has shown positive effects. However, a sustainable response to the sovereign debt crisis is still awaited. And, until this happens, there are still significant risks in the system.
Therefore one of our priorities in 2012 was the preparation for potential stress scenarios. Among other things, we carefully assessed the risks of a worsening Euro crisis and took appropriate measures – for example by substantially derisking our investments.
from our U.S. based P&C subsidiary, Fireman’s Fund, which was hit particularly hard by persistent drought and Storm Sandy. In addition, Fireman’s Fund had to significantly strengthen its reserves for contracts with long-tail risks underwritten in the past.
We have already set the right course for those areas we can influence. The spotlight is now on fast and comprehensive execution. Due to extremely low interest rates, investment results will continue to be below the levels we have become accustomed to. Therefore, it is now more important than ever to continuously increase our operating strengths. For us this means an ongoing focus on smart investments in technology, people and distribution, as well as continuing to out - perform our competitors when it comes to selecting and pricing risk.
Digitalization will be the key issue for the years to come, both in terms of how we operate our business and how we interact with our clients.
Overview Within the framework of our monitoring and advisory activities, the Board of Management informed us on a regular basis, and in a timely and comprehensive manner, both verbally and in writing, on the course of business, as well as on the economic and financial development of Allianz Group and Allianz SE, including deviations in actual business developments from existing plans. Further key areas the Board of Management reported on were the business strategy, capital adequacy, the effects of the ongoing sovereign debt crisis in Europe, international discussions surrounding the systemic relevance of major financial institutions as well as the status of implementation of the Solvency II Directive. In addition, we were extensively involved in the Board of Management’s planning for both the 2013 fiscal year and the medium term.
The Board of Management’s reports on the business situation and other topics were supplemented by presentations and documents which members of the Supervisory Board received in preparation for each meeting. Likewise, the annual financial statements of Allianz SE, the consolidated financial statements and the auditor’s reports were available to us in time for the meeting. The half-yearly and quarterly financial reports as well as the results of the auditor’s review were provided in advance to members of the Audit Committee. Where activities by the Board of Management were subject to approval by the Supervisory Board or one of its committees, the respective resolution was adopted.
In the 2012 fiscal year, the Supervisory Board held five meetings and one telephone conference. The regular meetings took place in March, May, September and December. There was also an inaugural meeting following the election of the Supervisory Board at the Annual General Meeting (AGM) in 2012. Additionally, following the meeting of the Audit Committee in February 2012, a telephone conference was held regarding the Board of Management’s dividend recommendation. After Dr. Cromme’s resignation from the Supervisory Board and the court’s appointment of Ms. Bosse as a member of the Supervisory Board in August 2012, Dr. Bernotat was appointed Deputy Chairman of the Supervisory Board and committees were newly constituted by way of written procedure.
The Board of Management also informed us in writing of important events that occurred between meetings. The Chairmen of the Supervisory Board and the Board of Management also held regular discussions about major developments and decisions. With two exceptions, all of the Supervisory Board’s meetings were attended by every member. Mr. Landau and Mr. Sutherland were absent with a valid excuse from the inaugural meeting on 9 May 2012, as was Mr. Landau from the meeting on 12 December 2012. On both occasions, the absent members participated in resolutions by written vote. No conflicts of interest occurred in 2012 that must be disclosed to the Supervisory Board and reported to the AGM.
Over the course of the past fiscal year, the effects of the sovereign debt crisis in Europe and its consequences for our risk strategy and risk management formed a key aspect of our work on the Supervisory Board.
The Standing Committee held three regular meetings in 2012. These related primarily to corporate governance issues, preparations for the AGM, the Employee Stock Purchase Plan and a review of the Supervisory Board’s efficiency. The committee passed resolutions requiring approval on the use of Authorized Capital 2010/II for the issue of shares to employees and to approve loans to senior executives.
Corporate Governance Report and Statement on Corporate Management pursuant to § 289a of the HGB
The Audit Committee held five meetings in the 2012 fiscal year. In the presence of the auditors, it discussed the Allianz SE and Allianz Group consolidated financial statements, management reports and auditor’s reports. In addition, the committee checked the half-yearly and quarterly financial reports and, together with the auditors, went through the details of the auditor’s review of these financial statements. After carrying out these checks, the Audit Committee saw no reason to raise any objections. The committee also reviewed the auditor’s engagement and established priorities for the annual audit. In addition, assignments to the auditors for services not connected to the audit itself were discussed. In July, a written resolution granted approval to issue a mandate to the auditor for a project in connection with the U.S. Foreign Account Tax Compliance Act. The committee also dealt with the risk management and risk monitoring system, the compliance system, the internal auditing system as well as the accounting process and internal financial reporting control mechanisms – including the appropriateness of the respective systems and processes. The committee received regular reports from the Head of Group Audit, from the General Counsel and from the Chief Compliance Officer on material audit results and their status as well as on legal and compliance issues. In the February meeting, the committee also discussed the merger of the Legal and Compliance divisions into a single Group Legal & Compliance division. In its November 2012 meeting, the committee approved the audit plan by Group Audit for 2013.
The Risk Committee held two meetings in 2012. The committee continued the efficiency review which had begun in the previous year and dealt in particular with the allocation of tasks between the Risk and the Audit Committee. In both meetings, the committee discussed the current risk situation of the Allianz Group with the Board of Management and received reports on the progress of preparations for the risk-oriented development of statutory capital requirements for insurance companies (“Solvency II”). The committee again dealt extensively with the consequences of the sovereign debt crisis in Europe and with measures for risk reduction. The risk report, as well as other risk-related statements in Allianz SE, consolidated financial statements and management and group management reports, were preliminarily reviewed by the auditor and the Audit Committee was informed of the result. The appropriateness of the early risk recognition system in Allianz was also discussed.
The Nomination Committee met once during the year. The meeting was convened to prepare the Supervisory Board’s resolution on the amendment of the objectives for the composition of the Supervisory Board. The amendment was necessary due to changes in the Code.
Chair and committees of the Supervisory Board – as of 31 December 2012 Chairman of the Supervisory Board Dr. Helmut Perlet Deputy Chairmen Dr. Wulf Bernotat, Rolf Zimmermann Standing Committee Dr. Helmut Perlet (Chairman), Dr. Wulf Bernotat, Prof. Dr. Renate Köcher, Gabriele Burkhardt-Berg, Rolf Zimmermann Personnel Committee Dr. Helmut Perlet (Chairman), Christine Bosse, Rolf Zimmermann Audit Committee Dr. Wulf Bernotat (Chairman), Igor Landau, Dr. Helmut Perlet, Jean-Jacques Cette, Ira Gloe-Semler Risk Committee Dr. Helmut Perlet (Chairman), Christine Bosse, Peter Denis Sutherland, Dante Barban, Franz Heiß Nomination Committee Dr. Helmut Perlet (Chairman), Prof. Dr. Renate Köcher, Peter Denis Sutherland audit Of annual accOunts and cOnsOlidated financial statements In compliance with the special legal provisions applying to insurance companies, the statutory auditor and the auditor for the review of the half-yearly financial report are appointed by the Supervisory Board of Allianz SE and not by the AGM. The Supervisory Board has appointed KPMG as statutory auditor for the annual accounts and the consolidated financial statements as well as for the review of the half-yearly financial report. KPMG audited the financial statements of Allianz SE and Allianz Group as well as the respective management reports. They issued an audit opinion without any reser vations. The consolidated financial statements were prepared on the basis of the international financial reporting standards (IFRS), as applied in the European Union. KPMG performed a review of the half-yearly and quarterly financial reports.
All Supervisory Board members received the documentation relating to the annual financial statements and the auditor’s reports from KPMG for the 2012 fiscal year on schedule. The provisional financial statements and KPMG’S audit results were discussed in the Audit Committee on 19 February 2013 and in the plenary session of the Supervisory Board on 20 February 2013. The final financial statements and KPMG’S audit reports were reviewed on 14 March 2013 by the Audit Committee and in the Supervisory Board plenary session. The auditors participated in these discussions and presented the main results from the audit. No material weaknesses in the internal financial reporting control process were discovered. There were no circumstances that might give cause for concern about the auditor’s independence.
memBers Of the supervisOry BOard and BOard Of manaGement The term of the Supervisory Board expired following the AGM on 9 May 2012. Therefore, the Supervisory Board was newly elected at the general meeting of 2012. The six employee representatives on the Supervisory Board were elected on the basis of proposals from employees. The general meeting was bound by these proposals in accordance with company Statutes. The Supervisory Board mandates of Dr. Henning Schulte-Noelle, Godfrey Robert Hayward, Peter Kossubek, and Jörg Reinbrecht ended following the AGM on 9 May 2012. The Supervisory Board would like to thank all members for their valuable and faithful work.
Dr. Helmut Perlet was newly elected to the Supervisory Board of Allianz SE as a shareholder representative. The following persons were newly elected to the Supervisory Board of Allianz SE as employee representatives: Gabriele Burkhardt-Berg, Ira Gloe-Semler and Dante Barban. Otherwise, the general meeting affirmed all other members of the Supervisory Board in their previous posts. Therefore, Prof. Dr. Renate Köcher and Dr. Wulf H. Bernotat, Dr. Gerhard Cromme, Igor Landau, Dr. Helmut Perlet and Peter Denis Sutherland became shareholder representatives on the Supervisory Board of Allianz SE. The employee representatives on the Supervisory Board are Gabriele Burkhardt-Berg, Ira Gloe-Semler, Dante Barban, Jean-Jacques Cette, Franz Heiß and Rolf Zimmermann. In accordance with the distribution of seats pursuant to the agreement on the participation of employees in Allianz SE dated 20 September 2006, there are again four employee representatives from Germany and one representative each from Italy and France – Mr. Barban and Mr. Cette. The current term of the Supervisory Board will expire following the 2017 AGM.
The newly elected Supervisory Board appointed Dr. Helmut Perlet as Chairman. Two Deputy Chairmen were appointed. These were Dr. Gerhard Cromme, based on the proposal of shareholder representatives, and Rolf Zimmermann based on the proposal of employee representatives.
Effective 14 August 2012, Dr. Gerhard Cromme resigned as a member of the Supervisory Board of Allianz SE. By order of the Munich District Court, Christine Bosse was appointed to the Supervisory Board of Allianz SE effective as of 15 August 2012 until the conclusion of the 2013 AGM. Therefore, an election to the Supervisory Board will be held in the AGM in 2013. Based on the proposal from shareholder representatives, Dr. Wulf H. Bernotat was appointed successor to Dr. Cromme as Deputy Chairman of the Supervisory Board of Allianz SE.
There was also a change on the Board of Management of Allianz SE. Dr. Paul Achleitner resigned effective 31 May 2012. In December 2011, the Supervisory Board had already appointed Dr. Maximilian Zimmerer as his successor on the Board of Management of Allianz SE as of 1 June 2012.
The Supervisory Board was informed by the Board of Management of the responsibilities of the individual members of the Board of Management and offered its advice in this regard.
Supervisory Board Dr. Helmut Perlet since 9 May 2012 Chairman Former Member of the Board of Management of Allianz SE
cHriStine BoSSe since 15 August 2012 Former Group Chief Executive Officer of the Executive Management of Tryg gaBriele BurkHarDt-Berg since 9 May 2012 Chairwoman of the Group Works Council of Allianz SE
Jean-JacqueS cette Chairman of the Group Works Council of Allianz France S.A.
Jörg reinBrecHt until 9 May 2012 Union Secretary of ver.di Bezirk Hannover
International Executive Committee micHael Diekmann Chairman, Allianz SE Germany amer aHmeD Allianz Re Germany oliver Bäte Allianz SE Germany manuel Bauer Allianz SE Germany gary BHoJWani Allianz SE Germany clement BootH Allianz SE Germany
Bruce BoWerS CEEMA Germany eliZaBetH corley Allianz Global Investors Germany moHameD el-erian PIMCO USA
JacqueS ricHier Allianz France France markuS rieSS Allianz Deutschland AG Germany klauS-Peter roeHler Allianz Suisse Switzerland george Sartorel Allianz S.p.A. Italy vicente tarDío Barutel Allianz Companía de Seguros y Reaseguros Spain axel tHeiS Allianz Global Corporate & Specialty Germany anDreW torrance Allianz Insurance plc United Kingdom
Stock markets on the road to recovery After a solid start to the year, market sentiment turned negative. This continued until the summer and was linked with the Greek sovereign debt crisis, growing concerns about the Spanish economy and fears that the Eurozone could disintegrate. It was only when the European Central Bank announced, in late July, that it would do everything in its power to safeguard the Euro that the turnaround started. Since then, confidence has risen and investors have returned to Europe’s stock exchanges. This has benefited the German stock market in particular, with the DAX gaining 29.1 %, while the European EURO STOXX 50 index reported a more moderate increase of 13.8 %.
The upward share price trend in 2012 also helped make Allianz shares an attractive investment in the longer term. For example, investors who have held our shares in their portfolio for 10 years and reinvested the dividends in Allianz shares will have earned an average annual total shareholder return of 6.2 %. We provide a share calculator for our investors at www.allianz.com/share, allowing them to determine the performance of their Allianz investment.
AlliAnz shAre performAnce in compArison A 003 average annual performance in %
1 Based on net income after non-controlling interests. 2 Dividend sum based on total amount of shares. Actual dividend payment will be reduced by the dividend amount attributable to treasury shares.
A To Our Investors 35 Letter to the Investors 40 Supervisory Board Report 49 Supervisory Board 50 Board of Management 53 International Executive Committee 54 Allianz Share 59 Services for Allianz Investors www.allianz.com/share
Share type Registered shares with restricted transfer Security codes WKn 840 400
Dividend per share in € Total dividend in € MN 1 Proposal. 2 Dividend sum based on total amount of shares. Actual dividend payment will be reduced by the dividend amount attributable to treasury shares.
Dividend yield as of 31 December % 4.3 6.1 5.1 4.7 4.7
4 Dividend sum based on total amount of shares. Actual dividend payment will be reduced by the dividend amount attributable to treasury shares.
Allianz share as a sustainable investment Our holistic entrepreneurial approach has long been recognized and resulted in our stock’s listing in major sustainability indices such as the Dow Jones Sustainability Index and the FTSE4Good. This is just one of the reasons why we are considered one of the most sustainable financial services providers worldwide.
To demonstrate our commitment to sustainability, we have established a Group Environmental, Social and Governance (ESG) Board. We believe the Group’s focus on and clear commitment to ESG issues in all our business activities enhances the attractiveness of Allianz shares for investors.
More information on sustainability in the Allianz Group is provided starting on page 109 of this Annual Report and at www.allianz.com/sustainability.
With around 453,000 shareholders, Allianz is one of the largest publicly owned corporations in Europe. Apart from approximately 0.6 % of Allianz shares held in treasury, all of our shares continue to be held in free float. At the end of the year, 85 % were held by institutional investors and 15 % by private investors. The breakdown by region shows that 73 % of Allianz shares were owned by European investors and 27 % by non-European investors. Compared to the previous year, the number of shareholders dropped by 7 %.
Source: Allianz SE share register regionAl structure A 011 as of 31 December 2012 [31 December 2011] in % of subscribed capital
The work of our IR team was again rewarded several times by analysts and portfolio managers in 2012.
– For the sixth time in a row, the ir team ranked top of the European insurance sector in the “Extel Pan European Survey” conducted by Thomson Reuters. Additionally, for the second time in a row, Thomson Reuters awarded our head of ir the title of “Leading Pan-European ir Professional” across all European industry sectors.
– The finance magazine “Institutional Investor” selected our ir team in 2012 as the best in European insurance.
Decide for yourself how you want to be kept up to date. With our corporate website Allianz.com, two iPad apps, an iPhone app and the mobile website m.allianz.com, our IR information is easily accessible wherever you are and whatever device you are working on.
Allianz Investor Relations website On the IR website, you can find all the latest press releases, presentations and quarterly and annual comparisons at a glance. You can also find audio and video recordings of press and analysts’ conferences, as well as video interviews with our Board of Management members.
Allianz Financial Reports App Our Allianz Financial Reports iPad App allows you to read our annual and interim reports in a digital magazine format. The user-friendly navigation means that the information you are looking for is just a few finger taps away. You decide whether you want to see a summarized overview or detailed information (graphics, tables, footnotes, etc.)
Allianz Investor Relations Apps We use our apps to ensure that even readers who are in a hurry or want to stay up to date while on the move can access the most important investor information about Allianz quickly and easily.
Allianz Investor Line Mon - Fri: 8 a.m. – 8 p.m. CET
Important dates for shareholders and analysts see financial calendar (back cover)
63 Corporate governance report 69 Statement on Corporate Manage ment pursuant to § 289a of the HGB (part of the group Management report) 71 takeover-related Statements and explanations (part of the group Management report) 74 remuneration report (part of the group Management report)
Corporate Governance Report Good corporate governance is essential for sustainable business performance. That is why the Board of Management and the Supervisory Board attach great importance to complying with the recommendations of the German Corporate Governance Code (referred to hereinafter as the
“Code”). Allianz SE complies with all of the current Code’s recommendations and suggestions. The Declaration of Confor mity issued by the Board of Management and Supervisory Board on 12 December 2012 and the company’s position regarding the Code’s suggestions can be found in the Statement on Corporate Management pursuant to § 289a of the HGB starting on page 69.
Corporate Constitution of the European Company As a European Company, Allianz SE is subject to special European SE regulations and the German law implementing the European Company in addition to German stock corporation law. The main features of the company’s existing corporate constitution – in particular the two-tier board system (Board of Management and Supervisory Board) and the principle of equal employee representation on the Super visory Board – have been maintained by Allianz SE. For further details on the differences between a German stock corporation and a European Company with a registered office in Germany, please refer to www.allianz.com/ allianz-se.
Function of the Board of Management The Board of Management manages Allianz SE and the Allianz Group. It currently comprises eleven members from several countries. Its responsibilities include setting business objectives and the strategic direction, coordinating and supervising the operating entities, as well as implementing and overseeing an efficient risk management system. In this context, the Board of Management is responsible for monitoring adherence to statutory provisions and official regulations. The Board of Management also prepares the quarterly and half-yearly financial reports, as well as the consolidated Annual Report of the Group and the Annual Report of Allianz SE.
