Total revenues by segment in ¤ mnALLIANZ GROUP1) 2004 Change from prev. year in %
Due to our cost-cutting measures and the significant reduction of our net loan loss provisions, we successfully achieved earnings after taxes and before goodwill amortization of ¤ 449 million.
The Allianz Group is one of the five leading asset managers in the world. Net inflows to third-party assets under management reached ¤31 billion. Operating revenues improved by 3.1 % to ¤2.3 billion. Earnings after taxes and before amortization of goodwill for our asset management segment was a profit of ¤399 million in 2004.
The addresses of all Allianz companies can be found at www.allianzgroup.com/companies
The “3” stands for protecting and strengthening our capital base, significant boost of our operating profitability and a leaner portfolio, and thus a reduction of complexity.
The ongoing implementation of these initiatives assists us in realizing our long-term goal, the “+One”: sustainable increase of our competitive strength and value. For more details, see the “Strategy” chapter on pages 22 to 23 of this Annual Report.
We achieved considerable progress on all four initiatives: ¤ 0.5 bn20
In property-casualty insurance, we continued to focus on profitable growth through selectively increasing our business volume. We reduced our combined ratio by 4.1 percentage points to 92.9 % in 2004. This improvement of our operating profitability is not reflected in the development of our result, since we benefited in 2003 from a high level of investment-related realized gains.
Total statutory premiums increased by 6.8 % to ¤ 45.2 billion in 2004, reflecting growth in new business, in particular our life/health operations in the United States and in Germany.
For those of you who would prefer to skip this introductory part, and perhaps jump ahead to the section showing the individual remuneration breakdown for the Board of Management, which appears this year for the first time (and incidentally can be found on page 16), take this piece of news with you: In 2004, Allianz took a significant step towards long-term profitable growth.
Today, with profits standing at € 2.2 billion, the company is considerably stronger than it was a year ago, and is in an ideal position to drive forward its goals. As a result, we are proposing to pay out a dividend of € 1.75 per share to our shareholders. Compared to the previous year, this increase comes up to 16.7 %. Here ends the abridged version.
Allow me now to take you back to the last Annual General Meeting. At this meeting, I informed you that we expected Dresdner Bank to report positive net income for 2004 before restructuring costs. I announced improvements in the combined ratio of the property insurance business of our French insurer AGF and reported that our representatives in Germany were to undergo specialist training in preparation for the offering of banking services and banking products to their clients. All in all, I presented Allianz as a company not content to simply comply with standards, but as a company that is constantly striving to outperform the market and its own business plans.
We made some great achievements in 2004, but we’re not finished yet. This year, we are raising the bar for our “3+One” program by aiming to further increase capital efficiency and profitability while continuing to reduce complexity. As a result, work on the first three program components of “3+One” is continuing relentlessly. Our goal is to generate better returns for you, our shareholders. And we have not forgotten our promises with regard to the “+One”
concept either; i. e. to increase our competitive strength and value over the long term – and we will continue to put every effort into achieving this in 2005.
I would like to take this opportunity to respond to all this.
With respect to equity allocation, we have meanwhile brought down the equity quota of our investment portfolio to an acceptable level: 14.2 %. The transaction that was announced at the end of January 2005 will at the same time reduce the equity quota, significantly improve our borrowing structure and strengthen our equity base. Although this combination of different measures will marginally dilute voting stock, it should have minimal economic impact due to the fact that lower debt service costs and a broader capital base increase profitability and should therefore not have any negative repercussions for our earnings per share.
We have only ever considered selling companies if we were fully convinced that the unit in question would not be capable, under reasonable conditions, of adding value for clients or shareholders, even over the medium term. On this basis, we divested a number of non-strategic obligations in the past two years, including some that were particularly substantial. Please note that I am referring here only to peripheral activities, and not to our really significant subsidiary companies. We have put in hard work for these companies, returning them as far as necessary to the path of profitable growth, day by day, product by product, client by client. Selling one of these larger companies would have been by far the worse option compared to the value that we can generate from them.
The key word is trust. You may feel like you’ve heard this over and over – but that’s a good thing. Trust is all important to Allianz. If people trust us to always deliver on, or surpass, our promises, there’ll be enormous potential for our business. We sell financial products that satisfy the basic human requirement of financial security and a decent financial livelihood. Trust is fundamental to this. However, trust cannot be bought; it must be earned, little by little. We have a three-stage model to help us get there. Number one: We state what can be expected of us. Number two: We live up to these expectations or, better still, surpass them. Number three: We keep repeating the first two steps and, as a result, keep on getting better and better.
We have no intention of fostering a culture that only sees the good news. Our leadership values therefore call for us to speak honestly and openly with one another, to learn from our mistakes and to subsequently put everything we have learnt into practice. However, a corporate culture doesn’t spring up overnight; it needs time to grow. Our regular employee questionnaires regarding the extent to which these principles are being followed indicate that this process takes time. Nevertheless, the corporate culture is gaining momentum and impact, which in my opinion is great news for you, the shareholder.
What is our agenda for fiscal 2005? We are driving forward two comprehensive programs that will increase the competitive strength and sustainable value of your company over the long term.
The second program is a group-wide project aimed at rapidly promoting an even more passionate customer orientation. A key criterion for ascertaining whether Allianz has the decisive edge is the willingness of our customers to recommend us to others. We will therefore be gradually introducing this criterion into the performance measurement and bonus calculations for our entire management team.
I also believe that all the positive effects that our company can have, such as serving customers, creating competitive jobs and apprentice places, having a positive impact on society, showing corporate citizenship, are only possible if we are able to create value for you, our shareholders. To me, social responsibility is not simply an empty word; it is an inherent part of a modern company’s philosophy – a concrete management responsibility that I hold close to my heart. That is why our foundations are continuing to champion disadvantaged people, the environment, and for culture. That is also why I am so proud that our employees, on their own volition, donated € 1 million for the victims of the Asian tsunami. In collaboration with our subsidiaries, we managed to raise this sum to € 2.7 million. I am convinced that we are also successful because we are doing something within an appropriate framework for our social environment. That, too, is a form of sustainability.
In 2004, they showed me just how good it feels when all expectations are surpassed. It helped me affirm that the business approach we have chosen is the right one and, at the same time, also showed just what class they have. I believe they deserve your thanks; I personally would like to express my gratitude to them for their extraordinary commitment and dedication on behalf of you, our shareholders.
Fiscal 2005 will test our abilities to drive our “3+One” program even further and raise our potential. We will do that. Our management team is united and our employees are well motivated. Business is strong again and becoming stronger quarter by quarter. This all fills me with optimism, but it is the company itself and its pace of change that is making me particularly optimistic. Nevertheless, what counts in the end is that you are content with your investment.
And we will do our utmost to deliver on our promises.
The elements of this program are: Strengthening the capital base, increasing profitability, reducing the complexity of company structures, and bringing about a sustainable increase in its value. We were satisfied that the implementation of this program has been successful so far.
We were given an overview of those non-strategic activities of which Allianz had divested itself in order to reduce the complexity of the Group.
Federal Cartel Office against a large number of German insurers, which also affects Allianz Versicherungs-AG.
We were unanimous in welcoming the decision by the Board of Management to again offer discounted Allianz share purchases to employees of the Allianz Group in 20 countries.
Corporate Governance and Declaration of Compliance We continually monitored the further development of the Corporate Governance Standards in the company, and in this context updated the Supervisory Board procedural rules.
Management and Supervisory Boards for the past year are being published for the first time. In this, Allianz AG is heading all the recommendations of the German Corporate Governance Code.
This is expressed in the new Declaration of Compliance with the
We examined the steps we had decided upon the year before to improve our effectiveness, and discussed models for restructuring the remuneration of the Supervisory Board.
More detailed information on corporate governance within the Allianz Group is contained in the report jointly approved by the Board of Management and the Supervisory Board that can be found on pages 12 to 15 of this Annual Report. Indepth information on this subject is also available at the Allianz website at www.
Mediation Committee as called for by the German Codetermination Act. The current composition of the committees can be seen from the list below.
In the year under review, the Standing Committee held three meetings, dealing mainly with Group financing, the employee share purchase program and questions of corporate governance.
The Supervisory Board was regularly informed about the work of the Committees.
Bertrand Collomb have departed the Super visory Board; Mr. Dormann’s seat on the Board will be filled by Dr. Albrecht
Snower and Igor Landau have been appointed by the Court to replace Prof. Schrempp and Mr. Collomb, and their appointments will be ratified by the Annual General Meeting on May
His seat on the Board will be taken by Iris Mischlau-Meyrahn as elected substitute member.
Dr. Diethart Breipohl Former Member of the Board of Management Allianz AG
Our behavior as an entrepreneur is governed by the principles of responsible, transparent and efficient company management and control.
The company constitution of Allianz AG as the leading company in the Group is characterized by the two-tier system, and accordingly differs from the single board system of other legal systems.
Board of Management The Board of Management of Allianz AG currently consists of ten members (as from May 1, 2005: eleven members). They are responsible for the management of Allianz AG and the Group.
Management in the management of the business. It is also responsible, inter alia, for appointing the members of the Board of Management, for setting the remuneration of the Board of
The central elements of our understanding of corporate governance are explained in this Annual Report. On pages 16 to 19 we comply with the demand for a transparent presentation of the remuneration for the Board of Management and the Supervisory
An essential part of the Supervisory Board’s work is performed by its committees.
The Standing Committee has five members, two of whom are employee representatives. Its essential function is the approval of matters for which Supervisory Board approval is required, unless approval of such matters falls under the competence of the Personnel Committee or must be decided by the plenary meeting of the Supervisory Board. Such matters are in particular measures relating to capital, and the acquisition and disposal of certain investments in other enterprises. Moreover, it is responsible for drawing up the Declaration of Compliance pursuant to clause 161
German Stock Corporation Law (AktG), and regularly examining the effectiveness of the work of the Supervisory Board.
The composition of the Supervisory Board and its committees is set out on pages 8 and 10.
Annual General Meeting The Annual General Meeting is where the shareholders exercise their rights in matters relating to the company. The Annual
Supervisory Board and passes resolutions granting discharge to the Board of Management and the Supervisory Board. It decides on the appropriation of the profit, capital measures, approval of interlinking company contracts, remuneration of the Supervisory
An ordinary General Meeting is held every year, at which the
Board of Management and the Supervisory Board report on the past year. Each share confers one vote when voting on resolutions at the General Meeting (“one share, one vote”). Every shareholder is entitled to participate in the General Meeting, to speak on the agenda and to ask questions.
Other bodies The International Executive Committee, under the chairmanship of the Chairman of the Board of Management of Allianz AG, advises on strategic issues at Group level. The members of the Board of
Management of Allianz AG and the heads of the largest Allianz subsidiaries are members of this committee. The International
Advisory Board discusses fundamental questions concerning the global activities of the company with the Board of Management of Allianz AG. The members appointed are well-known personalities in international economic affairs. The Joint Advisory Council of
Accounting and Auditing The accounts of the Allianz Group are prepared pursuant to clause 292 a of the German Commercial Code (HGB), in conformity with
consolidated financial statement and contains a further reconciliation statement in accordance with the American U.S. GAAP
Under a special regulation for insurance companies (clause 341 k (2) HGB), in our case the auditors are appointed by the
Audit Committee of the Supervisory Board prepares this appointment. The annual accounts include the individual accounts of
Germany, increased requirements will be placed on the independence of auditors in future. At the same time, a provision has been introduced allowing the Supervisory Board to examine the report and accounts (the “enforcement method”). We are well prepared for these new regulations, not least because of our stock exchange listing in the U.S.A.
Code is that of May 21, 2003. It incorporates acknowledged standards of good and responsible company management in the form of recommendations and suggestions. There is no statutory duty to comply with these standards; compliance is a matter of self-regulation by business in the field of corporate governance.
Germany are bound to issue a declaration of compliance regarding the recommendations in the Code, along the lines of “comply or explain”.
