December 31, 2003 69,698 December 31, 2004 68,278 25,470 December 31, 2005 68,871 24,993 26,658 December 31, 2006 68,022 23,816 26,751 25,610 December 31, 2007 67,349 23,212 25,450 25,776 26,643 December 31, 2008 66,699 22,884 24,977 24,295 26,477 27,353 December 31, 2009 66,654 22,801 24,594 24,194 25,810 28,100 27,442 Surplus 3,045 2,670 2,064 1,416 833 (748) — 9,279 Change 2008 to 2009 46 83 383 100 667 (748) — 531
The run­off triangles are not prepared on a currency­adjust­ ed basis. This means all figures are translated from the respective local currency into the Group currency (Euro), consistently using the exchange rates applicable at the balance sheet date. This ensures that the reserves reconcile with the balance sheet reserves.
The following table summarizes the development of the Allianz Group’s loss and LAE reserves over the past five years. The table presents calendar year data, not accident year data.
Each column of this table shows reserves as of a single balance sheet date and subsequent development of these reserves. The top row of each column shows net reserves as initially established at the end of each stated year. The next section, reading down, shows the cumulative net amounts paid as of the end of the successive years with respect to the reserve initially established. The next section shows the retroactive re­estimation of the initially established net reserves for loss and LAE as of the end of each successive year. This re­estimation results primarily from additional facts and circumstances that pertain to open claims.
In 2009, net loss and LAE reserves increased by € 744 million or 1.6% to € 48,540 million, resulting primarily from the impact of currency fluctuations during 2009. Reserve devel­ opments during 2009 are described in further detail in the preceding section “Changes in Loss and LAE Reserves During 2009”.
The time required to learn of and settle claims is an impor­ tant consideration in establishing reserves. Short­tail claims, such as motor property damage claims, are typically re­ ported within a few days or weeks and are generally settled within two to three years. Medium­tail claims such as personal and commercial motor liability claims generally take four to six years to settle, while long­tail claims, such as general liability, workers compensation, construction and professional liability claims take longer.
The Allianz Group estimates that loss and LAE reserves consist of approximately 10 % short­tail, 60 % medium­tail and 30 % long­tail business.
IBNR Reserves 3,896 4,423 4,571 Workers Compensation / Employers Liability 4,603 4,546 4,602
IBNR Reserves 35 98 159 Construction Damage and Liability 1,945 1,872 1,732
Reconciliation of Beginning and Ending Loss and LAE Reserves The following table reconciles the beginning and ending reserves of the Allianz Group, including the effect of reinsur­ ance ceded, for the property­casualty insurance segment for each of the years in the three­year period ended December 31, 2009 on an IFRS basis.
1) Allianz Global Corporate & Specialty was established in 2006 and combines reserves formerly presented as Marine & Aviation and as part of reserves for Germany, NAFTA Region and Allianz Risk Transfer (ART).
3) A portion of the Health Portfolio from Allianz Suisse was transferred effective January 1st 2008 to another Swiss insurance company. As a result, the historical data for this unit was removed from the 2007 and 2008 reported data. The total reserves removed from 2007 are € 7.11 million and the total reserves removed from 2008 are € 7.44 million. The French AGCS Portfolio was transferred during 2009 from Allianz France to AGCS France and as a result the history was restated for 2008 given the data availability. The total reserves transferred internally amount to € 1.092 million.
Gross Ceded Net Gross Ceded Net Gross Ceded Net € mn € mn € mn € mn € mn € mn € mn € mn € mn
Foreign currency trans lation adjustments and other changes 1) 679 (88) 591 (497) 48 (449) (2,022) 666 (1,356) Changes in the consolidated subsidiaries of the Allianz Group — — — 127 (39) 88 125 (23) 102
1) Includes effects of foreign currency trans lation adjustments for loss and loss adjustment expenses for prior years claims of gross € 607 mn (2008: € (313) mn; 2007: € (1,690) mn) and net of € 536 mn (2008: € (284) mn; 2007: € (1,052) mn).
We discuss below by line of business the major highlights of the reserve developments in 2009. Because of the multitude of these reviewed segments, it is not feasible, or meaningful, to provide detailed information regarding each segment (e.g., claim frequencies, severities and settlement rates). The discussion is based on net loss and LAE reserves in the local currency of the relevant local operating entity before consolidation and converted into Euro for uniform presen­ tation. Individual explanations of amounts in the following discussion, which includes only significant developments for our major operating entities, do not fully reconcile to the line of business totals in the above table.
Motor For Motor, net loss and LAE reserves developed favorably during 2009 by approximately € 481 million, or 2.9 % of reserves at December 31, 2008. This development was the result of the following multiple effects.
Favorable developments included: • The favourable development of € 219 million for Motor liability at our Italian entities was due in part to the un­ der­estimation of the forfeit amount to be received from other insurers since 2007 as a result of the application of the Italian Direct Indemnity Law. This law introduced first party liability and subsequent reimbursement by the responsible party’s insurance company, The revision of the forfeit amount which is received twice a year led to a better than expected development for this line of busi­ ness. Two other important contributors to the develop­ ment are: (1) the continuous refinement of our Italian entity’s database system, which provides a better alloca­ tion of loss and expenses by line of business and accident year, and (2) the enhancement in the complexity of the actuarial methodologies used in estimating tail develop­ ment. These developments led to a revision of previous estimates and the resulting favorable development being recorded in the current year; • € 111 million at our Spanish entity, due in particular to the favorable development of bodily injury claims in the motor line, where reserves have anticipated a legislative change which has not become effective yet lowering ultimate costs in hindsight; Allianz Group changes in loss and LAE reserves during 2009, gross and net of reinsurance, IFRS basis
Net development related to prior years 1) In % of gross reserves as of December 31, 2008.
2) In % of net reserves as of December 31, 2008. 3) A portion of the Health Portfolio from Allianz Suisse was transferred effective January 1st 2008 to another Swiss insurance company. As a result, the historical data for this unit was removed from the 2008 reported data. The total reserves removed from 2008 are € 7.44 million on a gross basis and € 3.25 million on a net basis. The French AGCS Portfolio was transferred during 2009 from Allianz France to AGCS France and as a result the history was restated for 2008 given the data availability. The total reserves transferred internally amount to € 1,092 million on a gross basis and € 387 million on a net basis.
• € 74 million on motor lines at our U.K. entity, predomi­ nantly from savings on bodily injury claims as a result of changing claims development patterns, mainly on Commercial Lines. These changes are due to claims division reorganisations and sustainability project ini­ tiatives delivering benefits faster and greater than ex­ pected when setting the reserves last year end; and
• € 53 million at our Australian subsidiary for motor third party liability (TPL), primarily as a result of continuing positive experience in long­tail classes, where the impact of superimposed inflation and of prior years’ legislative changes continued to be better than assumed in prior reporting years.
Unfavorable developments included: • € 46 million at our U.S. entity, primarily driven by the increase in the Asbestos & Environmental (A&E) reserve estimates mainly as a result of the settlement of all po­ tential asbestos claim liabilities associated with a single insured. The entity entered into this settlement to avoid the substantial financial uncertainty and friction costs associated with a likely protracted legal proceeding. Another driver for the adverse development in this line of business was the sharp increase in the loss cost trends caused in part by shifts in mix of business to higher hazard classes; and
• € 35 million at our French entity on its property business, mainly driven by changes in actuarial assumptions and better than expected experience on older accident years.
Credit Insurance Credit insurance is underwritten in the Allianz Group by Euler Hermes. During 2009, Euler Hermes experienced un­ favorable development of € 14 million net of reinsurance mainly driven by the significant increase in frequency and severity of claims in the U.K., U.S. and Belgium as a result of the recent global economic crisis.
Allianz Global Corporate and Specialty Allianz Global Corporate and Specialty (AGCS) is the Allianz Group’s global carrier for corporate and specialty risks and also includes the corporate branch of the German business. Overall, AGCS experienced € 221 million of favorable devel­ opment in 2009 net of reinsurance, or 5.7 % of the reserves as at December 31, 2008.
The increase was due primarily to a detailed prior year actuarial analysis, resulting in a € 158 million release in short­tailed lines. Countering this release is a € 45 million adverse development on accident year 2008 D&O exposure related to the financial crisis.
As of December 31, 2009, 2008 and 2007, the Allianz Group consolidated property­casualty reserves reflected discounts of € 1,675 million. € 1,712 million and € 1,601 million re­ spectively.
Reserves are discounted to varying degrees in the United States, Germany, Hungary, Switzerland, Portugal and France. The reserve discounts relate to reserves for structured settle­ ments in various classes of business. These classes include personal accident, general liability and motor liability in Germany and Hungary, workers’ compensation in the Unit­ ed States, Switzerland and Portugal and motor liability in France. All of the reserves that have been discounted have payment amounts that are fixed and timing that is reason­ ably determinable. The following table shows, by line of business, the carrying amounts of reserves for claims and claim adjustment expenses that have been discounted, and the interest rates used for discounting for the years ended December 31: Allianz Group Discounted Loss and loss adjustment expenses IFRS Basis
Discounted Reserves Amount of Discount Interest Rate used for discounting 1)
€ mn € mn € mn € mn € mn € mn % % %
Allianz Group Annual Report 2009 Group Management Report Balance Sheet Review
There are significant uncertainties in estimating A&E reserves for loss and LAE. Reserves for asbestos­related illnesses and environmental clean up losses cannot be estimated using traditional actuarial techniques due to the long latency period and changes in the legal, socio­ economic and regulatory environment. Case reserves are established when sufficient information is available to indicate the involvement of a specific insurance policy. In addition, IBNR reserves are established to cover additional exposures on both known and not yet reported claims. To the extent possible, A&E loss reserve estimates are based not only on claims reported to date, but also on a survey of policies that may be exposed to claims reported in the future (i.e., an exposure analysis).
Total Asbestos and Environmental: Loss and LAE Reserves as of 1/1 3,140 3,287 3,636 Less Loss and LAE Payments (166) (199) (175) + Change in Loss and LAE
The liquidity management of Allianz Group is based on policies and guidelines approved by the Board of Management of Allianz SE. The primary responsibility of Allianz SE and each of its major operating subsidiaries is to manage their respective cash flow balances resulting from their individual business models. In addition, Allianz SE steers a strategic liquidity planning and capital allocation process for the Allianz Group in order to realize the benefits of such an integrated approach. This optimization enables the efficient employment of liquidity and capital resources and allows Allianz SE to maintain the desired liquidity and capitalization levels of the Group and its operating entities. Furthermore all external financing activities of the group are centralized at Allianz SE.
The principal sources of liquidity for our operating activities within our insurance operations include primary and reinsurance premiums collected, reinsurance receivables collected, as well as investment income and proceeds generated from the sale of investments. Our major uses of funds within our insurance operations include paying propertycasualty claims and related claims expenses, providing life policy benefits, paying surrenders and cancellations, acquisition costs as well as other operating costs.
However, the liquidity of our insurance operations is impacted by, among other factors, the development of equity capital markets, interest rate environment and our ability to realize the carrying value of our investment portfolio to meet insurance claims and policyholder benefits as they become due.
The liquidity needs of our life operations are generally affected by trends in actual mortality rates compared to the related assumptions included in the pricing of our life insurance policies. Also relevant is the extent to which minimum returns or crediting rates are provided in connection with our life insurance products, and the level of surrenders and withdrawals.
As of December 31, 2009, the issued capital registered at the Commercial Register was € 1,161,984,000, divided into 453,900,000 registered shares with restricted transferability. The no-par shares have a mathematical value of € 2.56 each as a proportion of the capital stock.
The following table outlines Allianz SE’s capital authorizations as of December 31, 2009: Capital authorization Nominal Amount (12/31/2009)
1) Please refer to note 23 to our consolidated financial statements for further information. 2) Please refer to note 24 to our consolidated financial statements for further information.
Additionally, see note 43 to our consolidated financial statements for information regarding how we use certain derivatives to hedge our exposure to interest rate and foreign currency risk related to certificated and subordinated liabilities.
With a healthy liquidity position and a capitalization well above what supervisory authorities currently require, Allianz Group continues to maintain its superior financial strength and stability.
3) Includes money market securities issued by Allianz Finance Corporation, a whollyowned subsidiary of Allianz SE, which are fully and unconditionally guaranteed by Allianz SE.
Under the authorizations granted by the shareholders to issue shares, bonds with warrants or convertible bonds and to use treasury shares, shareholders’ subscriptions rights can be excluded under certain conditions, e.g. in case of contributions in kind or for fractional amounts. In particular, subscription rights can be excluded if a capital increase against contributions in cash does not exceed 10 % of the Company’s share capital and the issue price does not materially fall short of the stock exchange price. This applies accordingly if treasury shares are sold. Further details are described on pages 91 to 92 of this report.
Interest expense € mn € mn € mn € mn € mn € mn
Subordinated bonds 1) Excludes € 121.5 mn of participation certificates as of December 31, 2009 and € 85.1 mn as of December 31, 2008, with interest expense of € 11.6 mn and € 9.9 mn, respectively.
2) Excludes € 121.5 mn of participation certificates as of December 31, 2009 and € 85.1 mn as of December 31, 2008.
Maturity structure of Allianz SE’s certificated liabilities and subordinated bonds as of December 31, 2009 2) nominal value in € bn
5.625 % bond issued by Allianz Finance II B.V., Amsterdam Volume € 0.9 bn Year of issue 2002 Maturity date 11/29/2012
6.125 % bond issued by Allianz Finance II B. V., Amsterdam Volume € 2.0 bn Year of issue 2002 Maturity date 5/31/2022
Interest expense € 66.1 mn 7.25 % bond issued by Allianz Finance II B. V., Amsterdam Volume USD 0.5 bn Year of issue 2002 Maturity date Perpetual Bond
3) The terms of the subordinated bonds (except for the two subordinated bonds mentioned in footnote 2 above) do not explicitly provide for early termination rights in favor of the bond holder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. Nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments.
5) With effect of December 31, 2009 the profit participation certificates issued by Allianz SE have been called for redemption pursuant to Section 6 § 4 of the conditions of the profit participation certificates. As of January 4, 2010 holders received a cash compensation of € 103.32 for each profit participation certificate of € 5.12 nominal value. As of December 31, 2009 the total cash compensation payable for the 1,175,554 outstanding profit participation certificates is shown as a separate line item on the balance sheet.
Interest expense € 1.1 mn Total interest expense for matured issues € 1.1 mn Total interest expense € 758.7 mn
While 2009 only contained the cash flow impact from the sale of Dresdner Bank which was recorded in investing activities, in 2008 cash flows attributable to Dresdner Bank were included in almost all line items.
Net cash flow provided by operating activities amounted to € 13.6 billion in 2009, down € 11.7 billion compared to the prior year. This decrease was mainly driven by the transfer of ownership of Dresdner Bank which led to lower net cash inflows from assets and liabilities held for trading and from collateralized refinancing activities in 2009. Additionally the net cash flows from financial assets and liabilities designated at fair value through income of Dresdner Bank included in prior years within operating activities are zero for this year after the sale of Dresdner Bank to Commerzbank. For our continued operations the net cash inflow provided by operating activities increased by € 12.6 billion, reflecting lower net cash outflows from collateralized refinancing activities after our German entities scaled back securities lendings in 2008.
Balances with banks payable on demand 5,243 7,760 Balances with central banks 198 456 Cash on hand 159 169 Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks 489 573 Cash and cash equivalents of continuing operations 6,089 8,958 Cash and cash equivalents reclassified to assets of disposal groups held-for-sale — 30,238
• Promotion of a strong risk management culture supported by a robust risk governance structure.
The Allianz risk management framework adds value to Allianz SE and its operating entities through the following four primary components in a layered structure as outlined in the diagram at the end of this section.
Risk underwriting and identification A sound risk underwriting and identification framework including risk assessment, risk standards, valuation methods and clear targets forms the foundation for adequate risk taking and management decisions such as individual transaction approval, new product approval, strategic or tactical asset allocation.
The Allianz risk governance approach is designed to enable us to manage our local and global risks in an integrated way and to ensure that the Allianz Group’s risk profile remains consistent with our risk strategy and our capacity to bear risks. The following diagram provides an overview of riskrelated decision-making responsibility within our risk governance structure.
While the Audit Committee of the Supervisory Board of Allianz SE attends to the effectiveness of the Allianz risk management and monitoring framework, the Supervisory Board Risk Committee focuses on the overall risk profile of Allianz Group and monitors risk-related developments as well as general risks and specific risk exposures. The Risk Committee regularly reports to the Audit Committee, in particular with regard to required enhancements of the risk management framework due to regulatory changes as well as changes in the market and business environment.
The Group Capital Committee is chaired by the Chief Executive Officer and provides a holistic view of the Group. It primarily prepares proposals for decision by the Board of Management of Allianz SE regarding risk strategy, capital and limit allocation. The Group Capital Committee also determines matters which are passed from the Group Risk 2) Please see “Protecting the Value of Allianz in Times of Crises” for further information.
• Defines risk standards • Provides early warning function • Monitors risk-related developments (e.g., risk profile, audit follow-ups, follow-ups of decisions) • Forms limit setting authority (within framework set by the Allianz SE Board of Management) • Recommends and coordinates measures to mitigate risks (e.g., in case of limit breaches)
• Enhances risk dialogue between Group and operating entities • Strengthens and maintains the Group’s risk network • Develops Allianz risk management framework including methods and processes • Reports the Group’s risk profile to management • Operationally sets limits and monitors limit breaches as well as accumulation of specific risks
The Group Risk Committee provides an early warning function and monitors the Allianz Group’s risk profile and availability of capital in order to maintain an adequate relationship between return and risk. It also defines risk standards and forms the limit setting authority within the framework set by the Board of Management of Allianz SE. Furthermore, it is responsible for recommending and coordinating measures to mitigate risk. The Group Finance Committee makes decisions about investments and market risks, while complying with the Allianz Group’s risk framework.
The risk governance structure is further complemented by Group Audit, Group Compliance and Group Legal Services. On a periodic basis, Group Audit independently reviews the risk governance implementation, performs quality reviews of risk processes and tests adherence to business standards. Group Compliance is responsible for integrity management which aims to protect the Allianz Group, its operating entities and employees from regulatory risks. Group Legal Services seek to mitigate legal risks with support from other departments. Legal risks include legislative changes, major litigation and disputes, regulatory proceedings and contractual clauses that are unclear or construed differently by the courts. The objective of Group Legal Services is to ensure that developments in laws and regulations are observed, to react appropriately to all impending legislative changes or new court rulings, to attend to legal disputes and litigation, and to provide legally appropriate solutions for transactions and business processes.
In addition, our internal climate experts specifically examine the possible effects of climate change on our business, develop risk management strategies and identify potential opportunities resulting from climate change.
Our internal risk capital model makes use of various techniques which require a significant number of estimates and assumptions applied to risk and financial data, both internally and externally derived. Internal risk capital is in scope of the financial reporting framework which also covers the use of estimates and assumptions. Two specific sets of assumptions are explicitly discussed in the following.1)
Our internal risk capital model considers both concentration and correlation when aggregating results on the Allianz Group level in order to reflect that not all potential worst case losses are likely to be realized at the same time. This effect is known as diversification. Managing diversification forms a central element of our risk management framework. The Allianz Group strives to diversify the risks to which it is exposed in order to limit the impact of any single source of risk and to help ensure that the positive developments of some businesses neutralize the possibly negative developments of others.
Possible losses caused by changes in interest rates, equity prices, real estate values and foreign exchange rates
Market risk: • interest rate • equity • real estate • currency 2)
• Substantially all of our assets (including bonds, mortgages, investment funds, loans, floating rate notes, equities and real estate) and liabilities (including the cash flow profile of all technical reserves as well as deposits and issued securities). For the Life/Health segment, the model reflects the interaction between assets and liabilities as well as local management decisions such as investment strategies and policyholder participation rules.
By design, our internal risk capital model takes into account the following sources of risk, classified as risk categories per segment: • Substantially all of our derivatives (options, swaps and futures), in particular if they form part of the operating entity’s regular business model (e.g., at Allianz Life Insurance Company of North America) or if they have a significant impact on the resulting internal risk capital (e.g., hedges of Allianz SE or in the Life/Health segment, if material obligations to policyholders are hedged through financial derivatives). In general, embedded derivatives contained in a host contract are also included.
Our banking operations in Germany, Italy, France and New Europe, which are allocated to the Corporate and Other segment, represent only an insignificant amount of approximately 1.4 % of total non-diversified internal risk capital. Therefore, risk management with respect to banking operations is not discussed below in detail.