The latter include the Chairman’s division, the Finance-, Risk Management- and Controlling-Function, Investments, Operations, Human Resources, and Legal and Compliance. Business division responsibilities focus on geographic regions or operating segments, such as Asset Management. Rules of Procedure specify in more detail the work of the Board of Management. Such rules set out the specific responsibilities of Board members, matters reserved for the whole Board and other procedures necessary to pass resolutions.
Board of ManaGeMent and Group CoMMittees Members of the Board of Management’s committees – the Group Capital Committee, the Group Finance Committee, the Group IT Committee and the Group Risk Committee – are elected from within the Board itself.
Group CapitaL CoMMittee Michael Diekmann (Chairman), Dr. Paul Achleitner until 31 May 2012, Oliver Bäte until 31 December 2012, Dr. Dieter Wemmer from 1 January 2013, Dr. Maximilian Zimmerer from 1 June 2012
Group it CoMMittee Dr. Christof Mascher (Chairman), Oliver Bäte until 31 December 2012, Jay Ralph, Dr. Dieter Wemmer from 1 January 2013, Dr. Werner Zedelius
Developing, implementing and monitoring the Groupwide it strategy, approval of relevant it investments.
The Board has also set up the Group Compensation Committee, the Group Underwriting Committee and the International Executive Committee as permanent Group committees. These Group committees prepare decisions for the Board of Management of Allianz SE, submit proposals for resolutions and ensure the smooth flow of information within the Group.
Discussion of overall strategic issues for the Allianz Group (for composition, see page 53).
The responsibilities and composition of Board of Management and Group committees are set out in the respective Rules of Procedure, which require the approval of the Board of Management.
The Allianz Group runs its operating entities and business segments via an integrated management and control process. The Holding and the operating entities first define the business strategies and goals. On this basis, joint plans are then prepared for the Supervisory Board’s consideration when setting targets for performance-based remuneration of the members of the Board of Management (for details, please see the Remuneration Report starting on page 74). When filling managerial positions, the Board of Management takes diversity into consideration and, in particular, aims for an appropriate representation of women. In particular, 30 % of managerial positions in Germany are to be filled by women by 2015.
Certain important decisions of the Board of Management require approval by the Supervisory Board. Some of these requirements are stipulated by law or by decisions of the Annual General Meeting (AGM). These include approval for
the Board of Management to increase the share capital (Authorized Capital), acquire treasury shares or issue convertible bonds or bonds with warrants. In addition, the Statutes also provide approval requirements for certain transactions, such as intercompany agreements and the launch of new business segments or the closure of existing ones, insofar as such actions are material to the Group. Approval is also required to acquire companies and holdings in companies as well as divestments of Group companies which exceed certain threshold levels. The Agreement concerning the Participation of Employees in Allianz SE requires the approval of the Supervisory Board for the appointment of the member of the Board of Management responsible for employment and social welfare.
Principles and Function of the Supervisory Board The German Co-Determination Act (“Mitbestimmungsgesetz ”) does not apply to Allianz SE because it has the legal form of a European Company (SE). The size and composition of the Supervisory Board are instead determined by general European SE regulations. These regulations are implemented in the Statutes and by the Agreement concerning the Participation of Employees in Allianz SE dated 20 September 2006. The agreement can be found on our website at www.allianz.com/allianz-se.
The Supervisory Board oversees and advises the Board of Management on managing the business. It is also responsible for appointing the members of the Board of Management, determining their remuneration and reviewing
In the fiscal year 2012, the Supervisory Board held four regular meetings and one inaugural meeting. Starting with the 2013 fiscal year, the Supervisory Board will meet three times each half calendar year. Extraordinary meetings may be convened as needed. The committees also hold regular meetings. The Supervisory Board takes all decisions based on a simple majority. The special requirements for appointing members to the Board of Management contained in the German Co-Determination Act and the requirement for a Conciliation Committee no longer apply to an SE. In the event of a tie, the casting vote lies with the Chairman of the Supervisory Board, who must be a shareholder representative. If the Chairman is not present in the event of a tie, the casting vote lies with the deputy chairperson from the shareholder side. A second deputy chairperson is elected on the proposal of the employee representatives, but has no casting vote.
supervisory Board CoMMittees Part of the Supervisory Board’s work is carried out by its committees. The composition of committees and the tasks assigned to them are regulated by the Supervisory Board’s rules of procedure. The Supervisory Board receives regular reports on the activities of its committees.
− Preparation of the Declaration of Conformity pursuant to § 161 Aktiengesetz (German Stock Corporation Act) and control of corporate governance
− Initial review of the annual Allianz se and consolidated financial statements, management reports (incl. risk report) and the dividend proposal, review of half-yearly and quarterly financial reports
− Monitoring of the audit procedures, including the independence of the auditor and the services additionally rendered, awarding of the audit contract and discussion of key issues related to the external audit risk CoMMittee 5 members − Chairman: appointed by the Supervisory Board (Dr. Helmut Perlet) − Three shareholder representatives (Christine Bosse, Dr. Helmut Perlet,
Management members, unless reserved for the plenary session − Long-term succession planning for the Board of Management, taking diversity into account and, in particular, aiming for an adequate representation of women
Supervisory Board in compliance with the Code’s recommendations on the composition of the Supervisory Board
− Selection of suitable candidates for the election to the Supervisory Board as shareholder representatives
oBjeCtives of tHe supervisory Board reGardinG its CoMposition In order to implement a recommendation of the Code, the Supervisory Board specified the following objectives for its composition at its meeting on 12 December 2012: oBjeCtives of tHe supervisory Board reGardinG its CoMposition B 004
“The aim of Allianz se’s Supervisory Board is to have members who are equipped with the necessary skills and competence to properly supervise and advise Allianz se’s management. Supervisory Board candidates should possess the professional expertise and experience, integrity, motivation and commitment, independence and personality required to successfully carry out the responsibilities of a Supervisory Board member in a financialservices institution with international operations. To promote additional cooperation among Supervisory Board members, care should be taken in selecting the candidates to ensure that adequate attention is paid to ensuring diversity in occupational backgrounds, professional expertise and experience.
1. Specialist knowledge – At least one member must have considerable experience in the insurance and financial services fields – At least one member must have expert knowledge of accounting and auditing within the meaning of § 100 (5) of the German Stock Corporation Act
1 See the BaFin notice on the monitoring of members of administrative and supervisory bodies pursuant to the German Banking Act (KWG) and the German Insurance Supervision Act (VAG) dated 3 December 2012.
In accordance with these objectives, currently four people with an international background and four women are on the Supervisory Board. This is in line with our objectives regarding international character and the representation of women. The current composition of the Supervisory Board and its committees is described on page 46.
Shares held by members of the Board of Management and the Supervisory Board
Shareholders exercise their rights at the AGM. When adopting resolutions, each share carries one vote. In order to facilitate the exercise of shareholders’ rights, Allianz allows shareholders to follow the AGM’s proceedings on the internet and be represented by proxies appointed by Allianz SE. These proxies exercise voting rights exclusively on the basis of instructions given by the shareholder. Shareholders are also able to cast their votes by postal vote. This option is also available via the internet in the form of online voting. Allianz SE regularly promotes the use of email and internet services.
The AGM elects the members of the Supervisory Board and approves the actions taken by the Board of Management and the Supervisory Board. It decides on the use of profits, capital transactions and the approval of intercompany agreements, as well as the remuneration of the Supervisory Board and changes to the company’s Statutes. Changes to the Statutes require the backing of at least half of the share capital or a two-thirds majority of votes cast in accordance with European regulations and the Statutes. Each year, an ordinary AGM takes place at which the Board of Management and Supervisory Board give an account of the preceding finan cial year. For special decisions, the German Stock Corpo ration Act provides for the convening of an extraordinary AGM.
Accounting policies and audit of financial statements The Allianz Group prepares its accounts according to § 315a of the German Commercial Code (“Handelsgesetzbuch – HGB”), on the basis of IFRS international accounting standards as applied within the European Union. The finan cial statements of Allianz SE are prepared in accordance with German law, in particular, the HGB.
To ensure maximum transparency, we inform our shareholders, financial analysts, the media and the general public of the company’s situation on a regular basis and in a timely fashion. The annual financial statements of Allianz SE, the Allianz Group’s consolidated annual financial statements and the management reports are published within 90 days after the end of each financial year. Additional information is provided in the Allianz Group’s quarterly and half-yearly financial reports, which are reviewed by the auditor. Information is also made available at the AGM, at press conferences and analysts’ meetings, as well as on the Allianz Group’s website. Our website also provides a financial calendar listing the dates of major publications and events, such as annual reports, quarterly and half-yearly financial reports and AGMs.
The Declaration of Conformity and further information on corporate governance at Allianz can be found on our website at www.allianz.com/corporate-governance.
The listed Group company Oldenburgische Landesbank AG issued its own Declaration of Conformity in December 2012, which states that Oldenburgische Landesbank AG complies with all of the recommendations of the German Corporate Governance Code in its version of 15 May 2012.
It helps us to accomplish our objectives by introducing a systematic, disciplined approach and thus contributing to the evaluation and improvement of the effectiveness of www
“Declaration of Conformity by the Management Board and the Supervisory Board of Allianz se with the recommendations of the German Corporate Governance Code Commission in accordance with § 161 of the German Stock Corporation Act (AktG)
1. Allianz se fully complies and will continue to fully comply with the recommendations of the German Corporate Governance Code Commission in the version of 15 May 2012, published by the Federal Ministry of Justice in the official section of the Federal Gazette (Bundesanzeiger).
2. Since the last Declaration of Conformity as of 14 December 2011, Allianz se has complied with the recommendations of the Code in the version of 26 May 2010 with the exception to No. 5.4.6 para. 2 sentence 1 of the Code (the compensation rules for the Supervisory Board of Allianz se do not provide for any performance-related components. The company believes fair fixed remuneration is more suitable to the control function of the Supervisory Board irrespective of success of the company). Since the German Corporate Governance Code in the version of 15 May 2012 does not contain a recommendation for performance-related compensation components for the Supervisory Board anymore, there will be no deviation in this regard in the future.
For the Board of Management: Signed Michael Diekmann Signed Dr. Helga Jung
the risk management, control and governance processes. Therefore, internal audit activities are geared towards helping the company to mitigate risks as well as further assist in strengthening its governance processes and structures.
comPlIance anD antI-money launDerInG ProGram The sustained success of the Allianz Group is based on the responsible behavior of all Group employees, who embody trust, respect and integrity. By means of the compliance and anti-money laundering program coordinated by its independent central compliance department, Allianz supports and follows internationally and nationally recognized guidelines and standards for rules-compliant and valuebased corporate governance. These include the UN Global Compact Program, the OECD Guidelines for Multinational Enterprises, embargo regulations and the recommendations of the Financial Action Task Force on Money Laundering (FATF). Allianz manages the risk of infringements against statutory provisions and requirements (compliance risk) through its support for and adherence to these international and national principles. At the same time, it integrates sustainability and social responsibility in its corporate conduct. The independent central compliance department is responsible, in close cooperation with local compliance departments, for ensuring the effective implementation and monitoring of the compliance and antimoney laundering program within Allianz as well as for the investigation of any suspected infringement.
The standards of 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 is available on our website at www.allianz.com/corporategovernance.
The Code of Conduct and the internal guidelines derived from it provide all employees with clear guidance on behavior that lives up to the values of the Allianz Group. In order to transmit the principles of the Code of Conduct and other compliance guidelines and controls effectively and on a sustained basis, Allianz has implemented interactive training programs around the world. These provide practical guidelines which enable employees to come to their own decisions and avoid potential conflicts of interest. The Code of Conduct also forms the basis for guidelines and controls to ensure fair dealings with Allianz Group customers (sales compliance).
There are legal provisions against corruption and bribery in almost all countries in which Allianz has a presence. For this reason, a global Anti-Corruption Program was established in the summer of 2009, which provides for the continuous monitoring and improvement of the internal anti-corruption controls. (For further information on the Anti-Corruption Program, please refer to Our Progress in Sustainable Development starting on page 109.)
A major component of the Allianz Group’s compliance program is a whistleblower system that allows employees to alert the relevant compliance department confidentially about irregularities. Employees who voice concerns about irregularities in good faith should not fear retribution in any form, even if the concerns turn out to be unfounded at a later date.
A general description of the functions of the Board of Management, the Supervisory Board and their committees can be found in the Corporate Governance Report starting on page 63 and on our website at www.allianz.com/corporate-governance. www
Takeover-related Statements and Explanations Statements pursuant to § 289 (4) and § 315 (4) of the German Commercial Code (“Handelsgesetzbuch – HGB”) and explanatory report
Composition of share Capital As of 31 December 2012, the share capital of Allianz SE was € 1,167,232,000. It was divided into 455,950,000 registered and fully paid-up shares with no-par value and a corresponding share capital amount of € 2.56 per share. All shares carry the same rights and obligations. Each no-par-value share carries one vote.
authorization of the board of management to issue and repurChase shares The Board of Management is authorized to issue shares as well as to acquire and use treasury shares as follows: It may increase the Company’s share capital, on or before 4 May 2015, with the 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 € 550,000,000 (Authorized Capital 2010/I). The shareholders’ subscription rights for these shares can be excluded, with the consent of the Supervisory Board, (i) for fractional amounts, (ii) in order to safeguard the rights pertaining to holders of convertible bonds or bonds with warrants, (iii) in the event of a capital increase against cash contribution of up to 10 %
if the issue price of the new shares is not significantly less than the stock market price, (iv) within certain limitations, if the shares are issued in connection with a listing of Allianz shares on a stock exchange in the People’s Republic of China, and (v) in the event of a capital increase against contributions in kind.
− Up to a total of € 9,752,000 (Authorized Capital 2010/II). The shareholders’ subscription rights can be excluded in order to issue the new shares to employees of Allianz SE and its Group companies as well as for fractional amounts.
The Board of Management may buy back and use Allianz shares for other purposes until 4 May 2015 on the basis of the authorization of the General Meeting of 5 May 2010 (§ 71 (1) No. 8 of the German Stock Corporation Act). Together with other treasury shares that are held by Allianz SE or which are attributable to it under §§ 71a et seq. of the German Stock Corporation Act, such shares may not exceed 10 % of the share capital at any time. The shares acquired pursuant to this authorization may be used, under exclusion of the shareholders’ subscription rights, for any legally admissible purposes, and in particular those specified in the authorization. Furthermore, the acquisition of treasury shares under this authorization may also be carried out using derivatives such as put options, call options, forward purchases or a combination thereof, provided that such derivatives must not relate to more than 5 % of the share capital.
Domestic or foreign banks that are majority owned by Allianz SE may buy and sell Allianz shares for trading purposes (§ 71 (1) No. 7 and (2) of the German Stock Corporation Act) under an authorization of the General Meeting valid until 4 May 2015. The total number of shares acquired thereunder, together with treasury shares held by Allianz SE or attributable to it under §§ 71a et seq. of the German Stock Corporation Act, shall at no time exceed 10 % of the share capital of Allianz SE.
The Company has entered into the following compensation agreements with members of the Board of Management and employees providing for the event of a takeover bid: A change of control clause in the service contracts of the members of Allianz SE’S Board of Management provides that, if within 12 months after the acquisition of more than 50 % of the Company’s 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 Board member are significantly reduced through no fault of the Board member, he or she shall receive his or her contractual remuneration for the remaining term of the service contract, but limited, for the purpose hereof, to three years, in the form of a one-off payment. The one-off payment is based on the fixed remuneration plus 50 % of the variable remuneration, however, this basis being limited to the amount paid for the last fiscal year. To the extent that the remaining term of the service contract is less than three years, the one-off payment is generally increased in line with a term of three years. This applies accordingly if, within two years of a change of control, a mandate in the Board of Management is coming to an end and is not extended; the one-off payment will then be granted for the period between the end of the mandate and the end of the three-year period after the change of control. For further details, please refer to the Remuneration Report starting on page 74.
Under the Allianz Sustained Performance Plan (ASPP), Restricted Stock Units (RSU) – i.e. virtual Allianz shares – are granted as a stock-based remuneration component to senior management of the Allianz Group worldwide. In addition, under the Group Equity Incentive (GEI) scheme, Stock Appreciation Rights (SAR) – i.e. virtual options on Allianz shares – were also granted until 2010. Some of these are still outstanding. The conditions for these RSU and SAR contain change of control clauses which apply if a majority of the voting share capital in Allianz SE is acquired, directly or indirectly, by one or more third parties which do not belong to the Allianz Group and which provide for an exception from the usual exercise periods. The RSU will be exercised, in line with their general conditions, by the Company for the relevant plan participants on the day of the change of control without observing any vesting period that would otherwise apply. The cash amount payable per RSU must be at least the price offered per Allianz share in a preceding tender offer. In case of a change of control as described above, SAR will be exercised, in line with their general conditions, by the Company for the relevant plan participants on the day of the change of control without observing any vesting period. By providing for the non- application of the blocking period in the event of a change of control, the terms take into account the fact that the conditions under which the share price moves are very different when there is a change in control.
The report is prepared in accordance with the requirements of the German Commercial Code (HGB) and International Financial Reporting Standards (IFRS). It also takes into account § 64b Law on the Supervision of Insurance Undertakings (“Versicherungsaufsichtsgesetz – VAG”), the requirements of the German Ministry of Finance’s Insurance Remuneration Regulation (“Versicherungs-Vergütungsverordnung – VersVergV”) and the recommendations of the German Corporate Governance Code.
REMUNERATION PRINCIPLES AND MARKET POSITIONING Remuneration is designed to be competitive compared to peers given the Group’s scale of business activities, operating environment, general economic conditions and performance.
While structured to attract and retain highly qualified executives, the overall goal is to support and encourage sustained value-oriented management. The key principles of Board of Management remuneration are as follows: − Support for the Group’s strategy: Performance targets reflect the Allianz Group’s business strategy.