The Code is increasingly being adopted in Germany as a yardstick of good business management and control. An assessment of the declarations of compliance shows that acceptance of the
German Corporate Governance Code is increasing. By the end of 2005, the DAX-30 companies will have, on average, implemented 97 percent of all the recommendations, whereas the companies included in the M-DAX will have implemented about 89 percent of the recommendations, on average, and those in the S-DAX about 86 percent.
The question of individualized disclosure of the remuneration of the Board of Management was at the forefront of the corporate governance discussion in the past year. Last year we did not follow the new compliance recommendation of the code, only introduced in May 2003, since in our view individual disclosure would not provide the capital market with any more relevant information than would detailed collective disclosure. Our view on this is unchanged, but we have noted that the expectation, on the part of both public opinion and the legislature, of transparency regarding remuneration of the Board of Management made disclosure of the latter the obvious course of action. The Board of Management therefore announced with the half-year results that the remuneration of the individual members of the Board of Management will be disclosed in the 2004 annual report and accounts. The Supervisory Board has noted and approved this, and decided to disclose the individual remunerations for the Supervisory Board as well.
Code, as amended on May 21, 2003, since its last declaration of compliance on December 17, 2003, subject to the deviations mentioned there (no individualized reporting of the remuneration of the Board of Management and the Supervisory Board).
Board should include elements based on the long-term performance of the company is not one that we have followed so far; it will however be included in the proposed changes in the remuneration of the Supervisory Board to be put to the General Meeting on May 4, 2005. The sole remaining exception will therefore be the fact that the shareholder representatives on the Supervisory
Board will not be elected for staggered time periods, as suggested in the Code. It is preferable in our view to retain a simultaneous period of office.
The two listed Group companies Allianz Lebensversicherungs -AG and Oldenburgische Landesbank AG issued their own
Board of Management and the Supervisory Board, and from the recommendation of a performance-oriented remuneration component for the Supervisory Board. The declaration contains the reference that the remuneration of the Chairman of the Board of Management is shown individually in the Group accounts of
Landesbank AG contains the same restrictions as in the previous year (no individualized disclosure of remuneration of members of the company organs, and no retention in the Directors and
However, intensively examining and documenting the financial reporting control systems in this way also provides an opportunity to identify and remedy any weak points. We had already carried out a considerable portion of the work in the previous year, and are confident that we shall meet the requirements of Section 404
To meet the demands of the SOA, we had already amended the procedural rules of the Audit committee of our Supervisory Board in past years. In particular, procedures for handling complaints relating to the accounts or financial reporting have been introduced, as have special procedures for ensuring the independence of the auditors.
The Supervisory Board of Allianz AG has determined that the chairman of the Audit Committee, Dr. Manfred Schneider, meets the requirements that U.S. law places upon the Audit Committee
Allianz AG has also adopted a “Code of Ethics” for members of the
In the past year, we have also set up a “Disclosure Committee”
at the management level of Allianz AG, in which the senior officers of the company examine and discuss the draft reports for the main areas of financial reporting. The Disclosure Committee thus supports the Board of Management in financial reporting, particularly the Chief Executive Officer and the Chief Financial Officer, in certifying the accounts to the SEC as required under the SOA.
The discussion on guidelines for good company management and control will continue into the current year. In Germany, further implementation of the so-called 10-point program of the Federal
Corporate Governance Forum” set up recently by the E.U. Commission and intended to discuss the possibilities of convergence of the national codes.
Future E.U. activities must in our view concentrate on the creation of European outline standards, leaving room at national level to accommodate any particular features of company law. The newly-created legal form of the “European Company” (“Societas
U.S. Sarbanes-Oxley Act will have an effect on important aspects of control and reporting systems.
The remuneration of the Board of Management is determined by the Personnel Committee of the Supervisory Board. The remuneration structure is regularly discussed and examined in the plenary meetings of the Supervisory Board. Exact information about the remuneration of the Board of Management for the reporting year can be found in the appendix to this Annual Report on pages 186 and 187.
Equity remuneration plans This component consists of stock appreciation rights (SAR) and restricted stock units (RSU). More detailed information on the stock-based remuneration components can be found on pages 181 and 183 of this Annual Report or on the Internet at www.allianz.
For the first time, and in compliance with recommendations from the German Corporate Governance Code, we are publishing an individual breakdown of remuneration for members of the Board of Management and Supervisory Board.
Miscellaneous Income-equivalent ancillary benefits vary with the function and position of the recipient and are subject to personal income tax.
They essentially include insurance coverage generally granted in the industry and the use of a company car. In 2004, incomeequivalent ancillary benefits amounted to € 0.3 million (2003: Board of Management Fixed Annual Cash Reserves Group Equity- remuneration bonus4) remuneration5) 3-year-bonus6) Incentive 2004 Change 2004 Change 2004 Change 2004 Change 2004 from from from from SARs/ previous previous previous previous RSUs year year year year granted ¤ thou in % ¤ thou in % ¤ thou in % ¤ thou in %
A list of supervisory mandates in companies outside the Group is provided on page 200 of this Annual Report.
The individual members of the Board of Management each received the following remuneration: R E
The individual members of the Board of Management each received the following stock-related remuneration: Pensions and similar benefits The pension agreements for members of the Board of Management stipulate retirement benefits of a fixed amount that is not linked to the development of the fixed or variable remuneration components. The agreements are examined and revised at irregular intervals. As of 2005, a contribution-based increase is planned to replace this procedure. It will be financed by annual savings premiums with a fixed annual interest rate of 2.75 % – equivalent to the actuarial interest rate of life insurance companies in
Germany – and, in the event of disability, will be converted into value-equivalent pension payments to be paid for the lifetime of the individual concerned. If the net return on investment exceeds the actuarial interest rate, a corresponding profit share will be credited in the following year.
But this claim does not include a right to the immediate payment of benefits.
The Group paid € 2.3 million (2003: € 1.1 million) to increase pension reserves and reserves for similar benefits for active members of the Board of Management. On December 31, 2004, pension and similar reserves for members of the Board of Management who were active on this date amounted to € 25.8 million
The remuneration of the Supervisory Board is based on the size of the company, the functions and responsibilities of the members of the Supervisory Board and the economic situation of the company. For the most part, it is related to the dividend paid. The chairman and the deputy chairman of the Supervisory Board as well as the chairmen and members of its committees receive an additional remuneration.
Supervisory Board to date contains no additional component that is based on the long-term performance of the company.
Supervisory Board remuneration policy from 2005. In the future, remuneration components are to be paid in addition to a fixed remuneration, based on Group earnings per share.
Prof. Dr. Dennis J. Snower (since 07/06/2004) 2,000 40,000 0 42,000
The momentum and results of our “3+One” program are accelerating our profitable growth.
+One. Increasing our competitive strength and value on a sustainable basis
We want your Allianz to become a true corporate entity; an entity that, despite continuing to work on a “multi-local” basis, is more unified than it used to be thanks to its shared operating system, mutual initiatives and a common corporate culture with strong values.
At the beginning of this annual report, we gave a brief overview of just how far we have come with points 1 to 3 of this list. The management report takes more a more in-depth look at this progress, segment by segment. Therefore, in this section we are concentrating on the “+One” element.
For companies that are still falling below the level required by
Allianz and/or the market, binding obligation catalogs will be created, committing these companies to assume the highest
In terms of our business objectives, we will continue to put all our efforts into strengthening our outstanding market position in property and casualty insurance, life and health insurance, asset management and, within Germany, also in banking. We expect to experience significant growth as a result of increasing demand for high quality, highly secure products in the huge pension and wealth creation market within both Europe and the U.S.A.
greater than zero indicates that an added value for the shareholder has been created. If, on the other hand, the EVA® becomes negative, that means a shareholder would have received a greater return from another risk adequate investment than from Allianz
These considerations are important because they support valuebased management of the Allianz Group and at the same time allow us to retain a decentralized structure. Why do we need decentralization? We are convinced that the management of our operating entities worldwide is in the best position to determine what measures are appropriate for making their companies more profitable. They have to decide what risks they can take – for example, when they underwrite insurance policies, extend loans, invest funds or make other managerial decisions – to generate a specific profit.
The Allianz Group, on the other hand – and this is where the central management instrument comes in – must look after the interests of shareholders and make sure that the sum of the total risks entered into remains acceptable for the company as a whole and that the actual profit realized justifies the investment of capital.
Through Allianz AG, our holding company, we assign available capital on the basis of the risk-return profile and the value proposition of our operating companies. In this process, only those operating entities
_ which transform their market position into sustainable creation of value and achieve a leading market position; _ whose orientation and competency fit within the long-term strategy of the Allianz Group; and
_ which are able to generate distributable earnings that are at least equal to their capital costs can count on growth capital.
The Allianz AG uses the liquidity from dividend payments to finance growth. In addition, the capital is used to pay dividends to our shareholders and meet obligations, e. g. servicing debt.
All Allianz Group operating entities are thus responsible for generating a return on their risk capital that covers at least the cost of capital. Added value results only when this threshold is exceeded. But that is only the minimum we demand. Over the medium term, we expect to generate a return of 15 % or more on the capital employed. That means that the units must know which business activities will increase the value of their companies and concentrate their efforts and resources on these activities. New value drivers must also be created, for example, through new products, more cost-effective processes and optimized distribution channels. Local management must also prevent value from being diminished along the value chain. If this happens, countermeasures must be immediately implemented.
Source: Thomson Financial Datastream Current information on the development of the Allianz share price is available on the Internet at www.allianz.com/investor-relations.
Since the 2003 recovery in share prices could by far not offset the massive deterioration of the previous years, and since the share price failed to achieve further positive growth in the year under review, share price development in a ten-year comparison was marginally negative, standing at an annual average minus of 0.8 %. Looking back over the past twenty years, our share price has experienced average annual growth of 7.0 %. To track the performance of your own investment in Allianz shares, you can use the share calculator that is available at www.allianz.com/investor -relations.
On the stock markets, 2004 was a year shaped by cautious optimism. Growing confidence in the continued recovery of the global economy helped to cultivate the market, but this was dampened some what by increasing oil prices and a comparatively strong euro to the dollar. The 2.5 % drop in our share price over the course of the year is a clear indicator that this climate failed to foster sufficient optimism. The closing price for the year was ¤97.60. It is evident that confidence in our ability to stabilize Group business development and return to strong profitable growth was not quite as strong as expected. However, our previous figures attest to the fact that we have made great progress. Dividend payouts to you, our shareholders, are to reflect this and allow you to participate in these improvements. Therefore, at the Annual General Meeting, we will propose to pay out 1.75 euro per share certificate.
Following a strong 23.9 % increase in value the previous year, the
50, which experienced a 6.9 % increase, and Dow Jones EURO
STOXX Insurance, which in creased by 7.4 %. The 111 euro high reached by the Allianz share in January 2004 was followed by a disappointing development until the fall. An upturn was sparked only after the presentation of our third quarter results, prompting several analysts to issue a buy recommendation for our share, which led to a return to price increases. This counter movement indicates that investors accept market improvements if these are presented to them in black and white and subsequently strengthen their
Allianz interest. In the latter two months of the year, our share price increased by 17.1 %, causing it to rank among the Dow Jones
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 70
With a market capitalization of € 36 billion at the end of the year,
Europe, and it is used in calculating the MSCI World Index. The
Allianz share is also included on the FTSE-4-Good and Dow Jones
We would like our shareholders to benefit from the improved business development and will therefore propose, at the Annual
General Meeting, to issue you with a dividend of € 1.75 per share, which represents a 16.7 % – € 0.25 – increase. We are thus driving our continued dividend policy forward. At the same time, the dividend payout is increasing to € 674 million (2003: € 551 million).