We assume that model and scenario parameters derived from historical data are a useful approximation to characterize future possible risk events; if future market conditions differ substantially from the past, as in the unprecedented financial crisis of 2008 and 2009, then our VaR approach may be too conservative or too liberal in ways that can not be predicted. Our ability to back-test the model’s accuracy is limited because of the high confidence level of 99.97 % and one-year holding period as well as limited data for some insurance risk events such as natural catastrophes. Furthermore, as historical data is used where possible to calibrate the model, it cannot be used for validation. Instead, we validate the model and parameters through external reviews by independent consulting firms focusing on methods for selecting parameters and control processes. Overall, we believe that our model adequately assesses the risks to which we are exposed.
As our internal risk capital model considers the change in economic fair value of our assets and liabilities, it is crucial to accurately estimate the fair market value of each item. For some assets and liabilities, it may be difficult in turbulent financial markets, if not impossible, to obtain either a current market price or to apply a meaningful mark-to-market approach. For certain assets and liabilities, where a current market price for that instrument or similar instruments is not available, we apply a mark-to-model approach. For some of our liabilities, the accuracy of fair values depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed.
We apply customized derivative valuation tools which are suitable to our business to reflect substantially all of our derivatives in internal risk capital. The internal risk capital model used for largely all of our major insurance operations
Risk Report Group Management Report Allianz Group Annual Report 2009 currently only allows for the modeling of common derivatives such as equity calls, puts, forwards and interest rate swaps. For internal risk capital calculations, non-standardized instruments, such as derivatives embedded in structured financial products, are represented by the most comparable standard derivative types. The volume of non-standard instruments is not material on either the local or the Allianz Group level, but a more precise modeling of these instruments might impact the fair value and resulting internal risk capital for these derivatives. However, we believe that any such change would not be material.
The Allianz internal risk capital model plays a significant role in solvency management and capital allocation. Our aim is to ensure that the Allianz Group is adequately capitalized at all times, even following significant adverse events, and that all operating entities meet their respective capital requirements. In addition, we employ a number of value-based metrics to support business decision making which explicitly recognize risk capital and the cost of capital.
As a consequence of our effective capital management, for each quarter in 2009, the Allianz Group was well above its internal and regulatory solvency targets.
The Allianz Group’s available capital is based on the Group’s shareholders’ equity as adjusted to reflect the full economic capital base available to absorb any unexpected volatility in results of operations. For example, the present value of future profits in the Life/Health segment and hybrid capital are added to shareholders’ equity, whereas goodwill and other intangible assets are subtracted.
Capital ratio: The increase of 13 % in available capital was primarily driven by an increase in shareholders’ equity and in the present value of future profits in the Life/Health segment.
The Allianz Group-wide internal risk capital after Group diversification and before minority interests of € 30.4 billion at December 31, 2009 reflects a realized diversification benefit on the Group level of approximately 57 %. Non-diversified and Group diversified internal risk capital are broken down as follows: Allocated internal risk capital by risk category 1) (total portfolio before minority interest) in € mn
The total internal risk capital of € 28.9 billion as of December 31, 2008 excludes discontinued operations. However, it does not fully reflect requirements related to the assets, which were transferred to Allianz SE as part of the sale of Dresdner Bank to Commerzbank on January 12, 2009 and which particularly affect the Group’s internal market and credit risk capital. These are taken into account in the proforma view as defined above. Compared to the pro-forma internal risk capital of € 30.3 billion as of December 31, 2008, the total internal risk capital is still at a comparable level at December 31, 2009 (€ 30.4 billion) due to offsetting effects across different risk categories (e.g., equity risk decreased while business risks increased). More detailed discussions of movements are provided in the sections specifically related to the risk categories.
1) Intangible assets in relation to fully consolidated private equity investments have been fully deducted from the eligible capital for the first time.
2) Eligible capital and requirement as of December 31, 2008, including discontinued operations, were adjusted to reflect a pro-forma view, assuming the completion of the Dresdner Bank transaction prior to year end of 2008. For example, we removed hybrid capital related to Dresdner Bank from eligible capital and adjusted the deduction of goodwill and other intangible assets. Furthermore, we deleted the requirement of our discontinued operations.
The following table provides a detailed overview of selected ratings, assigned to Allianz SE by major rating agencies, as of December 31, 2009: Ratings 4) Standard & Poor’s Moody’s A.M. Best
4) Includes ratings for securities issued by Allianz Finance II B.V. and Allianz Finance Corporation.
As we are an integrated financial services provider offering a variety of products across different business segments and geographic regions, diversification is key to our business model. Diversification helps us to manage our risks efficiently by limiting the economic impact of any single event and by contributing to relatively stable results and risk profile in general. As discussed above, the degree to which the diversification effect can be realized depends not only on the correlation between risks but also on the level of relative concentration of those risks. Therefore, our aim is to maintain a balanced risk profile without any one or more disproportionately large risks.
Disproportionately large risks that might accumulate and have the potential to produce substantial losses (e.g., natural catastrophes or credit events) are closely monitored on a standalone basis (i.e., before the diversification effect) and are subject to a global limit framework. For example, the Management Board of Allianz SE has implemented a framework of natural catastrophe limits at both the operating entity and Group levels in an effort to reduce potential earnings volatility and restrict potential losses from events having an occurrence probability of once in 250 years. These limits are subject to an annual review. Traditional reinsurance coverage and dedicated financial transactions on Group level are examples of two instruments to mitigate the peak risks and to limit the impact of adverse conditions on our financial results and shareholders’ equity (e.g., severe natural catastrophe losses). In 2009, for example, we entered into risk swaps to exchange portions of our largest natural catastrophe exposures European windstorm, U.S. hurricane and U.S. earthquake for Japanese typhoon and earthquake exposure, as our Property-Casualty operations are small in this region.
In general, we identify and measure risk concentrations in terms of non-diversified internal risk capital in line with the risk categories covered in our internal risk capital model and consistently across the Group. In the subsequent sections all risks are presented before and after diversification and concentrations of single sources of risk are discussed accordingly.
Interest rate Equity Real estate Currency 2) Total € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
Share of total Group internal risk capital in % 32 36 Group diversified
In the following table, we present our Group-wide internal risk capital related to market risks.
sale of Dresdner Bank to Commerzbank on January 12, 2009. This was partly compensated by equity sales in the Corporate and Other segment.5)
The following table presents the average internal risk capital for market risk calculated over the four quarters of 2009 and 2008, as well as the high and low quarterly internal risk capital amounts calculated in both years.
5) For additonal information regarding equity sales, please refer to “Protecting the Value of Allianz in Times of Crises – Protect capital and solvency and position our investment portfolio”.
Because of our diverse real estate portfolio, real estate risk is of less relevance for the Allianz Group. About 3 % of the total non-diversified internal risk capital is related to real estate exposures.
The Allianz Group’s insurance operating entities hold equity investments usually to diversify their portfolios. 66 % of the non-diversified internal risk capital allocated to the Property-Casualty and Life/Health segments for equity risk is assigned to our operating entities in Germany, Italy, France and the U.S.
liabilities, which allows for active monitoring and management of our assets and liabilities. While the potential payments related to our liabilities in the Property-Casualty segment are typically shorter in maturity than the financial assets backing them, the opposite usually holds true for our Life/Health segment, which provides us with a natural hedge at the Allianz Group level.
In particular, our Life/Health contracts in Germany, France, Switzerland and Austria comprise a significant level of policyholder participation, limiting all sources of risk, including market, credit, underwriting and cost risks, which would otherwise be borne by Allianz.4) On the other hand, in accordance with the guarantees related to these arrangements, we must credit minimum rates for individual contracts (e.g., in Germany, France, U.S., Italy and South Korea).5) However, in most of these markets, the effective interest rates being earned on the investment portfolio exceed these guaranteed minimum interest rates. As interest rates may fall below the guaranteed crediting rates in those markets, we are exposed to interest rate risk. The valuation of these
2) Including discontinued operations. 3) Foreign currency risks are mainly allocated to the Corporate and Other segment (please see “Internal Risk Capital Framework – Scope” for further information). 4) Please see Note 20 to our consolidated financial statements for additional information regarding participating life business. 5) Please see Note 20 to our consolidated financial statements for an overview regarding weighted average guaranteed minimum interest rates of the Allianz Group’s largest operating entities in the Life/Health segment.
Risk Report Group Management Report Allianz Group Annual Report 2009 guarantees, which takes into account the interaction of investment strategy and obligations to policyholders, forms an integral part of our internal risk capital model.
About 11 % of the non-diversified internal risk capital allocated to the Life/Health segment for interest rate and equity risk is assigned to our operating entity Allianz Life Insurance Company of North America, which mainly offers equity indexed and fixed annuities as well as variable annuities. These products typically provide some guarantees to the policyholders. Depending on their specific type, these guarantees gain in value, when interest rates decrease, equity markets drop or volatilities rise. We have hedges in place to mitigate these risks. While we bear most of the risk related to the guarantees of variable annuities, we are able to share losses with policyholders of equity indexed and fixed annuity contracts, subject to minimum guaranteed crediting rates and index caps. The valuation of these guarantees is reflected in our internal risk capital model.
On the level of the Corporate and Other segment we are exposed to foreign currency risk because some of our subsidiaries ’ local currencies are different from the Euro. If non-Euro foreign exchange rates decline against the Euro, from a Group perspective, the Euro equivalent net asset values also decline. Our primary exposures to foreign currency risk are related to the U.S. Dollar, Swiss Franc, British Pound and South Korean Won.
Allocated internal credit risk capital by business segment and source of risk (total portfolio before minority interests)
Investment (Re)insurance2) Total € mn € mn € mn € mn € mn € mn
Share of total Group internal risk capital in % 12 12
(“EAD”) and loss given default (“LGD”). These measurements are all estimated using statistical analysis and professional judgment. Our aggregation methodology is comparable to approaches widely used in the industry known as “structural model”. In a structural model, a counterparty is deemed to have defaulted when the value of its total assets is lower than its total liabilities. Since changes in the asset value of a company determine whether it defaults, the correlation between different firms’ asset values determines the correlation between the firms’ defaults. Estimating these parameters allows us to aggregate credit risk across individual obligors using Monte-Carlo simulations to obtain the loss profile of a given portfolio – i.e., its loss probability distribution.
The loss profile is the basis of our internal credit risk capital model.
We monitor and manage credit risks and concentrations within the portfolio based on a counterparty limit system that is applied across the entire Allianz Group. Counterparty limits are calculated taking into account the main risk drivers of credit risk and aim to cut off peak concentrations by industry and counterparty name in the portfolio. For monitoring the credit risk profile of our operating entities’ portfolios and the whole Allianz Group portfolio, credit reports for portfolio analysis are provided within a webbased limit system application.
5) For additonal information regarding the increase of our credit exposure, please refer to “Protecting the Value of Allianz in Times of Crises – Protect capital and solvency and position our investment portfolio”.
In the Property-Casualty and Life/Health segments, credit risks arising from reinsurance counterparties are considered separately from issuer and counterparty risks arising from our investment activities, though the same methodology is applied. For the Corporate and Other segment, our internal risk capital model covers only investment credit risk, as rein surance activities are generally allocated to the Property-Casualty segment. Following the sale of Dresdner Bank to Commerzbank on January 12, 2009, we do not consider credit risk related to our Banking operations to be significant at the Group level.4)
We take steps to limit our liability from insurance business by ceding part of the risks we assume to the international reinsurance market. A dedicated team selects our reinsurance partners and considers only companies with strong credit profiles. We may also require letters of credit, cash deposits or other financial measures to further mitigate our exposure to credit risk. To manage the related credit risk, we compile Allianz Group-wide data on potential and actual recoverables in respect of reinsurance losses. At December 31, 2009, 76 % (2008: 74 %) of the Allianz Group’s reinsurance recoverables were distributed among reinsurers that had been assigned at least an “A” rating by Standard & Poor’s. Non-rated reinsurance recoverables represented 23 % (2008: 24 %) of the total reinsurance recoverables at December 31, 2009. Reinsurance recoverables without Standard & Poor’s rating include exposures to brokers, companies in run-off and pools, where no rating is available, and companies rated by A.M. Best.
As of December 31, 2009, 11 % of our total Group non-diversified internal risk capital allocated to credit (re)insurance risk was assigned to our operating entities in the U.S.
We limit the credit risk of our fixed income investments by setting high requirements on the creditworthiness of our issuers, by diversifying our investments and by setting limits for credit concentrations. We track the limit utilization by consolidating and monitoring our exposure across individual debtors and across all investment categories and business segments on a monthly basis. At December 31, 2009, approximately 95 % (2008: 94 %) of the fixed income investments of the insurance companies of the Allianz Group had an investment grade rating and approximately 87 % (2008: 88 %) of the fixed income investments were distributed among obligors that had been assigned at least an “A” rating by Standard & Poor’s.
Fixed income investments by rating class as of December 31, 2009 fair values in € bn
As part of the investment management process, the Asset Management operating entities assess credit risk affecting their customers’ portfolios. Though our Asset Management companies do not engage in any lending transactions, counterparty risks can arise in certain circumstances, such as with broker-related over-the-counter transactions. The Asset Management operating entities analyze the creditworthiness of their counterparties and set limits per counterparty based on objective criteria.
Underwriting risks consist of premium and reserve risks in the Property-Casualty segment as well as biometric risks in our Life/Health segment. For the Asset Management segment and our Banking operations, underwriting risks are not relevant. Although the Corporate and Other segment provides some guarantees that transfer small parts of the underwriting risk away from local entities, such risk is primarily transferred by internal reinsurance and allocated to the Property-Casualty segment.
Allocated internal underwriting risk capital by business segment 1) (total portfolio before minority interests)
Non-diversified Property-Casualty 22,149 20,851 Life/Health 3,017 1,244 Corporate and Other 3) 410 438 Total Group 25,576 22,533 Share of total Group internal risk capital in % 36 34 Group diversified Property-Casualty 7,406 7,072 Life/Health 310 55 Corporate and Other 3) 130 138 Total Group 7,846 7,265 Share of total Group internal risk capital in % 26 25
Allocated internal underwriting risk capital by source of risk 1) 2) (total portfolio before minority interests) in € mn
Over quarterly results Over quarterly results Average High Low Average High Low € mn € mn € mn € mn € mn € mn 1) As risks are measured by an integrated approach on an economic basis, internal risk capital takes reinsurance effects into account. 2) 2008 figures exclude discontinued operations. Although our discontinued operations were not exposed to underwriting risks, they had an impact on Group diversified internal risk capital due to diversification effects. The discontinuation of certain banking operations resulted in less diversified insurance operations. 3) Allowing for a defined deductible there are contingent liabilities of up to USD 600 mn in connection with certain insurance reserves of Fireman’s Fund Insurance Co., Novato. 4) After complete sale of Dresdner Bank.
In 2009, we included some additional regions and perils related to smaller business activities into our integrated natural catastrophe risk model. Furthermore, we established a basis to further improve our accumulation monitoring systems by defining a Group-wide standard for catastrophe exposure data.
More than a third (35 % as of December 31, 2009) of the non-diversified internal premium risk capital allocated to natural catastrophe risk was borne by our operating entities in Germany and the U.S. Our largest exposures to natural catastrophes are provided in the following table: The five largest global accumulation scenarios: Loss potential net of reinsurance for individual events, measured at a probability level of one loss in 250 years (i.e., 0.4 %)
European windstorm 1,093 Germany hail 846 U.S. hurricane 751 Australia earthquake 742 Italy earthquake 668
4) Net surplus represents the cumulative surplus from reestimating the reserves for loss and loss adjustment expenses for prior years’ claims and includes foreign currency trans lation adjustments. For further information, please refer to the section “Balance Sheet Review – Property-Casualty Insurance Reserves“.
A substantial portion of the Property-Casualty segment’s non-diversified internal underwriting risk capital is assigned to our operating entities in Germany, Italy, France and the U.S. (44 % as of December 31, 2009).
Premium risk Premium risk represents risk that, during a one-year time horizon, underwriting profitability is lower than expected. Changes in profitability over time can be measured, based on loss ratios and their fluctuations.1)
2) Represents claims and insurance benefits incurred (net) divided by premiums earned (net).
Underwriting in the corporate and commercial businesses Our sound Group-wide underwriting framework forms the basis for adequate risk taking and management decisions and helps us proactively limit individual potentially significant risks including reputational risks. The framework defines common minimum requirements for our underwriting activities in the international corporate and commercial Property-Casualty insurance business, both for direct and reinsurance business.
Dedicated minimum standards protect Allianz from taking unwanted or excessive risks. They determine non-admitted coverages and define clear approval requirements at different levels of the Allianz Group. In particular, they specify all activities that require approval by or reporting to the Group Insurance Risk Committee, which is a sub committee of the Group Risk Committee. These standards also document delegated underwriting authorities and lay down mandatory rules for individual policies. Exceptions require approval by the local Chief Underwriting Officer and reporting to the Group Insurance Risk Committee.
Due to the offsetting effects of mortality risk and longevity risk inherent in the combined portfolios of life insurance and annuity products, as well as due to a geographically diverse portfolio, our Life/Health segment does not have significant concentrations of biometric risk as of December 31, 2009.2)
Corporate and Other 5) 159 131 Total Group 6,161 5,155 Share of total Group internal risk capital in % 20 18
5) The Corporate and Other segment includes our banking operations in Germany, Italy, France and New Europe (please see “Internal Risk Capital Framework – Scope” for further information).
Allianz has developed a Group-wide operational risk management framework that focuses on early recognition and pro-active management of operational risks. The framework defines roles and responsibilities, risk processes and methods and has been implemented at the major Allianz Group companies. Local risk managers ensure this framework is implemented in the respective operating entities. The operating entities identify and evaluate relevant operational risks and control weaknesses via a structured self assessment. Furthermore, operational losses are collected in a central loss database by all our operating entities. An analysis of the causes of significant losses is used to enable the operating entities to implement measures to avoid or reduce future losses. The measures adopted may include revising processes, improving failed or inappropriate controls, installing comprehensive security systems and strengthening emergency plans. This structured reporting is designed to provide comprehensive and timely information to senior management of the Allianz Group and the relevant local operating entities.
Major failures and disasters which could cause a severe disruption to working environments, facilities and personnel, may represent significant operational risks for the Allianz Group and its operating entities. Our Business Continuity Management (“BCM”) framework strives to protect critical business functions from these effects to enable them to carry out their core tasks in time and at the quality required. BCM activities and knowledge are constantly enhanced and, therefore, embedded within the organizations’ culture.
to reduce process failures by clearly documenting relevant methods, procedures, structures and processes across the Group. Comprehensive and timely documentation is required across the Group as one of the fundamental principles of the Allianz Group Risk Policy. Furthermore, Group Legal Services seek to diminish legal risks with support from other departments.3)
In addition, detailed information regarding Allianz Group’s liquidity risk exposure, liquidity and funding including the change in cash and cash equivalents is provided, for instance, in the chapter “Liquidity and Funding” and the notes 17, 23, 24 and 44 to our consolidated financial statements.
Liquidity risk in our insurance segments is a secondary risk following external events, such as natural disasters, that are generally reflected in our internal risk capital model. Therefore, limiting and monitoring of the associated primary risks (such as through the use of reinsurance) also helps limit our liquidity risk related to such events. Extreme adverse changes in business assumptions such as lapse or renewal rates or costs may cause liquidity risk as well. However, these effects are covered by our internal risk capital model.
We employ actuarial methods for estimating our liabilities arising from insurance contracts. In the course of standard liquidity planning we reconcile the cash flows from our investment portfolio with the estimated liability cash flows. These analyses are performed on the operating entity level and aggregated at the Group level. Excess liquidity is centrally pooled on the Group level and can be transferred to single operating entities if necessary.
Our operating entities identify and assess reputational risks within their business processes (e.g., as part of the product development process). In addition, Group Risk identifies and assesses reputational risk qualitatively as part of a quarterly evaluation. On the basis of this evaluation, Group Risk creates an overview of local and global risks which also includes reputational risks, analyses the risk profile of the Allianz Group and regularly informs management about the current situation.
The turbulent financial market environment during 2009 had the potential to adversely influence Allianz Group’s capital and solvency position, primarily through the asset side of the balance sheet. Recognizing this, Allianz proactively recalibrated its investment policy in order to ensure the continued strength of our capital and solvency position.