Base salary Base salary is the fixed remuneration component and is expressed as an annual cash sum, paid in twelve monthly installments.
− Equity-related remuneration (long-term): A virtual share award, known as “Restricted Stock Units” (RSU). Annual achievement of targets is the basis for the initial grant value. The longer-term performance of the Group is reflected in Allianz’s stock price development over the four-year vesting period following the grant. The RSU payout is limited to an increase of the grant price by 200 % (cap).
Variable remuneration components may not be paid, or payment may be restricted in the case of a breach of the Allianz Code of Conduct, risk limits or compliance requirements. Additionally, a reduction of variable remuneration may occur if the state supervisory authority requires this in accordance with its statutory powers.
VALUE OF ANNUAL OFFER IN VARIOUS PERFORMANCE ACHIEVEMENT SCENARIOS B 006
Base salary Annual bonus (short-term) Three-year bonus (mid-term) Equity-related remuneration (long-term)
1 The maximum payout of the Equity-related remuneration is capped at 200 % above the grant price.
2 The annual accrual of the mid-term (Three-year bonus) amount only indicates the assumed progress based on annual performance. The final assessment and payout is determined by the Supervisory Board at the end of the three-year performance period.
Perquisites Members of the Board of Management also receive certain perquisites. These mainly consist of contributions to accident and liability insurances and the provision of a company car. Where applicable, expenses are paid for the maintenance of two households and in some cases security measures are provided. Perquisites are not linked to performance. Each member of the Board of Management is responsible for the income tax on these perquisites. The Supervisory Board reviews the level of perquisites.
The Annual bonus award depends on the achievement of quantitative and qualitative targets for the respective financial year. These targets are set in order to achieve an appropriate return on capital, as approved by the Supervisory Board. The Supervisory Board may adjust the award to reflect overall business results and individual performance achievements.
TARGET CATEGORIES FOR VARIABLE SHORT AND MID TERM REMUNERATION IN 2012 B 007
Group targets 50 % Equal split between – Annual operating profit – Annual net income attributable to shareholders
Targets of the business divisions/ Corporate center functions 25 % Operating profit of the respective business division
Portfolio development Group level – 2010 – 2012 average growth – 2012 return on capital
Business division level – 2010 – 2012 average growth – 2012 return on capital
2 Actual accrual for the Three-year bonus (mid-term) usually equals the Annual bonus pay out of the respective financial year. Since the performance assessment and the final payout occur after completion of the performance cycle this value is only a notional indication.
1 Actual bonus paid in 2013 for fiscal year 2012 and in 2012 for fiscal year 2011. 2 Dr. Paul Achleitner left the Allianz SE Board of Management effective 31 May 2012. Based on his contract he receives a pro-rated Base salary, a pro-rated Annual bonus and a pro-rated Three-year bonus in accordance with the normal process and timeline. Instead of RSU he receives a pro-rated cash payment whereby the amount equals the respective 2012 Annual bonus.
5 Gary Bhojwani’s variable remuneration is denominated in USD. The Supervisory Board approved an Annual bonus of USD 1,068 ThoU. The amount of € 793 ThoU was derived by applying the contractually agreed USD/EUR exchange rate of 1.347910 (2011 fourth quarter average).
7 Dr. Werner Zedelius received an anniversary payment of € 156 ThoU. 8 Dr. Maximilian Zimmerer joined Allianz SE Board of Management on 1 June 2012 and receives a pro rated remuneration.
9 The total remuneration and the percentage change between 2011 and 2012 reflect the remuneration of the full Board of Management in the respective year. Enrico Cucchiani left the Board of Management of Allianz SE on 21 December 2011 and Dr. Joachim Faber retired from the Board of Management of Allianz SE effective 31 December 2011.
Below we discuss the 2012 remuneration results and the link to performance against targets for all key remuneration elements and in particular for the payment of the Three-year bonus 2010 – 2012 and the total remuneration of each member of the Board of Management.
− Base salary: The Supervisory Board approved in December 2011 Base salary adjustments for those members of the Board of Management who had not received an increase since 2008. The Base salaries were increased: Michael Diekmann by € 80 THoU, Dr. Paul Achleitner by € 55 THoU and Oliver Bäte by € 50 THoU. This led to the following Base salary levels as of 1 January 2012: Michael Diekmann € 1,280 THoU, Dr. Paul Achleitner € 855 THoU and Oliver Bäte € 750 THoU. For the new Board members (Gary Bhojwani, Dr. Helga Jung, Dr. Dieter Wemmer and Dr. Maximilian Zimmerer) a Base salary of € 700 THoU was approved. For all other Board members Base salaries for 2012 were maintained at their existing levels.
− Three-year bonus: Following the final performance and sustainability assessment of the Three-year bonus plan 2010 – 2012, a total payout of € 22,749 THoU was approved by the Supervisory Board. The Supervisory Board conducted the sustainability assessment in accordance with the agreed criteria. This analysis concluded that the years 2010 - 2012 represented a period of solid and sustainable performance for Allianz. On this basis, the final distributions made under the Three-year bonus plan were confirmed in line with the cumulated award values of the three-year performance period.
2 Gary Bhojwani’s Three-year bonus is denominated in uSD. The Supervisory Board approved a payment of uSD 1,068 Thou. The amount of € 793 Thou was derived by applying the contractually agreed uSD/EuR exchange rate of 1.347910 (2011 fourth quarter average).
− Equity-related remuneration: In accordance with the approach described earlier, a number of RSU were granted to each Board member in March 2013. At the time of grant, each award had the same fair value as the award for the 2012 Annual bonus.
GRANTS, OUTSTANDING HOLDINGS AND EqUITY COMPENSATION ExPENSE UNDER THE ALLIANz EqUITY PROGRAM1 B 011
Dr. Dieter Wemmer 11,317 – – – 134 1 The Equity-related remuneration that applied before 2010 consisted of two vehicles, virtual stock awards known as RSu and virtual stock options known as “Stock Appreciation Rights” (SAR). Only RSu have been awarded as of 2010. The remuneration system valid until December 2009 is disclosed in the Annual Report 2009 (starting on page 17).
EuRo SToXX Price Index (600) over a period of five consecutive trading days at least once during the plan period.
4 Grants of Equity-related remuneration are accounted for as cash settled awards. The fair value of the granted RSu and SAR is remeasured at each reporting date and accrued as a compensation expense proportionately over the vesting and service period. Upon vesting, any subsequent changes in the fair value of the unexercised SAR are also recognized as a compensation expense.
5 The relevant share price used to determine the final number of RSu granted is only available after sign-off by the external auditors, thus numbers are based on a best estimate.
The Allianz Group paid € 4 mn (2011: € 5 mn) to increase reserves for pensions and similar benefits for active members of the Board of Management. As of 31 December 2012, reserves for pensions and similar benefits for active members of the Board of Management amounted to € 36 mn (2011: € 36 mn).
INDIVIDUAL PENSIONS: 2012 AND 2011 B 012 € THOU Defined Benefit Pension Plan
3 For details on the transition payment see section Termination of Service. 4 Expected annual pension payment at assumed retirement age, excluding current pension plan. 5 SC = Current Service Cost.
6 DBo = Defined Benefit Obligation; end of year. 7 As Dr. Paul Achleitner has left Allianz on 31 May 2012 his employer-financed DBo of € 8,765 Thou (thereof € 5,619 Thou for the frozen DB-Pension Plan, € 2,101 Thou for the Current Pension Plan, € 89 Thou AVK/ APV and € 956 Thou for the transition payment) is covered under former Board members.
In 2012, remuneration and other benefits totaling € 7 mn (2011: € 6 mn) were paid to retired members of the Board of Management and dependents. Reserves for current pensions and accrued pension rights totaled € 105 mn (2011: € 73 mn). The increase is mainly caused by the retirement of Dr. Paul Achleitner and Dr. Joachim Faber as well as the decrease of the discount rate.
LOANS TO MEMBERS OF THE BOARD OF MANAGEMENT As of 31 December 2012, there were no outstanding loans granted by Allianz Group companies to members of the Board of Management. When granted, loans and overdrafts are provided according to standard market conditions or the conditions prevailing for Allianz employees. They carry no more than normal risks of repayment and do not provide any other favorable features.
1 Dr. Paul Achleitner left the Allianz SE Board of Management effective 31 May 2012 and receives a pro-rated remuneration. Instead of RSu he receives a pro-rated cash payment whereby the amount equals the respective 2012 Annual bonus.
2 According to his contract, Dr. Paul Achleitner receives a transition payment of € 1,027.5 Thou after leaving the Allianz SE Board of Management. This amount is included in the Total for 2011.
3 A portion of Gary Bhojwani’s total remuneration is denominated in uSD. The amount of € 3,146 Thou was derived by applying the contractually agreed uSD/EuR exchange rate of 1.347910 (2011 fourth quarter average).
TERMINATION OF SERVICE Board of Management contracts are set for a maximum period of five years. In compliance with the German Corporate Governance Code, for new appointments the maximum service period of five years is not the rule.
Arrangements for termination of service including retirement are as follows: 1. Board members who were appointed before 1 January 2010 – and who have served a term of at least five years – are eligible for a six-month transition payment after leaving the Board of Management.
Internal and external Board appointments When a member of the Board of Management holds an appointment in another company within the Allianz Group, the full remuneration amount is transferred to Allianz SE. In recognition of the benefits to the organization, Board of Management members are supported if they accept a limited number of non-executive supervisory roles in appropriate external organizations. In these cases, 50 % of the remuneration received is paid to Allianz SE. A Board member retains the full remuneration only when the Supervisory Board qualifies the appointment as a personal one. Remuneration paid by external organizations is shown in the Annual Reports of the companies concerned. The remuneration relating to the external appointment is set by the governing body of the relevant organization.
OUTLOOK FOR 2013 On 12 December 2012 the Supervisory Board agreed the new targets. The fundamental structure used in 2012 and set out in the target setting table was validated as highly sound and will continue to form the basis of our 2013 remuneration structure, with the following adaptations: − For the divisional targets, a new split was introduced: 10 % annual IFRS operating profit, 10 % IFRS net income and 5 % dividend distribution.
TERMINATION OF SERVICE – DETAILS OF THE PAYMENT ARRANGEMENTS AND ILLUSTRATIVE ExAMPLES B 013
The payment is calculated based on the last Base salary and 25 % of the target variable remuneration at the date when notice is given.
Base Salary for 6 months (350) + 25 % of the total variable remuneration at target (525) = 875
Based on the example from above: 150 % of the severance payment cap. 150 % of the severance payment cap (3,500) = 5,250 Consequently, the payout is less than two years total remune ration at target.
The pension contributions as a percentage of Base salary paid by the company to the contribution-based pension plan are as follows: PENSION CONTRIBUTIONS B 014
Allianz SE Board member service Current contribution level Contribution level from 2013
The duties of the Group Compensation Committee (GCC) are to assist the Allianz SE Board of Management in dealing with all compensation matters relating to the Chief Executive Officers, Board members of the International Executive Committee (IEC) companies and the heads of the major functions of Allianz SE. In addition, the committee and representatives of companies classified as significant according to the VersVergV 1 have identified and approved a list of other key executives for additional review. The membership of the GCC is approved by the Allianz SE Board of Management and reflects the nature of the principal Allianz businesses and the breadth and depth of expertise required for Group oversight to comply with VersVergV. Cross-representa tion on different committees (i.e. Compensation, Risk, Finance and Capital Committees) supports effective information flows.
The responsibilities of Compensation Committees below the GCC level are similar regarding compensation systems and oversight of their respective/relevant executives. Local Compensation Committees are typically comprised of regional Chief Executive Officers, Business Division Heads, Chief Financial Officers or Chief Operating Officers, a representative of the legal and/or compliance function and the Head of Human Resources. Beyond local Compensation Committee oversight, the GCC must be informed quarterly of payments or individual agreements exceeding certain thresholds.
The outline below discusses the component’s purpose, performance link and operation.
Base salary Base salary is the fixed remuneration component. Annual adjustments also take account of sustained performance in the post, the performance of the company, general economic conditions and the level of increases awarded elsewhere in the Group. The proportion of the fixed component within total remuneration is designed to balance performance incentives to avoid excessive risk-taking. Base salary is expressed as an annual cash sum paid in monthly installments.
For operations that represent either asset management or alternative investment business for Allianz or third-party assets, incentive programs and remuneration structures are consistent with the risk positions and competitive markets in which they operate. These may deviate from the general Allianz variable remuneration program descriptions and may include profit sharing, co-investment, carry and other cash-based incentive plans. These businesses use appropriate risk control measures. Oversight is performed by their respective Compensation Committees.
– which may provide participants with other opportunities to accumulate retirement income.
OUTLOOK FOR 2013 As part of ongoing regular reviews of compensation practices, the Allianz Board of Management approved a revised global Reward and Performance framework for 2013. This outlines the common minimum standards to be applied across Group companies while still ensuring flexibility to reflect Allianz’s diverse business and includes the introduction of a new grading system and methodology to further enhance consistency and comparability of senior executive roles across Group companies. This new system will support the Group’s ability to consistently benchmark compensation levels and structures as well as to facilitate internal mobility and talent management. Another key development is the introduction of an adapted, more consistent performance management standard for senior executives across the Group which reflects market best practice in target setting and performance assessment and further supports the Group’s culture of performance and meritocracy.
Remuneration of the Supervisory Board The remuneration of the Supervisory Board is governed by the Statutes of Allianz SE and the German Stock Corporation Act. The structure of the Supervisory Board’s remuneration is regularly reviewed with respect to German, European and international corporate governance recommendations and regulations.
Split between fixed and variable remuneration in % Allocation per remuneration component in %
Split between short-term and mid-/long-term variable remuneration Split between cash incentives and Equity-related variable remuneration
Cash incentives 63 1 Figures excluding pensions and perquisites; including Members of the Board of Management of Allianz SE. Percentages calculated by using the median.
Committee-related remuneration The Chairperson and members of the Supervisory Board committees receive additional committee-related remuneration. The committee-related remuneration is as follows: COMMITTEE-RELATED REMUNERATION B 016 € THOU Committee Chair Member
Personnel Committee, Standing Committee, Risk Committee 40 20 Audit Committee 80 40 Nomination Committee – –
Attendance fees and expenses In addition to the fixed and committee-related remuneration, members of the Supervisory Board receive an attendance fee of € 750 for each Supervisory Board or committee meeting they attend in person. Should several meetings be held on the same or on consecutive days, the attendance fee will be paid only once. Allianz SE reimburses the members of the Supervisory Board for their out-of-pocket expenses and the VAT payable on their Supervisory Board activity. For the performance of his duties, the Chairman of the Supervisory Board is furthermore entitled to an office with secretarial support and use of the Allianz carpool service. In the financial year 2012, Allianz SE reimbursed expenses totaling € 42,873.
1 Abbreviations: A - Audit, N - Nomination, P - Personnel, R - Risk, S - Standing.
6 The total remuneration reflects the remuneration of the full Supervisory Board in the respective year.
Business Operations and Markets Allianz offers a comprehensive range of insurance and asset management products and services to approximately 78 million customers in over 70 countries.
We offer a wide range of property-casualty and life/health insurance products to both private and corporate customers. We are the leading property-casualty insurer globally and rank among the top 5 in the life/health insurance business. Our key markets based on premiums are Germany, France, Italy and the United States.
Most of our insurance markets are served by local Allianz companies. However, some business lines – such as Allianz Global Corporate & Specialty (AGCS) and Credit Insurance
– are run globally. Based on premiums, we estimate the split between private and corporate clients to be about 50 % and 50 % for our Property-Casualty segment, and about 80 % and 20 % for Life/Health.
– Property – Liability – Motor fleets – Directors’ and Officers’ liability – Credit – Marine, aviation and transport
– Systematic – Sector/theme funds – Region /country funds – Style funds – Small cap funds – Stocks plus
– Structured products – Commodity funds – Certificate funds – Currency funds – Equity long/short – Relative value
– Life-cycle concepts – Multi-asset solution – Variable annuity solutions – Asset/Liability management – Risk management concepts and focuses on retail and corporate clients. In our core market Germany, we focus our assurbanking activities (distribution of banking products through our German insurance agents’ network) under the brand name Allianz Bank, which operates as a branch of OLb. In January 2013, we decided to cease business operations under the Allianz Bank brand with effect from 30 June 2013, not affecting the other banking business of OLb.
◼ Property-Casualty ◼ Life/Health ◼ Banking ◼ Retail Asset Management ◼ Institutional Asset Management Insurance market position by gross premiums written: 3 I. Position 1 II. Position 2 to 5 III. Position 6 to 10 IV. Not in the top 10 1 Property-Casualty business belongs to Allianz Global Corporate and Specialty. 2 Based on total market ranking (including domestic competitors) China Property-Casualty ranked in category IV. and India Property-Casualty in category III., respectively. 3 Source: Own local estimations as of 2011.
◼ IV. ◼ III. United States gloBal insurance lines & anglo markets
Although the property-casualty market continues to be competitive, our strategic program has already led to premium growth and improved profitability. Our focus remains on strengthening sales, improving our claims management and reducing the expense ratio. Furthermore, we will continue to extend our cooperation with the automobile industry and increase our position in the direct market under the brand of AllSecur. We also anticipate growth opportunities for our life business as we see an increasing demand for private retirement products.
The following sections provide an overview of our business operations in insurance markets by business division.
Austria Our Austrian companies, Allianz Elementar VersicherungsAG and Allianz Elementar Lebensversicherungs-AG, offer a broad range of property-casualty and life/health products to individual and commercial customers primarily through a salaried sales force, tied agents and brokers.
The Austrian property-casualty market continued to be competitive, especially in the motor segment. In 2012, we grew roughly in line with the market. In terms of profitability, the whole insurance industry was negatively affected by high weather-related claims (hail, tap water, flood and storm).