The free float percentage of our share continued to rise, from 83 %
Europe. With an average trading volume of 2.6 million Allianz shares per day, our share is one of the most heavily traded stocks in the DAX. Moreover, a higher free float gives the share a great er weighting in the majority of major indexes. For up-to-date information on our shareholder structure, visit www.allianz.com/
In January 2005 Allianz placed a capital market transaction package on the market with a total volume of over € 4 billion. As part of this, we disposed of 17.2 million Allianz shares from treasury stock, helping us to reduce the treasury stock percentage of total capital stock to 0.1 (5) % and increase the free float to 91
Average number of shares in the fiscal year1) 365,930,584 338,201,031 276,854,382
Share price performance in the year (excluding dividend) % (2.5 ) 23.9 (65.9 )
Price-earnings ratio before amortization of goodwill on December 31 10.6 10.2 –
Stock exchanges All German stock exchanges, London, Paris, Zurich, New York
Our foremost objective is profitable growth. That is why we use
2.8 percentage points less than the previous year. We attribute this drop primarily to the fact that the percentage of free float shares has risen once again. In order to reach as many investors as possible, we addressed an increasing number of German investment management companies and custodian banks for non-
Our Internet services were again well received. 44 % of the capital represented in our Annual General Meeting was registered online. As in previous years, shareholders participating via Internet were able to change their instructions during the meeting, as long as voting had not yet begun. We were the first of the
DAX companies to offer the faster, more cost-effective and environmentally friendly option of sending Annual General Meeting documents by e-mail. For detailed information about the Annual
We visited our institutional investors in Frankfurt and London a total of four times over the course of the year, each time shortly after publication of our most recent figures, thus giving them ample opportunity to discuss the progress of the business on a quarterly basis. We are now also visiting institutional investors in
Relations program. In 2004, we held approximately 285 meetings with analysts and institutional investors, 15 % more than in the previous year.
Board. Shareholders can visit our site at any time for a full overview of current Allianz share price development. We also offer live broadcasts of (telephone) conferences. The most important
We like to keep our shareholders up to date on all company developments. Our Investor Relations Team is pleased to answer any questions you may have on Allianz shares, bonds or the development of the Allianz Group.
At December 31, 2004, shareholders’ equity of the Allianz Group amounted to € 30.8 billion. Year on year, our capital base experienced a € 2.2 billion, or 7.8 %, increase despite the distribution of € 0.6 billion worth of dividends to our shareholders. This is primarily attributable to our net income of € 2.2 billion. At constant exchange rates, the increase in shareholders’ equity would have been even more substantial. However, the exchange rate declines brought about by a comparatively weak U.S. dollar reduced shareholders’ equity by € 0.8 billion in 2004.
Statement of changes in shareholders’ equity1) 2004 in ¤bn 1) For further information, see “Consolidated Statements of Changes in Shareholders’ Equity” on page 104.
Valuation reserves for our real estate holdings and participations consolidated at equity are not part of shareholders’ equity. At
December 31, 2004, these reserves stood at € 1.7 billion (2003: € 1.6 billion) after deduct ing taxes, minority interests and policyholders participations.
Initial calculations are to take place in 2006 on the basis of the 2005 financial statements. The Allianz Group is a financial conglomerate under German law and, in view of this, has been making timely preparations for the additional requirements that are to be expected. At this point in time, the calculation methodology for the financial conglomerates solvency margin is still subject to uncertainties. However, preliminary calculations based on the current status of discussion indicate a reasonable margin in meeting the requirements.
On March 02, 2004, we fully repaid the MILES index-linked convertible bond, of which, at that point, 50 % of the original issue amount was still outstanding. In connection with this, we delivered approximately 6.8 million Munich Re shares to investors, lowering our investment in Munich Re by approximately 3 percentage points.
See Notes 33 “Interest and similar expenses”, 16 “Participation certificates and subordinated liabilities ”, 20 “Certificated liabilities” on pages 163, 147 and 151 to 152.
*) Bonds and convertible bonds issued or guaranteed by Allianz AG in the capital market, presented at nominal values.
Certificated liabilities and subordinated bonds*) by maturity – overview at 12/31/04 in ¤mn *) Bonds and convertible bonds issued or guaranteed by Allianz AG in the capital market, presented at nominal values.
In February 2005, we took advantage of the current situation on the capital markets and placed a transaction package worth approximately € 4 billion on the market. In addition to further reducing our equity exposure and borrowing, these transactions will also further improve our already strong capital base.
To reduce our equity exposure, € 1.2 billion worth of DAXlinked BITES (Basket Index Tracking Equity-linked Securities)
with a three-year maturity period were issued. The redemption val ue is governed by the performance of the Deutsche Boerse’s
1. Senior bonds Interest 5.75 % bond issued by Allianz Finance B. V., Amsterdam paid Volume ¤1.1 bn in 2004 Year of issue 1997/2000 Maturity date 7/30/2007
Interest cost ¤36.3 mn 4.625 % bond issued by Allianz Finance II B. V., Amsterdam Volume ¤1.1 bn Year of issue 2002 Maturity date 11/29/2007
Total interest cost for senior bonds ¤288.2 mn 2. Subordinated bonds 6.125 % bond issued by Allianz Finance II B. V., Amsterdam Volume ¤2 bn Year of issue 2002 Maturity date 5/31/2022
Interest cost ¤123.6 mn 7.25 % bond issued by Allianz Finance II B. V., Amsterdam Volume US-$ 0.5 bn Year of issue 2002 Maturity date Perpetual Bond
Interest cost ¤30.9 mn 6.5 % bond issued by Allianz Finance II B. V., Amsterdam Interest Volume ¤1 bn paid Year of issue 2002 in 2004 Maturity date 1/13/2025
Interest cost2) ¤84.2 mn Received option premium at issue ¤256.8 mn 1.25 % convertible bond issued by Allianz Finance II B. V., Amsterdam Convertible for RWE AG shares Volume ¤1.1 bn Year of issue 2001 Maturity date 12/20/2006 Current exchange price ¤50.16
Total interest cost ¤718.5 mn 1) Bonds and convertible bonds issued or guaranteed by Allianz AG, excluding private placements. 2) Includes coupon payment and option premium at amortized cost.
34 Considerably improved business environment 34 Uncertainties persisted 34 Property and Casualty Insurers 35 Life and Health Insurance 36 Asset Management 36 Banks 36 Capital markets 38 Executive Summary 39 Allianz Group’s Consolidated Results of Operations 41 Allianz Group’s Consolidated Assets, Liabilities and
Shareholders’ Equity 42 Property-Casualty Insurance Operations 42 Earnings Summary 44 Property-Casualty Operations by Geographic Region 45 Germany 47 France 48 Italy 49 United Kingdom 50 Switzerland 52 Other Europe 54 NAFTA
55 United States 56 Asia-Pacific 56 South America 57 Specialty Lines 57 Credit Insurance 58 Allianz Global Risks Re 59 Allianz Marine & Aviation 59 Travel Insurance and Assistance Services 60 Life/Health Insurance Operations 60 Earnings Summary 62 Life/Health Operations by Geographic Region 63 Germany 65 France 65 Italy 66 Spain 66 Switzerland 67 Other Europe 68 United States 69 Asia-Pacific 70 Banking Operations 70 Earnings Summary 72 Banking Operations by Division 73 Personal Banking 73 Private & Business Banking 74 Corporate Banking 74 Dresdner Kleinwort Wasserstein 75 IRU
growth in China, raised its economic strength by 7.3 %. Central and Eastern Europe and Latin America also developed more dynamically than the EU average, with expansion rates of 5.6 % and
The good economic climate also boosted growth of premiums in the property and casualty insurance business. Many insurers continued their previous year’s practice of generating high profits from a deliberately risky underwriting and pricing policy. In some mar kets this was only partially successful, since hard-fought competition forced market participants to retrench. Premium growth in the EU developed much the same as in the year before, al though clearly more dynamic in the new member states than in the economies of the 15 existing states. In Asia the growth curves in China and India pointed steeply upwards, but were predominantly flat in the largest insurance market of the region, Japan. Thanks to a claims trend devoid of spectacular events and continued cost discipline, casualty and property insurers generally succeeded in further improving their combined ratio. However, this did not apply to everybody, especially those companies particularly affected by the severe natural disasters of 2004. Hurricanes in the Caribbean and the south and east coasts of the U.S.A. in the autumn of 2004, earthquakes and typhoons in Japan, and the appalling subsea earthquake in the Indian Ocean at the end of the year not only
Considerably improved business environment 2004 was marked by strong economic growth, resulting in a period of peaks: world economic strength increased by almost 4 %, while at the same time global trade grew by some 10 %. Even Germany reached the end of its phase of several years’ stagnation, and expanded by 1.6 %. Nonetheless, 2004 was still not a year for bubbling optimism. The persisting unchanged uncertainties were too great, particularly in regard to the tensions in the Middle East, the full impact of which was felt by the entire world in the form of the high oil price.
Average growth in the EU States, however, was relatively modest compared to other major economies or regions. At just under 2 % it trailed well behind Japan (2.6 %) and the U.S.A. (4.4 %).
Thanks to its economic strength, the United States proved to be the driving force of the world economy in 2004. The climate of growth was more pronounced in Asia, which, powered by 9.5- %
Most industrialized countries, and a large number of countries on their way to industrialization, will have to redesign their pen sions systems, since increased life expectancy and low or falling birth rates will in time wreck any contribution-based system. As the number of contributors continues to shrink, that of the beneficiaries increases further, as does the period for which a pension is received. These trends are irreversible and so far-reaching that in the long term there is no prospect of keeping these systems going by additional financing from tax revenues. Consequently, they need to be supplemented, or even completely replaced, by capitalfinanced pensions. This means that the significance of company and private pensions will increase now and in the future. In this situation life insurances, which generally incorporate guarantees, enjoy high regard. The profit situation of life insurers benefited in 2004 from improved calmness and constancy on the financial markets.
The changes in the age distribution of society have hit health insurance business just as hard as contribution-based pensions systems. Consequently, countries such as Germany, France and the Netherlands are about to embark on reforms to their health systems. The associated political debate and divergent opinions on how a reform should affect statutory health insurance have unnerved the German public and given private providers – as in the previous year – a handsome increase in turnover of almost 7 %, even though the higher mandatory insurance limit meant that fewer insured persons than in previous years changed to private providers. Private health insurance premium income also enjoyed dynamic development in both France and Spain. In France’s case, however, this was due to the increase in healthcare costs.
The inclination and the need to deploy more private funds for pension provision also spurred on wealth creation by means of asset management products. This trend is international. It is particularly marked in Europe and the U.S.A., where the generation born in the Fifties and Sixties, the “baby boomers“, are now reaching an age where they no longer have all that much time to arrange pension provision with private capital. Consequently, they have to make full use of the remaining years until retirement. The fund management industry is benefiting from this as well as the life insurers. Asia is also becoming more important as a market for wealth creation products. One key market in this region is China, where the former one-child policy will dramatically accentuate the future aging of society.
Moreover, the business of the fund management industry is also affected by developments on capital markets. This was reflected in 2004 by valuation fluctuations, which affected investor behavior. In the first half of the year, equity funds worldwide recorded comparatively high inflows. Weakening stock markets in the summer boosted demand for fixed-income funds. Money market funds were less in demand over the entire year. As share prices became firmer in the last quarter, this development gave equity funds another boost. On balance, 2004 as an asset management year was marked by a fairly subdued inflow of funds, and by the trend to regroup again more strongly in equity funds.
Rating processes will play a more significant role for medium-sized enterprises as well, since loans are being increasingly priced on a risk-adequate basis. At the same time, the banks are reducing risks in their business portfolios by using derivatives as hedges against loan losses, and are attempting to upgrade profitability by restructuring. These initiatives are by now well advanced, so banks are free again to concentrate more of their attention on raising operating profits, and above all devote themselves to their private customers.