Strategic risk is the risk of an unexpected negative change in the company value, arising from the adverse effect of management decisions on both business strategies and their implementation. This risk is a function of the compatibility between strategic goals, the business strategies and the resources deployed to achieve those goals. Strategic risk also includes the ability of management to effectively analyze and react to external factors, which could impact the future direction of the relevant operating entity or the Group as a whole.
Natural catastrophe risks are typically the major risk concentrations in the Property-Casualty segment. As they are disproportionately large risks that might accumulate and have the potential to produce substantial losses, they are managed in an effort to balance potential earnings, earnings volatilities and solvency considerations and ultimately to protect the value of our Property-Casualty business.
In 2009, the Group’s net exposure to natural catastrophes remained within our risk appetite. After reviewing the situation, we therefore did not purchase any additional reinsurance.
The single loss event natural catastrophe limits were generally frozen at the current exposure levels for all operating entities, taking into account portfolio or business transfers and subject to a maximum limit of 15 % of the PropertyCasualty net asset value.
For risk and management purposes, we measure the profitability of life products in terms of market consistent New Business Margins (“NBM”), based on the Market Consistent Embedded Value (“MCEV”) concept which is consistent with our internal risk capital model approach. On an economic basis, the MCEV measures the present value of shareholders’ future profit embedded in the issued Life/Health business.
Allianz Group’s management feels comfortable with the Group’s overall risk profile and has confidence in the effectiveness of the Group’s risk management framework to meet the challenges of a rapidly changing environment as well as day-to-day business needs. This confidence is based on several facts which are outlined in more detail in the sections above and summarized as follows.
The Allianz Group is well capitalized, above its internal and regulatory solvency targets for each quarter in 2009. Indeed, Allianz emerged from the market turbulence as one of the strongest insurance groups in the industry by solvency and ratings, as evidenced by external rating agencies which confirmed their ratings related to Allianz SE even during the 2008 and 2009 financial crisis. In particular, Allianz SE had the best Standard & Poor’s rating among the internationally active primary insurance groups in Europe as of December 31, 2009.
Finally, Allianz Group has the additional advantages of being internationally diversified, a key advantage for competing in the insurance industry, with a conservative investment profile and disciplined business practices in both Property & Casualty and Life & Health.
This risk report, with the exception of the “Risk Management Priorities for 2010” section, is an integral part of the audited consolidated financial statements.
Solvency II is a major European initiative expected to lead to significant changes to the European insurance solvency requirements in the coming years; the Allianz Group is actively participating in the process and is continuously providing feedback on the proposals and analysis of the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) and the EU Commission. Furthermore, we participate in the Quantitative Impact Studies and give technical advice, for instance, through the Chief Risk Officer Forum, which is comprised of the Chief Risk Officers of the major European insurance companies and financial conglomerates. Given the uncertainty surrounding the final implementation measures and their interpretation, we are constantly reviewing our internal risk capital model and risk processes on the basis of the evolving Solvency II standards.
Further improvements under the Solvency II Umbrella Project have been made in the areas of operational risk management and data collection, Property-Casualty premium and reserve risk stochastic modelling and processes and controls. Looking ahead to 2010, we anticipate continuing improvement efforts in all of the above mentioned areas as well as focusing on documentation and control processes.
Dublin. Global reach. Understanding customers, locally. You don’t have to explain to anyone what an expatriate is in Ireland, a country that knows something about emigration. Based in Dublin, Allianz Worldwide Care (AWC) offers health insurance to people living abroad around the globe. And the employees of AWC understand their customers: they themselves come from 30 countries. There are benefits when a service provider has more than files to tell him what the customer is going through.
Supplementary Information to the Consolidated Income Statements 293 26 Premiums earned (net) 294 27 Interest and similar income 295 28 Income from financial assets and liabilities carried at fair value through income (net) 296 29 Realized gains/losses (net) 297 30 Fee and commission income 298 31 Other income 298 32 Income and expenses from fully consolidated private equity investments 299 33 Claims and insurance benefits incurred (net) 300 34 Change in reserves for insurance and investment contracts (net) 301 35 Interest expenses 301 36 Loan loss provisions 301 37 Impairments of investments (net) 301 38 Investment expenses 302 39 Acquisition and administrative expenses (net) 303 40 Fee and commission expenses 303 41 Other expenses 304 42 Income taxes
Other Information 307 43 Derivative financial instruments 309 44 Financial instruments 318 45 Related party transactions 318 46 Contingent liabilities, commitments, guarantees, and assets pledged and collateral 323 47 Pensions and similar obligations 325 48 Share-based compensation plans 331 49 Restructuring plans 335 50 Earnings per share 336 51 Other Information 337 52 Subsequent events 338 Selected subsidiaries and other holdings 344 Responsibility statement 345 Auditor’s report 352 Glossary 357 Index 212 Consolidated Balance Sheets 213 Consolidated Income Statements 214 Consolidated Statements of Comprehensive Income 215 Consolidated Statements of Changes in Equity 216 Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements 219 1 Nature of operations and basis of presentation 219 2 Summary of significant accounting policies 236 3 Recently adopted and issued accounting pronouncements, changes in accounting policies and changes in the presentation of the consolidated financial statements 243 4 Assets and liabilities of disposal groups classified as held for sale and discontinued operations 252 6 Segment reporting
ASSETS Cash and cash equivalents 7 6,089 8,958 31,337 Financial assets carried at fair value through income 1) 8 14,321 14,240 185,461
LIABILITIES AND EQUITY Financial liabilities carried at fair value through income 16 6,743 6,244 126,053 Liabilities to banks and customers 17 21,248 18,451 336,494
Reserves for loss and loss adjustment expenses 19 64,441 63,924 63,706 Reserves for insurance and investment contracts 20 322,188 296,557 292,244 Financial liabilities for unit-linked contracts 21 56,963 50,450 66,060
Total liabilities and equity 584,045 955,576 1,061,149 1) As of December 31, 2009, € 887 mn (2008: € 459 mn) are pledged to creditors and can be sold or repledged. 2) As of December 31, 2009, € 123 mn (2008: € 45 mn) are pledged to creditors and can be sold or repledged.
Interest and similar income 27 18,233 19,072 18,624 Income from financial assets and liabilities carried at fair value through income (net) 28 954 (341) (948) Realized gains/losses (net) 29 3,416 3,603 6,008 Fee and commission income 30 6,239 6,032 6,553
Income from fully consolidated private equity investments 32 1,910 2,549 2,367
Claims and insurance benefits incurred (gross) (47,879) (48,287) (46,409) Claims and insurance benefits incurred (ceded) 2,233 2,628 3,287 Claims and insurance benefits incurred (net) 33 (45,646) (45,659) (43,122) Change in reserves for insurance and investment contracts (net) 34 (9,560) (5,140) (10,685)
Expenses from fully consolidated private equity investments 32 (2,142) (2,470) (2,317)
Share of other comprehensive income of associates Reclassifications to net income 6 — — Changes arising during the year 26 (107) 112
Paid-in capital 66 — — — 66 — 66 1) Includes € (1,738) mn minority interest changes from the derecognition of Dresdner Bank and € 337 mn related to capital movements of subsidiaries owned less than 100 %.
Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans and advances to banks and customers (684) 5,710 (5,276) Other investments, mainly financial assets held for trading and designated at fair value through income (1,088) 3,497 681
Result of transaction of Dresdner Bank between September 30 and December 31, 2008 — 2,933 — Depreciation and amortization 902 640 891 Loan loss provisions 141 385 (113) Interest credited to policyholder accounts 3,954 4,008 3,225 Net change in
Financial assets and liabilities held for trading (12) 6,443 18,948 Reverse repurchase agreements and collateral paid for securities borrowing transactions 751 32,463 30,215 Repurchase agreements and collateral received from securities lending transactions 47 (30,763) (48,143)
Allianz Group Consolidated Statements of Cash Flows – continued € mn € mn € mn
The following table shows the net cash flows provided by (used in) discontinued operations for the twelve months ended December 31, 2009, 2008 and 2007 that are included in the consolidated statements of cash flows above.
Net cash flow provided by operating activities from discontinued operations — 24,367 369 Net cash flow provided by (used in) investing activities from discontinued operations — (1,888) 7,415 Net cash flow provided by (used in) financing activities from discontinued operations — (8,520) (12,552) Net cash flow provided by (used in) discontinued operations — 13,959 (4,768)
Supplementary information on the consolidated statement of cash flows Income taxes paid (879) (2,846) (2,856)
Effects from buy-out of AGF minorities (Note 5) Revenue reserves — — (1,843) Unrealized gains and losses (net) — — 146 Minority interests — — (1,068) Paid-in capital — — 2,765
Effects from first consolidation of K2 Financial assets held for trading — 107 — Financial assets designated at fair value through income — 8,665 — Loans and advances to banks and customers — 1,714 — Other assets — 51 — Financial liabilites held for trading — 497 — Financial liabilities designated at fair value through income — 8,889 — Liabilities to banks and customers — 1,076 — Other liabilities — 75 —
Assets of disposal groups held for sale (480) — — Cominvest
Available-for-sale investments 179 — — Loans and advances to banks and customers 7 — — Deferred tax assets 14 — — Intangible assets 691 — — Property and equipment 3 — — Other assets 39 — — Assets of disposal groups held for sale (933) — — Liabilities to banks and customers 1 — — Deferred tax liabilities (72) — — Certificated liabilities, participation certificates and subordinated liabilities (57) — — Other liabilities (148) — — Minority interests (5) — — Liabilities of disposal groups held for sale 281 — —
Scope of consolidation The consolidated financial statements of the Allianz Group include those of Allianz SE, its subsidiaries and certain investment funds and special purpose entities (“SPEs”). Subsidiaries, investment funds and SPEs, hereafter “subsidiaries ”, which are directly or indirectly controlled by the Allianz Group, are consolidated. Control exists when the Allianz Group has the power to govern the financial and operating policies of the subsidiary generally either when the Allianz Group owns directly or indirectly more than half of the voting rights of the subsidiary or when control can be legally evidenced otherwise because of an agreement with other investors or of a specific corporate charter. In order to determine whether control exists, potential voting rights that are currently exercisable or convertible have to be taken into consideration. If no control exists from a legal perspective, it has to be assessed whether control exists from an economic perspective, as in the case of SPEs.
Subsidiaries are consolidated from the date control is obtained by the Allianz Group. Subsidiaries are consolidated until the date that the Allianz Group no longer maintains control. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group. The effects of intra- Allianz Group transactions have been eliminated.
Business combinations including acquisitions and disposals of minority interests A business combination occurs when the Allianz Group obtains control over a business. Business combinations are accounted for using the purchase method. The purchase method requires that the Allianz Group allocates the cost of a business combination on the date of acquisition by recognizing the acquiree’s identifiable assets, liabilities and certain contingent liabilities at their fair values. The cost of a business combination represents the fair value of the assets given, equity instruments issued and liabilities incurred or assumed in exchange for control at the acquisition date, plus any costs directly attributable to the acquisition. If the acquisition cost of the business combination exceeds the Allianz Group’s proportionate share of the fair value of the net assets of the acquiree, the difference is recorded as goodwill. Any minority interest is recorded at the minority’s proportion of the fair value of the net assets of the acquiree. If the initial accounting for a business combination can only be determined provisionally, the Allianz Group accounts for the combination using those provisional values. Any adjustments to those provisional amounts as a result of completing the initial accounting are recognized within twelve months of the acquisition date and from the acquisition date. If the Allianz Group’s proportionate share of the fair value of the net assets exceeds the acquisition cost, the Allianz Group reassesses the identification and measurement of the identifiable assets, liabilities and contingent liabilities as well as the measurement of the cost of the combination and recognizes immediately in profit or loss any excess remaining after that assessment.
Acquisitions and disposals of minority interests are treated as transactions between equity holders. Therefore, any difference between the acquisition cost or sale price of the minority interest and the carrying amount of the minority interest is recognized as an increase or decrease of equity.
Associated enterprises and joint ventures Associated enterprises are entities over which the Allianz Group can exercise significant influence and which are not joint ventures. Significant influence is the power to participate in, but not to control, the financial and operating policies within an enterprise. Significant influence is presumed to exist where the Allianz Group has at least 20 % but not more than 50 % of the voting rights unless it can be clearly demonstrated that this is not the case. If the investor holds less than 20 % of the voting power of the investee, it is presumed that the investor does not have significant influence unless such influence can be clearly demonstrated. Joint ventures are entities over which the Allianz Group and one or more other parties have joint control.
Investments in associated enterprises and joint ventures are generally accounted for using the equity method of accounting, in which the results and the carrying amount of the investment represent the Allianz Group’s proportionate share of the entity’s net income and net assets, respectively. The investments are initially recognized at cost and subsequently increased or decreased to recognize the investor’s share in profit or loss after the date of acquisition. The investments are tested for impairment when respective triggering events occur. The Allianz Group accounts for all material investments in associates on a time lag of no more than three months. Income from investments in associated enterprises and joint ventures is included in interest and similar income. The positive difference between the cost of the investment and the Allianz Group’s share of the net fair value of the associate’s identifiable assets and liabilities is accounted for as goodwill and included in the carrying amount of the investment. Profits and losses resulting from upstream and downstream transactions between the Allianz Group and an associated enterprise are recognized in the Allianz Group’s consolidated financial statements only to the extent of unrelated interests in the associate. The Allianz Group’s share in the associate’s profits and losses resulting from these transactions is eliminated. Accounting policies of associated enterprises and joint ventures have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group.
Translation to the presentation currency For purposes of the consolidated financial statements, the results and financial position of each of the Allianz Group’s subsidiaries are expressed in Euro, the functional currency of the Allianz Group. Assets and liabilities of subsidiaries not reporting in Euro are translated at the closing rate on the balance sheet date and income and expenses are translated at the quarterly average exchange rate. Any foreign currency translation differences, including those arising from the equity method, are recorded directly in other comprehensive income, as foreign currency translation adjustments.
Cash and cash equivalents Cash and cash equivalents include balances with banks payable on demand, balances with central banks, cash on hand, treasury bills to the extent they are not included in financial assets held for trading, as well as checks and bills of exchange which are eligible for refinancing at central banks, subject to a maximum term of three months from the date of acquisition.
Real estate held for investment Real estate held for investment (i.e., real estate and rights equivalent to real property and buildings, including buildings on leased land) is carried at cost less accumulated depreciation and impairments. Real estate held for investment is depreciated on a straight-line basis over its estimated life, with a maximum of 50 years. When respective triggering events occur, real estate is tested for impairment by determining the fair value of real estate held for investment using discounted cash flow methods. Improvement costs are capitalized if they extend the useful life or increase the value of the asset; otherwise they are recognized as an expense as incurred.
Financial instruments are generally recognized and derecognized on trade date, when the Allianz Group has entered into contractual arrangements with counterparties to purchase or sell securities or incur a liability.
Fair value of financial instruments The Allianz Group applies the IAS 39 fair value measurement rules to determine the fair value of financial instruments.
Active markets – quoted market price The fair values of financial instruments that are traded in active markets are based on quoted market prices or dealer price quotations on the last exchange trading day prior to and at the balance sheet date. The quoted market price used for a financial asset held by the Allianz Group is the current bid price; the quoted market price used for financial liabilities is the current ask price.
No active market – equity instruments Equity securities are measured at fair value where the ownership interest is less than 20 % and when the fair value is reliably measurable. If the fair value cannot be measured reliably, unquoted equity instruments and derivatives linked to such instruments are stated at cost until a fair value can be measured reliably. These financial instruments are subject to the normal impairment procedures.
Financial assets held for trading consist of debt and equity securities and derivative financial instruments with positive fair values that do not meet the criteria for hedge accounting.
Financial liabilities held for trading primarily consist of derivative financial instruments with negative fair values that do not meet the criteria for hedge accounting.
Available-for-sale equity securities are measured at fair value where the ownership interest is less than 20 % and when the fair value is reliably measurable. Available-forsale equity securities include investments in limited partnerships. The Allianz Group records its investments in limited partnerships at cost, where the ownership interest is less than 20 %, and when the limited partnerships do not have a quoted market price and fair value cannot be reliably measured. In general, the Allianz Group accounts for its investments in limited partnerships with ownership interests of 20 % or greater using the equity method due to the rebuttable presumption that the limited partner has no control over the limited partnership.
Liabilities to banks and customers Liabilities to banks and customers are subsequently measured at amortized cost. Herein included are repurchase (“repo”) agreements and securities lending transactions. Repo transactions involve the sale of securities by the Allianz Group to a counterparty, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed price. If substantially all of the risks and rewards of the securities remains with the Allianz Group over the entire lifetime of the transaction, the securities concerned are not derecognized by the Allianz Group. The proceeds of the sale are reported under liabilities to
Allianz Group Annual Report 2009 Notes to the Consolidated Financial Statements banks or customers. Interest expense from repo transactions is accrued over the duration of the agreements and reported in interest and similar expenses.
Financial liabilities for puttable equity instruments Financial liabilities for puttable equity instruments include the minority interests in shareholders’ equity of certain consolidated investment funds. These minority interests qualify as a financial liability of the Allianz Group, as they give the holder the right to put the instrument back to the Allianz Group for cash or another financial asset (“puttable instrument”). These liabilities are required to be recorded at redemption amount with changes recognized in income.
Certified liabilities, participation certificates and subordinated liabilities Certified liabilities, participation certificates and subordinated liabilities are subsequently measured at amortized cost, using the effective interest method to amortize the premium or discount to the redemption value over the life of the liability.
Financial guarantee contracts Financial guarantee contracts issued by the Allianz Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts which are not accounted for as insurance contracts are recognized initially at fair value. Subsequently, unless the financial guarantee contract was designated at inception as at fair value through income, the issuer measures it at the higher of the best estimate of the expenditure required to settle the present obligation and the amount initially recognized less cumulative amortization when appropriate.
Impairment of held-to-maturity and available-for-sale debt securities A held-to-maturity or available-for-sale debt security is impaired if there is objective evidence that a loss event has occurred after initial recognition of the security and up to the relevant date of the Allianz Group’s consolidated balance sheet, and that loss event has negatively impacted the estimated future cash flows, i.e. all amounts due according to the contractual terms of the security are not considered collectible. The evaluation of whether a held-to-maturity or available-for-sale debt security is impaired requires analysis of the underlying credit of the relevant issuer and involves significant management judgment. In particular, current publicly available information relating to the issuer and the particular security is considered relating to factors including, but not limited to, evidence of significant financial difficulty of the issuer and breach of contractual obligations of the security, such as a default or delinquency on interest or principal payments. The Allianz Group also considers other factors which could provide objective evidence of a loss event, including the probability of bankruptcy and the lack of an active market due to financial difficulty. The presence of either a decline in fair value below amortized cost or the downgrade of an issuer’s credit rating does not by itself represent objective evidence of a loss event, but may represent objective evidence of a loss event when considered with other available information.
If an available-for-sale debt security is impaired based on the Allianz Group’s impairment review process, the related impairment loss is measured as the difference between the security’s acquisition cost (net of any principal repayment and amortization) and current fair value, less any previously recognized impairment losses.
In a subsequent period, if the fair value of an available-forsale debt security instrument increases and the increase can be objectively related to an event occurring after the recognition of an impairment loss, such as an improvement in the debtor’s credit rating, the impairment is reversed through impairments of investments (net).
If an available-for-sale equity security is impaired based upon the Allianz Group’s qualitative or quantitative impairment criteria, any further declines in the fair value at subsequent reporting dates are recognized as impairments. Therefore, at each reporting period, for an equity security that is determined to be impaired based upon the Allianz Group’s impairment criteria, an impairment is recognized for the difference between the fair value and the original cost basis, less any previously recognized impairments. Reversals of impairments of available-for-sale equity securities are not recorded through the income statement.
Reclassification of financial instruments Once a financial instrument has been classified into a particular category at initial recognition, transfers into or out of that category from or to another category are impossible for some categories and are rarely done in all other circumstances.
At the reclassification date non-derivative financial assets have to be reclassified at their fair value, which becomes the new cost or amortized cost of the financial asset, as applicable. Previously recognized gains and losses cannot be reversed. After the reclassification date the existing requirements of IAS 39 for measuring financial assets at cost or at amortized cost apply.
Derecognition of financial instruments A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Allianz Group transfers the asset and substantially all of the risks and rewards of ownership or transfers the asset and loses control of the asset. A financial liability is derecognized when it is extinguished.