In our life/health business, we offer traditional insurance contracts, government-subsidized products as well as unitlinked and investment-oriented products. Premium volume in the Austrian life market decreased in 2012. We managed to keep margins stable and gain market share as new business production was healthy in the tied agents and broker channels. The market downturn was driven by the bancassurance channel, which does not affect our Austrian businesses.
Switzerland We serve the Swiss property-casualty market through Allianz Suisse Versicherungs-Gesellschaft AG, CAP Rechtsschutz AG and Quality1 AG.
With the implementation of a new segment strategy and a clear customer focus, we have laid the foundations for sustainable growth. Our cost-efficient structure and strict cost discipline helped us to maintain the best cost ratio in the Swiss market.
We offer a wide range of life/health products, including retire ment, death and disability products. Life products are offered through Allianz Suisse Lebensversicherungs-Gesellschaft AG. In 2012, our group life business grew profitably. We collected fewer premiums in individual life, especially in the single premium business, to safeguard our margins in the current low interest rate environment. However, the successful launch of new products like Balance Invest – a combination of guarantee and participation in investment returns – supported the growth in the recurring premiums in individual life.
Italy We serve the Italian market primarily through Allianz S.p.A., a company mainly dedicated to the agent and broker channels. We also distribute our products through Genialloyd (a leading company in direct business), Allianz Bank Financial Advisors S.p.A. and its network (one of the top 5 in the market) and the bancassurance channel (with Unicredit as the main partner).
There was a 1.0 % decline in the premium volume of the Italian property-casualty market in 2012. At the same time, there were positive signs in terms of profitability, as claims frequency in third-party motor liability dropped mainly due to lower mobility caused by the continuing crisis.
We increased our share of the Italian property-casualty market in 2012, growing the business despite a shrinking market. This achievement was supported by the strong performance of our agent networks and the double-digit growth of Genialloyd. Our results benefited from the favorable profitability development in the motor market, given the high share of motor in our portfolio. We also have a strong presence in property, personal accident and general liability insurance.
Premium volume in the Italian life insurance market shrank by 7 % in 2012, after a negative development also in 2011. During 2012, we reacted decisively with a strong priority on derisking, adjusting our investment allocation and new business characteristics. Our volume declined roughly in line with the market. While bancassurance proved difficult, the proprietary network and the financial advisors network of Allianz Bank developed very favorably.
The French property-casualty market has seen limited growth in recent years and remains highly competitive. In this business environment, we continue to concentrate on increasing the efficiency of company structures and processes. To offer our customers value for their money we remain committed to our four-part strategy in France, which is based on profitable growth and enhanced financial and technical services, operational excellence and a performance culture. In 2012, we have further strengthened our position through the acquisition of business from Gan Eurocourtage, which is specialized in distributing its products via brokers.
In the highly competitive life market, we have responded to the needs of our customers with an attractive range of traditional and unit-linked products in both group and individual business. In the rapidly changing, difficult capital market environment, innovations allow us to continue to offer our customers solutions which combine financial strength with attractive yields. As with Property-Casualty, attractive risk-adjusted margins are a prerequisite for our business.
We also have a strong position in the dynamic health market, often combining elements of life, health and accident insurance as comprehensive solutions for individual and commercial customers. Our modular health product Composio puts us ahead of many competitors and confirms our strong commitment to significant growth in this market.
Our insurance activities are complemented by Allianz Banque, which allows us to offer one-stop solutions.
In the Netherlands, motor and fire insurance continue to be the most important property-casualty business lines. Besides brokers, Allianz Nederland Group n.V. distributes its property-casualty products through a strongly growing direct sales channel. We also offer a range of life insurance products in the Netherlands.
The Dutch unit-linked life insurance market has been the focus of discussions in the media concerning the transparency of cost loadings. As one of the first players in the market to react, we have risen to the challenge in Life by introducing a new set of products with a transparent cost structure.
In general, we expect competition to remain intense in 2013. From 2013 onwards, we have decided to strengthen our competitive position in this region by further integrating
Turkey Our Allianz Sigorta A.S. entity offers property-casualty products while Allianz Hayat ve Emeklilik A.S. provides life insurance and pension solutions. Distribution is primarily via agents. Our primary business lines remain Motor and Health.
In the second half of 2012, we saw significant price increases in Motor. However, pricing in property and liability lines remains highly competitive. Despite a slow-down in the Turkish economy, we expect to see increased demand for our products. Turkey, with its large and young population, is a very attractive market – especially for life and pension products.
We offer property-casualty products in all African countries where we are present. Life products are offered by our operating entities in Burkina Faso, Ivory Coast, Cameroon, Madagascar, Senegal and the Central African Republic.
We intend to consider further business opportunities in Africa where there is potential for growth.
Spain and Portugal We serve the Spanish market through our operating entities Allianz Compañía de Seguros y Reaseguros S.A. (PropertyCasualty and Life), Fénix Directo S.A. (Property-Casualty) and our joint venture with Banco Popular (“Allianz Popular ”). Our Portuguese company is Allianz Companhia de Seguros.
In 2012, the property-casualty markets decreased in both countries due to the continuing economic crisis. Regarding life insurance, the Spanish market shrank in 2012. Also in Portugal, the sector further contracted, largely due to the reduction in disposable income of Portuguese families.
Despite lower economic growth in 2012, we are pleased with the performance of the Brazilian insurance market, which mirrors the growth of Brazil as it develops into a major economy. Even though the general performance of the insurance sector was very strong, we still managed to surpass market growth by a solid margin.
Mexico In Mexico, our company Allianz México, S.A. Compañía de Seguros sells property-casualty and life/health products. We have a solid position in the Mexican commercial and personal market segments with distribution primarily carried out by brokers. Our Mexican unit recorded stronger than average growth in recent years, most notably in life/ health product lines. We view Mexico as an attractive market due to its strong market growth and regulatory effectiveness and see potential for growth in insurance demand.
United States Our property-casualty insurance business in the United States is conducted through Fireman’s Fund Insurance Company (FFIC). Our life and annuity business is managed through Allianz Life Insurance Company of North America (Allianz Life U.S.).
A restructuring of the reinsurance program for crop insurance business will reduce our expected premiums for this business line in 2013. Also, given the uncertain economic climate and further portfolio action, we expect an overall decrease in our U.S. property-casualty business in 2013. However focusing on niche markets, enhancing customer service and improving FFIC’s core underwriting strength should allow us to better position ourselves in this competitive market over time.
On the life side, we anticipate continued economic uncertainty, equity market volatility and a low interest rate environment. On the upside, we continue to believe that U.S. demographic trends present us with an excellent opportunity in the retirement market. In order to reap these benefits, we will continuously strengthen our distribution network and value proposition to our customers through product innovation and high quality service.
United Kingdom Allianz Insurance plc is one of the largest general insurers in the UK. It offers commercial insurance primarily through brokers with a full range of products for sole proprietorships right up to large commercial organizations. We also provide a broad selection of personal lines products distributed through brokers, affinity partners, veterinary practices and direct channels.
In 2012, we further expanded our business with large global corporate partnerships.
In 2013, we will continue to capitalize on growth opportunities and forego premium growth in areas which do not offer an adequate risk return. We will start a number of new brand awareness initiatives to support growth in our retail business. The outlook for 2013 remains positive despite a highly competitive market.
The insurance market in Ireland remains highly concentrated, with Allianz being the third largest insurer based on gross premiums written. Despite the challenging economic environment we have managed to expand our commercial portfolio in 2012 and are Ireland’s leading commercial insurance company. Our emphasis on customer focus, underwriting discipline, process efficiencies and strong cost control position us for sustainable results.
Allianz Global Corporate & Specialty Allianz Global Corporate & Specialty (AGCS) is one of the few global insurers with an exclusive focus on the needs of global corporate and specialty clients. AGCS operates with a worldwide network in more than 150 countries and serves as our center of expertise for global business insurance and large corporate and specialty risks.
AGCS offers clients global business insurance through a comprehensive service range covering all property and casualty risks. AGCS also provides specialty solutions, for example in shipping, aviation and energy. In addition, its subsidiary – Allianz Risk Transfer – develops and delivers customized non-traditional risk transfer solutions for complex risks.
Within the global trade credit market, Euler Hermes sees growth potential in Asia-Pacific, Latin America, the Middle East, Russia and the United States, and pursues a defined growth strategy for these markets. Continuing to provide high quality services, maintaining a comprehensive information database and a strong financial rating (S&P rating AA-) will also underpin Euler Hermes’ continued market leadership.
Your Allianz 93 Business Operations and Markets 106 Our Strategy 109 Our Progress in Sustainable Development
In Asia we maintain property-casualty operations in Brunei, China, Hong Kong, India, Indonesia, Japan, Laos, Malaysia, Singapore, Sri Lanka and Thailand. Allianz in Malaysia was the strongest contributor to gross written premiums while all entities benefited from a strong development in the motor business.
In our life/health business the South-East Asian markets are the growth drivers in Asia. Our entities in Indonesia, Thailand and Malaysia are well positioned to capture a rising need for protection and provision in these economies. We also operate life/health business in South Korea, Taiwan, China, India and Sri Lanka.
Indonesia Indonesia is one of the fastest-growing markets for us and we expect this to continue due to an expanding middle class with increasing insurance needs. Our life business is developing particularly strongly through our tied agency channel. In addition, Allianz Indonesia today insures over one million microinsurance clients. Cooperating with 33 partners, we offer microinsurance products including credit life insurance, savings insurance, business interruption insurance and micro-education endowments.
South Korea During the past four years, we have managed to preserve a steady momentum in developing our South Korean business. In 2012, Allianz Life Korea further strengthened its product portfolio by enhancing innovative investment products. The Korean Intellectual Property Office for Financial Asset Management granted it a patent for developing a method which has been integrated into several variable annuity products.
Life/Health and pension funds revenues in CEE continued to grow in 2012. Allianz Russia contributed strongly to the increase in life premiums with double-digit growth rates. Sales campaigns in the Czech Republic, Russia and Poland were significant success drivers in 2012 and managed to offset the drop in premiums in Hungary as a result of the challenging business environment. CEE remains an attractive growth region for the life business in the long-term due to the fairly low market penetration. We strongly believe that our continuous focus on profitable growth, balanced portfolios and customer-focused product innovations will continue to deliver positive results in this area.
Middle East and North Africa (mena) Through Allianz Egypt, Allianz Saudi Fransi and Allianz SnA (Lebanon) we offer property-casualty and life/health products, mainly via tied agents and bancassurance channels. In Property-Casualty, vital links in our distribution network are brokers and dealers. The region fulfilled our expectations despite the very difficult political and economic situation.
Our Strategy We aspire to be the strongest financial community. Therefore, our strategy rests on four pillars – having the best people, operational excellence, financial strength and being the most trusted partner for our clients and shareholders, as well as for our agents, banks, brokers and other distribution partners and, last but not least, for society. Building upon those pillars we want to reach and maintain our strategic goals: to be a leader in our three business segments with respect to profitability, supported, where appropriate, by the size of our business.
We aim to be the strongest financial community. Our strategy is built on four strong pillars – best people, operational excellence, financial strength and trusted partner. Size and profitability are not goals in themselves, but means to serve our clients, satisfy our shareholders, attract and retain highly qualified and motivated employees, be a good and reliable business partner, and also honor our responsibility towards society.
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Our ability to succeed relies on our financial strength. More than a regulatory requirement, it is the strength of our capital base that enables us to keep our promises, both now and in the future. The recent financial crises of 2008 and 2011 demonstrated once again the value of our strength. We weathered these storms, emerging not unblemished, but fundamentally sound. Today, our solvency is stronger than ever, thanks to our world-class investment skills, serving our policyholders and our clients who entrust us with their financial assets – and sometimes with the assets of their clients. Our investment and asset management is supported by our sophisticated risk management which again relies on policies, processes, systems and people. Moreover, our performance in investment and asset management is flanked by our experts in the technical departments, as well as by our treasury and other financial functions.
It is clear that these strategic pillars support and bolster each other. They are the cornerstones of our strategy and the foundations of our success. They drive us in our endeavor to become the strongest financial community. In the chapter Outlook 2013 and 2014, we elaborate in more detail on how these pillars are translated into targets.
Outlook 2013 and 2014 our strategic goals C 011 strategic goal 1 MarKet positioN 2 based on
To be the leading property-casualty insurer in the world, in terms of gross premiums written and profitability.
To stand amongst the three most profitable life/health insurers globally. Operating profit: 2nd To be the top active asset manager measured by assets under management and by profitability.
BUSINESS DIvISIONS Insurance Western & Southern Europe Dr. Dieter Wemmer (until 31 December 2012) Oliver Bäte (as of 1 January 2013) Insurance USA Gary Bhojwani Insurance German Speaking Countries, Human Resources Dr. Werner Zedelius Insurance Growth Markets Manuel Bauer Asset Management Worldwide Jay Ralph Global Insurance Lines & Anglo Markets Clement Booth Insurance Iberia & Latin America, Legal & Compliance, Mergers & Acquisitions Dr. Helga Jung 1 For further information about the remuneration structure, including target setting and performance assessment, please refer to the Remuneration Report starting on page 74.
2 Dr. Christof Mascher also oversees Allianz Global Assistance (former Mondial Assistance).
TARGET SETTING AND MONITORING The Allianz Group steers its operating entities and business segments via an integrated management and control process.
This process starts with the definition of a businessspecific strategy and goals, which are discussed and agreed between the Holding and operating entities. According to this strategy, a three-year plan is prepared by the operating entities and aggregated to form the financial plans for the business divisions and the Allianz Group. The Supervisory Board then approves the plan and sets corresponding targets for the Board of Management. The performancebased remuneration of the Board of Management is linked to short-, mid- and long-term targets to ensure effectiveness and emphasize sustainability. For further details, please refer to the Remuneration Report starting on page 74. This plan also forms the basis for our capital management.
Our business strategy is driven by a strong market orientation and an unwavering commitment to our customers. While uncertainty in the current economic climate has shaken people’s trust in the financial industry as a whole, Allianz continues to build long-lasting, mutually-beneficial customer relationships. Strengthening our already solid brand positioning helps to convey the stability and security of our global company. Together, our strong customer focus and brand positioning are key drivers for sustainable, profitable growth, guiding us towards building the strongest financial community.
In 2012, we continued to integrate sustainability into our business to contribute to the company’s sustainable and profitable growth. To this end, we set up the ESG Board – a committee with Board member leadership, responsible for further promoting environmental, social and governance (ESG) aspects in our core business and elevating these issues in our Group corporate governance. We combine long-term economic value creation with a holistic approach to environmental stewardship, social responsibility and corporate governance. This is underscored by our ambition to be transparent in our performance, as demonstrated by our A+ application level confirmed by the Global Reporting Initiative. This section highlights Allianz’s sustainability performance, presenting developments in key steering indicators in the following areas: Economic, Environment, Social and Governance. A full presentation of our progress can be found online at www. allianz.com/sustainability. www
– RobecosaM: Allianz awarded saM Silver Class based on Allianz’s superior ranking in the Dow Jones Sustainability Index.
– Trendence: Allianz placed 43 in a European assessment of the 500 most attractive employers for graduates.
Sustainable growth through a strong global brand and long-lasting customer relationships allianZ brand As a reliable partner, we want to be there whenever people need us, enabling them to progress in life and business. We want to earn their trust through the integrity of our behavior, helping them find the best solutions for their individual needs, keeping our promises and continuously striving for mutual growth. To make this a reality, we have a clear strategy, supported by a solid business model and a strong global brand guiding us towards building the strongest financial community with and for our customers.
1 Our Allianz trademark is registered and protected worldwide, as are our domain names. Furthermore, we registered our corporate design and brand claim “Allianz. With you from A-Z.” in relevant countries worldwide. With our rebranding activities we extend the scope of our business under the Allianz brand beyond the core area of insurance and asset management. In order to maintain the distinctiveness and strength of our Allianz brand we continuously monitor possible infringements of our trademark applications and registrations by third parties.
Our brand is an important and valuable asset and therefore an essential element of our business strategy. As part of our global brand management process, we use a standardized market research tool to benchmark the performance of the Allianz brand regularly against local competitors. The research covers over 30,000 consumers in 25 countries. This constant feedback from the market helps us to better understand local value drivers, identify the strengths and potential of our brand along the buying process and optimize resource allocation and brand investments.
Authentic communication for trusted relationships The utmost commitment to our customers and their needs is also the cornerstone of our global brand communication concept “OnE”. It places the customer at the center of our activities and is based on real people sharing real experiences and advice. Encouraging dialogue and sharing the wealth of our knowledge and expertise with our employees and customers is at the heart of our communication strategy and aims to help us build honest, long-lasting relationships with our stakeholders across different media and regions. Since its introduction in 2010, “OnE” has been rolled out in over 30 countries across all business lines and sponsoring platforms. As a global communication concept with numerous local executions, “OnE” ensures a consistent brand message around the world and fosters our global positioning as a “Trusted Partner”. Evidenced in our regular brand performance measurement, “OnE” supports us building the brand and the business and thus encourages us to further invest into our global concept.
Our global sponsoring platforms have been activated intensively on local levels and provide millions of fans with a very tangible and emotional brand experience. In addition to our established partnerships with Formula 1™, golf with St Andrews Links, the Paralympic Movement and the Allianz Arena with FC Bayern Munich, we also expanded our family of stadiums to include Allianz Stadium in Sydney, Allianz Riviera in Nice, Allianz Park and the Saracens rugby team in London. Our commitment to the Paralympic Movement was highlighted by the London 2012 Paralympic Games, the biggest Paralympic Games ever.
Allianz continues to invest in a strong global brand. In 2012, we again invested about € 30 mn in our global sponsoring platforms and about € 7 mn (gross rate card) in advertising at ten international airports. Also our operating entities supported their business growth with continuous media investments. Despite what were, to some extent, rough market conditions we saw strong advertising media spending in markets like Brazil with € 16 mn (gross rate card), the United States with € 18 mn (gross rate card) and Spain with € 25 mn (gross rate card).