Stock markets The major stock indices hardly changed at all until the third quarter of 2004, although they had followed a clear upwards trend at the end of the previous year. The strains caused by the rise in oil prices and uncertainties due to the heavy fluctuations in the exchange rate between the euro and the U.S. dollar were so great that the upwards trend in corporate profits was insufficient to maintain the momentum of the previous year. Values on stock exchanges did not rise again until the end of the year. The German
DAX index swung to and fro between 3,600 and 4,000 points before clearing the 4,000-point mark in the last quarter, where it remained. The pattern of the U.S. Standard & Poors Index (S&P
Allianz Group dividends and profit transfer, interest expense on external debt, restructuring charges, other non-operating income/(expense), acquisition -related expenses and amortization of goodwill.
While these excluded items are significant components in understanding and assessing our consolidated financial performance, we believe that the presentation of operating results enhances the understanding and comparability of the performance of our operating segments by highlighting net income attributable to ongoing segment operations and the underlying profitability of our businesses. For example, we believe that trends in the underlying profitability of our segments can be more clearly identified without the fluctuating effects of the realized capital gains and losses or impairments on investment securities, as these are largely dependent on market cycles or issuer specific events over which we have little or no control, and can and do vary, sometimes materially, across periods. Further, the timing of sales that would result in such gains or losses is largely at our discretion. Operating profit is not a substitute for earnings from ordinary activities before taxation or net income as determined in accordance with
_ In 2004, we successfully continued the execution of our “3+One ” program. 2004 was a year of carefully managed growth. We were successful in increasing our total revenues by ¤3.1 billion, particularly in our Life/Health segment. In our Property-Casualty segment, we focused on profitability and were willing to forego business oppor tun ities which did not offer a reasonable relation between risk and return. Banking operating revenues were stable. We were also successful in attain ing growth in our operating revenues from our Asset Management operations.
The execution of our “3+One” program resulted in a year of continued earnings growth. We were successful in increasing our operating profit by € 2.8 billion to € 6.9 billion and our net income reached € 2.2 billion (2003: € 1.9 billion).
Life/Health and Asset Management Our two segments focusing on the promising pension and wealth accumulation market experienced increases in statutory premiums and operating revenues of 6.8 % and
Operating profit in ¤mn 2004 was also a year of continued operational discipline, which result ed in a significant improvement of operating profit by € 2.8 billion
Life/Health Our statutory premiums increased to € 45.2 billion in 2004, a 6.8 % increase from 2003. Additionally, our administrative expenses were reduced by 2.8 % to € 1.3 billion in 2004 as compared
Banking Administrative expenses and net loan loss provisions were reduced significantly by 9.4 % and 66.1 %, respectively. As a
consequence, our banking segment reported operating profit of € 603 million in 2004 (2003: operating loss of € 369 million).
Asset Management We succeeded in reducing our cost-income ratio by a further 4.3 percentage points to 62.9 % in 2004 (2003: 67.2 %), primarily as a result of increased operating revenues and a reduction in operating expenses. These positive developments led to an operating profit of € 856 million in 2004 (2003: € 733 million).
Years ended December 31 Property- Life/Health Banking Asset Consolidation Total Casualty Management adjustments Group
Earnings from ordinary activities before taxes 5,729 856 (2,200 ) (103 ) (1,421 ) 2,861
In 2004, we made further progress in protecting and strengthening our capital base. Our shareholders’ equity increased by € 2.2 billion to € 30.8 billion at December 31, 2004 (2003: € 28.6 billion). This increase resulted from our strong net income for the year and increased net unrealized gains from our available-for-sale securities, driven by improved conditions in the bond and equity markets in 2004. These two factors more than offset the shareholders’ dividend of € 551 million and negative effect from foreign currency translation of € 840 million, primarily due to the declining U.S. dollar compared to the Euro.
The following table presents the Allianz Group’s consolidated balance sheets as of December 31: E X
We continued to focus on profitable growth and reduced our combined ratio to 92.9 %.
Central and Eastern Europe, Australia and Spain. The increase was offset in part by the effects of a more selective underwriting policy and portfolio review measures, particularly in France. These achievements reflect our strategy of selective growth which we have pursued in our property-casualty segment in 2004. While we continue to strive for profitable growth, we are willing to forego sales growth.
Operating profit Our property-casualty insurance segment’s operating profit improved significantly with an increase of 63.3 % to € 3,979 million in 2004 from € 2,437 million in 2003, mainly reflecting an improved underwriting result. Our loss ratio, which decreased for the third consecutive year, declined by 3.8 percentage points to 67.7 % in 2004 as compared to 2003, driven primarily by our disciplined aGermany
Asia-Pacific & Rest of WorldRest of Europe North and South America
_ As a result of higher tax charges due to our improved operating profitability, net income decreased from ¤4.7 million in 2003 to ¤3.3 billion in 2004.
States in August and September 2004, which was low in comparison to our market share in the United States. Net losses in connection with the tsunamis which struck South Asia in late
Overall, our combined ratio improved by 4.1 percentage points to 92.9 % in 2004 as compared to 97.0 % in 2003.
4) Comprises net acquisition costs of ¤5,781 mn (2003: ¤5,509 mn) and administrative expenses of ¤3,849 mn (2003: ¤4,002 mn). Net acquisition costs and administrative expenses do not include expenses for the management of investments and, accordingly, do not reconcile to the acquistion costs and administrative expenses as presented in the consolidated financial statements.
6) Includes significant net realized gains from sales of of certain shareholdings. 7) Net trading income/(expenses) are net of policyholders’ participation.
Combined ratio 92.9 97.0 1) Represents ratio of net claims incurred to net premiums earned. 2) Represents ratio of net acquisition costs and administrative expenses to net premiums earned.
The following table sets forth our property-casualty gross premiums written and earnings after taxes before minority interests in earnings and excludes amortization of goodwill, which we refer to herein as “earnings after taxes and before goodwill amortization”, by geographic region. Consistent with our general practice, gross premiums written and earnings after taxes and before goodwill amortization by geographic region are presented before consolidation adjustments representing the elimination of transactions between Allianz Group companies in different geographic regions and different segments.
Travel Insurance and Assistance Services 900 24 818 18 808 21 1) Represents elimination of transactions between Allianz Group companies in different geographic regions.
Earnings after taxes and before goodwill amortization ¤ mn 1,456 586 1,731
Gross premiums written Gross premiums written were € 10,162 million in 2004, an increase of € 53 million, or 0.5 %, from € 10,109 million in 2003, reflecting growth in almost all lines of business, in particular personal accident insurance, offset in part by a decrease in automobile insurance. Growth in our personal accident insurance line resulted mainly from continuing increases in new business.
_ With gross premiums written of ¤10.2 billion, Sachversicherungsgruppe Deutschland (or the “German Property-Casualty Group”) is the market leader in Germany’s property and casualty insurance market.
Gross premiums written Reinsurance assumed by Allianz AG decreased by € 237 million, or 4.3 %, to € 5,267 million in 2004 from € 5,504 million in 2003, reflecting primarily an increase in the retention of operating entities in the German Property-Casualty Group, which led to a reduction in reinsurance ceded to Allianz AG. This decrease was offset in part by the introduction of a new Allianz Group-wide pooling concept for reinsurance cover of the Allianz Group’s subsidiaries against natural catastrophes.
_ Gross premiums written in France amounted to ¤5.3 billion in 2004.
as compared to 2003 and increased by € 963 million to € 1,743 million in 2004. However, the dividend income received was eliminated at the Allianz Group level. Our loss ratio in France improved to 73.5 % in 2004 from 79.8 % in 2003, largely due to strict underwriting policies, favorable claims development in our motor business as well as the absence of large claims and severe storms.
in 2003, mainly due to an increase in net acquisition costs.
_ We are represented in the Italian market by our property-casualty insurers RAS Group and Lloyd Adriatico Group.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased by € 246 million, or 51.9 %, to € 720 million in 2004 from € 474 million in 2003. This reflects primarily an improved underwriting result. Our loss ratio decreased to 68.1 % in 2004 from 70.9 % in 2003. This development mainly reflects the overall reduction in claim frequency, particularly in the automobile line, as a result of a more selective underwriting policy in recent years, as well as the introduction of a more stringent points-based regulation of drivers’ licences by the Italian government with effect from
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased by € 22 million, or 10.7 %, to € 228 million in 2004 from € 206 million in 2003. This increase was due to improved underwriting and investment results, offset in part by increased tax expenses.
Our loss ratio improved to 63.6 % in 2004 from 67.1 % in 2003, reflecting a more disciplined underwriting policy, as well as fewer major claims and an absence of natural catastrophes.
_ Our property-casualty insurer in Switzerland is Allianz Suisse Versicherungs-Gesellschaft (or “Allianz Suisse”).
Earnings after taxes and before goodwill amortization ¤ mn 95 22 29
A L L I A N Z G R O U P 51
Earnings after taxes and before goodwill amortization ¤ mn 53 38 33
Gross premiums written Gross premiums written increased by € 82 million, or 4.9 %, to € 1,763 million in 2004 from € 1,681 million in 2003, as a result of growth in all lines of business, particularly in industrial insurance.
_ We serve the Spanish market through our two companies Allianz Seguros and Fénix Directo, a direct insurer.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased significantly by € 79 million, or 82.3 %, to € 175 million in 2004 from € 96 million in 2003. The increase reflected primarily improved underwriting and investment results. Our loss ratio improved significantly to 72.2 % in 2004 from 75.9 % in 2003, due primarily to increased average premium income and lower claims frequency in all insurance lines. Our expense ratio improved to
Western and Southern Europe, in particular the Netherlands, offset in part by growth in Central and Eastern Europe. The decrease in the Netherlands reflected primarily the sale of our health insurance portfolio, which resulted in a decline of € 100 million in gross premiums written.
_ We are one of the five leading insurers in the following markets based on market share: Austria, Ireland, the Netherlands, Portugal as well as Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania and Slovakia.
_ In addition, we provide property-casualty insurance in Belgium, Luxembourg, Greece, Russia and Cyprus.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization decreased by € 32 million, or 5.3 %, to € 572 million in 2004 from € 604 million in 2003. Excluding the results of the holding and financing entities that are domiciled in the Netherlands, earnings after taxes and before goodwill amortization in Other Europe in creased significantly by € 477 million to € 578 million in 2004 as compared to € 101 million in 2003. This increase was primarily due to improved results, particularly in Luxembourg and in the Netherlands, as well as in Ireland and Austria. Earnings after taxes and before goodwill amortization in Luxembourg increased, reflecting primarily an improved underwriting result. The increase in earnings after taxes and before goodwill amortization in the
NAFTA zone are primarily driven by our operations in the United
Gross premiums written Gross premiums written decreased slightly to € 5,325 million in 2004, primarily as a result of a negative currency translation effect of € 530 million. Excluding the currency translation effect, gross premiums written in the NAFTA zone increased by € 511 million, reflecting growth in the United States and Mexico, offset in part by a decline in Canada.
¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn thereof 1) Represents elimination of intercompany transactions between Allianz Group companies in different countries within the NAFTA zone.
Earnings after taxes and before goodwill amortization ¤ mn 185 167 (678 )
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased by € 18 million to € 185 million in 2004 from € 167 million in 2003, due primarily to positive underwriting result in 2004 reflecting improved expense management and reduced losses relative to premium growth, as well as the continuing effects of our turnaround measures introduced in 2003. This increase was partially offset by a € 89 million rise in tax expenses, primarily attributable to higher pre-tax income. Our loss ratio decreased to 66.7 % in 2004 from 69.9 % in 2003, largely due to stricter rating and underwriting policies despite losses of approximately € 92 million from hurricanes and Northeast storms in 2004. Our expense ratio was reduced to 28.8 % in 2004 from 29.5 % in 2003, driven by lower personnel expenses and the implementation of cost-cutting measures in all business lines.
_ Our largest property-casualty insurance company in Asia-Pacific is Allianz Australia.
_ Our property-casualty operations in Taiwan were sold in the second half of 2004.