Derivative financial instruments The Allianz Group uses derivative financial instruments such as swaps, options and futures to hedge against market risks (i.e. interest rates, equity prices or foreign exchange rates) or credit risks in its investment portfolios.
Cash flow hedges Cash flow hedges offset the exposure to variability in expected future cash flows that is attributable to a particular risk associated with a recognized asset or liability or a forecasted transaction. Changes in the fair value of a derivative financial instrument that represent an effective hedge are recorded in unrealized gains and losses (net) in other comprehensive income, and are recognized in net income when the offsetting gain or loss associated with the hedged item is recognized. Any ineffectiveness of the cash flow hedge is recognized directly in net income.
The Allianz Group discontinues hedge accounting prospectively when it is determined that the derivative financial instrument is no longer highly effective, when the derivative financial instrument or the hedged item expires, or is sold, terminated or exercised, or when the Allianz Group determines that designation of the derivative financial instrument as a hedging instrument is no longer appropriate. After a fair value hedge is discontinued, the Allianz Group continues to report the derivative financial instrument at its fair value with changes in fair value recognized in net income, but changes in the fair value of the hedged item are no longer recognized in net income. After hedge accounting for a cash flow hedge is discontinued, the Allianz Group continues to record the derivative financial instrument at its fair value; any net unrealized gains and losses accumulated in shareholders’ equity are recognized when the planned transaction affects net income. After a hedge of a net investment in a foreign entity is discontinued, the Allianz Group continues to report the derivative financial instrument at its fair value and any net unrealized gains or losses accumulated in shareholders’ equity remain in shareholders’ equity until the disposal of the foreign entity.
Disclosures relating to financial instruments IFRS 7 requires to group financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. The scope of IFRS 7 includes recognized and unrecognized financial instruments. Recognized financial instruments are those financial assets and financial liabilities within the scope of IAS 39. Unrecognized financial instruments are financial instruments that are outside of the scope of IAS 39 but within the scope of IFRS 7. The classes of financial instruments within Allianz Group are mainly in line with the categories according to IAS 39.
Balance sheet line item, IAS 39 categories and IFRS 7 classes of financial instruments Measurement basis
– Derivative financial instruments used for hedging purposes that meet the criteria for hedge accounting and firm commitments Fair value
The following table summarizes the relationship between the balance sheet positions and the classes of financial instruments according to IFRS 7. The balance sheet position also indicates the IAS 39 categories except when noted parenthetically.
DAC generally consist of commissions, underwriting expenses and policy issuance costs, which vary with and are directly related to the acquisition and renewal of insurance contracts. Acquisition costs that are expected to be recovered over the life of the contract correspondingly are deferred and are subject to recoverability testing at the end of each accounting period.
For unit-linked investment contracts without discretionary participation features accounted for under IAS 39 at fair value, acquisition costs are deferred in accordance with IAS 18, if the costs are incremental. Acquisition costs are incremental if the costs would not have been incurred if the related contracts would not have been issued. For non-unitlinked investment contracts without discretionary participation features accounted for under IAS 39 at amortized cost, incremental transaction costs are accounted for in accordance with IAS 39.
Sales inducements on insurance contracts that meet the following criteria are generally deferred and amortized using the same methodology and assumptions used for amortized deferred acquisition costs: • recognized as part of reserves for insurance and investment contracts,
Shadow accounting For insurance and investment contracts with discretionary participation features, shadow accounting is applied to DAC, PVFP and deferred sales inducements. The Allianz Group utilizes EGPs or EGMs, which include only realized gains and losses, in measuring these assets. Shadow accounting is applied in order to include the effect of unrealized gains or losses in the measurement of these intangible assets in the same way as it is done for realized gains or losses. Accordingly, the assets are adjusted with corresponding charges or credits recognized directly in other comprehensive income as a component of the related unrealized gain or loss. When the gains or losses are realized, they are recorded in the income statement through recycling and prior adjustments due to shadow accounting are reversed.
Currently, the Allianz Group has recognized all rights and obligations related to issued insurance contracts according to its accounting policies. As a result, the Allianz Group has not recognized an unbundled deposit component in respect of any of its insurance contracts, and accordingly the Allianz Group has not recorded any related provisions in its consolidated financial statements.
Bifurcation Certain of the Allianz Group’s universal life-type insurance contracts include options to replicate a market index (market value liability options or “MVLO”). These options are bifurcated from the insurance contracts and accounted for as derivatives under IAS 39.
Aggregate policy reserves for traditional long-duration insurance contracts, such as traditional life and health products, are computed in accordance with the related insurance accounting provisions under US GAAP using the net level premium method, which represents the present value of estimated future policy benefits to be paid including future claims handling costs and administration fees less the present value of estimated future net premiums to be collected from policyholders. The method uses best estimate assumptions adjusted for a provision for adverse deviation for mortality, morbidity, expected investment yields, surrenders and expenses at the policy inception date, which remain locked in thereafter unless a premium deficiency occurs. DAC and PVFP for traditional life and health products are amortized over the premium paying period of the related policies in proportion to the earned premium using assumptions consistent with those used in computing the aggregate policy reserves.
Deferred acquisition costs 2.5 – 6.0 % 3.1 – 5.2 % Aggregate policy reserves 2.5 – 6.0 % 2.0 – 4.3 %
Reserves for premium refunds include the amounts allocated under the relevant local statutory or contractual regulations to the accounts of the policyholders and the amounts resulting from the differences between these IFRSs based financial statements and the local financial statements (“latent reserve for premium refunds”), which will reverse and enter into future profit participation calculations. Unrealized gains and losses recognized for availablefor -sale investments are recognized in the latent reserve for premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual regulations when they are realized. The profit participation allocated to participating policyholders or disbursed to them reduces the reserve for premium refunds.
Germany Life all sources of profit 90 % Health all sources of profit 80 %
Property and equipment includes real estate held for own use, software, equipment and fixed assets of Alternative Investments.
Non-current assets or disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Any subsequent increases in fair value less costs shall be recognized as a gain but not in excess of the cumulative impairment loss that has been recognized either in accordance with IFRS 5 or IAS 36. A noncurrent asset shall not be depreciated while classified as held for sale. A gain or loss not previously recognized by the date of the sale shall be recognized at the date of derecognition.
A discontinued operation is defined as a component of an entity that either has been disposed of or is classified as held for sale and
• represents a major line of business or geographical area of operations,
• is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or
Intangible assets Intangible assets include intangible assets with indefinite useful lives like goodwill and brand names and intangible assets with finite useful lives like the long-term distribution agreement with Commerzbank, cutomer relationships and other.
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009 the intangible asset belongs. An intangible asset is impaired if the carrying amount is greater than the recoverable amount. The impairment of an intangible asset is equal to the difference between the carrying amount and recoverable amount.
Capital reserves represent the premium, or additional paid in capital, received from the issuance of shares.
Premiums earned and claims and insurance benefits paid Premiums for short-duration contracts are recognized as revenues over the period of the contract in proportion to the amount of insurance protection provided. Unearned premiums are calculated separately for each individual policy to combination and the Allianz Group’s proportionate share of the net fair value of identifiable assets acquired and liabilities and certain contingent liabilities assumed. Goodwill resulting from business combinations is not subject to amortization. It is initially recorded at cost and subsequently measured at cost less accumulated impairments.
Allianz Group Annual Report 2009 Notes to the Consolidated Financial Statements cover the unexpired portion of written premiums. Premiums for short-duration contracts could arise from PropertyCasualty, Life and Health insurance contracts. For those contracts, benefits are recognized when incurred.
Benefits charged to expense include benefit claims incurred during the period in excess of policy account balances and interest credited to policy account balances.
Administration fees are recognized as the services are performed. Such fees are generally based on percentages of the market value of assets under management.
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009 carryforwards. The tax rates used for the calculation of deferred taxes are the local rates applicable in the countries concerned; changes to tax rates already adopted prior to or as of the consolidated balance sheet date are taken into account. Deferred tax assets are recognized only to the extent it is probable that sufficient future taxable income will be available for their realization.
Pensions and similar obligations Contributions to defined contribution plans are recognized as an expense when employees have rendered service entitling them to the contributions.
IAS 19 provides for defined benefit plans three recognition options for actuarial gains and losses: • immediate recognition of all actuarial gains and losses in the income statement,
• immediate recognition of all actuarial gains and losses outside the income statement in a statement of changes in equity titled “statement of recognized income and expense (SORIE)”, or
The Allianz Group applies the corridor approach, i.e. that for each individual defined benefit pension plan, the Allianz Group recognizes a portion of its actuarial gains and losses in income or expense if the unrecognized actuarial net gain or loss at the end of the previous reporting period exceeds the greater of: a) 10 % of the defined benefit obligation at that date; or b) 10 % of the fair value of any plan assets at that date. Any unrecognized actuarial net gain or loss exceeding the greater of these two values is generally recognized as income or expense in the consolidated income statements over the expected average remaining working lives of the employees participating in the plans.
Restructuring plans Provisions for restructuring plans are recognized when the Allianz Group has a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or by announcing its main features. The detailed formal plan includes the business concerned, approximate number of employees who will be compensated for terminating their services, the expenses to be incurred and the time period over which the plan will be implemented. The detailed plan must be communicated such that those affected have an expectation that the plan will be implemented.
The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, i.e. those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity. The income statement line item restructuring charges includes additional restructuring related expenditures that are necessarily entailed by the restructuring and not associated with the ongoing activities of the entity but which are not included in the restructuring provisions.
Allianz Group Annual Report 2009 Notes to the Consolidated Financial Statements 3 Recently adopted and issued accounting pronouncements, changes in accounting policies and changes in the presentation of the consolidated financial statements
IAS 1, Presentation of Financial Statements – revised In September 2007, the IASB issued the revised IAS 1, Presentation of Financial Statements. The revised standard requires information in financial statements to be aggregated on the basis of shared characteristics and introduces a statement of comprehensive income. The revised standard gives preparers of financial statements the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements. The revisions also include changes in the titles of some of the financial statements, however, the new titles are not mandatory for use in financial statements. The Allianz Group adopted revised IAS 1 as of January 1, 2009, and decided not to change the titles of the statements.
IFRS 8, Operating Segments In November 2006, the IASB issued IFRS 8, Operating Segments. Effectively replacing IAS 14, IFRS 8 requires that an entity selects operating segments that are consistent with internal reports regularly reviewed by the entity’s chief operating decision maker in order to allocate resources to the segment and to assess its performance. The standard also requires explanations of how segment information is prepared as well as reconciliations of total reportable segment revenues, total profits or losses, total assets and other material amounts disclosed for reportable segments to corresponding amounts recognized in the entity’s financial statements. The Allianz Group adopted IFRS 8 as of January 1, 2009. IFRS 8 does not have any material impact on the Allianz Group’s financial results or financial position.
In April 2009, the IASB issued an amendment to IFRS 8 as part of the Improvements to IFRSs. The amendment to IFRS 8 requires an entity to report total assets for reportable segments only if that information is regularly provided to the chief operating decision maker. Prior to the amendment, IFRS 8 required entities to report total assets for reportable segments regardless of whether the information was regularly provided to the chief operating decision maker or not.
New Accounting Standards Codification under US GAAP On July 1, 2009 the Financial Accounting Standards Board (“FASB”) launched the FASB Accounting Standards Codification ™ (“ASC”) as the single source of authoritative nongovernmental US GAAP. FASB ASC is a major restructuring of accounting and reporting standards designed to simplify user access to all authoritative US GAAP pronouncements by providing the authoritative literature in a topically organized structure, but is not intended to change US GAAP. Correspondingly, names and codifications relating to insurance accounting policies have been changed within the annual report of the Allianz Group.
Further amendments and interpretations In addition to the above mentioned recently adopted accounting pronouncements, the following amendments and revisions to standards and interpretations have been adopted by Allianz Group as of January 1, 2009: • IAS 23, Borrowing Costs – amended • IAS 32, Financial Instruments: Presentation, and IAS 1,
IFRS 3, Business Combinations – revised and IAS 27, Consolidated and Separate Financial Statements – amended In January 2008, the IASB issued a revised version of IFRS 3, Business Combinations, and an amended version of IAS 27, Consolidated and Separate Financial Statements. The revised version of IFRS 3 contains the following major changes: • The scope of IFRS 3 has been extended and applies now also to combinations of mutual entities and to combinations achieved by contract alone.
• For each business combination, non-controlling interests are measured as their proportionate interest in the net identifiable assets or at fair value of the interests.
• Under the current IFRS 3, if control is achieved in stages, it is required to measure at fair value every asset and liability at each step for the purpose of calculating a portion of goodwill. The revised version requires that goodwill is measured as the difference at the acquisition date between the fair value of any investment in the business held before the acquisition, the consideration transferred and the net assets acquired.
• In a business combination achieved in stages, the acquirer remeasures any previously-held equity interest to fair value at the date of obtaining control with the difference being recorded in the consolidated income statement.
IAS 24, Related Party Disclosures – revised annual periods beginning on or after January 1, 2011 IAS 32, Financial Instruments: Presentation – Amendments relating to classification of rights issues annual periods beginning on or after February 1, 2010
IAS 39, Financial Instruments: Recognition and Measurement – Amendments for eligible hedged items annual periods beginning on or after July 1, 2009
IFRS 2, Share-based Payment – Amendments relating to group cash-settled share-based payment transactions annual periods beginning on or after January 1, 2010
IFRIC 17, Distributions of Non-cash Assets to Owners annual periods beginning on or after July 1, 2009 IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments annual periods beginning on or after July 1, 2010
Reclassification of corporate loans Certain corporate loans were shown within the category held-to-maturity investments in prior periods and were measured at amortized cost using the effective interest method according to IAS 39. The corporate loans meet the definition of loans and receivables and should have been recorded as such. Loans and receivables are also measured at amortized cost using the effective interest method according to IAS 39.
The following table summarizes the impacts on the consolidated balance sheets as of December 31, 2008 and January 1, 2008: As previously reported
Loans and advances to banks and customers 115,655 1,335 116,990 As of January 1, 2008
Effective June 30, 2009, the Allianz Group voluntarily changed its accounting policy with regard to the presentation of expenses relating to the second effect. The accrual of plan benefits over the vesting period continues to be shown in administrative expenses. Expenses relating to changes in the share price of the Allianz SE are now presented within the line item “Income from financial assets and liabilities carried at fair value through income (net)”. The Allianz Group believes that this presentation is more relevant and gives a clearer picture of expenses relating to the GEIs at grant date. Subsequent fluctuations in the share price are offset due to the hedging of the share price fluctuations. Therefore, the recognition of expenses relating to share price fluctuations within the line item “Income from financial assets and liabilities carried at fair value through income (net)” better reflects the position of the Allianz Group.
The change in accounting policy is applied retrospectively and results in changes in the presentation as described in the tables below. There is no impact on recognition, initial or subsequent measurement of GEI plans.
Reclassification within Alternative Investment Management The activities of the asset managers of Allianz Group’s alternative investments are presented as part of the reportable segment Alternative Investments within the business segment Corporate and Other. The accounting logic for the Alternative Investments follows the one used for Asset Manage ment. Therefore, prior years’ expenses of Alternative Investment managers were reclassified from “Fee and commission expenses” to “Acquisition and administrative expenses (net)”. The tables below describe the impact on the consolidated income statements resulting from the reclassification of expenses at Alternative Investments’ managers for the year ended December 31, 2008 and 2007.
Reclassification of foreign exchange gains and losses In prior periods, the Allianz Group reported foreign currency gains and losses arising from foreign currency transactions within “Investment expenses”. With year-end reporting 2009, the Allianz Group voluntarily changed its accounting policy with regard to the presentation of foreign currency gains and losses. Those are now reported within “Income from financial assets and liabilities carried at fair value through income (net)”. The Allianz Group believes that this presentation is more relevant and gives a clearer picture of investment expenses by excluding the distorting effects arising from foreign currency fluctuations. In addition, the Allianz Group is hedged substantially against foreign currency fluctuations with freestanding derivatives. Therefore, the recognition of foreign currency fluctuations within the line item “Income from financial assets and liabilities carried at fair value through income (net)” better reflects the position of the Allianz Group.
The change in accounting policy is applied retrospectively and results in changes in the presentation as described in the tables below. There is no impact on recognition, initial or subsequent measurement, net income or operating profit arising from this reclassification of foreign currency gains and losses.
The change in presentation is applied retrospectively. There is no impact on recognition, initial or subsequent mea- surement or operating profit arising out of this change in presentation.
Premiums written 66,171 — — — 66,171 Ceded premiums written (5,474) — — — (5,474) Change in unearned premiums (253) — — — (253) Premiums earned (net) 60,444 — — — 60,444 Interest and similar income 19,072 — — — 19,072 Income from financial assets and liabilities carried at fair value through income (net) (686) 219 — 126 (341) Realized gains/losses (net) 3,603 — — — 3,603 Fee and commission income 6,032 — — — 6,032 Other income 408 — — — 408 Income from fully consolidated private equity investments 2,549 — — — 2,549
Acquisition and administrative expenses (net) (17,922) (219) (158) — (18,299) Fee and commission expenses (2,502) — 158 — (2,344) Amortization of intangible assets (23) — — — (23) Restructuring charges (129) — — — (129) Other expenses (12) — — — (12) Expenses from fully consolidated private equity investments (2,470) — — — (2,470)
Income from continuing operations before income taxes 5,473 — — — 5,473 Income taxes (1,287) — — — (1,287) Net income from continuing operations 4,186 — — — 4,186 Net loss from discontinued operations, net of income taxes (6,373) — — — (6,373) Net loss (2,187) — — — (2,187)
Claims and insurance benefits incurred (gross) (46,409) — — — (46,409) Claims and insurance benefits incurred (ceded) 3,287 — — — 3,287 Claims and insurance benefits incurred (net) (43,122) — — — (43,122) Change in reserves for insurance and investment contracts (net) (10,685) — — — (10,685) Interest expenses (2,070) — — — (2,070) Loan loss provisions (18) — — — (18) Impairments of investments (net) (1,185) — — — (1,185)
Acquisition and administrative expenses (net) (18,788) (32) (116) — (18,936) Fee and commission expenses (2,313) — 116 — (2,197) Amortization of intangible assets (17) — — — (17) Restructuring charges (182) — — — (182) Other expenses (17) — — — (17) Expenses from fully consolidated private equity investments (2,317) — — — (2,317)
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009 4 Assets and liabilities of disposal groups classified as held for sale and discontinued operations
Impact of the sale of Dresdner Bank AG to Commerzbank AG As described in the Notes to the Allianz Group’s consolidated financial statements for the year ended December 31, 2008, Allianz SE (“Allianz”) and Commerzbank AG (“Commerzbank ”) agreed on the sale of Dresdner Bank AG (“Dresdner Bank”). With the agreement of the sale transaction Dresdner Bank qualified as disposal group held for sale and discontinued operation according to the requirements of IFRS 5, “Non-current Assets Held for Sale and Discontinued Operations ”. Thus, almost all assets and liabilities of Dresdner Bank have been reclassified and presented as separate line items “Non-current assets and assets of disposal groups classified as held for sale” and “Liabilities of disposal groups classified as held for sale”, respectively, on the face of the consolidated balance sheet as of December 31, 2008. All income and expenses relating to the discontinued operations of Dresdner Bank have been reclassified and presented in a separate line item “Net income (loss) from discontinued operations, net of income taxes” in the consolidated income statements for all periods presented in accordance with IFRS 5.
The following table shows the accumulated other comprehensive income and expenses, net of tax: As of December 31, 2008 € mn
Gains on cash flow hedges, net of tax 60 Cumulative foreign currency translation adjustment, net of tax (516) Unrealized gains on securities, net of tax 95 Total accumulated other comprehensive loss, net of tax related to disposal groups classified as held for sale (361)
Interest and similar income — 5,257 7,423 Income from financial assets and liabilities carried at fair value through income (net) — (1,439) (430) Realized gains/losses (net) — 285 540 Fee and commission income — 1,760 2,887 Total income from discontinued operations — 5,863 10,420
Interest expenses — (3,401) (4,602) Loan loss provisions — (327) 131 Impairments of investments (net) — (102) (87) Investment expenses — (2) (20) Acquisition and administrative expenses (net) — (3,326) (4,430) Fee and commission expenses — (267) (360) Amortization of intangible assets — (2) — Restructuring charges — (17) (50) Other expenses — (52) 3 Total expenses from discontinued operations — (7,496) (9,415)
Impairment loss recognized on remeasurement of assets of disposal group to fair value less costs to sell as of September 30, 2008 1) — (1,409) — Result from transaction between September 30, 2008 and December 31, 2008 1) — (2,933) — Result from derecognition of discontinued operations 1) (395) 4) — — After-tax impairment loss on remeasurement of assets of disposal group to fair value less costs to sell as of September 30, 2008, after-tax result from transaction between September 30, 2008 and December 31, 2008 and after-tax result from derecognition of discontinued operations (395) (4,342) —
Net income (loss) from discontinued operations attributable to: Minority interests — 38 73 1) No income taxes were related to the impairment loss recognized on remeasurement of assets of disposal group to fair value less costs to sell as of September 30, 2008, to the result from transaction between September 30, 2008 and December 31, 2008 and to the result from derecognition of discontinued operations.