Staying connected in a digital world Digital trends dramatically influence consumer behavior and requirements. As a result, expectations of service levels are increasing. We are continuously adapting to this new digital lifestyle to stay connected with consumers and improve our customer service. One of our goals is to ensure our customers enjoy even greater convenience in their dealings with Allianz. We are striving to enhance ease of interaction and give customers a choice with a variety of different access channels. This is a vital part of the Digital Target Picture described on page 164.
“tangible” interaction with Allianz beyond traditional mass media. In 2012, for example, Allianz Germany further expanded its multi-channel approach and successfully established Facebook as an additional platform for sales agents to intensify their dialogue with existing and prospective customers and to support the sales process. Today, more than 1,000 German agents offer their advice and services on their own Facebook pages in a consistent Allianz branded design.
Via social media platforms and mobile services we aim to intensify the contact with our customers, providing them with our knowledge and services when and where they are most relevant to them. Examples are: Strategic investments
− a retirement planner app launched in Asia, allowing the user to quickly check the cornerstones of retirement provision.
monitor the impact of our improvement measures and the fulfillment of defined service levels.
– and investment vehicles such as our EcoTrends fund, which allows customers to put their money in clean technologies.
In 2012, we established an industry-first operational definition for microinsurance, enabling us to increase the consistency and transparency of our microinsurance products in the Group. We also developed a set of key performance indicators to measure and better control the financial and social performance of microinsurance.
2012 saw strong growth in the number of insured people and gross premiums written (GPW). The number of insureds grew faster than GPW as growth mostly came from group term life policies, which carry particularly low premiums. In terms of markets, India was the biggest growth market in 2012 with an increase of 11.7 million insured people. The drop in GPW in 2011 was due to the microcredit crisis in India. The situation has now stabilized, for example with the introduction of microcredit information bureaus.
We are increasingly demonstrating our commitment to ESG by incorporating these factors in our investment strategies and asset management. This is undertaken as an investor in our own proprietary assets and as part of our third-party asset management business. Our proprietary business is steered by Allianz Investment Management SE (AIM) while our third-party business is managed by Allianz Asset Management (AAM) through its subsidiaries, Allianz Global Investors (AllianzGI) and PIMCO.
Principles for responsible investment Allianz SE, as an asset owner, and PIMCO and AllianzGI, as asset managers, are signatories to the United Nations Principles for Responsible Investment (Un PRI). The six principles reflect the view that ESG issues can affect the performance of investment portfolios and therefore should be given appropriate consideration by investors. 96 % of the total assets under Allianz management are now covered by this commitment.
sustainability in ProPrietary asset ManageMent As well as being a leading global insurance company, we are also a major institutional investor. We are well aware of the impact our investment decisions can have and take seriously the responsibility that comes with the investment side of our business. As a result, we show our commitment 1 KPMG Wirtschaftsprüfungsgesellschaft AG has provided limited assurance on the 2012 microinsurance performance information as well as the performance indicators: number of inforce insured people and gross premiums written. For further information, please refer to www.allianz.com/sustainability.
2 Changes to our 2011 data were made for the following reasons: 1. Full year data were only available after the time of publication, 2. The Colombian microinsurance business was included retrospectively, 3. Our new operational microinsurance definition was applied.
to responsible investment by tackling investment dilemmas and controversial topics in a transparent way.
With Allianz Group assets of more than € 500 bn across a range of asset classes, sectors and countries, we are directly and indirectly connected with other businesses, individuals and economies, and are therefore an integral part of the global economy.
We have adopted an evolutionary learning path for sustainable investment, one that builds on our existing systematic practices and, over time, develops consistency across asset classes and regions.
Finally, we support the broad academic consensus that a liquid market for commodity futures is important for producers and buyers to protect themselves against the risk of fluctuating prices.
As a risk manager, Allianz is also involved at the very root of the agricultural value chain by insuring the livelihoods of more than 2 million smallholder farmers through our microinsurance offering. In addition, Allianz Re supports around 125 million smallholder farmers in developing countries through public-sector agro-insurance schemes, thus helping to ensure local and global food security.
Sustainable and Responsible Investments (sri) Allianz manages a growing portfolio of Sustainable and Responsible Investments (SRI). The largest SRI investment share of AAM’s total assets under management is managed by PIMCO. SRI figures for PIMCO are reported for the first time and totaled € 49.1 bn at the end of 2012. In addition, AllianzGI managed € 15.3 bn (2011: € 3.4 bn). A number of factors have driven this significant increase: an SRI screening was introduced as part of a review of the investment criteria for some of the assets managed for Allianz Group, general market appreciation as well as inflows of new assets from our third-party clients into both fixed income and equity SRI products. At year-end 2012, the total SRI managed by AAM amounted to € 64.4 bn, corresponding to 4 % of AAM’s total assets under management.
More details on our approach to responsible investing can be found online: www.allianz.com/sustainability. www
In 2012, Allianz continued to reduce its carbon footprint, cutting CO2 emissions from its business operations by a further 3.2 % compared to 2011. Our overall CO2 reduction since 2006 now stands at 35.6 % 1 per employee. As the main drivers of our carbon footprint are energy, travel and paper, our reduction efforts focus on these areas.
ALLOCATION OF CO2 EMISSIONS IN 2012 (IN %) TOTAL GAS EMISSIONS (CO2) 3 (IN METRIC TONS)
1 The Allianz Group’s total reported carbon footprint already considers the compensation activities of some of our subsidiaries.
Carbon neutrality In addition to our carbon reduction target, we set ourselves the goal of becoming a carbon neutral business from 2012. However, instead of purely buying credits on the carbon market, we are investing directly in high-quality carbon projects that generate credits which we can then use to neutralize our remaining carbon footprint. In 2012, 175,000 credits, each accounting for one metric ton of carbon avoided, were retired from our own projects. Our remaining carbon footprint was neutralized by credits bought from the carbon market which underwent a stringent sustainability screening to ensure they met the same high standards as our own projects.
C 018 by plane by Car 1 KPMG Wirtschaftsprüfungsgesellschaft AG has provided limited assurance on the 2012 environ - mental performance information. For further information, please refer to www.allianz.com/ sustainability.
C Group management Report your Allianz 93 business operations and markets 106 our strategy 109 our progress in sustainable development www.allianz.com/sustainability
Employee volunteering Engaging employees in social projects is a key component of our responsibility towards society. We support the development of effective solutions to critical social issues by drawing on our core competencies. Through the My Finance Coach (MFC) program, for example, Allianz and its partners aim to foster financial literacy among 11- to 15-year-olds. Familiarizing these young people with financial issues will help them to make educated financial decisions now and in the future. The German UnESCO Committee declared MFC to be an official project of the United Nations Decade of Education for Sustainable Development (2005 – 2014). In 2012, the MFC program reached more than 100,000 pupils in Germany. Furthermore, a rollout to Indonesia, Malaysia, Thailand and Argentina took place. We see growing interest from our local entities to introduce MFC locally. Allianz also shares its know-how and business skills with socially committed organizations by engaging with both employees and retirees. In 2012, for example, through one of Allianz’s leadership development and employee volunteering programs, such projects were carried out in eight countries involving a total of 49 Allianz employees and 16 social entrepreneurs.
Our employees nurturing talent for today and toMorrow Our employees’ exceptional commitment and ambition to provide excellent service to our customers are crucial to our success. We place great emphasis on fostering employee engagement, strong leadership and technical expertise among an increasingly diverse workforce.
Diversity Allianz recognizes the importance of having a diverse, inclusive workforce that is made up of employees from different backgrounds. We understand that promoting diversity is necessary for Allianz as a global company to be successful and we have implemented a number of initiatives to support this. Consistent with our Code of Conduct, Allianz has a zero-tolerance policy against discrimination and harassment in the workplace.
As part of the effort on the advancement of women at Allianz, in 2008 we set ourselves the global target of increasing the share of women in the talent pool for executive positions to 30 % by 2015. A top management sponsorship program for women and flexible work-life programs, such as part-time employment or job sharing, are part of supporting actions taken in several countries. We are also committed to having 30 % of management positions in Germany held by women by the end of 2015.
BY GENDER (IN %) 1 DIvERSITY (IN %) 2 woMen in…
Germany 14.3 Asia-Pacific and Africa 6.8 America 7.4 Rest of Europe 10.1 Allianz Group 10.7 furtHer eMPloyee figures C 022 age structure2 in %
eMPloyee turnoVer2 1 Tenure represents the period of employment in Allianz companies starting from the date of the first entry in an Allianz company.
2 Figures based on the number of employees in Allianz’s core business; all companies in and related to the insurance and Asset Management business including our Banking activities in Germany, France, Italy, the Netherlands and Bulgaria. Excluded are fully consolidated companies which are considered as pure financial investments and companies classified as held for sale.
coMPliance ManageMent Allianz’s Compliance Management System aims to ensure adherence to internationally recognized laws, rules and regulations to promote a culture of integrity and safeguard the company’s reputation. In 2012, Allianz continued to further strengthen the effectiveness of its compliance management system. Allianz applies its general operational risk management approach to assess corruption and fraud risks. Additional assessments and onsite reviews are combined with the new Compliance Quality Assurance Program.
In 2012, the implementation and maintenance of Allianz’s Anti-Corruption Program continued with the intense training of employees worldwide. The aim of this Program, which is compulsory for all employees, is to inform them about the main anti-corruption and anti-fraud rules, the essentials of the Anti-Corruption and Gifts & Entertainment Policies, and Allianz’s Anti-Fraud principles.
trust and transParency Allianz is recognized as being one of the world’s most transparent multinational companies. In the 2012 Transparency International Corporate Reporting ranking, Allianz came 10th out of the 105 largest publicly-listed companies. This ranking is based on Transparency International’s assessment of the level of transparency these companies provide in disclosing the measures in place to fight corruption. It also analyses to what extent earnings and taxes in specific countries were reported.
The research explored three dimensions of transparency: − public reporting on anti-corruption programs covering bribery, facilitation payments, whistleblower protection and political contributions,
dialogues witH goVernMents and related institutions We are living in a time of multiple economic and political challenges, such as over-indebtedness of selected sovereign states and the lingering effects of the financial crisis in the Eurozone. All-time low interest rates and market insecurity and volatility remain critical factors for our business and particularly for our customers. Our main goal when interacting with governments is to contribute solutions to these issues and create a stable political and economic landscape that will benefit our customers and us over the long term.
Our goal in 2012 was to expand contacts, increase interaction and promote dialogue on fundamental societal issues and challenges. The key topics impacting Allianz’s activities included the sovereign debt crisis, demographic change, Solvency II, the proposed financial transaction tax as well as energy policy.
In 2012, we contributed equal amounts to political parties in Germany representing a variety of views within the political spectrum: the Green Party (Bündnis 90/Die Grünen), Christian Democrats (CDU), Christian Social Union (CSU), Liberals (FDP) and Social Democrats (SPD). The amount donated to each party was € 30,000. The decrease from last year in the amount donated reflects the growing international focus of our engagements. Allianz supports a number of eco- and sociopolitical projects, such as the Third Generation Initiative, that brings together American Jews and Germans to foster reconciliation.
This poor global economic performance was primarily due to the ongoing European sovereign debt crisis. The severe fiscal policy squeeze in some Eurozone countries – such as Greece and Spain – not only strangled economic development in these countries, its impact seeped its way through trade and financial channels, dampening growth prospects for other countries and regions. As the European sovereign debt crisis worsened in the first half of the year, the growthinhibiting forces emanating from Europe and affecting the global economy became more prominent again. In particular, financial markets became far more jittery, with risk premiums on peripheral sovereign debt widening considerably and yields on long-term German government bonds – which the markets increasingly viewed as a “safe haven” – recording new historical lows of just over 1 %. The business climate across the globe, particularly in the manufacturing industry, took a significant turn for the worse. High commodity prices also took their toll on the economy. The marked increase in oil prices in the first quarter of 2012 hampered economic development in industrial countries and emerging markets alike.
Business environment 2012: insurance and asset management industry 2012 continued to present challenges for the insurance industry. Above all, distressed economic conditions weighed on premium growth. While the European economy shrank and U.S. growth remained fragile, high unemployment in many advanced markets was a drag on insurance demand. Even the economic performance of emerging markets, a bellwether of robust growth in recent years, was somewhat subdued last year.
On the other hand, some positive developments occurred. After the annus horribilis of 2011 with its record-high losses, catastrophe-related claims fell significantly in 2012 – even taking into account the multi-billion Euro effect of Storm Sandy. In particular, catastrophe losses were fairly low in Europe and emerging markets.
Although positive pricing momentum continued into 2012, there are recent signs that this has started to tail off, particularly in Europe. This is despite the need for further increases to offset the impact of persistently low interest rates. As a result, the overall profitability benefited from a lower level of natural catastrophes while the underlying profitability remained subdued, with return on equity in the 10 – 16 % range.
In the life sector, global premium income growth remained slow. In emerging markets however, it recovered as the biggest market, China, stabilized after the regulatory shocks of 2011. Latin America continued to post strong growth as well. However, premium growth in advanced markets stalled or even contracted, with some European markets – for example, France, Italy, and Spain – among the hardest hit due to harsh economic conditions and increased competition with banks fighting for deposits. By contrast, premium growth in Germany was flat as the earlier decline in single premiums sales lost pace. The U.S. market had a mixed performance: annuity sales dropped as a result of low returns and dwindling guarantees, but other life sales continued to record positive growth. In total, according to our own market estimates and based on preliminary figures, global premiums grew by around 2 % in 2012 (adjusted for foreign currency translation effects).
The persistent low-yield environment coupled with modest economic growth depressed new business profitability for traditional life business, for which we estimate the return on equity to be in the 8 – 10 % range. Overall, demand for life insurance savings products was rather weak as many customers were hesitant to commit to long-term savings contracts.
However, risk protection products fared better. These included not only traditional mortality, but also health insurance products such as disability and long-term care insurance – which grew strongly in many markets, for example Germany and the United States.
Segment overview Allianz SE and its subsidiaries (the Allianz Group) have operations in over 70 countries. The Group’s results are reported by business segment: Property-Casualty insurance, Life/Health insurance, Asset Management and Corporate and Other activities.
Earnings summary We recorded total revenues of € 106.4 bn, despite the tough economic and market conditions, which in particular weighed on premium growth for our life business. Revenues increased by 0.5 % on an internal basis2.
Operating profit strongly increased to € 9,501 mn and significantly exceeded our original target, supported by the solid operating performance in all the operating segments.
Net income increased substantially to € 5,491 mn, driven by our operating profit growth as well as the recovery of our nonoperating investment result.
Restrained U.S. growth and a shrinking European economy accompanied by the European sovereign debt and banking crisis, as well as high unemployment in many countries impacted insurance demand. While equity markets rebounded strongly in the second half of the year and selected corporate and sovereign credit spreads narrowed, persistently low interest rates and financial market volatility continued to put pressure on the insurance industry’s investment returns. Compared to 2011, claims from natural catas trophes declined significantly in 2012.
management’s assessment Of 2012 results We recorded growth in total revenues of 2.7 % to € 106.4 bn, despite the low interest rate environment which weighed on premium growth for our life business. On an internal basis, we increased revenues by 0.5 %. Our Property-Casualty and Asset Management segments generated strong revenue growth, while premiums in the Life/Health business decreased moderately.
Property-Casualty gross premiums written grew by 2.5 % on an internal basis, fueled by a positive price effect of 1.3 % and volume growth of 1.2 %. Most of the increase stemmed from our subsidiaries in Latin America and Australia as well as from Allianz Global Corporate & Specialty (AGCS).
Life/Health statutory premiums decreased by 2.6 % on an internal basis. Revenues were impacted by the difficult market conditions and a persistent low interest rate environment together with our ongoing effort to protect our margins through pricing actions. While traditional life premiums increased, revenues from the investment-oriented business decreased.
Asset Management generated internal growth of 15.4 %. Once again, this remarkable development was largely fueled by an increase in total assets under management, which reached € 1,852 bn, supported by higher performance fees. Our investment management performance remained outstanding and we recorded third-party net inflows of € 114 bn.
Total revenues from our Banking operations (reported in our Corporate and Other segment) amounted to € 590 mn, a return to growth compared to the previous year. This positive development was supported by improved trading income and moderately higher interest income.
Property-Casualty Life/Health Asset Management Corporate and Other 1 Total operating profit includes € (59) mn, € (109) mn and € (47) mn from consolidation in 2012, 2011 and 2010, respectively.
Life/Health operating profit grew by € 535 mn to € 2,955 mn, largely as a result of a higher operating investment result benefiting from significantly lower impairments on investments and higher realized gains compared to 2011. This positive development was also supported by our higher average asset base and resulting increase in interest and similar income.
Asset Management continued its excellent performance and grew its operating profit by € 758 mn to € 3,014 mn. On an internal basis our operating profit grew by 24.2 %. Higher revenues from assets under management, an increase in performance fees as well as our expense discipline resulted in an impressive cost-income ratio of 55.6 %, reflecting an improvement of 3.4 percentage points.
Corporate and Other operating result decreased 25.8 % to € (1,128) mn, driven by the Holding & Treasury result.
Although conditions continued to be difficult, market sentiment brightened in the second half of 2012 and our nonoperating result substantially improved by € 2,150 mn to a loss of € 870 mn. This result mainly benefited from a rebound of the non-operating investment result, which was severely burdened by impairments in the previous year.
Non-operating impairments of investments (net) declined from the exceptionally high level of € 1,931 mn in 2011 to € 513 mn in 2012. Equity impairments amounted to € 405 mn compared to € 1,240 mn in the previous year, which was largely impacted by impairments on financial sector investments. Debt impairments decreased by € 565 mn to € 81 mn as a result of an easing of the European sovereign debt crisis. By comparison, impairments on our Greek sovereign bonds amounted to € 573 mn in 2011.