Gross premiums written Gross premiums written increased by € 18 million to € 1,672 million in 2004 from € 1,654 million in 2003, reflecting primarily strong growth in our property-casualty operations in Australia, offset in part by decreased gross premiums written in Taiwan as a result of the sale of our property-casualty operations in Taiwan in the second half of 2004.
Gross premiums written Gross premiums written decreased to € 599 million in 2004 from € 614 million in 2003, largely attributable to the sale of our property -casualty operations in Chile in August 2004, as well as the
_ In South America, we have a presence in Argentina, Brazil, Colombia and Venezuela.
Earnings after taxes and before goodwill amortization ¤ mn 217 119 15
Gross premiums written Gross premiums written increased by € 66 million, or 4.2 %, to € 1,630 million in 2004, due primarily to the positive development of our commercial portfolio through new business generated in Eastern and Southern Europe.
Travel Insurance and Assistance Services 900 24 818 18 808 21
_ We provide worldwide credit insurance through Euler Hermes S. A.
Global Risks business which, in addition to the reinsurance activities of Allianz Global Risks Re also includes the worldwide international corporate business of the Allianz Group, increased by 6.7 % or € 173 million to € 2,413 million in 2004.
_ Allianz Global Risks Rückversicherungs-AG (or “Allianz Global Risks Re”) provides reinsurance for the international corporate business of the Allianz Group.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization decreased by € 25 million to € 52 million in 2004, mainly due to a negative effect from exchange rate movements and increased tax expenses in 2004. In addition earnings after taxes and before goodwill amortization, in 2003, reflected the release of a premium deficiency reserve of € 31 million. Net insurance benefits in 2004 also reflected € 114 million of net claims relating to the hurricanes in the United States in the second half of 2004. However, despite the net impact of these natural catastrophes, our loss ratio decreased to 68.9 % in 2004 from 70.9 % in 2003 primarily as a result of more favorable reinsurance conditions as well as improved underwriting results in key European markets, such as
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased by € 6 million, or 33.3 %, to € 24 million in 2004, due to stringent cost management and improved underwriting results. Our loss ratio decreased to 59.8 % in 2004 from 60.6 % in 2003 mainly as a result of positive claims development in 2004, despite net claims of approximately € 3 million arising from the tsunamis that struck South Asia in December 2004. Our expense ratio increased slightly to 31.8 % in 2004 from 31.3 % in 2003.
Our expense ratio increased significantly to 29.2 % in 2004 from 21.8 % in 2003 due to a rise in run-off expenses in the United
*) After elimination of transactions between Allianz Group companies in different geographic regions and different segments.
Statutory premiums Despite a negative exchange rate effect, our statutory premiums increased by € 2,858 million from € 42,319 million in 2003 to € 45,177 million in 2004. Statutory premiums, based on internal growth, increased by 10.0 % as compared to 2003. However, this growth varied noticeably across different markets. Although we continued to report significant growth in the majority of our markets, in particular the United States and France, statutory premiums declined in our life/health operations in Italy, Switzerland and South Korea. In Germany, new business markedly increased after a law reorganizing the taxation of life insurance benefits in the second half of the year was enacted.
Net acquisition costs increased by € 750 million, or 39.8 %, to € 2,635 million in 2004, primarily reflecting the strong growth in our statutory premiums. In addition, in 2003, net acquisition costs included a significant benefit from the “true-up” of deferred pol-
_ Total statutory premiums increased by 6.8 % to ¤45.2 billion in 2004, reflecting growth in new business, in particular our life/health operations in the United States and in Germany. Total statutory premiums, based on internal growth, increased by 10.0 %.
_ Operating profit increased significantly by 12.1 % to ¤1.4 billion in 2004, primarily reflecting an increase in business volume, the pricing of new business and further efficiency gains.
accounting standard (SOP 03-1), whereby investments from certain unit-linked contracts were reclassified from separate account assets to trading assets. This change led to an equal increase in both net trading income and net insurance benefits. See Note 3 of our consolidated financial statements.
Net Income Net capital gains and impairments on investments improved by € 338 million to € 224 million in 2004 from a loss of € 114 million in 2003. This improvement was primarily attributable to more favorable capital market conditions. Intra-group dividends and profit transfer increased by € 60 million to € 163 million in 2004. Amortization of goodwill decreased by € 239 million to € 159 million in 2004 as compared to € 398 million in 2003, which reflected an impairment on goodwill of € 224 million attributable to South
¤33 mn (2003: ¤23 mn). 4) Net insurance benefits were adjusted for income of ¤1,324 mn (2003: expense of ¤661 mn)
related to policyholders’ participation of net capital gains and impairments on investments that were excluded from the determination of operating profit.
6) Comprises net realized gains on investments of ¤253 mn (2003: ¤169 mn), and net impairments on investments of ¤29 mn (2003: ¤283 mn). These amounts are net of policyholders’ participation.
The following table sets forth our gross life/health statutory premiums, gross premiums written, as well as earnings after taxes and before minority interests in earnings and excludes goodwill amortization, which we refer to herein as “earnings after taxes and before goodwill amortization”, by geographic region for the years indicated. Consistent with our general practice, statutory premiums, gross premiums written as well as earnings after taxes and before goodwill amortization by geographic region are presented before consolidation adjustments representing the elimination of transactions between Allianz Group companies in different geographic regions and different segments.
Earnings after taxes and before goodwill amortization ¤ mn 219 (6 ) 62
_ Germany is our most important market for life/health insurance. As a percentage of our total 2004 life/health statutory premiums worldwide, Germany accounted for 30.9 %.
_ In 2004, Allianz Leben sold approximately 1.3 million insurance policies, representing an increase of 38.6 % as compared to the number of policies sold in 2003.
Statutory premiums Our life statutory premiums increased by € 492 million, or 4.7 %, to € 10,938 million in 2004 from € 10,446 million in 2003. This was mainly attributable to strong new business growth in the second half of 2004, due primarily to the new German Law on the taxation of pensions and annuities (“Alterseinkünftegesetz”).
more than 40 %, reflecting the continued high growth trend we have experienced in recent years. Of the total growth in new business through the bancassurance channel, Dresdner Bank contributed approximately 67 %.
Group life insurance statutory premiums increased by € 356 million, or 14.2 %, to € 2,867 million in 2004 from € 2,511 million in 2003, due primarily to successful development of new distribution capacities for occupational pension schemes.
Earnings after taxes and before goodwill amortization ¤ mn 76 6 64
Gross premiums written Health insurance premiums increased by € 60 million, or 2.0 %, to € 3,020 million in 2004 from € 2,960 million in 2003. This increase was due primarily to rate increases in medical expense insurance, new business and growth in other personal supplementary insurance.
In view of the ongoing discussion concerning the future of the
German healthcare system, new business was marginal. However, gross premiums written on other personal supplementary insurance increased to € 396 million in 2004 compared to € 379 million in 2003. The expected market potential for supplementary insurance, which had been opened up by a legal amendment effective from January 1, 2005, has diminished following the German government’s change in decision regarding the right of individuals subject to statutory insurance to opt for private dental cover. Gross premiums written on compulsory long-term care insurance and other health insurance in Germany declined slightly to € 208 million and € 235 million, respectively, in 2004.
Earnings after taxes and before goodwill amortization ¤ mn 282 208 (231 )
Statutory premiums Statutory premiums increased by 281 million, or 6.3 %, to € 4,719 million in 2004 from € 4,438 million in 2003. The increase was due primarily to sales momentum brought about by new products in individual life insurance through our re-organized distribution networks.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased by € 74 million to € 282 million in 2004 from € 208 million in 2003, primarily as a result of reduced policyholders‘ crediting rates as well as measures intended to improve efficiency and cost reductions. In addition, improvement in our investment result, which was mainly attributable to lower impairments and higher net capital gains on investments, also contributed to the increase in earnings after taxes and before goodwill amortization. Our statutory expense ratio increased to 17.3 % in 2004 from 16.5 % in 2003 primarily due to effects resulting from accounting changes, mainly adjustments for the treatment of deferred policy acquisition costs.
Earnings after taxes and before goodwill amortization ¤ mn 294 223 287
_ Through the RAS Group and Lloyd Adriatico Group, we have an excellent position in the Italian life insurance market.
_ Together, these two groups generated statutory premiums of ¤8.7 billion in 2004, making us number two in the Italian market based on market share.
offset in part by growth in new business in our life insurance products through our representative agencies and financial planners. Our statutory premiums from our bancassurance channel decreased to € 6,027 million in 2004 from € 6,636 million in 2003, reflecting mainly decreased sales at CreditRas Vita, our Italian bancassurance joint venture with Uni Credito.
Statutory premiums Statutory premiums increased by 65 million, or 10.6 %, to € 676 million in 2004 from € 611 million in 2003, due to increased sales in all lines of business, especially in our pension and traditional
life business. The increase in our pension business was primarily driven by the issuance of a group policy, which amounted to € 168 million. The positive development in our individual life business resulted primarily from the introduction of a new individual pension product.
Statutory premiums Statutory premiums decreased by € 143 million, or 11.9 %, to € 1,054 million in 2004 from € 1,197 million in 2003. Excluding the negative effect of exchange rate movements, our statutory premiums in Switzerland decreased by 9.8 %. This decrease was attributable primarily to a reduction in group life insurance business resulting from the spin-off of our “Pensionskasse”, as well as a more stringent underwriting practice. Furthermore, there was
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization improved to € 56 million in 2004 from a loss of € 8 million in 2003, due primarily to improved investment and technical results. Investment results benefited from lower net realized losses and impairments on investments. In 2004, our technical result benefited from a reduction in the average guaranteed interest rates for our individual and group life insurance portfolio. As a result of a reduced premium volume, our statutory expense ratio increased significantly
With effect from January 1, 2005, the guaranteed interest rate for our group life insurance portfolio will increase from 2.25 %
Statutory premiums in Other Europe increased by € 7 million, or 0.3 %, to € 2,140 million in 2004 from € 2,133 million in 2003.
United Kingdom in order to concentrate on our property-casualty business in that region.
Statutory Gross Earnings Statutory Gross Earnings Statutory Gross Earnings premiums premiums after taxes premiums premiums af ter taxes premiums premiums af ter taxes writ ten and before writ ten and before writ ten and before goodwill goodwill goodwill amortization amortization amortization
Earnings after taxes and before goodwill amortization ¤ mn 277 165 (18 )
South Korea, where we continue our efforts to reorganize our insurance portfolio and focus on more profitable products with a longer maturity.
_ In Asia-Pacific our most important markets are South Korea and Taiwan.
Taiwan, offset in part by an improvement in the earnings of our
South Korean operations. The decrease in our Taiwan’s earnings after taxes and before goodwill amortization was mainly due to reduced realized gains on investments and lower tax benefits.
Operating Revenues Operating revenues remained fairly constant at € 6,243 million in 2004, with only a 0.5 % decrease. This was driven primarily by a 4.8 % decline in net interest income to € 2,275 million, resulting from the reduction of our interest-bearing assets, offset by a rise of 3.1 % to € 2,460 million in net fee and commission income.
The commission income generated from the sales of insurance products of approximately € 136 million (2003: € 84 million) also contributed significantly to this increase.
Operating Profit Operating profit of Dresdner Bank increased significantly to € 599 million in 2004, compared to an operating loss of € 482 million in 2003. This positive development was brought about by reductions in our administrative expenses and net loan loss provisions. Our administrative expenses were reduced by 7.5 % to € 5,307 million in 2004. This was largely due to our cost-cutting and restructuring measures, which resulted in savings in both personnel and nonpersonnel operating expenses. Personnel expenses decreased by € 202 million, or 5.9 %, to € 3,247 million in 2004. As a result of lower expenses related to information technology and other equipment, non-personnel operating expenses also declined by 10.0 %
IRU division, thereby reducing our risk-weighted assets. Overall, our coverage ratio increased to 60.4 % at December 31, 2004
_ After an operating loss of ¤369 million in 2003, we successfully achieved an operating profit of ¤603 million in 2004, of which Dresdner Bank contributed ¤599 million. This positive development resulted from the impact of previous years’ cost reduction plans and the significant reduction of our net loan loss provisions through the further reduction in our non-strategic loan business within the IRU division of Dresdner Bank.