2) For the year ended December 31, 2008 the result from operating activities of discontinued operations represents the nine months ended September 30, 2008. The result from operating activities of discontinued operations for the year ended December 31, 2007 represents 12 months ended December 31, 2007.
3) All numbers are stated on a consolidated basis. 4) The result includes € 139 mn net loss from the operating activities of Dresdner Bank from January 1, 2009 to January 12, 2009.
Cominvest On January 12, 2009, the Allianz Group acquired, as part of the consideration received for the sale of Dresdner Bank to Commerzbank, 100 % of the fund manager cominvest (including cominvest Asset Management GmbH, cominvest Asset Management S.A. (Luxembourg), cominvest Vertriebs AG and MK Luxinvest S.A. (Luxembourg)).
The amounts recognized for major classes of assets and liabilities are as follows: Fair value Carrying amount € mn € mn
If the acquisition date of the combined entity (Allianz Group including cominvest) would have been on January 1, 2009, the revenues and net income for the year ended December 31,
Allianz Sigorta AŞ, Istanbul and Allianz Hayat ve Emeklilik AŞ, Istanbul In April 2008, the Allianz Group signed a share purchase agreement to acquire 47.1 % of shares in the property-casualty insurer Allianz Sigorta AŞ, Istanbul, and 51.0 % of the shares in the life-insurance and pension company Allianz Hayat ve Emeklilik AŞ, Istanbul, for a total consideration of € 373 mn. The transaction has been approved by the relevant regulatory and competition board on July 21, 2008 so that Allianz Group now holds 84.2 % and 89.0 % of shares, respectively.
Purchase price Allianz Sigorta AŞ (47.1 %) 248 Purchase price Allianz Hayat ve Emeklilik AŞ (51.0 %) 125 Transaction costs — Total purchase price 373 2009 would have been immaterially different from the revenues and net income as presented in the consolidated income statement for the year ended December 31, 2009.
Deferred acquisition costs (PVFP) 230 209 Other assets 93 40 Total assets 2,108 2,040 Unearned premiums 5 5 Reserves for insurance and investment contracts 1,973 1,853 Other liabilities 26 11 Total equity 104 171 Total liabilities and equity 2,108 2,040
Financial assets for unit-linked contracts 150 150 Reinsurance assets 136 136 Deferred acquisition costs 51 6 Other assets 201 183 Total assets 1,145 1,070 Unearned premiums 249 249 Reserves for loss and loss adjustments 117 117 Reserves for insurance and investment contracts 269 263 Financial liabilities for unit-linked contracts 150 150 Other liabilities 90 85 Total equity 270 206 Total liabilities and equity 1,145 1,070
Intangible assets (247) Other assets (914) Other liabilities 870 Minority interests 38 Less: previous investment in Allianz Sigorta and Hayat 101 Acquisition of subsidiaries, net of cash acquired (152)
Reinsurance assets 55 55 Deferred acquisition costs 73 71 Other assets 303 279 Intangible assets 16 — Total assets 919 877 Unearned premiums 350 350 Reserves for loss and loss adjustments 122 120 Other liabilities 258 252 Total equity 189 155 Total liabilities and equity 919 877
The revenues of the combined entity (Allianz Group including ROSNO) for the year ended December 31, 2007 would have been € 97,876 mn, if the acquisition date had been on January 1, 2007. The net income of the combined entity for the year ended December 31, 2007 would have been € 8,717 mn if the acquisition date had been on January 1, 2007.
The impact of the acquisition of ROSNO net of cash acquired, on the consolidated statement of cash flows for the year ended December 31, 2007 was: € mn
The impact on the Allianz Group’s net income for the year ended December 31, 2007 was € (11) mn.
The revenues of the combined entity (Allianz Group including Selecta AG) for the year ended December 31, 2007 would have been € 98,069 mn if the acquisition date had been on January 1, 2007. The net income of the combined entity for the year ended December 31, 2007 would have been € 8,761 mn if the acquisition date had been on January 1, 2007.
Dresdner Bank Aktiengesellschaft, Frankfurt am Main 1) 100.0 01/12/2009 5,140 Corporate and Other 1,511 Sale to third party
Allianz Group Annual Report 2009 Notes to the Consolidated Financial Statements 6 Segment reporting
The business activities of the Allianz Group are first organized by product and type of service: insurance activities, asset management activities and corporate and other activities. Due to differences in the nature of products, risks and capital allocation, insurance activities are further divided between Property-Casualty and Life/Health categories. Both categories are grouped into 5 reportable segments according to the responsibilities of members of the Board of Management as follows: • German Speaking Countries • Europe I incl. South America • Europe II incl. Africa • Anglo Broker Markets/Global Lines • Growth Markets.
Asset management activities represent a separate reportable segment. Due to differences in the nature of products, risks and capital allocation, corporate and other activities are divided into three reportable segments: Holding & Treasury, Banking and Alternative Investments. In sum the Allianz Group has identified 14 reportable segments in accordance with IFRS 8, Operating Segments.
The types of products and services from which reportable segments derive revenue are listed below.
Life/Health In the Life/Health category, reportable segments offer a comprehensive range of life and health insurance products on both individual and group basis, including annuity, endowment and term insurance, unit-linked and investment -oriented products as well as full private health and supplemental health and care insurance.
Corporate and Other The reportable segment Holding & Treasury includes the management and support of the Allianz Group’s business through its strategy, risk, corporate finance, treasury, financial control, communication, legal, human resources and technology functions.
The reportable segment Alternative Investments provides global alternative investment management services in the private equity, real estate, renewable energy and infrastructure sectors mainly on behalf of Allianz Group. The Alternative Investments reportable segment also includes certain fully consolidated private equity investments.
Measurement Prices for transactions between reportable segments are set on an arm’s length basis in a manner similar to transactions with third parties. Transactions between reportable segments are eliminated in the consolidation. For the Asset Management reportable segment, interest revenues are reported net of interest expenses.
To better understand the ongoing operations of the business, the Allianz Group excludes the following non-operating effects: • acquisition-related expenses and the amortization of intangible assets, as these relate to business combinations; • restructuring charges, because the timing of the restructuring charges are largely at the discretion of the Allianz Group, and accordingly their exclusion provides additional insight into the operating trends of the underlying business. This differentiation is not made if the profit sources are shared with policyholders; • interest expenses from external debt, as these relate to the capital structure of the Allianz Group; • income from fully consolidated private equity investments (net), as this represents income from industrial holdings, which is outside the Allianz Group’s normal scope of operating business; • income from financial assets and liabilities held for trading (net) as part of the income from financial assets and liabilities carried at fair value through income (net) for the Property-Casualty insurance operations and the Corporate and Other activities (except for certain items for the Holding & Treasury activities and Banking operations where the trading income refers to operating business ). For the Life/Health insurance and Asset Management operations, this item is treated as operating business and is therefore not excluded; • realized gains/losses (net) or impairments of investments (net), as these are largely dependent on market cycles or issuer-specific events over which the Allianz Group has little or no control, and can and do vary, sometimes materially, across periods (except for Life/Health insurance operations where the expenses for premium refunds in the operating profit are correlating with realized gains and losses and impairments of investments). Furthermore, the timing of sales that would result in such gains or losses is largely at the discretion of the Allianz Group.
In certain cases the policyholders participate in the tax benefits of the Allianz Group. IFRS requires that the consolidated income statements present all tax benefits in the income tax line item, even though that these belong to policyholders. In the segment reporting the tax benefits are reclassified and shown as operating income in order to properly reflect the policyholder participation of tax benefits.
LIABILITIES AND EQUITY Financial liabilities carried at fair value through income 68 103 6,541 5,833 Liabilities to banks and customers 426 530 861 1,274 Unearned premiums 13,471 12,984 2,210 2,258 Reserves for loss and loss adjustment expenses 55,715 55,616 8,738 8,320 Reserves for insurance and investment contracts 9,159 8,595 313,018 287,932 Financial liabilities for unit-linked contracts — — 56,963 50,450 Deferred tax liabilities 2,656 2,580 1,317 833 Other liabilities 15,642 20,523 14,131 16,625 Liabilities of disposal groups classified as held for sale — — — — Certificated liabilities 139 167 2 2 Participation certificates and subordinated liabilities 846 846 65 65 Total liabilities 98,122 101,944 403,846 373,592
As of December 31, € mn € mn € mn € mn € mn € mn € mn € mn
Net income (loss) attributable to: 1) Total revenues comprise statutory gross premiums written in Property-Casualty and Life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking).
Gross premiums written 11,432 11,485 11,607 8,246 8,506 8,644 7,731 8,271 9,343 Ceded premiums written (2,133) (2,130) (2,377) (950) (900) (879) (1,109) (1,327) (1,376) Change in unearned premiums (58) (75) (34) 76 98 (56) 22 (9) (43) Premiums earned (net) 9,241 9,280 9,196 7,372 7,704 7,709 6,644 6,935 7,924 Interest and similar income 1,185 1,500 1,499 572 749 675 561 842 949 Operating income from financial assets and liabilities carried at fair value through income (net) 37 8 (19) 74 85 37 38 (89) 49 Operating realized gains/losses (net) 57 37 46 — — — — — — Fee and commission income 182 350 217 22 27 17 752 820 756 Other income 4 242 13 3 9 6 7 15 8
Claims and insurance benefits incurred (net) (6,537) (6,453) (6,198) (5,375) (5,500) (5,417) (4,891) (4,741) (5,111) Changes in reserves for insurance and investment contracts (net) (312) 56 (297) (2) (10) (12) (1) (1) 14 Interest expenses (71) (166) (189) (5) (4) (7) (89) (193) (276) Loan loss provisions (9) (12) (5) — (1) — — — — Operating impairments of investments (net) (75) (437) (67) — — — — — — Investment expenses (80) (93) (102) (39) (43) (62) (67) (79) (88) Acquisition and administrative expenses (net) (2,497) (2,372) (2,347) (1,821) (1,863) (1,850) (2,004) (2,077) (2,305) Fee and commission expenses (161) (337) (183) (25) (37) (20) (693) (747) (653) Other expenses — — (2) — — — — (2) (10) Operating expenses (9,742) (9,814) (9,390) (7,267) (7,458) (7,368) (7,745) (7,840) (8,429)
Anglo Broker Markets/ Global Lines Growth Markets Consolidation Life/Health € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
Income from financial assets and liabilities carried at fair value through income (net) 40 (71) 32
Interest and similar income 359 819 745 708 989 884 Operating income from financial assets and liabilities carried at fair value through income (net) (122) 135 55 17 6 8 Fee and commission income 209 53 72 389 430 528 Other income — 1 15 — — —
Balances with banks payable on demand 5,243 7,760 Balances with central banks 198 456 Cash on hand 159 169 Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks 489 573
Debt and equity securities included in financial assets held for trading Debt and equity securities included in financial assets held for trading are primarily marketable and listed securities. As of December 31, 2009, the debt securities include € 31 mn (2008: € 55 mn) from public sector issuers and € 332 mn (2008: € 492 mn) from other issuers.
Financial assets held for trading Debt securities 363 547 Equity securities 105 99 Derivative financial instruments 1,663 1,978
Government and government agency bonds 1) Includes also corporate mortgage-backed securities.
Government and government agency bonds 18,475 (457) 3,533 (214) 22,008 (671)
Government and government agency bonds 7,964 (416) 8,300 (611) 16,264 (1,027)
ments and the related fair value, segregated by investment category and length of time such investments have been in a continuous unrealized loss position as of December 31, 2009 and 2008.
Corporate mortgage-backed securities (residential and commercial) Total unrealized losses amounted to € 444 mn as of December 31, 2009. The unrealized loss positions primarily stem from issues in the U.S. security market, which are mostly held by Allianz Group’s North American entities. The largest part of these issues is backed by mortgages on commercial rather than residential real estate. The unrealized losses of these mortgage-backed securities were mostly caused by the increased volatility in credit spreads. During 2009 corporate bond performance has been positive with spreads narrowing which resulted in a decrease of the unr ealized losses of € 974 mn. Based on a detailed analysis of the underlying securities and collaterals the Allianz Group does not consider these investments to be impaired at December 31, 2009.
Corporate bonds Total unrealized losses amounted to € 1,920 mn as of December 31, 2009. The Allianz Group holds a large variety of bonds issued by corporations mostly domiciled in OECD countries. For the vast majority of the Allianz Group’s corporate bonds, issuers and/or issues are of “investment grade”. The positive bond market performance has significantly reduced unrealized losses by € 5,109 mn. As spreads have not yet fully recovered, unrealized losses remain. This effect is characterized by a general market trend and does not allow direct conclusions on the quality of these securities. Based on a detailed analysis of the underlying securities the Allianz Group does not consider these investments to be impaired at December 31, 2009.
Held-to-maturity debt securities Due in 1 year or less 171 175 Due after 1 year and in up to 5 years 1,432 1,525 Due after 5 years and in up to 10 years 811 845 Due after 10 years 1,061 1,084
Cost as of January 1, 10,139 10,114 13,039 Accumulated depreciation as of January 1, (2,588) (2,356) (3,484) Carrying amount as of January 1, 7,551 7,758 9,555
Reversals of impairments 14 54 6 Carrying amount as of December 31, 7,514 7,551 7,758 Accumulated depreciation as of December 31, 2,899 2,588 2,356 Cost as of December 31, 10,413 10,139 10,114 10 Loans and advances to banks and customers
Short-term investments and certificates of deposit 10,530 — 10,530 9,622 — 9,622
As of December 31, 2009, the fair value of real estate held for investment was € 11,444 mn (2008: € 11,995 mn). As of December 31, 2009, real estate held for investment pledged as security and other restrictions on title were € 146 mn (2008: € 143 mn).
Total € mn € mn € mn € mn € mn € mn
Short-term investments and certificates of deposit 5,406 5,124 10,530 2,957 6,665 9,622
Wholesale and retail trade 405 425 Financial institutions (excluding banks) and insurance companies 122 148 Service providers 1,503 1,126
Industry, wholesale and retail trade and service providers 5,500 4,129 Financial institutions (excluding banks) and insurance companies 989 614
1) For the year ended December 31, 2007 the unwinding interest income includes loans in the homogeneous portfolio belonging to the Allianz Group in Germany. 2) Includes for 2007 Dresdner Bank.
Impaired loans 1,149 654 Impaired loans with specific allowances 1,129 645 Average balance of impaired loans 713 652 Interest income recognized on impaired loans 4 6 11 Reinsurance assets
Carrying amount as of January 1, 5,018 5,319 8,223 Foreign currency translation adjustments (82) 150 (311) Changes recorded in the consolidated income statements (11) (47) 108
Reconciliation of allowances for credit losses by class of financial assets As of December 31, 2009, the overall volume of allowance for credit losses includes loan loss allowances deducted from loans and advances to banks and customers in the amount of € 144 mn (2008: € 119 mn; 2007: € 830 mn) and provisions for credit losses included in other liabilities in the amount of € 8 mn (2008: € 8 mn; 2007: € 201 mn).
Reinsurance involves credit risk and is subject to aggregate loss limits. Reinsurance does not legally discharge the Allianz Group from primary liability under the reinsured policies. Although the reinsurer is liable to the Allianz Group to the extent of the reinsurance ceded, the Allianz Group remains primarily liable as the direct insurer on all risks it underwrites, including the portion that is reinsured. The Allianz Group monitors the financial condition of its reinsurers on an ongoing basis and reviews its reinsurance arrangements periodically in order to evaluate the reinsurer’s ability to fulfill its obligations to the Allianz Group under existing and planned reinsurance contracts. The Allianz Group’s evaluation criteria, which includes the credit risk claims-paying and debt ratings, capital and surplus levels, and marketplace reputation of its reinsurers, are such that the Allianz Group believes that its reinsurance credit risk is not significant, and historically has not experienced noteworthy difficulty in collecting from their reinsurers. Additionally, and as appropriate, the Allianz Group may also require letters of credit, deposits, or other financial measures to further minimize its exposure to credit risk. In certain cases, however, the Allianz Group does establish an allowance for doubtful amounts related to reinsurance as appropriate, although this amount was not significant as of December 31, 2009 and 2008. The Allianz Group is primarily exposed to highly rated reinsurers.
Present value of future profits 1,212 1,239 Deferred sales inducements 725 747
Carrying amount as of December 31, 1,212 1,239 1,206 Accumulated amortization as of December 31, 1,482 1,176 1,138 Cost as of December 31, 2,694 2,415 2,344 1) During the year ended December 31, 2009, includes interest accrued on unamortized PVFP of € 40 mn (2008: € 65 mn; 2007: € 70 mn).
Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments 304 1,101 Property and equipment
Other assets due within one year amounted to € 24,898 mn (2008: € 29,490 mn), and those due after more than one year totaled € 8,149 mn (2008: € 4,514 mn).
Real estate held for own use € mn € mn € mn
Cost as of January 1, 4,136 4,847 6,153 Accumulated depreciation as of January 1, (1,014) (1,139) (1,395) Carrying amount as of January 1, 3,122 3,708 4,758
Changes in the consolidated subsidiaries of the Allianz Group 27 27 (159)
As of December 31, 2009, the fair value of real estate held for own use was € 4,053 mn (2008: € 4,497 mn). As of December 31, 2009, assets pledged as security and other restrictions on title were € 262 mn (2008: € 216 mn).
Changes in the consolidated subsidiaries of the Allianz Group (2) (10) (9)
Reclassification out of/(into) non-current assets and assets of disposal groups classified as held for sale 1) 18 (234) — Carrying amount as of December 31, 2) 1,297 1,116 1,165 Accumulated amortization as of December 31, 2,531 2,284 2,781 Cost as of December 31, 3,828 3,400 3,946 1) Includes software of Dresdner Bank and Selecta.
Cost as of January 1, 3,102 4,189 4,674 Accumulated depreciation as of January 1, (2,279) (2,876) (3,261) Carrying amount as of January 1, 823 1,313 1,413
Reclassifications out of/(into) non-current assets and assets of disposal groups classified as held for sale 1) — (482) — Foreign currency translation adjustments 13 (14) (33)
If Selecta was not classified as held for sale in the comparative periods presented, net income from continuing operations would have been € 67 mn lower for the year ended December 31, 2008 due to amortization and depreciation of the non-current assets of Selecta.
Changes in the consolidated subsidiaries of the Allianz Group 164 35 272
Reclassifications out of/(into) non-current assets and assets of disposal groups classified as held for sale 2) 309 — (238) Foreign currency translation adjustments (4) — (1)
Intangible assets with finite useful lives Long-term distribution agreement with Commerzbank AG 620 — Customer relationships 352 —
1) Includes in 2009 primarily the brand name of Selecta AG, Muntelier, as this subsidiary is reclassified out of disposal groups classified as held for sale.
Impairment test for goodwill and intangible assets with indefinite useful lives For purposes of impairment testing, the Allianz Group has allocated goodwill to cash generating units. These cash generating units represent the lowest level at which goodwill is monitored for internal measurement purposes.
The impairment test 2009 was performed based on the new Board structures effective in 2010, whereas the test conclusions remain the same using the 2009 Board structure. In 2008 the goodwill of Dresdner Bank AG and the brand name “Dresdner Bank” were reclassified to non-current assets and assets of disposal groups classified as held for sale. As of January 12, 2009, Dresdner Bank AG was sold to Commerzbank AG. The goodwill for Oldenburgische Landesbank AG is allocated to the cash generating unit Banking. For purposes of impairment testing the capitalized long-term distribution agreement with Commerzbank AG has been allocated to the cash generating unit German Speaking Countries in the Life/Health segment because the cash flows are economically generated in this cash generating unit. As a result of the impairment test in 2009, the goodwill of the cash generating unit Banking was impaired by € 53 mn.