Non-operating acquisition-related expenses decreased by € 108 mn to € 101 mn, largely due to lower PImCO B-unit expenses 1. In 2012, we bought 11,896 B-units. We have now acquired 97 % of all outstanding B-units, with only 4,619 B-units still outstanding. The reduction in B-unit expenses relates to lower fair value adjustments to the provision for future B-unit repurchases as well as a decrease in distribution expenses, due to the strong decline in the number of B-units outstanding (by 11,896 B-units or 72 %) compared to 31 December 2011. Furthermore, we recorded no premium effect from the purchase of 11,896 B-units in 2012 (2011: € 66 mn).
Non-operating amortization of intangible assets decreased from € 449 mn to € 259 mn largely due to significantly higher impairments on goodwill in the previous year. For further information, please refer to note 15 to the consolidated financial statements.
1 When PImCO was acquired, B-units were created entitling senior management to profit participation. Under the B-unit plan, Allianz has the right to call, while PImCO senior management has the right to put, those B-units over several years. Fair value changes due to changes in operating earnings are reflected in acquisition-related expenses. The marginal difference between a higher call versus the put price upon any exercise (i.e. premium), and distributions received by the senior management B-unit holders, are also included.
Net income nearly doubled from € 2,804 mn to € 5,491 mn due to our strong operational performance and the recovery of our non-operating investment result versus the previous year. 2011 was heavily impacted by the European sovereign debt crisis, the subsequent financial market turmoil and high natural catastrophes. Net income attributable to shareholders and non-controlling interests was € 5,169 mn (2011: € 2,545 mn) and € 322 mn (2011: € 259 mn), respectively. Our largest non-controlling interest relates to Euler Hermes, accounting for € 94 mn.
Claims and insurance benefits incurred (net) (48,874) (48,867) (46,096) Change in reserves for insurance and investment contracts (net) 2 (14,359) (10,993) (13,871) Loan loss provisions (111) (121) (50) Acquisition and administrative expenses (net), excluding acquisition-related expenses (22,032) (20,553) (20,443) Fee and commission expenses (2,896) (2,564) (2,561) Operating restructuring charges (16) (1) (8)
Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) 210 (443) (57) Non-operating realized gains/losses (net) 1,112 1,215 1,539 Non-operating impairments of investments (net) (513) (1,931) (460)
Net income (loss) attributable to: Non-controlling interests 322 259 156 1 Total revenues comprise statutory gross premiums written in Property-Casualty and in Life/ Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking).
The proposal for appropriation of net earnings reflects the 2,760,081 treasury shares held directly and indirectly by the Company at the time of the publication of the convocation of the Annual General Meeting in the Federal Gazette. Such treasury shares are not entitled to the dividend pursuant to § 71b of the German Stock Corporation Act (AktG) 1. Should there be any change in the number of shares entitled to the dividend by the date of the Annual General Meeting, the above proposal will be amended accordingly and presented for resolution on the appropriation of net earnings at the Annual General Meeting, with an unchanged dividend of € 4.50 on each share entitled to dividend.
Other parts of the Group Management Report The following information also forms part of the Group Management Report: − Statement on Corporate Management pursuant to § 289a of the HGb starting on page 69.
Segment overview Our Property-Casualty business offers a wide range of products and services for both private and corporate clients. Our offerings cover many insurance classes such as accident/disability, property, general liability and motor. We conduct business worldwide in more than 50 countries. We are also a global leader in travel insurance, assistance services and credit insurance. We distribute our products via a broad network of agents, brokers, banks and other strategic partners, as well as through direct channels.
Earnings summary Gross premiums written increased 4.7 % to € 46.9 BN supported by continued growth in most developing markets. On an internal basis, gross premiums were up 2.5 % driven by both positive price and volume effects.
Operating profit + 12.5 % operating profit property-casualty C 030 € mn
Analyzing internal premium growth in terms of price and volume, we use four clusters based on 2012 internal growth over 2011: Cluster 1: Overall growth – both price and volume effects are positive.
Cluster 2: Overall growth – either price or volume effects are positive.
1 After elimination of transactions between Allianz Group companies in different countries and different segments. Gross premiums written from our specialty lines have been allocated to the respective geographic regions.
1 Before elimination of transactions between Allianz Group companies in different geographic regions and different segments.
cluster 1 In Latin America gross premiums increased 18.3 % to € 2,389 MN benefiting from positive price and volume effects. All countries contributed positively with most of this growth coming from our motor business in Brazil.
At AGCS gross premiums grew 5.0 % to € 5,314 MN. Most of this growth was attributable to volume growth in our marine and property lines, as well as to our Allianz Risk Transfer (ART) business. The overall price effect was slightly positive at about 0.1 %.
In France gross premiums grew 2.2 % to € 3,538 MN reflecting tariff increases in our retail and commercial lines. This led to a positive price effect of about 3.0 %.
In Switzerland gross premiums grew slightly by 0.4 % to € 1,501 MN, including favorable foreign currency translation effects of € 59 MN. We achieved a positive volume effect of 1.5 % largely driven by our motor business which was mostly offset by a negative price effect of about 1.1 %.
cluster 3 In Spain gross premiums decreased 2.9 % to € 1,953 MN. Due to difficult market conditions, tariffs declined in our commercial lines. This led to a negative price effect of about 6.2 %. Despite the challenging market environment, we were still able to generate volume increases of 3.3 %.
In the United States we generated gross premiums of € 3,550 MN, including favorable foreign currency translation effects of € 318 MN. Gross premiums dropped by 5.3 % primarily due to volume declines in our commercial and personal lines which were impacted by our strict underwriting rules. The price effect was positive at about 1.6 %, mainly stemming from our commercial lines.
We analyze the operating profit in the Property-Casualty segment in terms of underwriting result, operating investment income and other result1.
Operating profit amounted to € 4,719 MN, up € 523 MN driven by the improved underwriting result.
Our underwriting result grew by € 701 MN to € 1,402 MN. This increase was largely due to an improvement in our accident year loss ratio of 2.9 percentage points supported by lower natural catastrophe claims and our favorable price environment. It was partially offset by a less favorable run-off compared to 2011. As a result, the combined ratio improved by 1.5 percentage points to 96.3 %.
Premiums earned (net) 41,705 39,898 39,303 Accident year claims (29,699) (29,580) (28,685) Previous year claims (run-off) 1,207 1,660 1,544
Claims and insurance benefits incurred (net) (28,492) (27,920) (27,141) Acquisition and administrative expenses (net) (11,673) (11,115) (11,044) Change in reserves for insurance and investment contracts (net) (without expenses for premium refunds) 1 (138) (162) (119)
Our accident year loss ratio was 71.2 %, down 2.9 percentage points compared to the previous year. Net losses from natural catastrophes decreased from a very high level of € 1,764 MN to € 715 MN. The impact from natural catastrophes decreased by 2.7 percentage points to 1.7 %. 2011 was severely impacted by events such as the earthquakes in Japan and New Zealand, as well as the floods in Thailand, while 2012 was primarily impacted by Storm Sandy with € 447 MN.
Italy: 0.5 percentage points. This was supported by positive developments in claims frequency and severity, especially in our motor business. This effect was partly offset by higher natural catastrophes, such as the earthquake in Emilia Romagna.
The following operations contributed negatively to the development of the accident year loss ratio: United States: 0.7 percentage points. This was mainly due to the natural catastrophe losses we incurred from Storm Sandy. In addition, our crop business was affected by the severe drought.
Our run-off result declined by € 453 MN to € 1,207 MN. This decline was attributable to higher reserve strengthening of € 123 MN in the United States in 2012 compared to 2011 and to an increase in the estimated ultimate loss for the 2011 Thailand floods of approximately € 200 MN. Furthermore, in 2011, we benefited from favorable developments related to our non-U.S. asbestos reserves of € 130 MN and a positive development from a prior year large claim of € 163 MN.
Expenses for premium refunds (net) 2 (292) (110) (181) Operating investment income 3,229 3,394 3,218 1 The operating investment income for our Property-Casualty segment consists of the operating investment result – as shown in note 6 to the consolidated financial statements – and expenses for premium refunds (net) (policyholder participation) as shown in note 34 to the consolidated financial statements.
Operating income from financial assets and liabilities carried at fair value through income (net) resulted in a loss of € 46 MN, a decrease of € 94 MN. € 56 MN of this decrease is related to the reduction of the fair value option portfolio now invested in available-for-sale securities.
Investment expenses rose by € 71 MN to € 307 MN. The vast majority of this increase is related to the changed presentation of the separate expense result from our Australian premium funding business.
Ceded premiums written (4,727) (4,552) (4,346) Change in unearned premiums (457) (322) (246) Premiums earned (net) 41,705 39,898 39,303 Interest and similar income 3,770 3,771 3,680 Operating income from financial assets and liabilities carried at fair value through income (net) (46) 48 18 Operating realized gains/losses (net) 168 21 42 Fee and commission income 1,165 1,154 1,099
Claims and insurance benefits incurred (net) (28,492) (27,920) (27,141) Change in reserves for insurance and investment contracts (net) (430) (272) (300)
Acquisition and administrative expenses (net) (11,673) (11,115) (11,044) Fee and commission expenses (1,089) (1,070) (1,024)
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).
ProPerty-Casualty insuranCe oPerations by business divisions € mn Gross premiums written Premiums earned (net) Operating profit (loss)
3 The reserve strengthening for asbestos risks in 2012 at Fireman’s Fund Insurance Company of € 71 mn had no impact on the financial results of the Allianz Group and Fireman’s Fund’s combined ratio under IFRS. The reserve strengthening for asbestos risks in 2011 at Allianz S.p.A., at Fireman’s Fund Insurance Company and at AGCS of in total € 153 mn had no impact on the financial results of the Allianz Group and the single entities’ combined ratio under IFRS.
4 Effective as of 1 October 2012, Allianz France acquired the Property-Casualty brokerage portfolio -related activities (excluding transport) of Gan Eurocourtage.
5 Effective as of 1 August 2012, Allianz Belgium acquired the assets and assumed the liabilities related to the insurance activities of Mensura.
Global Insurance Lines & Anglo Markets 9 93.5 96.3 92.1 65.2 68.5 64.4 28.3 27.8 27.7
Consolidation and Other 12,13 – – – – – – – – –
7 In 4Q 2011 the premium accounting method changed which is adjusted in the internal growth. 8 From the third quarter of 2012 onwards, Allianz Worldwide Care was transferred from Global
11 Contains gross premiums written of € 2 mn from Allianz Global Automotive in 2012. 12 Represents elimination of transactions between Allianz Group companies in different geographic regions.
13 The 2011 analysis of the Allianz Group’s asbestos risks resulted in a reduction of reserves and a positive run-off result of € 130 mn reflected in the operating profit for 2011.
1 Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects.
Earnings summary Statutory premiums remained stable at € 52,347 mn. On an internal basis1, premiums decreased by 2.6 % – which was broadly in line with our expectations. Traditional life and health premiums increased, while premiums from our investment -oriented business decreased given the persistent low interest environment and our selective focus on profitable growth.
In 2012, statutory premiums amounted to € 52,347 mn, a decrease of € 516 mn. On an internal basis, premiums decreased by 2.6 % or € 1,354 mn, after excluding positive foreign currency translation effects of € 932 mn. The growth in premiums from traditional products partly compensated for the decrease in investment-oriented products and resulted in an overall premium mix shift in favor of traditional business from 46.5 % to 48.3 %. On an internal basis, premiums from traditional products grew by 1.9 %, mainly in Germany, AsiaPacific, Central and Eastern Europe as well as in the United States, while we saw a decrease in Italy and Belgium/Luxembourg.
1 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.
Premiums in Central and Eastern Europe increased from € 1,113 mn to € 1,176 mn, representing growth of 7.9 % excluding a negative foreign currency translation effect of € 25 mn. In Poland, we recorded growth in single premiums in the first quarter of 2012 and in Russia premiums increased significantly through bancassurance sales. The Czech Republic benefited from higher single premium revenues in our investment -oriented product business and an ongoing positive trend in the sale of traditional products. However, in Hungary premiums decreased from the high level in 2011 which was driven by sales campaigns.
In Switzerland premiums totaled € 1,903 mn. Adjusting for positive foreign currency translation effects of € 76 mn, premiums were up 7.3 %. In our group life business, we recorded strong growth in single premiums largely driven by the expansion of existing policies as well as new business generated through acquisition-related employee growth of a major client. This compensated for the decrease in single premiums in our individual life business.
In France we recorded a premium increase of 4.7 % to € 7,977 mn. The growth of € 357 mn was largely driven by our investment-oriented business supported by a slight improvement in traditional premiums. An increase of approx imately € 619 mn was attributable to our internal reinsurance of partnership business with our Belgium/ Luxem bourg operations. Overall, our performance was better than the negative market development, which was significantly impacted by a competitive banking sector concentrating on selling its own products.
In Asia-Pacific, we recorded premiums of € 5,103 mn. After adjusting for positive foreign currency translation effects of € 296 mn, premiums decreased by 3.3 %. The overall positive trend in our other Asian markets almost fully compensated for the premium decline in Japan of € (478) mn which reflects the discontinuation of selling new business by the end of 2011. Excluding Japan, premiums increased by 7.0 % on an internal basis. In South Korea, single premium investmentoriented business strongly increased for much of the year. However, in line with our competitors, we stopped selling one of our major growth products in September 2012, due to the low interest rate environment. In Indonesia, we saw strong growth in both our single premium investmentoriented business and the traditional business, largely driven by higher sales in the bancassurance channel. In Taiwan, premiums of unit-linked products decreased compared to 2011, although our sales improved in the second half of 2012 following competitor repricing.
Premiums in Italy dropped 8.0 % to € 6,364 mn, mainly due to a decrease in the individual life business driven by lower volumes in the bancassurance sales channel as banks focused on selling their own products rather than insurance products. The market environment remained difficult, characterized by weak saving propensity and low disposable incomes. All of this put severe downward pressure on premiums and translated into a drop in sales of investment -oriented products, which however stabilized during the course of the year, thanks to products distributed by agents and financial advisors.
Premiums in the United States decreased to € 7,289 mn, representing a decline of 13.6 % after adjusting for a positive foreign currency translation effect of € 560 mn. In reaction to low interest rates, we implemented product and commission changes for fixed-indexed and variable annuity products in the second and third quarter of 2012. These changes resulted in a drop in sales in both business lines. However, our traditional life business showed a positive development.
Interest and similar income net of interest expenses increased by € 749 mn to € 16,748 mn. We recorded growth in interest income from debt securities due to a higher asset base – more than offsetting the modest decline in interest yield – as well as growth in dividend income from equities including affiliates.
Changes in reserves for insurance and investment contracts (net) increased by € 3,352 mn to € 13,970 mn, largely driven by lower reserve releases for matured products as well as higher allocation of premiums to aggregate policy reserves. Increased expenses for premium refunds mainly related to the higher investment result.
Investment expenses increased by € 14 mn to € 759 mn, following the growth in the asset base. This effect was partially offset by lower expenses for real estate maintenance and repair in Germany.
Acquisition and administrative expenses (net) amounted to € 5,316 mn, an increase of € 289 mn. A decrease in administrative expenses only partially compensated the higher acquisition costs due to higher amortization and lower capitalization of deferred acquisition costs.
Ceded premiums written (693) (669) (564) Change in unearned premiums (248) (172) (127) Statutory premiums (net) 51,406 52,022 56,407 Deposits from insurance and investment contracts (27,013) (28,252) (32,373) Premiums earned (net) 24,393 23,770 24,034 Interest and similar income 16,832 16,107 15,085 Operating income from financial assets and liabilities carried at fair value through income (net) (727) (866) 19 Operating realized gains/losses (net) 3,044 2,188 2,125 Fee and commission income 534 538 539
Claims and insurance benefits incurred (net) (20,386) (20,947) (18,955) Changes in reserves for insurance and investment contracts (net) (13,970) (10,618) (13,329)
Margin on reserves 2 in basis points 67 58 73 1 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 operating profit divided by the average of current year-end and previous year-end net reserves, whereby net reserves equal reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets.
Life/HeaLtH insurance operations by business divisions € mn Statutory premiums 1 Premiums earned (net)
Operating profit (loss) Margin on reserves 2 € mn € mn € mn bps bps bps
5 Presentation not meaningful. 6 Represents elimination of transactions between Allianz Group companies in different geographic regions.
Asset Management − Total assets under management at € 1,852 bn. − Excellent third-party net inflows of € 114 bn. − Outstanding operating profit of € 3.0 bn. − Cost-income ratio improved to 55.6 %.
Earnings summary Our operating revenues grew by € 1,284 mn, or 23.3 % to € 6,786 mn. On an internal basis 1, operating revenues went up 15.4 % compared to 2011, benefiting from the strong growth in our assets under management and higher performance fees. Third-party net inflows amounted to € 114 bn.
Operating profit + 33.6 % operating profit asset management C 046 € mn
In addition, favorable market effects contributed a further € 156 bn with € 137 bn coming from fixed income – and € 19 bn from equities. These positive effects were partly offset by the reclassification from “assets under management” to
third-party assets under management by business unit C 049 as of 31 December 2012 1 in %
PIMCO 85.6 1 Retrospective figures as of 31 December 2011 are not provided since the composition of total assets under management is impacted by the new structure for Asset Management which did not exist prior to 1 January 2012.
third-party assets under management by region/country 1,2 C 050 as of 31 December 2012 [31 December 2011] in %
The regional split of third-party assets under management shifted slightly. Supported by strong net inflows and positive market conditions, the United States increased its share by 1.4 percentage points to 64.6 %. Germany decreased by 1.6 percentage points to 7.7 %, primarily due to the reclassification from “assets under management” to “assets under administration ”.
Overall, the share of third-party assets from fixed income and equities remained unchanged at 89 % and 11 %, respectively.
The overall investment performance of our AAM business was outstanding, with 92 % outperforming their respective benchmarks (31 December 2011: 89 %). PIMCO recorded an excellent performance of 96 % versus its respective benchmarks, with AllianzGI outperforming 62 % of its benchmark.
Our operating revenues grew by € 1,284 Mn, or 23.3 % to € 6,786 Mn. This reflected the growth in assets under management and an increase in performance fees. On an internal basis, operating revenues rose by 15.4 %.