_ Addition ally, and following a decline in restructuring charges, we successfully achieved a net income of ¤104 million in 2004 as compared to a loss of ¤1,279 million in 2003.
“New Dresdner” program, with a further € 55 million stemming from other existing programs. Restructuring provisions of € 139 million were also recorded for measures taken in optimizing our internal business processes in our Personal Banking and Dresdner
1) Comprises primarily net realized gains on investments of ¤472 mn (2003: ¤240 mn), and net impairments on investments of ¤356 mn (2003: ¤437 mn). 2) Represents ratio of administrative expenses to operating revenues.
The following tables set forth our banking operating revenues and earnings after taxes before minority interests in earnings and excludes amortization of goodwill, which we refer to herein as
“earnings after taxes and before goodwill amortization”, by division. Consistent with our general practice, operating revenues and earnings after taxes and before goodwill amortization by division are presented before consolidation adjustments representing the elimination of transactions between Allianz Group companies in different divisions and different segments.
3) Consists of non-Dresdner Bank banking operations within our banking segment.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization improved significantly to € 3 million in 2004, compared to a loss of € 121 million in 2003, due primarily to stricter cost management and further reduction in headcount, mainly in the back office function.
As a result, our cost-income ratio decreased to 88.6 % in 2004 from 92.7 % in 2003. Our net loan loss provision decreased to € 138 million in 2004, or 33.0 %, from € 206 million in 2003 due to proactive management of our credit risks.
Operating revenues Operating revenues increased to € 1,154 million in 2004, or 4.2 %, from € 1,108 million in 2003, reflecting primarily an increase in net fee and commission income to € 692 million in 2004 from € 641 million in 2003. Successful sales activities, product innovations in the securities business and an increased efficiency in our distribution channels contributed to this development. Our net interest income remained fairly stable in 2004.
Reductions due to significantly decreased risk-weighted assets, which declined 13.2 % in 2004, were partially offset by our improved interest margins. Primarily as a result of increased sales of structured products, net fee and commission income remained unchanged despite intense competition.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased to € 298 million in 2004, from € 206 million in 2003, reflecting a decrease in administrative expenses by 4.4 % from € 501 million in 2003 to € 479 million in 2004 and a substantial decline in restructuring charges from € 90 million in 2003 by 81.1 % to € 17 million in 2004. Our net loan loss provisions also declined by € 63 million, or 53.4 %, to € 55 million in 2004 from € 118 million in 2003, due primarily to proactive management of our credit risks.
Operating revenues Operating revenues decreased by € 100 million, or 4.6 %, to € 2,074 million in 2004 from € 2,174 million in 2003, mainly reflecting decreased net trading income due to significantly reduced risk capital.
Operating revenues Operating revenues were € 383 million in 2004, a decrease of € 249 million from € 632 million in 2003, reflecting primarily the accelerated exit from our non-strategic loan business with disposals aggregating € 8.8 billion of loan exposure. This is also reflected by the reduction of our risk-weighted assets, which decreased by 57.3 % to an average of € 6.7 billion in 2004 and € 4.2 billion at December 31, 2004.
portfolios. Our net loan loss provisions decreased € 675 million to € 174 million in 2004 as compared to € 849 million in 2003.
The release of loan loss provisions in our international portfolio also contributed to this significant development. Additionally, our net capital gains and impairments on investments improved by € 237 million to € 128 million in 2004, driven primarily by sales of non-strategic investments.
Net capital gains and impairments on investments (26 ) (101 )
Earnings after taxes and before goodwill amortization (250 ) (641 )
1) Comprises primarily capital benefit of the operating divisions of ¤399 mn (2003: ¤452 mn) and expenses of ¤324 mn (2003: ¤365 mn) from the effect of IAS 39. Capital benefit represents expenses relating to the allocation of net interest earned on risk capital that was assigned to the respective operating divisions.
2) Comprises primarily income of ¤340 mn (2003: ¤161 mn) from the effect of IAS 39.
The Corporate Other division contains income and expense items that are not assigned to Dresdner Bank’s operating divisions.
Operating revenues Operating revenues improved significantly by € 309 million to a loss of € 268 million in 2004 from a loss of € 577 million in 2003, reflecting primarily the favorable development of the effect from
IAS 39, which accounted for positive movements of € 41 million in net interest income and € 179 million in net trading income.
Earnings after taxes and before goodwill amortization Earnings after taxes and before goodwill amortization increased by € 391 million, or 61.1 %, to a loss of € 250 million in 2004 from a loss of € 641 million in 2003. This improvement was primarily a result of the improved operating profit combined with lower restructuring charges from our service functions and a reduction of other operating expenses due to impairments on information technology software recorded in 2003.
Operating Profit Operating profit of Allianz Global Investors increased significantly by € 118 million, or 16.1 %, to € 851 million in 2004. Excluding the effects of exchange rate movements, operating profit would have improved by € 182 million, or 24.8 %, in 2004, primarily due to growth in our operating revenues. While operating revenues increased, operating expenses decreased by € 55 million, or 3.7 %, to € 1,450 million in 2004. Excluding the effects of exchange rate movements, operating expenses increased by 2.9 % to € 1,549 million in 2004. On a constant currency basis, personnel expenses remained stable at € 908 million in 2004 (2003: € 907 million), while non-personnel expenses increased by € 42 million, or 7.0 %, to € 641 million in 2004.
Our asset management segment’s results of operations are almost exclusively represented by Allianz Global Investors, which accounted for 99.7 % of our total asset management segment’s operating revenues in 2004. Accordingly, the discussion of our asset management segment’s results of operations for the years 2004 and 2003, relate solely to the operations of Allianz Global
_ In spite of the negative effects of exchange rate movements of ¤31 billion, our third-party assets, most of which are managed in U.S. dollars, increased by ¤20 billion, or 3.5 %, to ¤585 billion in 2004.
_ Operating profit improved by ¤123 million to ¤856 million in 2004. After deducting acquisition-related expenses, amortization of goodwill, taxes and minority interests, our asset management segment reported a net loss of ¤152 million in 2004 from a net loss of ¤270 million in 2003.
In all regions, the increase in operating expenses was below the growth we experienced in our operating revenues. This development was due primarily to strict cost management in all entities and restructuring measures initiated in 2002 and 2003, especially concerning our equity investment managers and our operations in
Germany. These restructuring measures, which include consolidating our product offerings, streamlining and automation of our back-office operations, and reduction of our headcount, led to a decrease in our cost base and improved operational efficiency.
Excluding the effects from exchange rate movements, our costincome ratio improved to 62.9 % in 2004.
Net Income Net income of Allianz Global Investors was a lower-than-expected loss of € 157 million in 2004, representing a significant improvement from the loss of € 270 million in 2003. Acquisition-related expenses and amortization of goodwill, in aggregate, amounted to € 803 million in 2004 as compared to € 836 million in 2003.
Thereof, amortization of goodwill and amortization related to capitalized loyalty bonuses for PIMCO management was € 380 million and € 125 million, respectively, in 2004. These loyalty bonuses expire in 2005. Of the total acquisition-related expenses, € 125 million was related to retention payments for the management and employees of PIMCO and Nicholas Applegate and € 173 million was due to the deferred purchases of interests in PIMCO.
The following table sets forth certain key data concerning our asset management operations at December 31 for the years indicated: We manage our third-party asset management business primarily through our asset management subsidiary Allianz Global Investors
Investors managed approximately € 550 billion, or 94.0 %, of our third-party assets under management and approximately € 214 billion, or 44.8 %, of our group’s own investments. The remainder of our third-party assets are managed by Dresdner Bank (approximately € 19 billion, or 3.2 %) and other Allianz Group companies
The following tables show our third-party assets under management by investment category and by investor class at December 31 for the years indicated:
and 23.6 % were invested in fixed income securities and equities, respectively. Institutional customers accounted for 59.3 % of our third-party assets under management. This customer segment requires us to provide the highest standards in terms of quality of products and services. Our high standards also benefited our retail clients, which accounted for 40.7 % of our third-party assets under management.
Bond Total Return Funds, recorded assets under management of € 5.5 billion at December 31, 2004. With net inflows of more than € 1.9 billion in 2004, it was once again Germany’s best selling fixed-income fund.
United States At December 31, 2004, our asset management companies in the
United States managed third-party assets of € 411.0 billion, reflecting an increase of € 18.6 billion. On a constant currency basis, third-party assets under management increased by € 51.5 billion in 2004. Assets managed for institutional investors in the United
In 2004, Allianz Global Investors achieved net inflows from mutual funds of € 2.3 billion. According to the Bundesverband
Investment und Asset Management (or “BVI”), an association representing the German investment fund industry, Allianz Global
In the institutional special funds (or “Spezialfonds”) business, assets managed increased from € 68.4 billion in 2003 to € 74.7 billion in 2004. With a market share of 14.1 %, we again achieved a top position among German asset management companies.
Investments in associated enterprises and joint ventures 48,359 5,532 3,112 3 (51,174 ) 5,832
Funds held by others under reinsurance contracts assumed 7,584 120 — — (6,103 ) 1,601
Trading portfolio 1) Group’s own investments are stated at balance sheet value. Fair values amounted to ¤6,372 mn on investments in associated enterprises and joint ventures and to ¤14,181 mn on real estate used by third-parties.
2) Consists of loans issued by Allianz Group operating entities within the Property-Casualty and Life/Health segments (¤21,561 mn), bank deposits (¤8,481 mn), as well as loans to associated enterprises and joint ventures (¤8 mn).
The following tables set forth the components of our group’s own investment portfolios by investment category at the end of the years indicated. Consistent with our general practice, amounts by investment category are presented before consolidation adjustments representing the elimination intra-Allianz Group investment holdings held by Allianz Group companies in different segments.
Real estate owned by the Allianz Group and used for its own activities is, however, not considered by management to be an investment and, therefore, does not mirror the real estate category under Note 39 to our Consolidated Financial Statements.
Investments in associated enterprises and joint ventures 48,385 5,717 3,303 6 (50,969 ) 6,442
Real estate used by third-parties 3,391 6,014 1,094 2 – 10,501
The following tables set forth the components of our investment results by segments for the years indicated. Consistent with our general practice, investment results by segments are presented before consolidation adjustments representing the elimination of intercompany transactions between Allianz Group companies in different segments.
Depreciation and impairments on investments1) (634 ) (330 ) (433 ) – (36 ) (1,433 )
Investment management, interest charges and other investment expenses1) (814 ) (483 ) – (8 ) 260 (1,045 )
4) These amounts include policyholders’ participation. 5) As a result of a new U.S. GAAP accounting standard (SOP 03-1), investments from certain unit-linked contracts were reclassified from separate account assets to trading assets, which are included within group’s own investments. This change led to an equal increase in both net trading income and net insurance benefits.
The total result from investments increased by € 2,370 million, or 13.5 %, to € 19,953 million in 2004 from € 17,583 million in 2003, largely as a result of higher trading income in 2004. Net trading income in 2003 had been negatively impacted by certain financial derivative instruments that were used in a macro hedge for hedging our equity exposure. In addition, net trading income in 2004 was positively affected by the application of a new U.S.
Depreciation and impairments on investments1) (1,911 ) (2,352 ) (691 ) (1 ) (23 ) (4,978 )
Investment management, interest charges and other investment expenses1) (1,285 ) (516 ) – (14 ) 525 (1,290 )
2) Excludes interest and similar income from loans issued by the Allianz Group’s banking operating entities. 3) Represents net trading income. 4) These amounts include policyholders’ participation.