Hungary, Slovakia, Poland, Romania and Russia, • Global Insurance Lines & Anglo Markets, • NAFTA Markets,
Generally, the basis for the determination of the capitalized earnings value is the business plan (“detailed planning period”) as well as the estimate of the sustainable returns and eternal growth rates which can be assumed to be realistic on a long term basis (“terminal value”) of the companies included in the cash generating units. The capitalized earnings value is calculated by discounting the future earnings using an appropriate discount rate. The business plans applied in the value in use are the results of the structured management dialogues between the Board of Management of the Allianz Group and the companies in connection with a reporting process integrated into these dialogues. Generally, the business plans comprise a planning horizon of three years and are based on current market environment. The terminal values are largely based on the expected profits of the final year of the detailed planning period. Where necessary, the planned profits are adjusted so that longterm sustainable earnings are reflected. The financing of the assumed eternal growth in the terminal values is accounted for by appropriate profit retention.
The discount rate is based on the capital asset pricing model and appropriate eternal growth rates. The assumptions, including the risk free interest rate, market risk premium, segment beta and leverage ratio, used to calculate the discount rates are in general consistent with the parameters used in the Allianz Group’s planning and controlling process, specifically those utilized in the calculation of Economic Value Added®.
In the context of the determination of recoverable amounts sensitivity analyses with regard to key value drivers have been performed. For all cash generating units excluding Asia-Pacific & Middle East and New Europe in the PropertyCasualty segment, NAFTA Markets in the Life/Health segment and Banking, the sensitivities still exceed respective carrying values.
For the U.S. instead of the Market Consistent Embedded Value the Appraisal Value was derived from a traditional Embedded Value calculation.
The brand name “Selecta” was reclassified out of disposal groups held for sale. The brand name “Selecta” has an indefinite life, as there is no foreseeable end to its economic life; therefore, it is not subject to amortization and it is recorded at cost less accumulated impairments. The fair value of this brand name, registered as a trade name, was determined using a royalty savings approach.
Property-Casualty German Speaking Countries 278 — 277 — Europe I & II 868 — 868 — South America 21 — 21 — Asia-Pacific & Middle East 78 — 79 —
Global Insurance Lines & Anglo Markets 286 — 273 — NAFTA Markets 94 — 115 — Specialty Lines I 38 — 18 — Specialty Lines II 18 — 18 —
Life/Health German Speaking Countries 563 — 554 — Germany Health 325 — 325 — Europe I & II 648 — 648 — NAFTA Markets 431 — 435 — Asia-Pacific & Middle East 320 — 320 —
The brand name “Dresdner Bank” has an indefinite life, as there is no foreseeable end to its economic life; therefore, it was not subject to amortization and it is recorded at cost less accumulated impairments. The fair value of this brand name, registered as a trade name, was determined using a royalty savings approach.
Intangible assets with finite useful lives The longterm distribution agreements have useful lives of 13.5 years and 15 years, which were determined by contractual agreements. They are amortized on a straight line basis over the remaining useful lives of 13.5 years and 14 years.
Allianz Group Annual Report 2009 Notes to the Consolidated Financial Statements 16 Financial liabilities carried at fair value through income
As of December 31, 2009 Up to 3 months > 3 months up to 1 year > 1 year up to 3 years > 3 years up to 5 years
As of December 31, 2009, liabilities to customers include € 1,017 mn (2008: € 633 mn) of non-interest bearing deposits.
Property-Casualty 13,471 12,984 Life/Health 2,210 2,258 19 Reserves for loss and loss adjustment expenses
Foreign currency trans lation adjustments and other changes 1) 679 (88) 591 (497) 48 (449) (2,022) 666 (1,356) Changes in the consolidated subsidiaries of the Allianz Group — — — 127 (39) 88 125 (23) 102 1) Includes effects of foreign currency trans lation adjustments for loss and loss adjustment expenses for prior years claims of gross € 607 mn (2008: € (313) mn; 2007: € (1,690) mn) and of net € 536 mn (2008: € (284) mn; 2007: € (1,052) mn).
2) Since the first Quarter of 2008, health business in Belgium and France is shown within Life/Health segment. Prior year balances have not been adjusted.
Prior years’ loss and loss adjustment expenses incurred reflect the changes in estimation charged or credited to the consolidated income statement in each year with respect to the reserves for loss and loss adjustment expenses established as of the beginning of that year. During the year ended December 31, 2009, the Allianz Group recorded additional income of € 1,067 mn (2008: € 1,443 mn; 2007: € 1,360 mn) with respect of losses occurring in prior years. During the year ended December 31, 2009, these amounts as percentages of the net balance of the beginning of the year were 2.2 % (2008: 3.0 %; 2007: 2.8 %).
Three years later 20,119 22,058 21,568 Four years later 22,926 24,807 Five years later 25,145 Liabilities re-estimated as of
Discounted reserves for loss and loss adjustment expenses As of December 31, 2009 and 2008, the Allianz Group PropertyCasualty reserves for loss and loss adjustment expenses reflected discounts of € 1,124 mn and € 1,139 mn, respectively. The discount reflected in the reserves is related to annuities for certain long-tailed liabilities, primarily in workers’ compensation, personal accident, general liability, motor liability, individual and group health disability and employers’ liability.
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009 20 Reserves for insurance and investment contracts
Participating life insurance contracts 132,774 129,859 Traditional long-duration insurance contracts 50,948 46,943 Universal life-type insurance contracts 112,441 101,059 Non-unit-linked investment contracts 949 839
Changes in aggregate policy reserves for participating life insurance contracts and traditional long-duration insurance contracts for the years ended December 31, 2009 and 2008 were as follows: Partici pating life insurance contracts
Foreign currency translation adjustments (6) 67 (19) Changes due to fluctuations in market value 6,599 (7,024) (4,099) Changes due to valuation differences charged to income 691 (2,093) 645
As of December 31, 2009 and 2008, the Allianz Group’s deferred acquisition costs and reserves for insurance and investment contracts for the Life/Health segment are summarized as follows: Deferred acquisition costs
The Allianz Group’s Life/Health segment is exposed to significant investment risk as a result of guaranteed minimum interest rates included in most of its non-unit-linked contracts. The weighted average guaranteed minimum interest rates of the Allianz Group’s largest operating entities in the Life/Health segment (comprising 83 % of non-unit-linked reserves in both 2009 and 2008) can be summarized by country as follows: As of December 31, 2009 2008
% of nonunit -linked reserves in % € bn in % in % € bn in %
In most of these markets, the effective interest rates being earned on the investment portfolio exceed these guaranteed minimum interest rates. In addition, the operations in these markets may also have significant mortality and expense margins. As a result, as of December 31, 2009 and 2008, the Allianz Group does not believe that it is exposed to a significant risk of premium deficiencies in its Life/Health segment. However, the Allianz Group’s Life/Health operations in Switzerland, Belgium, South Korea and Taiwan have high guaranteed minimum interest rates on older contracts in their portfolios and, as a result, may be sensitive to declines in investment rates or a prolonged low interest rate environment.
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009 21 Financial liabilities for unit-linked contracts
1) These transfers mainly relate to insurance contracts when policies transfer from a separate account contract to a universal life-type contract.
Provisions Pensions and similar obligations 3,819 3,867 Employee related 1,887 1,904 Share-based compensation plans 1,296 1,295 Restructuring plans 346 343 Loan commitments 8 8 Contingent losses from non- insurance business 137 109 Other provisions 1,395 1,481
Other liabilities due within one year amounted to € 25,411 mn (2008: € 24,766 mn) and those due after more than one year totaled € 7,874 mn (2008: € 8,164 mn).
As of December 31, € mn 1) € mn 1) € mn 1) € mn 1) € mn 1) € mn 1) € mn € mn
Contractual interest rate 1.70 % — — — — — — —
Current interest rate 1.71 % — — — — — — —
Total all other subsidiaries 25 — — — — 3 28 28 1) Except for the interest rates. The interest rates represent the weighted average. 2) Includes senior bonds issued by Allianz Finance II B.V., guaranteed by Allianz SE and money market securities issued by Allianz Finance Corporation, a wholly-owned subsidiary of
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009 24 Participation certificates and subordinated liabilities
Current interest rate — — — — — 1.50 % — —
Allianz Group Annual Report 2009 Notes to the Consolidated Financial Statements 25 Equity
Shareholders’ equity Issued capital 1,162 1,160 Capital reserves 27,473 27,409 Revenue reserves 9,902 7,257 Treasury shares (213) (147) Foreign currency translation adjustments (3,615) (4,006) Unrealized gains and losses (net) 1) 5,457 2,011
Authorized capital As of December 31, 2009, Allianz SE had € 406,545,646 (158,806,893 shares) of authorized unissued capital (Authorized Capital 2006/I) which can be issued at any time up to February 7, 2011. The Board of Management, with approval of the Supervisory Board, is authorized to exclude the preemptive rights of shareholders if the shares are issued against a contribution in kind and, in certain cases, if they are issued against a cash contribution.
A capital increase out of unissued conditional capital will be carried out only to the extent that conversion or option rights are exercised by holders of bonds issued by Allianz SE or any of its subsidiaries or that mandatory conversion obligations are fulfilled.
Change in treasury shares held for trading purposes 1) 895,558 (223,904) 1,660,788 Issued shares outstanding as of December 31, 451,197,223 451,490,223 448,910,648
In November 2009, 850,000 (2008: 700,000) shares were issued at a price of € 77.62 (2008: € 64.30) per share, enabling employees of Allianz Group subsidiaries in Germany and abroad to purchase 599,968 (2008: 660,700) shares at prices ranging from € 36.78 (2008: € 45.01) to € 64.68 (2008: € 53.58) per share. The remaining 250,032 (2008: 39,300) shares were warehoused and booked as treasury shares for further subscriptions by employees in the context of the employee share purchase plan in 2010. As a result, issued capital increased by € 2 mn and capital reserves increased by € 64 mn.
All shares issued during the years ended December 31, 2009, 2008 and 2007 are qualifying shares from the beginning of the year of issue.
Treasury shares The Annual General Meeting on April 29, 2009, authorized Allianz SE to acquire its own shares for other purposes pursuant to clause 71 (1) no. 8 of the German Stock Corporation Law (“Aktiengesetz”). As of December 31, 2009, Allianz SE held 2,584,367 (2008: 545,807) own shares. In the first and second quarter of 2009 3,190,300 own shares with an average price of € 68.31 were purchased to hedge liabilities from the Group Equity Incentive program. This equals € 8,167,168 or 0.7 % of the share capital. 1,280,000 own shares were sold in the third quarter of 2009 with an average price of € 80.39. This equals € 3,276,800 or 0.3 % of the share capital. The remaining increase of 128,260 shares will be used in 2010 for employee stock purchase plans of Allianz Group’s subsidiaries in the NAFTA region.
Unrealized gains and losses (net) 52 20 Share of earnings 48 257 Other equity components 2,021 3,287
On January 1, 2005, the Financial Conglomerates Directive, a supplementary European Union (“EU”) directive, became effective in Germany. Under this directive, a financial conglomerate is defined as any financial parent holding company that, together with its subsidiaries, has significant cross-border and cross-sector activities. The Allianz Group is a financial conglomerate within the scope of the directive and the related German laws. The directive requires that the financial conglomerate calculates the capital needed to meet the respective solvency requirement on a consolidated basis.
As of December 31, 2009, the Allianz Group’s eligible capital for the solvency margin, required for the insurance segments and the asset management and banking business, was € 34.8 bn (2008: € 31.8 bn) including off-balance sheet reserves 1) of € 2.0 bn (2008: € 2.2 bn), surpassing the minimum legally stipulated level by € 13.6 bn (2008: € 11.5 bn). This margin resulted in a preliminary cover ratio 2) of 164 % (2008: 157 % 3)) as of December 31, 2009.
1) Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not submitted an application so far. The solvency ratio excluding off-balance sheet reserves would be 155 % (2008: 146 %).
2) Intangible assets in relation to fully consolidated private equity investments have been fully deducted from the available funds for the first time.
Certain of the Allianz Group’s insurance subsidiaries prepare individual financial statements based on local laws and regulations. These laws establish restrictions on the minimum level of capital and surplus an insurance entity must maintain and the amount of dividends that may be paid to shareholders. The minimum capital requirements and dividend restrictions vary by jurisdiction. The minimum capital requirements are based on various criteria including, but not limited to, volume of premiums written or claims paid, amount of insurance reserves, investment risk, mortality risk, credit risk, underwriting risk and offbalance sheet risk.
As of December 31, 2009, the Allianz Group’s insurance subsidiaries were in compliance with all applicable solvency and capital adequacy requirements.
Certain insurance subsidiaries are subjected to regulatory restrictions on the amount of dividends which can be remitted to Allianz SE without prior approval by the appropriate regulatory body. Such restrictions provide that a company may only pay dividends up to an amount in excess of certain regulatory capital levels or based on the levels of undistributed earned surplus or current year income or a percentage thereof. By way of example only, the operations of Allianz Group’s insurance subsidiaries located in the United States are subject to limitations on the payment of dividends to their parent company under applicable state insurance laws. Dividends paid in excess of these limitations generally require prior approval of the insurance commissioner of the state of domicile. The Allianz Group believes that these restrictions will not affect the ability of Allianz SE to pay dividends to its shareholders in the future. In addition, Allianz SE is not subject to legal restrictions on the amount of dividends it can pay to its shareholders, except the legal reserve in the appropriated retained earnings, which is required according to clause 150 (1) of the Aktiengesetz.
Supplementary Information to the Consolidated Income Statements 26 Premiums earned (net)
Premiums earned 27 Interest and similar income € mn € mn € mn
Interest from held-to- maturity investments 171 180 174 Dividends from available- for-sale investments 873 1,864 2,282 Interest from available- for-sale investments 10,618 10,164 9,164 Share of earnings from investments in associates and joint ventures 80 (37) 284 Rent from real estate held for investment 693 703 780 Interest from loans to banks and customers 5,617 5,991 5,719
Group € mn € mn € mn € mn € mn € mn
Realized gains from disposals of real estate held for own use 3 374 210 Other income from real estate held for own use 5 11 2
Income Sales and service revenues 1,812 2,516 2,333 Other operating revenues 96 20 21
1) The presented subtotal for expenses and total income and expenses from fully consolidated private equity investment for the year ended December 31, 2009 differs from the amounts presented in the “Consolidated Income Statements” and in “Total revenues and reconciliation of Operating profit (loss) to Net income (loss)”. This difference is due to a consolidation effect of € 132 mn for the year ended December 31, 2009. This consolidation effect results from the deferred policyholder participation, recognized on the result from fully consolidated private equity investments within operating profit in the Life/Health segment, that was reclassified into expenses from fully consolidated private equity investments in non-operating profit to ensure a consistent presentation of the Allianz Group‘s operating profit.
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009 33 Claims and insurance benefits incurred (net)
Ceded Claims and insurance benefits paid 3,070 711 (9) 3,772 Change in loss and loss adjustment expenses (424) (56) (5) (485)
Allianz Group Annual Report 2009 Notes to the Consolidated Financial Statements 34 Change in reserves for insurance and investment contracts (net)
Life/Health Consolidation Total € mn € mn € mn € mn
Other insurance reserves (1) (98) — (99) Expenses for premium refunds (259) (3,444) (907) (4,610)
Other insurance reserves 7 (89) — (82) Expenses for premium refunds 142 (1,118) (22) (998)
Other insurance reserves 10 9 — 19 Expenses for premium refunds 16 11 — 27
Other insurance reserves 17 (80) — (63) Expenses for premium refunds 158 (1,107) (22) (971)
Aggregate policy reserves (233) (4,868) — (5,101) Other insurance reserves 24 (260) — (236) Expenses for premium refunds (163) (5,255) (78) (5,496)
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009 35 Interest expenses € mn € mn € mn
Liabilities to banks and customers (483) (753) (882) Deposits retained on reinsurance ceded (72) (71) (101)
Recoveries on loans previously impaired 35 27 34 37 Impairments of investments (net)
Investments in associates and joint ventures (4) (71) (2) Real estate held for investment (199) (128) (23)
Real estate held for investment 14 54 7 38 Investment expenses € mn € mn € mn
Investment management expenses (394) (429) (432) Depreciation of real estate held for investment (174) (165) (183) Other expenses for real estate held for investment (187) (177) (259)
Allianz Group Annual Report 2009 Notes to the Consolidated Financial Statements 39 Acquisition and administrative expenses (net)
Commissions and profit received on reinsurance business ceded 555 (4) 551 643 (5) 638 671 (3) 668
Amortization of deferred acquisition costs (4,807) — (4,807) (4,089) — (4,089) (4,384) — (4,384)
Amortization of deferred acquisition costs (2,789) — (2,789) (1,392) — (1,392) (1,643) — (1,643)
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009 40 Fee and commission expenses
Investment advisory and Banking activities (202) 1 (201) (193) 1 (192) (234) 10 (224)
Foreign currency translation adjustments (13) 63 (11) Available-for-sale investments (1,312) 972 871 Cash flow hedges 3 (32) (10) Share of other comprehensive income of associates — 21 (14)
Of the deferred tax income for the year ended December 31, 2009, an income of € 149 mn (2008: an expense of € 387 mn; 2007: an expense of € 463 mn) is attributable to the recognition of deferred taxes on temporary differences and an income of € 452 mn (2008: an income of € 227 mn; 2007: an expense of € 14 mn) is attributable to tax losses carried forward. Additionally, changes of applicable tax rates due to changes in tax law produced deferred tax income of € 6 mn (2008: expense of € 21 mn; 2007: income of € 341 mn). In 2007, in this amount is included a tax income of € 291 mn resulting from the German corporate tax reform.
Deferred taxes on losses carried forward are recognized as an asset to the extent that sufficient future taxable profits will be available for realization.
Deferred tax assets Financial assets carried at fair value through income 45 225
Tax losses carried forward Tax losses carried forward at December 31, 2009, of € 10,191 mn (2008: € 8,856 mn) result in recognition of deferred tax assets to the extent there is sufficient certainty that the unused tax losses will be utilized. € 9,049 mn (2008: € 8,244 mn) of the tax losses carried forward can be utilized without time limitation. The Allianz Group believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize its deferred tax assets.
Tax losses carried forward are scheduled according to their expiry periods as follows: € mn >10 years 207 Unlimited 9,049 Total 10,191
Derivatives used by individual subsidiaries in the Allianz Group comply with the relevant supervisory regulations and the Allianz Group’s own internal guidelines. The Allianz Group’s investment and monitoring rules exceed regulations imposed by supervisory authorities. In addition to local management supervision, comprehensive financial and risk management systems are in force across the Allianz Group. Risk management is an integral part of the Allianz Group’s controlling process that includes identifying, measuring, aggregating and managing risks. Risk management objectives are implemented at both the Allianz Group level and by the local operational units. The use of derivatives is one key strategy used by the Allianz Group to manage its market and investment risks.
Market and counterparty risks arising from the use of derivative financial instruments are subject to control procedures. Credit risks related to counterparties are assessed by calculating gross replacement values. Market risks are monitored by means of up-to-date value-at-risk calculations and stress tests and limited by specific stop-loss limits.
Derivative financial instruments used in accounting hedges The Allianz Group principally uses fair value hedging. Important hedging instruments are equity forward contracts, equity options, total returns swaps, interest rate swaps, interest rate forwards, currency swaps and currency forwards. Hedging instruments may be implemented for individual transactions (micro hedge) or for a portfolio of similar assets or liabilities (portfolio hedge).
1) As of December 31, 2009, includes embedded derivatives related to equity indexed annuities with negative fair values of € 5,577 mn (2008: € 5,163 mn).
Fair value hedges The Allianz Group uses fair value hedges to hedge its equity portfolio against equity market risk. The financial instruments used in the related fair value hedges had a total fair value of € 26 mn (2008: € 902 mn) as of December 31, 2009.
Additionally the Allianz Group uses fair value hedges to protect against the change in the fair value of financial
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009 assets due to movements in interest rates or exchange rates. The derivative financial instruments used for the related fair value hedges of the Allianz Group had a total negative fair value as of December 31, 2009 of € 75 mn (2008: negative fair value of € 39 mn).
Hedge of net investment in foreign operations As of December 31, 2009, the Allianz Group hedges part of its U.S. Dollar net investments through the issuance of U.S. Dollar denominated liabilities with a nominal amount of USD 2.0 bn.