Net fee and commission income increased by € 1,261 Mn to € 6,731 Mn. This was mainly due to higher management fees resulting from the higher asset base. Our performance fees went up € 311 Mn to € 766 Mn driven by private funds and separate accounts.
1 Represents interest and similar income less interest expenses. 2 Represents operating expenses divided by operating revenue.
We recorded € 16 Mn of income from financial assets and liabilities carried at fair value through income (net), up € 27 Mn, benefiting from positive effects of mark-to-market valuation of seed money in the United States.
Supported by higher operating revenues, a strong cost-income ratio as well as favorable foreign currency translation effects, we achieved an operating profit of € 3,014 Mn, up 33.6 %. Excluding both the impact of foreign currency translation effects of € 197 Mn 1 and consolidation/deconsolidation effects of € 19 Mn, internal growth amounted to 24.2 %.
1 Based on the average exchange rates in 2012 compared to 2011.
Key figures Key figures Corporate & other C 053 € mn
Key figures Corporate & other – in detail1 C 054 € mn holding & treasury
Earnings summaries by operations holding & treasury Holding & Treasury’s operating result declined from € (824) mn to € (1,115) mn. This was mainly attributable to lower operating revenues and higher operating expenses, in particular due to higher investments in IT and opera­ tions. A drop in the net interest result and higher adminis­ trative expenses also contributed to this development.
Our net fee and commission result decreased by € 164 mn to a loss of € 232 mn. This was due to costs incurred by our inter­ nal IT service provider.
In addition, our net interest result worsened by € 85 mn to a net loss of € 169 mn. Interest and similar income decreased from € 354 mn to € 245 mn, reflecting receding income on debt securities as a result of lower interest yields as well as lower equity related returns. This decline could only be par­ tially compensated for by the € 24 mn reduction in interest expenses, excluding interest expenses from external debt, which amounted to € 414 mn.
BanKing Overall, the operating loss halved to € 34 mn compared to the previous year’s result. This positive development was driven by higher trading income, but also by an improved net interest result and lower loan loss provisions.
Our operating income from financial assets and liabilities carried at fair value increased from a loss of € 2 mn to an income of € 14 mn benefiting from changed interest rates.
Our loan loss provisions decreased by € 10 mn to € 111 mn. The previous year’s provisions were affected by the spillover effects of the financial crisis on our customers; in particular in our ship financing business. During the first two quarters of 2012, we increased loan loss provisions due to financial guarantees within certain unit­linked products related to peripheral sovereign bonds (which were sold or matured by the end of 2012).
Outlook 2013 and 2014 − World economy to regain some momentum. − Allianz Group operating profit for 2013 expected to be in the range of € 9.2 bn, plus or minus € 0.5 bn, and is expected to improve in 2014.
Strong regulatory solvency ratio of 197 % (179 % in 2011). aa Standard & Poor’s rating with negative outlook. Allianz remains one of the highest-rated insurance groups.
We protect the investments of our shareholders and rather miss an opportunity than risk losing money through our investments.
Return on equity , after income taxes, of 10.5 % (2011: 5.7 %). Proposed dividend maintained at € 4.50 (2011: € 4.50) per share.
We continue to strengthen our drive for profitable growth. We recorded a growth of 20.8 % in our operating profit compared to previous year, driven by improvements in all operating segments, especially Asset Management.
Gross premiums written increased by 4.7 % due to positive inter - nal growth of 2.5 % (both price and volume effects were positive), favorable foreign currency translation effects and the effect of acquisitions in the second half of 2012 (activities of Gan Eurocourtage and Mensura).
We expect our operating profit to be between € 4.0 bn and € 5.0 bn.
Claims from natural catastrophes dropped to € 0.7 bn (2011: € 1.8 bn), which is below the long-term average level.
Operating investment income declined by 4.9 % to € 3.2 bn.
Accident year loss ratio excluding claims from natural catastrophes improved slightly from 69.7 % to 69.5 %. Expense ratio increased slightly from 27.9 % to 28.0 %, mainly driven by acquisitions in the second half of 2012.
We expect an operating profit in our Life/Health business in the range of € 2.2 bn to € 2.8 bn, with a margin on reserves between
Operating profit of € 3.0 bn, driven by a higher investment result, particularly in Germany. Margin on reserves increased to 67 bps.
The investment result for 2012 is expected to improve compared with 2011.
asset ManaGeMent We expect inflows to continue, especially into fixed income products.
We expect operating profit to be in the range of € 2.0 bn to € 2.4 bn.
We expect to maintain a cost-income ratio well below 65 %. Cost-income ratio improved by 3.4 percentage points to 55.6 %.
World eConoMy to reGain soMe MoMentuM Following a subdued economic performance in the winter of 2012/2013, the world economy is likely to regain some momentum as the year progresses. This view is supported, inter alia, by the improvement in leading economic indica­ tors, such as purchasing managers’ indices in both indus­ trialized and emerging markets. Global output is expected to grow moderately by 2.6 % in 2013 and by 3.2 % in 2014 (2012: 2.3 %). On both sides of the Atlantic, public and private sector efforts to adjust to high debt levels will continue to restrain economic activity. Monetary policy, however, is still very accommodative in the United States, Japan and Europe and generally favorable financing conditions are providing economic impetus for both private households and the cor­ porate sector. Emerging markets remain a key driver of global growth, although future GDP growth rates will be lower than in the years before 2008. We expect these markets to grow by 5.3 % in 2013 and 5.4 % in 2014 (2012: 4.5 %). Given modest worldwide growth prospects and taking into account the problematic unemployment situation in many indus­ trialized countries, which dampens wage pressure, inflation should remain subdued on a global level both in 2013 and 2014.
Given the need to rein in the federal budget deficit, U.S. annual economic growth will probably remain moderate in 2013 and 2014, at 1.8 % and 2.4 %, respectively. In the Euro­ zone, we expect to see a stabilization in 2013 and modest growth in 2014. The arguments in favor of recovery include, first and foremost, the political progress in addressing the crisis, which has boosted confidence levels among eco­ nomic players. The second reason is the substantial support provided by the European Central Bank’s monetary policy and the low interest rate environment. Nevertheless, budget­ ary consolidation will continue to exert a drag on the Euro­ zone’s economy. In addition, economic conditions still vary considerably from country to country. Real GDP in the Euro­ zone as a whole is expected to grow by a paltry 0.2 % in 2013 and a more respectable 1.5 % in 2014. The German economy will continue to outperform the Eurozone average, thanks to robust domestic demand, a fairly stable labor market and relatively low public sector consolidation needs. Follow­ ing an estimated real GDP growth of 1.2 % in 2013, we expect a 2.2 % increase in 2014.
Political risks still linger – especially in countries with up­ coming elections – which could trigger fluctuations in the financial markets. However, we consider it unlikely that the European debt crisis will continue to keep the markets on edge on the scale it has done to date, assuming Southern Europe continues with its reforms. With the debt crisis gradually receding, the flight into the “safe havens” of Ger­ man and U.S. government bonds is likely to ease, pushing up yields in these markets moderately. However, both the Federal Reserve Bank and the European Central Bank can be expected to stick to their loose policy stance, above all leaving key rates unchanged. With short­term rates close to zero, there are limited prospects of a sharp rise in yields on longer­term bonds. We expect yields on 10­year German and U.S. government bonds to climb merely into a range of 2.0 – 2.5 %.
Over the next two years, global economic activity is set to improve, albeit only slightly. In particular, the expected slow recovery in Europe should be positive for the insur­ ance industry. World premium growth should accelerate modestly, with fairly robust growth in emerging markets outpacing that of advanced markets – although growth will be not as strong as in the years prior to the financial crisis. At the same time, interest rates are expected to stay at low levels to support fragile economies and financial markets are likely to remain volatile. Against this backdrop, we fore­ cast a muted earnings growth outlook for the industry – espe­ cially in the life sector – which is likely to be impacted by further expected investment derisking. While balance sheets for the most part should remain relatively strong, they will continue to be affected by financial market volatil­ ity. However, in the longer term there is the potential for growth and improved earnings, should interest rates and yields increase.
In the property-casualty sector, we anticipate slightly higher premium growth in 2013 and 2014 as the uptick in economic activity bolsters demand for insurance coverage. In partic­ ular, there are no signs that strong growth in emerging
markets will slow down: robust economic advances, rising incomes and heightened risk awareness will drive stronger premium growth for the foreseeable future. However, pre­ mium rates, after modestly increasing in 2011 and 2012, may broadly flatten out in 2013 – despite the need for further rises to offset the impact of low investment yields. As a result, we expect global premium revenue to rise in the 4 .0 – 6.0 % range per annum in 2013 and 2014.
are likely to stay cautious, with asset allocations oscillating between high­ and low­risk assets. Therefore, we expect net inflows to remain volatile in 2013 and 2014.
The upside potential for market­driven growth in the asset management industry will be limited in both the fixed in­ come and the equity areas for as long as the sovereign debt problems of the major developed economies remain unre­ solved and their respective GDP growth rates continue to lag behind long­term trends.
Profitability growth will also be challenged by regulatory activities, which are currently unfolding across the globe. In such an environment, money managers’ ability to grow is dependent on delivering above­benchmark investment results, the comprehensiveness of their investment prod­ ucts and the services they offer, as well as the scale and effi­ ciency of their operations.
As discussed earlier, the world economy is likely to regain some momentum, and we look set to enter a period of mod­ erate growth. Despite signs of a global recovery, there are clear risks for 2013 and beyond. Geopolitical tensions, a renewed flare­up of the sovereign debt crisis in large indus­ trialized countries and currency or trade wars all have the potential to send the world economy into a tailspin. How­ ever, the outlook provided here assumes the absence of such severe shocks.
In principle, we do not provide a specific outlook for net income. As has been seen in the past, given the volatility in the capital markets, a precise prediction of net income for the year 2013 and beyond is not possible.
Protection of shareholders’ investments, while continuing to provide attractive returns and dividends (dividend payout ratio of 40%). Profitable growth.
Margin on reserves between 50 and 70 bps. Pressure on investment income due to low interest rates and normalization of the net harvesting result. Prioritizing profitability over growth, taking further product and pricing actions as necessary.
2 The conglomerate solvency ratio decreased by approximately 17 percentage points as of 1 January 2013 due to amendments to IAS 19. For further information, please refer to note 4 to the consolidated financial statements.
We expect our business mix and profitability contributions to remain unchanged compared to 2012: our Property­ Casualty business will carry on making up the majority of our operating profit, while we anticipate that the Asset Management segment will continue to be a significant source of operating profit, driven by the strong asset base growth in 2012. However, we expect the growth rate in Asset Management to ease and further expect operating profit in Life/Health to revert to a more usual level due to the nor­ malization of the investment result.
In 2012, our total revenues amounted to € 106.4 bn, repre­ senting a 0.5 % increase on an internal basis compared to last year. The decline in Life/Health revenues, reflecting the challenging market environment and the trade­off between volume and margins, was more than compensated for by excellent growth in Asset Management along with a moder­ ate increase in Property­Casualty premiums. We expect the modest revenue rise to continue in 2013, with Property­ Casualty and Asset Management experiencing positive inter­ nal growth, while Life/Health volumes are likely to remain under pressure due to the uncertain financial market out­ look and our selective focus on profitable growth.
In 2012, we significantly exceeded our original operating profit target, reaching € 9.5 bn. This excellent result was supported by lower claims from natural catastrophes in Property­Casualty, an outperforming Asset Management segment – particularly PIMCO – and solid results in Life/ Health, buoyed by a high operating investment result.
In 2012, our net income increased substantially to reach € 5.5 bn, supported by a stronger operating performance in all operating segments and a more favorable non­operating result.
We plan to make further progress towards our combined ratio target of 96 % over the cycle. This rests on our expecta­ tion that the aggregate effect of improvements in pricing, claims management and productivity gains will more than compensate for underlying claims inflation. A 1.0 percentage point change in the combined ratio would have an impact of around € 0.4 bn on our 2013 operating result.
Overall, we expect our 2013 operating profit to be in the range of € 4.3 bn to € 5.1 bn. For 2014, we aim to further strengthen our operating profit level compared to 2013.
With economic and regulatory uncertainty likely to persist, financial markets are expected to remain prone to fluctua­ tions in the foreseeable future, leaving net inflow expecta­ tions in the asset management industry largely subdued. In 2013, we do not expect the same outstanding growth in our total assets under management as we recorded in 2012 to continue. However, due to the wide range of our invest­ ment offerings, we envisage a moderate rise in our total assets under management, driven mainly by inflows into fixed income products but supported also by equity flows. Assuming favorable market developments and a rosier in­ vestor sentiment in 2013, a further moderate increase in total assets under management can be anticipated for 2014.
We expect to maintain a cost­income ratio of 60 % or below in 2013 and 2014, supported by our high asset base and en­ hanced organizational structure, which allows us to stay on course towards profitable business growth.
Corporate and otHer Our Corporate and Other segment recorded an operating loss of € 1.1 bn in 2012. Due to the restructuring of our German banking activities but improving operating results of the continuing operations, we expect an operating loss in the range of € 1.1 bn to € 1.3 bn for Corporate and Other (including consolidation) in 2013. This result is expected to improve in 2014.
Financing and liquidity development and capitalization All external financing activities of the Allianz Group are centralized at Allianz SE. Potential sources of financing in­ clude the issuance of commercial paper, medium­ and long­term notes and ordinary shares. In addition, Allianz SE has access to bank loans and long­term credit lines which provide flexibility and allow us to fine­tune our funding structure.
The Allianz Group maintains a healthy liquidity position combined with superior financial strength and stability and a capitalization well above what supervisory authori­ ties currently require. We expect to have steady access to financial markets at reasonable costs in order to maintain our strong financial flexibility. This is supported by prudent steering of our liquidity resources and a maturity profile focusing on a long­dated average remaining term. Based on current interest rate expectations, our average capital market financing costs in 2013 should be broadly in line with 2012.
Going forward, provided that our outlook assumptions hold, we will continue to target a payout ratio of 40 %, based on net income attributable to shareholders.
Consistent with our disclosure practice in the past and given the susceptibility of our non-operating results to adverse capital market developments, we do not provide specific predictions concerning our net income. However, since our outlook presumes no major disruptions in the capital markets, we would nevertheless expect a stable or slightly increasing net income for 2014.
As always, natural catastrophes, as well as factors mentioned in our cautionary note regarding forward-looking statements, may adversely affect the results of our operations.
Management’s views on future challenges and opportunities As a global financial services provider, our business is heavily impacted by a variety of issues of global and long-term scope. We place a high priority on monitoring, analyzing and responding to the challenges and opportunities we are presented with in order to ensure the company’s sustainable and profitable growth.
It is essential that we maintain and strengthen the trust our customers, employees, investors and the public place in us. That is why our long-term business strategy is based on an in-depth understanding of the risks and opportunities facing us not only today but also in the future. By consistently following our Group strategy, we are confident that the Allianz Group is in a privileged position to build on this trust and deal with the myriad challenges and opportunities ahead.
The future key challenges and opportunities, as we see them, are outlined below.
We also play a constructive role in helping policymakers develop lasting solutions to the Euro crisis, as stability and predictability are the foundations of an attractive invest­ ment environment. With our strong belief that European unity is the only way forward if we want to preserve our in­ fluence in the international economy and safeguard our living standards for coming generations, we will continue to engage in discussions about the better future of Europe.
Climate­related investments, such as renewable energies, are an attractive growth market as they contribute to great­ er diversification, which spreads portfolio risks. They also provide sound and stable long­term returns that are gener­ ally not linked to the ups and downs of the financial markets. This fits well with our investment strategy for insurance premiums, which calls for manageable risks and attractive returns.
For more information, please refer to the chapter Our Prog­ ress in Sustainable Development starting on page 109.
Access to finance An estimated 2.6 billion people live on an income of between U.S. Dollar 1.25 and 4.00 a day, mostly in developing coun­ tries. Since only a fraction of these people have access to comprehensive state­ or private­sector insurance schemes, it leaves the vast majority extremely vulnerable in the event of natural disasters, accidents or illness. Through its micro­ insurance products, Allianz offers protection and help to people with low incomes in developing countries to better manage these risks. Premiums are affordable and start from € 1 a year. We currently provide over 17 million people with microinsurance, mostly in Asia but increasingly in Africa and Latin America. Our products range from life insur­ ance and savings plans to crop index insurance. Although financial returns from microinsurance are much lower than from traditional products, we believe that satisfied microinsurance policyholders will bring a mid­ to long­ term return on investment as many of them move up the economic ladder and graduate towards more regular Allianz products. 109
reGulatory and orGanizational CHanGes The insurance industry is faced with increased regulation in developed markets, for example Solvency II in the E.U. and the systemic risk discussions (G­SIFI) led by the Finan­ cial Stability Board. Because the regulations are not yet fi­ nalized, the consequences are uncertain. However, it is likely that capital requirements will rise and supervision will be intensified and it is certain that administrative costs will increase. In addition, Solvency II in particular may heavily impact long­term savings businesses and make investments in equities and other asset classes less attrac­ tive, potentially undermining insurers’ role as long­term investors and capital providers. However, these regulatory trends could open up major opportunities as greater capi­ tal needs and regulation may lead to sector consolidation where only financially sound insurance companies will survive.
Risk management and control Since these regulatory trends are material to Allianz’s busi­ ness, the Group continually monitors and attempts to in­ fluence their development for the benefit of the industry and policyholders. The growing number of issues and their impact will highlight the even greater importance of risk management, which will prove advantageous to compa­ nies with a diversified approach to risk management. After all, anticipating, monitoring and evaluating global issues is an essential aspect of our comprehensive risk manage­ ment which makes us well prepared for these issues as they develop.
Opportunity management and strategic investments opportunity ManaGeMent Our Allianz Operating Model has laid the foundation for a structured and harmonized approach to capture opportu­ nities globally and in our local markets.
Clear roles and responsibilities as well as processes involv­ ing all stakeholders ensure that identifying opportunities, evaluating their potential and driving promising ideas to implementation form an integral part of our strategy devel­ opment process. Market Management, for example, is re­ sponsible for developing and constantly evolving the local market strategy, linking clear objectives with customer, sales channel, product, service and brand strategies.