Banking Banking investments increased by € 26,399 million to € 117,304 million in 2004 from € 90,905 million in 2003, due primarily to an increased trading portfolio. The total investment result from banking investments rose by € 278 million, to € 2,647 million in 2004 from € 2,369 million in 2003, due primarily to higher net realized investment gains and lower impairments on investments.
Current income from investments decreased by € 13 million, or 46.4 %, to € 15 million in 2004, compared with € 28 million in 2003, while realized gains decreased to € 19 million in 2004 from € 24 million in 2003. Investment expenses decreased by € 8 million, or 42.1 %, to € 11 million in 2004 from € 19 million in 2003.
These regional Finance Committees draw up local investment guidelines for their particular locations. Operational responsibility for investment portfolios lies within the local units.
Limitation of such legal risks is a major task of our Legal Department, carried out with support from operating departments. The objective is to ensure that laws are observed, to react appropriately to all impending legislative changes or new court rulings, attend to legal disputes and litigation, and provide legally-appropriate solutions for transactions and business processes.
The Trend Assessment Committee is responsible for the early recognition of new risks. Their role is to study and evaluate changes that may have a major impact on the Allianz risk situation.
Minimum Standards). These requirements, which are applicable for the entire Group, are to be implemented by operating entities
We have a risk management system at our disposal that clearly exceeds regulatory requirements.
In our business, successful management essentially means controlling risks in order to protect the financial strength of the Allianz
Board of Management of Allianz AG formulates the business objectives and allocates the capital resources of the Allianz Group according to return-on-investment and risk criteria.
Group Risk Control, which reports to the Chief Financial Officer, develops methods and processes for risk assessment and control on a group-wide basis. On this basis, it forms an overview of local and global risks, derives the risk situation of the Allianz
Within our risk governance policy, local units assume independent responsibility for their own risk control, as ultimately, it is they who have to respond quickly to risk changes in a market-oriented manner. At the same time, this independent responsibility enables operating units to meet the applicable legal requirements at their respective locations.
Our internal risk capital model evaluates quantifiable risks within a set timeframe and displays potential loss. This model allows us to evaluate internal data using methods based on the theory of probability. This process takes into account the special characteristics of our local entities as well as the specific nature of their risks. Portfolio effects are also incorporated into our risk analyses. With the internal risk capital model, we are able to evaluate risks even more precisely and optimize allocation of capital within the Allianz Group.
_ Business risks Costs risks and operational risks, i. e. risks associated with external events or arising from insufficient or failing internal processes, procedures and systems.
As a minimum, the capital we allocate to our local units in accordance with the internal risk capital model meets the requirements for an “A” rating from Standard & Poor’s. Diversification effects result in a capitalization of the Allianz Group equivalent to an
Limit system We introduced a limit system for credit risks that is applicable over the entire Group. The limit system aggregates major risks of group-wide significance from credit insurance, lending and our capital investments and serves as the basis for controlling the risk on a group-wide basis and detecting creditworthiness risks at an early stage.
A depreciation of the U.S. dollar of 10 % against the euro would have reduced the shareholders’ equity by € 0.9 billion at the end of the year. The effects of derivatives are disregarded in these model calculations.
We limit liquidity risks by continually reconciling the cash flow from our investment portfolio with our payment liabilities. We employ actuarial methods for estimating our payment liabilities arising from insurance contracts.
Credit risks The Allianz Group limits its liability from insurance business by ceding part of the risks it assumes to the international reinsurance market. To control the credit risk this creates, we compile groupwide data on receivables from insurance losses. Approximately 81 % of these Allianz Group receivables are distributed over external reinsurers with an Investment Grade Rating. More than 75 %
We limit investment credit risks by setting high requirements on the creditworthiness of our debtors and by spreading the risk.
Through our central credit risk management, we consolidate our exposure according to debtors and across all investment categories and business segments, and monitor the total exposure of the
Premium risks of the Allianz Group are controlled primarily with the help of actuarial models used to calculate premiums and monitor claim patterns. In addition, we issue guidelines for underwriting insurance contracts. Natural disasters such as earthquakes, storms and floods represent a special challenge for risk management. The recent Asian Tsunami has shown how devastating the effects of such events can be across national borders. This disaster – and the possible dangers from global climate change – emphasize the significance of risk quantification and management for natural disasters. The relatively low net claims against the Allianz Group from the series of hurricanes in 2004 show that active portfolio management can reduce the effects on results by means of a selective and disciplined underwriting policy. The increasing claims volume worldwide is caused by an increasing concentration of insured values in especially endangered areas. In order to manage such risks and better estimate the potential effects of natural disasters, we use special modeling techniques, in which we combine information about our portfolio – the geographic distribution of insurance amounts for instance – with simulated natural disaster scenarios in order to estimate a figure for the potential damage.
We control reserve risks by constantly monitoring the development of the provisions for insurance claims that have been submitted but not yet settled in all companies, and amend the provisions as necessary. For this, we use special actuarial methods. For calculating insurance provisions in life insurance, the biometric assumptions, such as life expectancy, disability and illness, play a major role. If available, we use assumptions approved by supervisory authorities and actuarial associations.
The operational risks are limited by a wide range of technical and organizational measures. We are attempting to reduce such risks by installing a comprehensive system of internal controls and security systems in each operating unit.
Market risks Dresdner Bank uses a proprietary value-at-risk model that takes into account all aspects of general and specific risks. The valueat -risk is defined as a maximum loss that is not exceeded with a confidence level of 99 % and a holding period of 10 trading days.
Value-at-risk is only one of the instruments used to characterize and control the risk profile of the Dresdner Bank Group. In addition, the bank also uses operational risk indicators and limits, which are specifically adapted to the risk situation of the trading units. Trading is controlled by setting value-at-risk and operation al market risk limits. Current limit utilization is determined and monitored by Risk Controlling on a daily basis. Limit breaches are immediately indicated to the management concerned so that corrective action can be taken.
Market risks in the trading portfolio The value-at-risk (99 % confidence level, 10-day holding period) from the Dresdner Bank’s trading activities at the end of 2004 fell by € 46 million to € 50 million compared to the previous year.
A L L I A N Z G R O U P 91
Year Ending Annual statistics 2004 Year Ending 2004 Mean Maximum Minimum 2003 value value value
Banking book market risks This risk mainly comprises the risk of interest changes and is analyzed on the basis of sensitivity and value-at-risk indicators. As in the case of trading, the bank controls this risk by setting value-at-risk limits. At the end of 2004, the value-at-risk (99 % confidence level, 10-day holding period)
for interest rate risks at the Dresdner Bank Group fell to € 8.6 million (compared to € 31.2 million in previous year).
Credit risks This category includes credit and counterparty risks from loans and advances, issuer risks from the securities business, counterparty risks from trading activities and country risks.
The central element in the approval, monitoring and control process is the rating of our customers. In this process, the various creditworthiness characteristics of the customers are presented in the form of rating classes. To categorize the default probability of a borrower, a system with 16 different rating classes is used. The first six classes correspond to “investment grade”, classes VII to
are default classes according to the Basel II Definition. At the end of fiscal 2004, about 78 % of all credit risks in the trading and banking portfolios of the Dresdner Bank Group fell into rating classes I to VI.
The volume of the overall portfolio is to a great extent determined by the bank’s trading business, which involves primarily transactions with counterparties in rating classes I to VI, i. e. with state and local agencies and financial services providers. These counterparties account for approximately 89 % of the bank’s trading business and 60 % of its total portfolio.
Credit and counterparty risks from loans and advances Of the Bank’s lending, 34 % is accounted for by the Personal Banking sector, 15 % by the Private & Business Banking sector, 34 % by the Corporate Banking sector, 11 % by Dresdner Kleinwort Wasserstein and 6 % by the Institutional Restructuring Unit (IRU). The riskoriented portfolio reduction by the IRU and the improvements already made in lending procedures are reflected in the improved average default probability of the loan portfolio.
Credit and counterparty risks from loans and advances by rating classes in %
In the rated derivatives portfolios of Dresdner Bank, 96 % of the positive replacement values involve counterparties in risk classes
Business risks Dresdner Bank has a system for the systematic identification, measuring and controlling of operational risks. The essential risk factors are evaluated in the framework of a structured self-assessment. A loss database is employed to record and analyze losses that actually occur, and provides the basis for calculating the risk capital requirement.
A.M. Best as “a+” (outlook negative), and by Moody’s as „Aa3“
In the course of the current fiscal year we will further strengthen
As of January 1, 2005 additional supervision of financial conglomerates will operate in Germany, in implementation of an EU
Directive on the supplementary supervision of financial conglomerates. The details of the capital requirements are currently under discussion. For the first time, evidence relating to the fulfillment of capital requirements must be given on the basis of the 2005 financial statement. Initial test calculations, using target figures and assumptions regarding the as yet unsettled details of the executive order, show appropriate capital resources.
We are making intensive preparations for the expected changes in banking and insurance supervision: _ We are constantly improving the methodology of our internal risk model in order to meet future requirements on internal models (Solvency II).
In 2004, international HR activities focused primarily on introducing and implementing our new leadership values.
The customer orientation, commitment and professionalism of its employees have helped the Allianz Group achieve the position it holds today. The human resources policy of the Allianz Group is based on two organizational principles: delegation of operating responsibility to the individual company units, and close coordination in core areas. In human resources, this coordination primarily covers leadership values, development and training of junior managers, succession planning and the transfer of know-how between business units.
as well as our north american business. Slightly more than half of our employees work outside Germany. A detailed overview is provided by the chart and the table below.
Our leadership values provide the management team with an authoritative set of guidelines, which enable them to realize our strat egy of a value-creating corporate culture. They set out our intentions in terms of how we want to work with our customers and how we want to work together as a global team in order to provide outstanding services. These leadership values were introduced in the fall of 2003 and every year we check the extent to which they are being put in practice. Our last poll of managers throughout 60 Group companies was completed in October 2004 and shows that some impressive progress is being made. It also helps demonstrate that we are on the right track with our leadership values; the units that reported positive results were also generally the ones leading the field in the application of our leadership values. In view of this, adherence to these values is, from now on, to become a key factor of our managers’ responsibilities and annual goals. It must be clear that the Allianz Group is not concerned solely with the achievement of financial business objectives, but is also doing its utmost to determine how best to work together as a team to meet the high expectations of both shareholders and customers.
Our “Allianz Development Program” for gifted new recruits and management trainees has already offered many employees, from Central and Eastern Europe in particular, the chance to get to know new markets and enhance their experience across a variety of industries. In addition to numerous international projects, there are international teams of experts who provide “outsider” advice to companies through onsite visits and introduce the Group’s best process improvements or product innovations.
eLearning eLearning is a highly efficient way of training our employees and widening their horizons. In the year under review, we ensured that all our employees and sales agents from around the world had the technology to access our eLearning offerings. We also have course units that impart the general know-how necessary to succeed within the company; providing sales and product training courses, for instance, and courses on finance and project management. In the future, we intend to set up tailor-made intranet offerings. We are currently developing software for converting company-specific training material into eLearning format.
This will both save costs considerably and substantially increase the reach of our training courses. All in all, these offerings will significantly promote information exchange, common understanding of company objectives and real team awareness throughout the entire international company network. At the same time, it will appreciably accelerate the implementation of global initiatives.
Our senior management participates in the Group Equity Incentive Plan, which is made up of stock appreciation rights (SAR) and restricted stock units (RSU) and provides for a balanced incentive structure. The potential yield depends on the development of the
Allianz share price. The calculation takes into account the Economic Value Added (EVA®) of the Allianz Group and the EVA® of the respective Group company, as well as fullfillment of objectives related to cost of capital. The Group Equity Incentive Plan meets all requirements and recommendations of the German Corporate
More detailed information on stock-based remuneration is provided on pages 16 to 19 of this Annual Report.
The current economic climate is favorable for the financial services sector. We do not believe that banks will be forced to set aside higher provisions for losses. Also, we expect that U.S. companies will experience stronger profits growth in the second half of the year. This will lift the stock markets in the United States and lend fresh impetus to the international capital markets, which should provide a further boost to financial services providers.