Financial assets Cash and cash equivalents 6,089 6,089 8,958 8,958 Financial assets held for trading 2,131 2,131 2,624 2,624 Financial assets designated at fair value through income 12,190 12,190 11,616 11,616 Available-for-sale investments 279,045 279,045 242,099 242,099 Held-to-maturity investments 3,475 3,629 3,599 3,724 Loans and advances to banks and customers 128,996 130,444 116,990 119,285 Financial assets for unit-linked contracts 56,963 56,963 50,450 50,450 Derivative financial instruments and firm commitments included in other assets 304 304 1,101 1,101 Assets held in trust 265 265 250 250
Financial liabilities Financial liabilities held for trading 6,743 6 ,743 6,244 6,244 Liabilities to banks and customers 21,248 21,248 18,451 18,494 Investment contracts with policyholders 113,390 113,390 101,898 101,898 Financial liabilities for unit-linked contracts 56,963 56,963 50,450 50,450 Derivative financial instruments and firm commitments included in other liabilities 310 310 208 208 Financial liabilities for puttable equity instruments 3,451 3,451 2,718 2,718 Certificated liabilities, participation certificates and subordinated liabilities 17,309 17,351 18,890 17,643 Liabilities held in trust 265 265 250 250
Cash and cash equivalents Cash and cash equivalents comprises cash and demand deposits with banks together with short-term highly liquid investments that are readily convertible to known amounts of cash and subject to insignificant risk of change in value. They are carried at nominal value, which represents a reasonable estimate of the fair value for these short term financial instruments.
Loans and advances to banks and customers For loans and advances to banks and customers quoted market prices are not available as there are no active markets where these instruments are traded. The fair value is determined using generally accepted valuation techniques with current market parameters. For short-term loans the carrying amount represents a reasonable estimate of the fair value. For longterm loans the fair value is estimated by discounting future contractual cash flows using risk-adjusted discount rates. Additionally, the individually assessed component of the allowance for loan losses and the recoverable amounts of collateral is considered in the fair value determination of loans.
Certificated liabilities, participation certificates and subordinated liabilities The fair value of certificated liabilities, participation certificates and subordinated liabilities is determined using quoted market prices, if available. If quoted prices are not available, for short-term liabilities the carrying amount represents a reasonable estimate of the fair value. For long-term instruments the fair value is determined by discounting the remaining contractual future cash flows at a discount rate at which Allianz Group could issue debt with a similar remaining maturity. The fair value determination reflects current market interest rates and considers the credit rating of the Allianz Group.
• Financial assets and liabilities designated at fair value through income
Total fair value € mn € mn € mn € mn
Government and agency mortgage-backed securities (residential and commercial) 295 7,690 4 7,989 Corporate mortgage-backed securities (residential and commercial) 71 7,135 105 7,311 Other asset-backed securities 63 4,106 320 4,489 Government and government agency bonds 91,136 7,094 65 98,295
Financial assets for unit-linked contracts 46,699 3,745 6 50,450 Derivative financial instruments and firm commitments included in other assets 358 743 — 1,101 Assets held in trust 250 — — 250
Financial liabilities for unit-linked contracts 46,699 3,745 6 50,450 Derivative financial instruments and firm commitments included in other liabilities 52 156 — 208 Financial liabilities for puttable equity instruments 2,308 323 87 2,718 Liabilities held in trust 250 — — 250 1) Excludes universal life-type contracts.
2) For the purpose of this disclosure to match the disclosures made in Note 9 the Allianz Group‘s unlisted equity securities and investments in limited partnerships of € 473 mn, which are measured at cost less impairment charges because the fair value cannot be reliably measured, are included.
Significant transfers of financial instruments carried at fair value between Level 1 and Level 2
Certain debt securities designated at fair value through income, corporate bonds, financial assets and liabilities for unit-linked contracts and financial liabilities for puttable equity instruments were transfered from Level 2 to Level 1 during the year ended December 31, 2009, because the markets, where those bonds are quoted, became liquid and active again. There were no significant transfers from Level 1 in Level 2 during the year ended December 31, 2009.
Equity securities 2,871 601 4 (243) Government and agency mortgage-backed securities (residential and commercial) 4 — 1 (1) Corporate mortgage-backed securities (residential and commercial) 105 3 (16) (25) Other asset-backed securities 320 160 (69) (99) Government and government agency bonds 65 93 (86) (29) Corporate bonds 1,868 881 (335) (70) Other debt securities 163 88 — (5) Subtotal 5,396 1,826 (501) (472)
Financial assets for unit- linked contracts 6 12 12 (4) Total financial assets at fair value 5,651 1,972 (491) (622)
Derivative financial instruments 5,121 862 — (630) Investment contracts with policyholders 1) 385 270 — (251) Financial liabilities for unit-linked contracts 6 12 12 (4) Financial liabilities for puttable equity instruments 87 — — (5) Total financial liabilities at fair value 5,599 1,144 12 (890)
Net fair value gains for financial instruments held at the reporting date € mn € mn € mn € mn € mn € mn € mn
During mid-2009, these CDOs were transferred to one of the Allianz Group’s U.S. Dollar functional currency subsidiaries. As of December 31, 2009, the carrying amount and fair value of the CDOs is € 863 mn and € 856 mn, respectively. The decline in fair value from the reclassification date to December 31, 2009 is mainly due to principal repayments of € 120 mn and foreign currency effects. For 2009, the net profit related to these CDOs was not significant.
This risk report, with the exception of the “Outlook” section, is an integral part of the audited consolidated financial statements
The table includes only liabilities that represent fixed and determinable amounts. The table excludes interest on floating rate long-term debt obligations and interest on money market securities, as the contractual interest rate on floating rate obligations is not fixed and determinable. The amount and timing of interest on money market securities is not fixed and determinable since these instruments have a daily maturity. For further information, see Notes 23 and 24 to the consolidated financial statements.
Reserves for loss and loss adjustment expenses 16,948 21,834 16,933 55,715 Other liabilities 1) For materiality reasons the carrying amount is split up into the different contractual maturities. 2) Including investment contracts with policyholders and financial liabilities for unit-linked contracts. 3) The amount of € 2,088 mn is gross of € 38 mn related to subleases, which represent cash inflow to the Allianz Group. 4) Purchase obligations only include transactions related to goods and services; purchase obligations for financial instruments are not included.
Derecognition of financial assets The Allianz Group enters into repurchase-agreement-transactions in which previously recognized financial assets, mainly available-for-sale debt securities, are transferred, but substantially all of the risks and rewards of those assets are retained. As of December 31, 2009, the carrying amount of those assets amounted to € 967 mn and the carrying amount of the related liabilities amounted to € 1,004 mn.
Allianz Group Annual Report 2009 Notes to the Consolidated Financial Statements 45 Related party transactions
Information on the remuneration of Board members and transactions with these persons can be found in the remuneration report, starting on page 17.
Transactions between Allianz SE and its subsidiaries that are to be deemed related parties have been eliminated in consolidation and are not disclosed in the notes.
In 2009 financial assets of € 1,158 mn were sold from certain associated mutual fund companies to Allianz Group companies.
On November 5, 2001, a lawsuit, Silverstein v. Swiss Re International Business Insurance Company Ltd., was filed in the United States District Court for the Southern District of New York against certain insurers and reinsurers, including a subsidiary of Allianz SE which is now named Allianz Global Risks US Insurance Company (“AGR US”). The complaint sought a determination that the terrorist attack of September 11, 2001 on the World Trade Center constituted two separate occurrences under the alleged terms of various coverages. On May 23, 2007, following a court-ordered mediation, AGR US reached a settlement with Silverstein Properties regarding the disputed insurance claims. On May 24, 2007, SCOR announced that it considers the settlement to not respect the terms and conditions of the Certificate of
Reinsurance between SCOR and AGR US and referred the case to arbitration as contemplated under the Certificate of Reinsurance. In November 2009, the arbitration panel decided that SCOR does not have any claims against Allianz. Consequently, the arbitration proceeding did not result in any negative impact on Allianz’ financial position.
On May 24, 2002, pursuant to a statutory squeeze-out procedure, the general meeting of Dresdner Bank AG resolved to transfer shares from its minority shareholders to Allianz as principal shareholder in return for payment of a cash settlement amounting to € 51.50 per share. The amount of the cash settlement was established by Allianz on the basis of an expert opinion, and its adequacy was confirmed by a court appointed auditor. Some of the former minority shareholders applied for a court review of the appropriate amount of the cash settlement in a mediation procedure (“Spruchverfahren”), which is pending with the district court (“Landgericht”) of Frankfurt. The Management believes that a claim to increase the cash settlement does not exist. In the event that the court were to determine a higher amount as an appropriate cash settlement, this would affect all of the approximately 16 mn shares that were transferred to Allianz.
Allianz Global Investors of America L.P. and certain of its subsidiaries have been named as defendants in multiple civil US lawsuits commenced as putative class actions and other proceedings related to matters involving market timing in the mutual fund industry. These lawsuits have been consolidated into and transferred to a multi-district litigation proceeding in the US District Court for the District of Maryland. The potential outcomes cannot be predicted at this time, but management currently does not expect any material negative financial outcome from these matters for the Allianz Group.
Pacific Investment Management Company LLC (“PIMCO”), a subsidiary of Allianz Global Investors of America L.P., and PIMCO Funds are subject of a lawsuit in the Northern District of Illinois Eastern Division. The complaint alleges that the plaintiffs each purchased and sold a 10-year Treasury note futures contract and suffered damages from an alleged shortage when PIMCO held both physical and futures positions in 10-year Treasury notes for its client accounts in violation of the federal Commodity Exchange Act provisions on market manipulation. In July 2007, the District Court granted class certification of a class consisting of those persons who purchased futures contracts to offset short positions between May 9, 2005 and June 30, 2005. On July 7, 2009, the Court of Appeals affirmed the District Court’s order granting class certification. On February 22, 2010, the
United States Supreme Court declined PIMCO´s petition to review the decision of the appelate court. Management believes the complaint is without merit. The outcome of this action cannot be predicted at this time.
Allianz Life Insurance Company of North America (“Allianz Life”) has been named as a defendant in various putative class action lawsuits, mainly in Minnesota and California, in connection with the marketing and sale of deferred annuity products. Three lawsuits in California are currently pending as certified class actions. The complaints allege generally that the defendant engaged in, among other practices, deceptive trade practices and misleading advertising in connection with the sale of such products. These lawsuits have not yet progressed to a stage at which the outcome or exposure can be determined. In another lawsuit in Minnesota, containing allegations similar to those in the California lawsuits as well as the allegation that the defendant violated the Minnesota Consumer Fraud and Deceptive and Unlawful Trade Practices Act, the case went to trial before a jury. Based upon the October 2009 jury verdict, the Court entered final judgment in favour of Allianz Life in January 2010.
Other contingencies In accordance with Section 5 (10) of the Statutes of the Joint Fund for Securing Customer Deposits (“Einlagensicherungsfonds ”), Allianz SE has undertaken to indemnify the Federal Association of German Banks (“Bundesverband deutscher Banken e.V.”) for any losses it may incur by reason of supporting measures taken in favour of Oldenburgische Landesbank AG (OLB), Münsterländische Bank Thie & Co.KG and Bankhaus W. Fortmann & Söhne KG.
With the sale of Dresdner Bank becoming effective on January 12, 2009, Allianz terminated the indemnification undertaking issued in 2001 in favour of the Federal Association of German Banks with respect to Dresdner Bank. As a result, the indemnification is only relevant for supporting measures that are based on facts that were already existing at the time of the termination.
Stand-by facilities 26 29 Guarantee credits 101 3 Mortgage loans/public-sector loans 68 85
As of December 31, 2009, commitments outstanding to purchase items of equipment amounted to € — mn (2008: € 3 mn). In addition, as of December 31, 2009, the Allianz Group has other commitments of € 193 mn (2008: € 224 mn) referring to maintenance, real estate development, sponsoring and purchase obligations.
Other commitments Other principal commitments of the Allianz Group include the following: Pursuant to para. 124 ff. of the German Insurance Supervision Act (“Versicherungsaufsichtsgesetz – VAG”), a mandatory insurance guarantee scheme (“Sicherungsfonds”) for life insurers was implemented in Germany. Each member of the scheme is obliged to make to the scheme annual contributions as well as special payments under certain circumstances.
The exact amount of obligations for each member is calculated according to the provisions of a Federal Regulation (“Sicherungsfonds-Finanzierungs-Verordnung (Leben) – SichLVFinV”). As of December 31, 2009, the future liabilities of Allianz Lebensversicherungs-Aktiengesellschaft and its subsidiaries to the insurance guarantee scheme amount to annual contributions of € 2 mn (2008: € 24 mn) and an obligation for special payments of € 97 mn (2008: € 95 mn).
The Allianz Group’s Asset Management segment, in the ordinary course of business, issues market value guarantees in connection with investment trust accounts and mutual funds it manages. The levels of market value guarantees, as well as the maturity dates, differ based on the separate governing agreements of the respective investment trust accounts and mutual funds. As of December 31, 2009, the maximum potential amount of future payments of the market value guarantees was € 1,150 mn (2008: € 1,312 mn), which represents the total value guaranteed under the respective agreements including the obligation that would have been due had the investments matured on that date. The fair value of the investment trust accounts and mutual funds related to these guarantees as of December 31, 2009, was € 1,248 mn (2008: € 1,323 mn).
As of December 31, 2009 the Allianz Group took possession of collateral it holds as security with a carrying amount of € 21 mn (2008: € — mn) These financial assets will be systematically sold in the market.
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009 47 Pensions and similar obligations
Defined benefit plans Amounts recognized in the Allianz Group’s consolidated balance sheets for defined benefit plans are as follows: € mn € mn
Net amount recognized as of December 31, 3,543 3,611 thereof assets (276) (256) thereof liabilities 3,819 3,867
Settlements, curtailments, termination benefits (71) — Defined benefit obligation as of December 31, 2) 13,727 12,247 Change in fair value of plan assets Fair value of plan assets as of January 1, 7,964 10,931 Expected return on plan assets 440 448 Actuarial gains/(losses) 283 (781) Employer contributions 385 500 Plan participants’ contributions 68 65 Foreign currency translation adjustments 60 (150)
Changes in the consolidated subsidiaries of the Allianz Group 93 (36)
3) In addition, the Allianz Group paid € 255 mn (2008: € 249 mn) directly to plan participants.
The expense recognized in profit or loss related to defined benefit plans of the Allianz Group consists of the following components: € mn € mn € mn
The actual return on plan assets amounted to € 723 mn, € (333) mn and € 246 mn during the years ended December 31, 2009, 2008 and 2007.
Actuarial (gains) / losses from experience adjustments on: Assumptions The assumptions for the actuarial computation of the defined benefit obligation and the expense recognized in profit or loss depend on the circumstances in the particular country where the plan has been established.
For the year ended December 31, 2009, the weighted expected long-term return on plan assets was derived from the following target allocation and expected long-term rate of return for each asset category: Target allocation
Plan assets The defined benefit plans’ weighted average asset allocations by asset category are as follows: As of December 31, 2009 2008
Due to the new remuneration structure effective January 1, 2010 the SAR and RSU 2010 are deemed to have been granted to participants as part of the 2009 remuneration. The additional liability and compensation expenses for the SAR and RSU granted in March 2010 are based on a best estimation.
Stock appreciation rights The SARs granted to a plan participant obligate the Allianz Group to pay in cash the excess of the market price of an Allianz SE share over the reference price on the exercise date for each SAR granted. The excess is capped at 150 % of the reference price. The reference price represents the average of the closing prices of an Allianz SE share for the ten trading days following the Financial Press Conference of Allianz SE in the year of issue. Until the grant 2008 the SARs vest after two years and expire after seven years. From the grant 2009 onwards the SARs vest after four years and expire as well after seven years. Upon vesting, the SARs may be exercised by the plan participant if the following market conditions are attained: • during their contractual term, the market price of Allianz SE share has outperformed the Dow Jones Europe STOXX Price Index at least once for a period of five consecutive trading days; and
• the Allianz SE market price is in excess of the reference price by at least 20 % on the exercise date.
Restricted stock units The RSUs granted to a plan participant obligate the Allianz Group to pay in cash the average market price of an Allianz SE share in the ten trading days preceding the vesting date or issue one Allianz SE share, or other equivalent equity instrument, for each RSU granted. The RSUs vest after five years. The Allianz Group will exercise the RSUs on the first stock exchange day after their vesting date. On the exercise date, the Allianz Group can choose the settlement method for each RSU.
PIMCO LLC Class B Unit Purchase Plan When acquiring AGI L.P. during the year ended December 31, 2000, Allianz SE caused Pacific Investment Management Company LLC (“PIMCO LLC”) to enter into a Class B Purchase Plan (the “Class B Plan”) for the benefit of members of the management of PIMCO LLC. The plan participants of the Class B Plan have rights to a 15 % priority claim on the adjusted operating profits of PIMCO LLC.
The fair value of the underlying M-Options was measured using the Black-Scholes option-pricing model. Volatility was derived in part by considering the average historical and implied volatility of a select group of peers. The expected life was calculated based upon treating the three vesting tranches (one third in years 3, 4, and 5) as three separate awards.
The aggregate intrinsic value of share options outstanding was € 187 mn and € (1) mn for the year ended December 31, 2009 and 2008, respectively.
The M-Units outstanding as of December 31, 2009 have an exercise price between of € 5,924.38 and of € 9,037.11 and a weighted average remaining contractual life of 3.74 years.
During the year ended December 31, 2009, the Allianz Group recorded compensation expense of € 9 mn (2008: € 2 mn) related to these share options.
Originally, the AGF share options plans were granted independently from the remuneration plans of the Allianz Group. At their original grant dates, the AGF share options had an exercise price of at least 85 % of the then prevailing market price. The original maximum term for the AGF share option plans granted was eight years.
The following table provides original fair values at grant date of the AGF share options and the assumptions used in calculating them: Assumptions: Share price at grant date € 110.20 € 77.95 Expected life (years) 5 8 Risk free interest rate 3.9 % 2.7 %
Due to the Liquidity Agreement which became effective on June 30, 2007, the parameters for the valuation of the AGF share option plans were changed.
Allianz SE share option plan of former RAS Group (modified RAS Group share option plan 2005) The former RAS Group awarded eligible members of senior management with share purchase options on RAS ordinary shares. The share options had a vesting period of 18 months to 2 years and a term of 6.5 to 7 years.
The following table provides the grant date fair value and the assumptions used in calculating their fair value: Fair value € 1.91 Assumptions: Share price at grant date € 17.32 Expected life (years) 7 Risk free interest rate 3.4 % Expected volatility 18.0 % Dividend yield 7.1 %
Outstanding RAS share options as of December 31, 2005 953,000 17.09
After modification the valuation model for the former RAS Group Allianz SE share option plan remain unchanged. Nevertheless the underlying assumptions had to be adjusted. The following table provides the grant date fair value and the assumptions used in calculating their fair value: Fair value € 66.35 Assumptions: Share price on modification date € 145.41 Expected life (years) 5 Risk free interest rate 3.9 % Expected volatility 30.5 % Dividend yield 1.5 %
The aggregate intrinsic value of share options outstanding was € 4 mn for the year ended December 31, 2009 (2008: € 6 mn).
The options outstanding as of December 31, 2009 have an exercise price of € 93.99 and a weighted average remaining contractual life of 2 years.
During the year ended December 31, 2009, the Allianz Group recorded compensation expense of € — mn (2008: € — mn; 2007: € 4 mn) related to these share options.
Other share option and shareholding plans The Allianz Group has other local share-based compensation plans, including share option and employee share purchase plans, none of which, individually or in the aggregate, are material to the consolidated financial statements. During the year ended December 31, 2009, the total expense, in the aggregate, recorded for these plans was € 2 mn (2008: € 2 mn; 2007: € 7 mn).
Other Total € mn € mn € mn € mn € mn € mn € mn
Additions to existing provisions 3 — — — — 16 19 Release of provisions recognized in previous years (10) — — — — (1) (11) Utilization of provisions via payments (10) — (2) — — (70) (82) Utilization of provisions via transfers (61) — — — — (5) (66) Reclassification to liabilities of disposal groups classified as held for sale — (166) — — — — (166)
Reclassification due to separate presentation — — — 4 — (4) —
A summary of the changes in the provisions for restructuring of the Allianz Deutschland AG during the year ended December 31, 2009 is: Provisions as of
During the year ended December 31, 2009, the Allianz France Group did not record any restructuring charges. The total restructuring charges incurred to date remained unchanged with an amount of € 81 mn.