2. Understanding the impact of these insights on the cur­ rent business model and the local strategy.
3. Reviewing and adjusting the market strategy based on these findings.
We are making considerable progress in our Group­wide digital transformation program and will invest approxi­ mately € 450 Mn in 2013 and 2014 to build reusable assets in the three areas of the Allianz Digital Target Picture: Custom­ er Interaction, Analytics & Products as well as Productivity.
Allianz will continue to dedicate a substantial portion of the overall digitalization investment to the Customer Inter­ action area to increase the frequency and quality of cus­ tomer contact through web, mobile and social media across all distribution channels. We have already started rolling out our cross­device global interaction solution One Web, which covers internet and mobile interaction. Addressing our customers’ increasing preference for social media, Allianz has already begun developing products to ensure representation of the brand and customer inter­ action in the social space. Facilitating multi­access for cus­ tomers is a key priority for the upcoming years.
To leverage significant data for market­based pricing and product development, investments are being made in Ana­ lytics and Products. Key examples are initiatives such as Product Portfolio Efficiency – which simplifies the product portfolio by facilitating modular offers – and Global Busi­ ness Intelligence, which builds a solid and scalable infra­ structure to enable entities to conduct advanced real­time analytics on critical business and reporting data. In addi­ tion, Allianz is exploring innovative digital opportunities such as telematics.
High priority is also given to meeting regulatory require­ ments and adopting a sustainable approach to risk man­ agement. These include investments for addressing the requirements of the Foreign Account Tax Compliance Act, as well as Allianz’s Solvency II program.
Opening up new business opportunities, Allianz is growing the Business to Business to Customer (b2b2C) area. By building two value propositions in Automotive and Road­ side Assistance and International Health and Corporate Assistance, we are taking a distinctive position in the b2b2C market. This approach will accelerate growth by creating comprehensive product packages and enhancing distribu­ tion with global car manufacturers, large international corporations and high­net­worth individuals.
Overall, at the date of issuance of this Annual Report and given current information regarding natural catastrophe and capital market development – in particular foreign cur­ rency, interest rates and equities – the Board of Manage­ ment has no indication that the Allianz Group is facing any major adverse developments.
Cautionary note regarding forward-looking statements The statements contained herein may include prospects, 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. Actual results, performance or events may differ materially from those expressed or implied in such forward-looking statements.
2 This does not include non-controlling interests of € 2,665 mn, € 2,338 mn and € 2,071 mn as of 31 December 2012, 31 December 2011 and 31 December 2010, respectively. For further information, please refer to note 25 to the consolidated financial statements. Retained earnings include foreign currency translation effects of € (2,073) mn, € (1,996) mn and € (2,339) mn as of 31 December 2012, 2011 and 2010, respectively.
3 As of 1 January 2013 our shareholders’ equity decreased by approximately € 3.3 bn due to the amendments to IAS 19. For further details, please refer to note 4 to the consolidated financial statements.
The Allianz Group is a financial conglomerate within the scope of the E.U. Financial Conglomerates Directive and the related German law in force since 2005. The law requires that a financial conglomerate calculates the capital available to meet its solvency requirements on a consolidated basis, which we refer to as “eligible capital”.
In the following sections, we show the asset allocation for our insurance portfolio and analyze important developments in the balance sheets of our segments.
This section mainly focuses on our financial investments in equities, debt instruments, real estate and cash and other as well as on our insurance reserves and external finan cing, since these account for the major developments in our balance sheet.
market environment of different aSSet ClaSSeS Although financial markets remained volatile in 2012, market sentiment improved over the course of the second half of the year.
StruCture of inveStmentS – portfolio overview The Allianz Group’s investment portfolio is mainly determined by our core business of insurance. The following portfolio overview covers the insurance segments as well as the non-banking assets of the Corporate and Other segment.
Investment portfolio as of 31 December 2012: € 507.5 bn [as of 31 December 2011: € 461.1 bn] in %
As of 31 December 2012 our investment portfolio increased by € 46.4 bn, or 10.1 % to € 507.5 bn, primarily due to the investment performance of our Life/Health business. Our asset allocation remained stable.
Our gross exposure to equities rose to € 29.6 bn (31 December 2011: € 28.8 bn), mainly driven by positive market developments and only partially offset by realizations. Nevertheless, our equity gearing – a ratio of our equity holdings allocated to the shareholder after policyholder participation and hedges to shareholders’ equity plus off-balance sheet reserves less goodwill – dropped 8 percentage points from 31 % to 23 %, predominantly due to the growth in shareholders’ equity.
As of 31 December 2012, our investments in debt instruments, which accounted for 91% of the Allianz Group’s investment portfolio, increased by € 44.3 bn, or 10.6 % to € 460.8 bn. This growth was fueled by reinvested interest flows and positive market effects driven by lower interest rates. Overall, we have a well diversified exposure in this asset class including 61 % government and covered bonds. In line with our operating business profile, 62 % of our fixed income portfolio was invested in Eurozone bonds and loans. About 95 % of our portfolio of debt instruments 1 was invested in investment-grade bonds and loans.
Unrealized gains (gross) on the above-mentioned sovereign bond exposures, net of losses, amounted to € 1,169 mn (31 December 2011: unrealized losses of € 3,713 mn). The increase of € 4,882 mn primarily reflects the decline in Italian government bond yields.
Our portfolio included asset-backed securities (AbS) of € 19.5 bn (31 December 2011: € 19.9 bn). Of these, about 78 % were related to mortgage backed securities (mbS). Around 21 % of our AbS securities were made up of mbS issued by U.S. agencies which are backed by the U.S. government. Overall, 96 % of the total AbS portfolio received an investment grade rating, with 88 % rated “AA” or better (31 December 2011: 84 %).
Overall, the reduction of our exposure to equities and bonds of selected European peripheral countries leaves us better prepared to withstand further adverse effects of the European sovereign debt crisis and related market turmoil.
inveStment reSult net inveStment inCome C 064 € mn Group as of 31 December 2012 2011 Delta
Net investment income 22,604 17,619 4,985 1 Net of interest expenses (excluding interest expenses from external debt).
In 2012, our net investment income went up by € 4,985 mn – or 28.3 % – to € 22,604 mn. This increase was predominantly driven by lower impairments and to a lesser extent by higher realized gains and the improvement in our income from financial assets and liabilities carried at fair value through income (net).
The loss in our income from financial assets and liabilities carried at fair value through income (net) was reduced by € 776 mn to € 511 mn – driven by the favorable equity market development and a positive trading result (plus € 560 mn). € 496 mn of the increase in our trading result came from positive valuation effects on The Hartford warrants, which were sold in April 2012. Negative valuation results on debt securities had a partially offsetting effect. Financial derivatives are used to protect against equity and foreign currency fluctuations as well as to manage duration and other interest rate-related exposures.
Realized gains and losses (net) increased 26.0 % to € 4,327 mn. This was primarily due to realizations on debt securities. Higher realized gains on equities were offset by lower results on real estate.
Investment expenses (net) remained almost stable at € 876 mn (31 December 2011: € 852 mn).
Property-Casualty assets As of 31 December 2012, our Property-Casualty asset base grew by € 7.1 bn to € 105.3 bn, mainly due to market effects and reinvested interest inflows.
Debt securities 69.8 63.2 Cash and cash pool assets 4 5.1 4.1
Loans and advances to banks and customers 18.3 17.8 Property-Casualty asset base 105.3 98.2 1 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 on – among other factors – our ownership percentage.
3 These do not include affiliates of € 8.8 bn and € 9.1 bn as of 31 December 2012 and 31 December 2011, respectively.
As of 31 December 2012, AbS of € 3.8 bn represented 3.6 % of the segment’s asset base.
Life/Health assets Our Life/Health asset base rose by € 44.8 bn, or 10.5 % to € 472.3 bn by year-end 2012. The growth of the segment’s asset base was almost completely attributable to an increase in our debt investments (up by € 36.8 bn) due to market effects and reinvested interest inflows.
Debt securities 266.4 229.6 Cash and cash pool assets 3 5.7 5.1
2 These do not include affiliates of € 0.7 bn and € 1.4 bn as of 31 December 2012 and 31 December 2011, respectively.
3 Including cash and cash equivalents, as stated in our segment balance sheet, of € 5.6 bn and € 5.3 bn and receivables from cash pooling amounting to € 2.6 bn and € 2.5 bn, net of liabilities from securities lending and derivatives of € (1.5) bn and € (1.8) bn, as well as liabilities from cash pooling of € (1.0) bn and € (0.9) bn as of 31 December 2012 and 31 December 2011, respectively.
As of 31 December 2012, AbS amounted to € 15.3 bn and accounted for 3.2 % of our Life/Health asset base. Financial assets for unit-linked contracts amounted to € 71.2 bn.
finanCial aSSetS for unit-linked ContraCtS1 C 068 € bn b a c 12/31/2012 12/31/2011
+1.0 a Change in unit-linked insurance contracts b Change in unit-linked investment contracts c Foreign currency translation adjustments
Financial assets for unit-linked contracts grew by € 7.7 bn or 12.2 % to € 71.2 bn. Unit-linked insurance contracts increased by € 7.2 bn due to a good performance of funds (€ 4.2 bn) and premium inflows exceeding outflows by € 3.3 bn. Unitlinked investment contracts increased by € 1.0 bn as the good fund performance of € 1.6 bn counterbalanced net outflows of € 0.5 bn. Net outflows recorded in Italy in the first quarter stabilized in the course of 2012. The main drivers of currency effects were the weaker U.S. Dollar (€ (0.3) bn) and selected Asian currencies (€ (0.3) bn).1
Asset Management assets The Asset Management segment’s results are derived primarily from third-party asset management. In this section, we refer only to the segment’s own assets.1
The main components of the segment’s asset base were cash and cash pool assets and debt securities. Overall, the Asset Management asset base decreased by € 0.7 bn to € 3.8 bn, as of year-end 2012. Thereof, cash and cash pool assets amounted to € 1.6 bn (31 December 2011: € 1.3 bn). Loans and advances declined by € 1.1 bn to € 0.4 bn, driven by a reduction in Group internal financing.
CompoSition of aSSet baSe – fair valueS C 070 € bn as of 31 December 2012 2011
Debt securities 23.8 18.1 Cash and cash pool assets 3 (0.4) (1.9)
2 These do not include affiliates of € 74.3 bn and € 73.4 bn as of 31 December 2012 and 31 December 2011, respectively.
Corporate and Other liabilities Other liabilities increased by € 2.2 bn to € 18.0 bn. The growth in certificated liabilities from € 13.8 bn to € 14.7 bn was primarily driven by a senior bond of € 1.5 bn issued in February 2012. Participation certificates and subordinated liabilities increased by € 0.2 bn as the effect from the redemption of a subordinated bond of € 2.0 bn in May 2012 was offset by the issuance of subordinated bonds in October and November 2012.2 2 For further information on Allianz SE debt as of 31 December 2012, please refer to notes 23 and 24 to the consolidated financial statements.
The Allianz Group enters into various commitments including loan and leasing commitments, purchase obligations and other commitments. Please refer to note 46 to the consolidated financial statements for more details.
The Allianz Group has also entered into contractual relationships with various types of special purpose vehicles. They have been designed in a way so that their relevant activities are directed by means of contractual arrangements instead of voting or similar rights. Typically, special purpose vehicles have been set up in connection with asset backed financings, certain investment fund products with guarantees, commercial mortgage loans and collateralized debt obligations. For more details on our collateralized debt obligations, please refer to note 44 to the consolidated financial statements.
Please refer to the Risk Report from page 184 onwards for a description of the main concentrations of risk and other relevant risk positions.
The Allianz Group bases its liquidity management on poli­ cies and guidelines approved by the Board of Management of Allianz SE. It is the primary responsibility of Allianz SE and each of the major operating subsidiaries to manage their respective liquidity positions while Allianz SE provides a central liquidity pooling for the Group. On the other hand, the capital allocation is steered by Allianz SE for the entire Group. This enables the efficient use of liquidity and capital resources and allows Allianz SE to ensure that the Group and its operating entities achieve the desired liquidity and capitalization levels.
Liquidity management of our operating entities Insurance OperatIOns The principal sources of liquidity for our operational activ­ ities include primary and reinsurance premiums received, reinsurance receivables collected, as well as investment income and proceeds generated from the maturity or sale of investments. Those funds are mainly used to pay property­ casualty claims and related expenses, life policy benefits, surrenders and cancellations, acquisition costs as well as operating costs.
We generate strong cash flows from our insurance opera­ tions as most premiums are received before payments of claims or policy benefits are required, allowing us to invest these funds in the interim. This enables us to generate in­ vestment income.
Our insurance operations also carry a high proportion of liquid investments which can be converted into cash to pay for claims. Generally our investments in fixed income secu­ rities are sequenced to mature when funds are expected to be needed.
The overall liquidity of our insurance operations depends on capital market developments, interest rate levels and our ability to realize the market value of our investment portfolio to meet insurance claims and policyholder bene­ fits. Additional factors affecting the liquidity of our Property­ Casualty insurance operations include the timing, frequency and severity of losses underlying our policies as well as policy renewal rates. In our Life operations, liquidity needs are generally influenced by trends in actual mortality rates compared to the related assumptions underlying our life insurance reserves. They are also affected by the impact of market returns or crediting rates on the behavior of our life insurance clients, for example regarding the level of sur­ renders and withdrawals.
asset management OperatIOns Within our Asset Management operations, our primary sources of liquidity include fees generated from asset man­ agement activities. These funds are primarily used to cover operating expenses.
Allianz SE is responsible for managing the funding needs of the Group, maximizing access to liquidity sources and minimizing borrowing costs.
Allianz SE has the option to increase its equity capital base according to authorizations provided by our shareholders. The following table outlines Allianz SE’s capital authorizations as of 31 December 2012: CapItal aUthORIzatIONS OF allIaNz SE C 071
Conditional Capital 2010 € 250,000,000 (97,656,250 shares) No expiry date for Conditional Capital 2010 (issuance in case option or conversion rights are exercised)
Authorization of the Board of Management to issue and repurchase shares
Long-term debt funding As of 31 December 2012, Allianz SE had senior and subordi­ nated bonds in a variety of maturities outstanding reflecting our focus on long­term financing. As the cost and availability of external funding may be negatively affected by general market conditions or by matters specific to the financial services industry or the Allianz Group, we seek to reduce refinancing risk by actively steering the maturity profile of our funding structure.
senIOr anD suBOrDInateD BOnDs IssueD Or guaranteeD BY aLLIanz se 1 C 073 as of 31 December 2012 2011
Funding in other currencies than the Euro enables us to diversify our investor base or to take advantage of favorable funding costs in those markets. Funds raised in non­Euro currencies are incorporated in our general hedging strategy. As of 31 December 2012, approximately 13.4 % (2011: 9.5 %) of long­term debt was issued or guaranteed by Allianz SE in currencies other than the Euro.
The Group maintained its A­1+/Prime­1 ratings for short­ term issues. Thus we can continue funding our liquidity under the Euro Commercial Paper Program at an average rate below Euribor and under the U.S. Dollar Commercial Paper Program at an average rate below U.S. Libor.
Further potential sources of short­term funding allowing the Allianz Group to fine­tune its capital structure are letter of credit facilities and bank credit lines.
1. senIOr BOnDs2 5.0 % bond issued by Allianz Finance II B.V., Amsterdam Volume € 1.5 Bn Year of issue 2008 Maturity date 3/6/2013 IsIn De 000 a0t r7k 7 Interest expense € 76.9 mn 4.0 % bond issued by Allianz Finance II B.V., Amsterdam Volume € 1.5 Bn Year of issue 2006 Maturity date 11/23/2016
Interest expense € 62.1 mn 4.75 % bond issued by Allianz Finance II B.V., Amsterdam Volume € 1.5 Bn Year of issue 2009 Maturity date 7/22/2019 IsIn De 000 a1a khB 8 Interest expense € 73.6 mn 3.5 % bond issued by Allianz Finance II B.V., Amsterdam Volume € 1.5 Bn Year of issue 2012 Maturity date 2/14/2022 IsIn De 000 a1g 0ru 9 Interest expense € 47.5 mn Total interest expense for senior bonds € 260.1 MN
5.375 % bond issued by Allianz Finance II B. V., Amsterdam Volume € 0.8 Bn Year of issue 2006 Maturity date perpetuaL BOnD IsIn De 000 a0g npz 3 Interest expense € 43.0 mn 8.375 % bond issued by Allianz se Volume usD 2.0 Bn Year of issue 2008 Maturity date perpetuaL BOnD
Interest expense € 46.5 mn 4. Issues matureD In 2012 5.625 % bond issued by Allianz Finance II B. V., Amsterdam Volume € 0.9 Bn Year of issue 2002 Maturity date 11/29/2012
Interest expense € 46.7 mn Total interest expense € 889.6 MN
Net cash outflow used in investing activities decreased by € 2.1 bN to € 14.9 bN in 2012. This drop was mainly due to significant net cash inflows from loans and advances to banks and customers (in 2011 we recorded large net cash outflows), particularly in our Life/Health business in Germany. Compared to 2011 we recorded higher net cash outflows for available­for­sale investments at Allianz SE and our Life/Health operation in Germany. Moreover, we recorded an increase in net cash outflows for our real estate investments in 2012, especially in Germany.
Allianz Group consolidated cash flows change In cash anD cash eQuIVaLents FOr the Years enDeD 31 DecemBer C 078
Net cash outflow used in financing activities amounted to € 0.9 bN in 2012, compared to a net cash inflow of € 2.0 bN in 2011. Contributing to this development were lower net cash inflows from policyholders’ deposits and withdrawals – espe­ cially driven by our Life/Health businesses in the United States, Germany and Italy. Additionally we recorded lower net cash inflows from our refinancing activities1 and net cash outflows from liabilities to banks and customers – mainly attributable to Allianz SE and our Banking opera­ tion in Italy.