A summary of the changes in the provisions for restructuring of the Allianz France Group during the year ended Decem- ber 31, 2009 is: Provisions as of
Allianz Beratungs- und Vertriebs AG’s provision for restructuring (ABV AG) In 2009, the ABV AG announced restructuring plans for the reorganization of sales division in Germany that will be terminated in 2012. The objective of the restructuring program is to increase quality, efficiency and process stability of office work and special sales department. In context of office work restructuring it is intended to reorganize the structure of head office and local offices, to reorganize and to centralize the human resources administration and the contract processing. Special sales department will be restructured in order to provide a better support to insurance agencies.
Other restructuring plans For 2009, amongst others the following restructuring plans were reflected: Allianz S.p.A., Italy In 2007, the Boards of RAS, Lloyd Adriatico and AZ Subalpina announced a restructuring program for the integration of these three companies into Allianz S.p.A. effective since October 1, 2007.
Allianz Belgium S.A. (Allianz Belgium) In 2009, the Board of Allianz Belgium announced the realization of two major initiatives of the Operational Transformation Program: the closing of the headquarters of Antwerp and the outsourcing of the IT developments.
During the year ended December 31, 2009 Allianz Portugal recognized restructuring charges of € 21 mn. As of December 31, 2009 Allianz Portugal recorded a provision for restructuring of € 16 mn.
During the year ended December 31, 2009 cominvest Group recognized restructuring charges of € 67 mn. As of December 31, 2009 cominvest Group recorded a provision for restructuring of € 14 mn.
common shares. Potentially dilutive common shares arise from the assumed conversion of participation certificates issued by Allianz SE, warrants issued by Allianz SE and share-based compensation plans into Allianz shares, as well as from the conversion of derivatives on own shares.
Net income (loss) attributable to shareholders used to calculate basic earnings per share 4,297 (2,444) 7,966 from continuing operations 4,692 3,967 7,316 from discontinued operations (395) (6,411) 650
Weighted average number of common shares outstanding after assumed conversion 452,387,753 456,033,541 449,563,365
For the twelve months ended December 31, 2009 the weighted average number of common shares excludes 2,365,661 (2008: 2,004,155; 2007: 1,130,838) treasury shares.
The average total number of employees for the year ended December 31, 2009 was 154,514 people.
Issuance of the Declaration of Compliance with the German Corporate Governance Code according to clause 161 AktG On December 17, 2009, the Board of Management and the Supervisory Board of Allianz SE issued the Declaration of Compliance according to clause 161 AktG and made it available on a permanent basis to the shareholders on the company’s website.
The Declaration of Compliance of the publicly traded group company Oldenburgische Landesbank AG was issued in December 2009 and was made permanently available to the shareholders.
Remuneration for the Board of Management As of December 31, 2009, the Board of Management had 10 (2008: 11) active members.
The direct remuneration of the Board of Management for the year ended December 31, 2009 including the three-year bonus 2007-2009 payout (2008 excluding the interim assessment value for the three-year bonus tranche) amounts to € 27.9 mn (2008: € 18.5 mn). Furthermore 204,042 (2008: 120,707) stock appreciation rights and 100,915 (2008: 58,580) restricted stock units with a total fair value at grant date of € 8.7 mn (2008: € 7.7 mn) were granted to the Board of Management for the year ended December 31, 2009.
Compensation to former members of the Board of Management and their beneficiaries totaled € 4.0 mn (2008: € 7.0 mn). Pension obligations to former members of the Board of Management and their beneficiaries are accrued in the amount of € 52.0 mn (2008: € 47.0 mn).
Total compensation to the Supervisory Board amounts to € 1.5 mn (2008: € 1.1 mn).
Sale of Industrial and Commercial Bank of China (ICBC) shares In Feburary 2010 the Allianz Group sold 1bn ICBC shares with a capital gain of approximately € 0.4 bn.
Allianz SE The Board of Management 1) First estimates as of mid March 2010 indicate a net loss of between € 170 mn and € 190 mn for Allianz Group.
Allianz Group Annual Report 2009 Notes to the Consolidated Financial Statements
Germany ◽ Allianz Alternative Assets Holding GmbH, Munich 14 100.0 ◽ Allianz Capital Partners GmbH, Munich 0.1 100.0 ◽ Allianz Capital Partners Verwaltungs GmbH, Munich 528 100.0 ◽ Allianz Climate Solutions GmbH, Munich 0.04 100.0 ◽ Allianz Global Corporate & Specialty AG, Munich 1,153 100.0 ◽ Allianz Global Investors Advisory GmbH, Frankfurt am Main 3 100.0 ◽ Allianz Global Investors AG, Munich 3,444 100.0 ◽ Allianz Global Investors Europe GmbH, Munich 17 100.0 ◽ Allianz Global Investors Kapitalanlagegesellschaft mbH, Frankfurt am Main 336 100.0 ◽ Allianz Global Investors Product Solutions GmbH, Munich 0.1 100.0 ◽ Allianz Lebensversicherungs-Aktiengesellschaft, Stuttgart 1,652 100.0 ◽ Allianz Pension Partners GmbH, Munich 0.5 100.0 ◽ Allianz Pensionskasse Aktiengesellschaft, Stuttgart 190 100.0 ◽ Allianz Private Krankenversicherungs-Aktiengesellschaft, Munich 325 100.0 ◽ Allianz ProzessFinanz GmbH, Munich 0.4 100.0 ◽ Allianz Real Estate Germany GmbH, Stuttgart 5 100.0 ◽ Allianz Shared Infrastructure Services SE, Unterfoehring 100 100.0 ◽ Allianz Treuhand GmbH, Munich 0.1 100.0 ◽ Allianz Versicherungs-Aktiengesellschaft, Munich 2,520 100.0 ◽ AZT Automotive GmbH, Ismaning 0.2 100.0 ◽ Cominvest Asset Management GmbH, Frankfurt am Main 44 100.0 ◽ Deutsche Lebensversicherungs-Aktiengesellschaft, Berlin 45 100.0 ◽ Euler Hermes Kreditversicherungs-Aktiengesellschaft, Hamburg 201 100.0 ◽ manroland AG, Offenbach 289 100.0 2) ◽ Münchener und Magdeburger Agraversicherung Aktiengesellschaft, Munich 6 62.5 ◽ Oldenburgische Landesbank Aktiengesellschaft, Oldenburg 500 89.6 ◽ risklab germany GmbH, Munich 0.03 100.0 ◽ Vereinte Spezial Krankenversicherung Aktiengesellschaft, Munich 4 100.0 ◽ Vereinte Spezial Versicherung AG, Munich 45 100.0 1) Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under 100.0 %. 2) Group share through indirect holder Roland Holding GmbH, Munich: 74.0 %.
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2009
Argentina ◽ Allianz Argentina Compania de Seguros Generales S.A., Buenos Aires 20 100.0 Australia ◽ ◽ Allianz Australia Limited, Sydney 941 100.0 Austria ◽ Allianz Elementar Lebensversicherungs-Aktiengesellschaft, Vienna 73 100.0 ◽ Allianz Elementar Versicherungs-Aktiengesellschaft, Vienna 368 100.0 Belgium ◽ ◽ Allianz Belgium S.A., Brussels 707 100.0 Brazil ◽ ◽ Allianz Seguros S.A., Sao Paulo 235 72.5 Bulgaria ◽ Allianz Bank Bulgaria JSC, Sofia 75 99.9 ◽ Allianz Bulgaria Insurance and Reinsurance Company Ltd., Sofia 28 78.0 ◽ Allianz Bulgaria Life Insurance Company Ltd., Sofia 20 99.0 China ◽ Allianz China Life Insurance Co. Ltd., Shanghai 62 51.0 ◽ Allianz Global Investors Hong Kong Ltd., Hong Kong 15 100.0 ◽ Allianz Insurance (Hong Kong) Ltd., Hong Kong 3 100.0 ◽ RCM Asia Pacific Ltd., Hong Kong 13 100.0 Colombia ◽ Aseguradora Colseguros S.A., Bogota D.C. 42 100.0 Croatia ◽ ◽ Allianz Zagreb d.d., Zagreb 53 83.2 Czech Republic ◽ ◽ Allianz pojistovna a.s., Prague 140 100.0 Egypt ◽ Allianz Insurance Company-Egypt S.A.E., Cairo 7 85.0 ◽ Allianz Life Assurance Company-Egypt S.A.E., Cairo 17 100.0 France ◽ AAAM S.A., Paris 7 89.6 ◽ Allianz Banque S.A., Courbevoie 155 100.0 ◽◽ Allianz France, Paris 9,667 100.0 ◽ Allianz Global Corporate & Specialty France, Paris 623 100.0 ◽ Allianz Global Investors S.A., Paris 70 99.8 ◽◽ Allianz IARD S.A., Paris 2,124 100.0 ◽◽ Allianz Vie S.A., Paris 2,905 100.0 ◽ Euler Hermes SFAC S.A., Paris 326 100.0 ◽ ◽ Mondial Assistance S.A.S., Paris 267 100.0 Greece ◽ Allianz Hellas Insurance Company S.A., Athen 74 100.0 Hungary ◽ ◽ Allianz Hungária Biztosító Zrt., Budapest 208 100.0 Indonesia ◽ PT Asuransi Allianz Life Indonesia p.l.c., Jakarta 74 99.8 ◽ PT Asuransi Allianz Utama Indonesia Ltd., Jakarta 21 75.0 Ireland ◽ Allianz Global Investors Ireland Ltd., Dublin 13 100.0 ◽ Allianz Irish Life Holdings p.l.c., Dublin 294 66.4 ◽ Allianz Re Dublin Limited, Dublin 79 100.0 ◽ Allianz Worldwide Care Ltd., Dublin 12 100.0 Italy ◽ Allianz Bank Financial Advisors S.p.A., Milan 117 100.0 ◽ Allianz Global Investors Italia S.p.A., Milan 36 100.0 ◽ ◽ Allianz S.p.A., Trieste 3,624 100.0 ◽ ◽ ALLIANZ SUBALPINA HOLDING S.p.A., Turin 262 98.1 ◽ Genialloyd S.p.A., Milan 85 100.0 ◽ Investitori SGR S.p.A., Milan 16 98.7 ◽ RB Vita S.p.A., Milan 253 100.0 1) Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under 100.0 %.
Japan ◽ Allianz Fire and Marine Insurance Japan Ltd., Tokyo 1 100.0 ◽ Allianz Life Insurance Japan Ltd., Tokyo 43 100.0 ◽ RCM Japan Co. Ltd., Tokyo 1 100.0 Laos ◽ ◽ Assurances Générales du Laos Ltd., Vientiane 4 51.0 Luxembourg ◽ Allianz Global Investors Luxembourg S.A., Senningerberg 70 100.0 ◽ cominvest Asset Management S.A., Luxembourg 77 100.0 Malaysia ◽ Allianz Life Insurance Malaysia Berhad p.l.c., Kuala Lumpur 8 100.0 ◽ Allianz Malaysia Berhad p.l.c., Kuala Lumpur 46 100.0 Mexico ◽ ◽ Allianz México S.A. Compañia de Seguros, Mexico City 111 100.0 Netherlands ◽ Allianz Europe Ltd., Amsterdam 22,392 100.0 ◽ Allianz Nederland Asset Management B.V., Amsterdam 43 100.0 ◽ Allianz Nederland Levensverzekering N.V., Utrecht 226 100.0 ◽ Allianz Nederland Schadeverzekering N.V., Rotterdam 259 100.0 Poland ◽ TU Allianz Polska S.A., Warsaw 154 100.0 ◽ TU Allianz Zycie Polska S.A., Warsaw 48 100.0 Portugal ◽ ◽ Companhia de Seguros Allianz Portugal S.A., Lisboa 213 64.8 Republic of Korea ◽ Allianz Global Investors Korea Limited, Seoul 15 100.0 ◽ Allianz Life Insurance Co. Ltd., Seoul 411 100.0 Romania ◽ ◽ Allianz Tiriac Asigurari SA, Bucharest 128 52.2 Russia ◽ Insurance Company “Progress Garant”, Moscow 31 100.0 ◽ Insurance Joint Stock Company „Allianz” AOOT/OAO, Moscow 9 100.0 ◽ Open Joint Stock Company Insurance Company ROSNO, Moscow 171 100.0 Singapore ◽ Allianz Global Investors Singapore Ltd., Singapore 2 100.0 ◽ Allianz Insurance Company of Singapore Pte. Ltd., Singapore 19 100.0 Slovakia ◽ ◽ Allianz-Slovenská poist’ovna a.s., Bratislava 542 84.6 Spain ◽ ◽ Allianz Compañia de Seguros y Reaseguros S.A., Madrid 641 99.9 ◽ Euler Hermes Crédito Compañia de Seguros y Reaseguros, S.A., Madrid 4 100.0 ◽ Eurovida, S.A. Compañia de Seguros y Reaseguros, Madrid 98 51.0 Sri Lanka ◽ Allianz Insurance Company Lanka Limited, Colombo 3 100.0 ◽ Allianz Life Insurance Lanka Ltd., Colombo 1 100.0 Switzerland ◽ Alba Allgemeine Versicherungs-Gesellschaft, Basel 36 100.0 ◽ Allianz Risk Transfer AG, Zurich 110 100.0 ◽ Allianz Suisse Lebensversicherungs-Gesellschaft AG, Zurich 614 100.0 ◽ Allianz Suisse Versicherungs-Gesellschaft AG, Zurich 451 100.0 ◽ CAP Rechtsschutz-Versicherungsgesellschaft AG, Zurich 4 100.0 ◽ MONDIAL ASSISTANCE INTERNATIONAL AG, Wallisellen 207 100.0 ◽ Selecta AG, Muntelier 120 100.0 Taiwan ◽ Allianz Global Investors Taiwan Ltd., Taipei 28 100.0 ◽ Allianz Taiwan Life Insurance Co. Ltd., Taipei 25 100.0 Thailand ◽ Ayudhya Allianz C.P. Life Public Company Limited, Bangkok 34 62.6 1) Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under 100.0 %.
Turkey ◽ Allianz Hayat ve Emeklilik AŞ, Istanbul 46 89.0 ◽ Allianz Sigorta AŞ, Istanbul 163 84.2 United Kingdom ◽ Allianz (UK) Limited, Guildford 452 100.0 ◽ ◽ Allianz Insurance plc, Guildford 1,131 98.0 2)
◽ Euler Hermes UK plc, London 79 100.0 ◽ RCM (UK) Ltd., London 33 100.0 United States ◽ Allianz Global Investors of America L.P., Dover/Delaware 1,604 100.0 ◽ ◽ Allianz Global Investors US Retail LLC, Dover/Delaware 66 100.0 ◽ Allianz Global Risks US Insurance Company, Corp., Burbank/California 3,322 100.0 ◽ ◽ Allianz Life Insurance Company of North America, Minneapolis/Minnesota 4,390 100.0 ◽ Allianz of America Inc., Westport/Connecticut 11,639 100.0 ◽ Allianz Underwriters Insurance Company, Corp., Burbank/California 44 100.0 ◽ ◽ Fireman’s Fund Insurance Company, Corp., Novato/California 2,166 100.0 ◽ ◽ Nicholas-Applegate Capital Management LLC, Dover/Delaware 12 100.0 ◽ NFJ Investment Group LLC, Dover/Delaware 4 100.0 ◽ ◽ Pacific Investment Management Company LLC, Wilmington/Delaware 414 94.4 ◽ Wm. H McGee & Co. Inc., New York/New York 1 100.0 1) Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under 100.0 %. 2) 99.99 % of the voting share capital.
Bajaj Allianz General Insurance Company Ltd., Pune 109 26.0 FONDO IMMOBILIARE DOMUS, Rome 107 25.5 Bajaj Allianz Life Insurance Company Ltd., Pune 100 26.0 Red Mountain Capital Partners I L.P., Los Angeles 89 24.9 PGREF V 1301 SIXTH HOLDING LP, Wilmington 61 24.5 EUROPENSIONES S.A. - Entidad Gestora de Fondos de Pensiones, Madrid 45 49.0 OeKB EH Beteiligungs- und Management AG, Vienna 19 49.0 1) Associated enterprises are all those enterprises other than affiliated enterprises or joint ventures, in which the Allianz Group has an interest of between 20.0 % and 50.0 % regardless of whether a significant influence is exercised or not. The presented associated enterprises represent 90.0 % of total carrying amount of investments in associated enterprises.
Banco BPI, S.A., Porto 168 8.8 Banco Popular Espanol S.A., Madrid 641 9.4 BASF SE, Ludwigshafen 1,012 2.5 Bayer AG, Leverkusen 718 1.5 Commerzbank Aktiengesellschaft, Frankfurt am Main 1,466 10.3 E.ON AG, Duesseldorf 1,249 2.1 The Hartford Financial Services Group, Inc., Hartford 392 6.3 Industrial & Commercial Bank of China Limited, Beijing 1,870 1.0 SGS SA, Geneve 380 5.3 UniCredit S.p.A., Rome 810 2.1 Zagrebacka banka d.d., Zagreb 267 11.7 1) Market value greater than or equal to € 100 mn and percentage of shares owned greater than or equal to 5.0 %, or market value greater than or equal to € 500 mn, excluding trading portfolio of banking business.
We have audited the consolidated financial statements prepared by Allianz SE, Munich comprising the consolidated balance sheet, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows and the notes, together with the group management report for the business year from January 1 to December 31, 2009. The preparation of the consolidated financial statements and the group management report in accordance with IFRSs, as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315a Abs. 1 HGB [Handelsgesetzbuch “German Commercial Code”] and supplementary provisions of the articles of incorporation are the responsibility of the parent company`s management. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit.
Professor Dr. Peter Gruss President, Max-Planck-Gesellschaft zur Förderung der Wissenschaften e.V. until December 31, 2009
Dr. Jürgen Hambrecht Chairman of the Board of Executive Directors, BASF SE until December 31, 2009
Prof. Dr-Ing. e. h. Hans-Olaf Henkel Honorary Professor, University of Mannheim
Peter Löscher Chairman of the Board of Management, Siemens AG until April 22, 2009
Dr.-Ing. h. c. Hartmut Mehdorn Former Chairman of the Board of Management, Deutsche Bahn AG until December 31, 2009
Manfred Wennemer Former Chairman of the Board of Management, Continental AG
Franz B. Humer since January 1, 2010 Chairman of the Board of Directors, Roche Holding Ltd.
Dr. Wulf H. Bernotat Membership in other statutory supervisory boards and SE administrative boards in Germany Bertelsmann AG, METRO AG, Deutsche Telekom AG (since January 1, 2010)
Membership in group bodies E.ON Energie AG (Chairman), E.ON Ruhrgas AG (Chairman)
Dr. Gerhard Cromme Membership in other statutory supervisory boards and SE administrative boards in Germany Axel Springer AG, Siemens AG (Chairman), ThyssenKrupp AG (Chairman)
Claudia Eggert-Lehmann until January 12, 2009 Membership in other statutory supervisory boards and SE administrative boards in Germany Dresdner Bank AG (Vice Chairwoman)
Karl Grimm since January 28, 2009 Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in group bodies Allianz Versorgungskasse VVaG (Deputy Chairman)
Prof. Dr. Renate Köcher Membership in other statutory supervisory boards and SE administrative boards in Germany BMW AG, Infineon Technologies AG, MAN SE
Igor Landau Membership in other statutory supervisory boards and SE administrative boards in Germany adidas AG (Chairman)
Peter Sutherland since January 1, 2010 Membership in comparable 1) supervisory bodies BW Group Ltd., Eli Lilly Holdings Ltd., Goldman Sachs International (Chairman), Koç Holding A. Ş.
Membership in Group bodies Allianz Deutschland AG, Allianz Global Investors AG, Allianz Investment Management SE (Chairman)
Membership in comparable 1) supervisory bodies Membership in Group bodies Allianz Australia Limited, Allianz Insurance Holdings plc (Chairman), Allianz Irish Life Holdings plc, Allianz Life Insurance Company of North America (until December 31, 2009), Euler Hermes S. A. (Chairman) (since January 1, 2010), Fireman’s Fund Insurance Company (until December 31, 2009)
Membership in Group bodies Allianz Compañía de Seguros S. A. Barcelona (Vice Chairman), Allianz Hayat ve Emeklilik A. Ş. (Vice Chairman), Allianz Sigorta P & C A. Ş. (Vice Chairman), Allianz S. p. A. (CEO), Companhia de Seguros Allianz Portugal S. A.