Providers of property and casualty insurance will find it increasingly difficult to impose higher margins, especially in the fiercely contested, strategically important automobile insurance segment. Similar challenges will be faced by providers of industrial insurance. Overall, the ability of insurance companies to improve their earnings on property and casualty insurance will depend on the degree to which they adhere to a strictly risk-adequate underwriting policy. This business segment is likely to continue expanding in 2005, if for no other reason than the growing volume of potential losses around the world and the many natural disasters that occurred in 2004.
Business prospects not dampened by the slower pace of global economic growth
We expect that the global economy will grow at a somewhat less rapid pace in 2005 than it did in 2004. The cooling trend will likely be felt in all regions of the world. Nonetheless, global economic output will continue to expand. However, this trend is subject to the risk that rising energy prices could put a significant dent in global economic growth. Under the conditions known at the present time, the business prospects for providers of financial services continue to be good.
United States, economic growth will be constrained by the trade and budget deficits and by the fact that consumer spending will likely increase only moderately due to the high debt burden of private households and rising interest rates. Based on our observations, Japan’s economy will follow a similar pattern. Following growth of nearly 2.6 % in 2004, we are expecting a growth rate of only 1 % in 2005.
We will continue to execute our “3+One”program in 2005 with an increasing focus on managing for profitable and sustainable growth. We expect an overall increase of total revenues in line with 2004. We will concentrate our efforts to sustain and selectively improve operating profits. Within our property-casualty segment we are striving to maintain a strong combined ratio of below 95 %, even though in some markets, the potential for further rate increases may be limited. We are also confident that our Life/
In 2005, our consolidated net income will be positively affected by certain changes in international accounting standards (IFRS).
In addition, due to the stipulations of IAS 39 (revised), we will be required to reverse all write-ups within our equity investment portfolio retroactively, ultimately resulting in a higher potential for capital gains and reduced risk of impairment charges.
(clause 71 b AktG) are not entitled to receive a dividend. Further purchases or sales of own shares during the period prior to the
Cautionary Note Regarding Forward-Looking Statements Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words ‘may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, potential, or continue’ and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Allianz Group‘s core business and core markets, (ii) performance of financial markets, including emerging markets,
(iii) the frequency and severity of insured loss events, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) the extent of credit defaults (vii) interest rate levels, (viii) currency exchange rates including the Euro-U.S. dollar exchange rate, (ix) changing levels of competition, (x)
Sustainable Investment _ Allianz offers sustainable investment funds to private and institutional investors.
Analytics Initative. For this, 5 percent of their broker commission is reserved for companies whose analyses also include criteria such as climate change or health risks.
_ The code includes a clause on environmental protection to be upheld by each employee. It also stipulates a strict set of rules on the acceptance of gifts.
The Global Compact principles are: _ Companies should support and respect the protection of internationally proclaimed human rights and
_ the elimination of discrimination in respect of employment and occupation.
Climate Change Initiatives _ Allianz Group is the largest investor participating in the Carbon
_ Allianz, WWF and the Climate Group are engaged in a strategic dialog on the repercussions of climate change for the financial services sector.
Bank has taken a leading role in the trading of the certificates.
_ Allianz Bajaj in India already operates in the microinsurance area, and in collaboration with NGOs already sold more than 40,000 life-insurance policies to socially disadvantaged women.
Notes to the Consolidated Financial Statements 106 1 Issuance of the Declaration of Compliance with the German
157 26 Interest and similar income 158 27 Income (net) from investments in associated enterprises and joint ventures 158 28 Other income from investments 158 29 Trading income (net)
159 30 Fee and commission income, and income from service activities 160 31 Other income 161 32 Insurance benefits (net)
163 33 Interest and similar expenses 163 34 Other expenses from investments 163 35 Loan loss provisions 164 36 Acquisition costs and administrative expenses 166 37 Other expenses
Supplementary Information on Insurance and Banking Business 168 39 Supplementary information on insurance business 169 40 Supplementary information on banking business
Total equity and liabilities 994,698 935,912 *) As indicated in Note 3, reflects restatement. See accompanying notes to the consolidated financial statements.
Acquisition costs and administrative expenses 36 (22,240 ) (22,117 ) (24,502 )
Changes in the group of consolidated companies – 364 – – 364
The column foreign currency translation adjustments shows the currency translation differences accrued since January 1, 1997 (conversion to IFRS), which are recorded in shareholders’ equity and not recognized in net income.
Change in aggregate policy reserves (without aggregate policy reserves for life insurance products in accordance with SFAS 97) 15,181 12,051 6,039
Change in reserve for loss and loss adjustment expenses 2,476 1,016 2,530
Change in other insurance reserves (without change in the reserve for latent premium refunds from unrealized investment gains and losses) 1,678 (510 ) (4,681 )
Change in funds held by others under reinsurance business assumed 412 32 1,349
Change in funds held under reinsurance business ceded 175 234 (192 )
Change in liabilities to banks and customers 18,311 48,648 (8,215 )
Change in deferred tax assets/liabilities (without change in deferred tax assets/liabilities from unrealized investment gains and losses) 500 (714 ) (1,361 )
Adjustment for investment income/expenses not involving movements of cash (4,624 ) (1,539 ) 939
Change in cash and cash equivalents from the acquisition of consolidated affiliated companies (1,302 ) (1,450 ) (10,787 )
Change in investments held on account and at risk of life insurance policyholders (9,714 ) (7,856 ) (2,154 )
Change in aggregate policy reserves for life insurance products according to SFAS 97 7,920 7,819 10,808
Other from shareholders’ capital and minority interests (without change in revenue reserve from unrealized investment gains and losses) 1,888 391 3,625
Effect of exchange rate changes on cash and cash equivalents (24 ) (120 ) (109 )
Change in cash and cash equivalents (9,900 ) 4,520 (232 )
Issuance of the Declaration of Compliance with the German Corporate Governance Code according to clause 161 AktG On December 15, 2004, the Board of Management and the Supervisory
Board of Allianz AG 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 text of the Declaration of Compliance is also reproduced in the section Corporate Governance beginning on page 14 of this Annual Report.
The Declaration of Compliance of the two publicly traded group companies Allianz Lebensversicherungs-AG and Oldenburgische Landesbank
Nature of Operations Allianz Aktiengesellschaft (“Allianz AG”) and its subsidiaries (“the Allianz
Basis of Presentation The consolidated financial statements of the Allianz Group have been prepared in conformity with International Financial Reporting Standards
Supplementary cash flow information The data for the Allianz Group’s consolidated cash flow statements was prepared in accordance with International Financial Reporting Standards.
Dresdner Bank Group, Frankfurt am Main, and Slovenská poist’ovna a. s.,
Allianz Group’s consolidated cash flow statements. The deconsolidation led to a decrease in the value of investments held (excluding funds held by others) by ¤2,230 mn (2003: decrease of ¤24 mn; 2002: decrease of
Business combinations are accounted for by applying the purchase method. The purchase method requires that the Allianz Group allocate the cost of a business combination by recognizing the acquiree’s identifiable assets, liabilities and certain contingent liabilities at their fair values on the date of acquisition. The cost of a business combination represents the fair value of the consideration given and any costs directly attributable to the business combination. 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.
For business combinations with an agreement date before March 31, 2004, minority interests are recorded at the minority’s proportion of the pre-acquisition carrying amounts of the identifiable assets and liabilities.
Foreign Currency Translation Foreign currency is translated in accordance with IAS 21, The Effects of
The functional currencies for the Allianz Group’s subsidiaries are usually the local currency of the relevant company, e.g., the prevailing currency in the environment where the subsidiary carries out its ordinary activities.
In accordance with the functional currency method, assets and liabilities are translated at the closing rate on the balance sheet date and income and expenses are translated at the annual average rate in all financial statements of subsidiaries not reporting in Euro. Any foreign currency translation differences, including those arising in the process of equity consolidation, are recorded directly as foreign currency translation adjustments, in shareholders’ equity.
(transactions in a currency other than the functional currency of the entity)
Goodwill resulting from business combinations after December 31, 1994 and before March 31, 2004, was amortized on a straight-line basis over its estimated useful life, which is generally ten years for property-casualty insurance enterprises, twenty years for life/health insurance enterprises, ten years for banks and twenty years for asset management companies.
Goodwill resulting from business combinations after December 31, 1994 and before March 31, 2004, is carried at cost less accumulated amortization and impairments. As of January 1, 2005, goodwill resulting from business combinations after December 31, 1994 and before March 31, 2004, is not subject to amortization.
The Allianz Group conducts an annual impairment test of goodwill on
was determined using discount rates ranging from 12 % to 15 %. Interest accrues on the unamortized PVFP balance based upon the policy liability rate or contract rate. Interest rates between 3.5 % and 8.5 % were applied for interest not yet due.
Software includes software purchased from third parties or developed internally, which are amortized on a straight-line basis over their useful service lives or contractual terms, generally over 3 to 5 years. Costs for repairs and maintenance are expensed, while improvements if they extend the useful life of the asset are capitalized. For the Allianz Group’s Property-
Casualty and Life/Health segments amortization of software is allocated amongst several line items according to cost allocation. Amortization of software related to the Allianz Group’s Banking and Asset Management segments is included in administrative expenses within the Allianz Group’s consolidated income statement.
Investments in associated enterprises and joint ventures Associated enterprises are enterprises over which an enterprise included in the consolidated financial statements can exercise a significant influence, and which is not a joint venture. A significant influence is presumed to exist where an enterprise is entitled, directly or indirectly, to at least 20 % but no more than 50 % of the voting rights.
Investments in associated enterprises and joint ventures are generally accounted for using the equity method, such that the carrying value of the investment represents the Allianz Group’s proportionate share of the entities’ net assets. The Allianz Group accounts for all material investments in associates on a time lag of no more than three months.
Investments Investments include securities held-to-maturity, securities available-forsale, real estate used by third parties and funds held by others under reinsurance contracts assumed.
Securities available-for-sale are securities that are not classified as held-to-maturity or trading assets. Securities available-for-sale are carried at fair value. Unrealized gains and losses, which are the difference between fair value and cost (amortized cost in the case of fixed income securities), are included as a separate component of shareholders’ equity, net of deferred taxes, or, taken to 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. Realized gains and losses on securities are generally determined by applying the average cost method.
Recognition of an impairment loss on held-to-maturity and availablefor -sale fixed income securities is recorded if a decline in fair value below amortized cost is considered other-than-temporary. If all amounts due according to the contractual terms of the security are not considered collectible, typically due to a deterioration in the creditworthiness of the issuer, the security is considered to be other-than-temporarily impaired.
For equity securities, if, in a subsequent period, the amount of an otherthan -temporary impairment previously recorded on a security decreases, the other-than-temporary impairment is reversed through other income from investments in the Allianz Group’s consolidated income statement.
For both equity and fixed income securities, such reversals do not result in a carrying amount of a security that exceeds what would have been, had the other-than-temporary impairment not been recorded, at the date of the impairment is reversed.
Separate account assets and liabilities Separate account assets are measured at fair value and reported in the consolidated balance sheet as a summary total, with an equivalent summary total reported for the related separate account liabilities, if the following conditions are met: _ the separate account is legally recognized,
_ the separate account assets are legally insulated from the general account liabilities of the issuing insurance company,
_ the insurance company must, as a result of contractual, statutory or regulatory requirements, invest the contract holder’s funds within the separate account as directed by the contract holder in designated investment alternatives or in accordance with specific investment objectives or policies, and
Group that are not intended to be sold in the near term are generally carried at their outstanding unpaid principal balance, net of the loan loss allowance, deferred fees and costs on origination, and unamortized premiums or discounts. Interest revenues are accrued on the unpaid principal balance, net of charge-offs. Using the effective interest method, net deferred fees and premiums or discounts are recorded as an adjustment of the interest revenue yield over the lives of the related loans.
Loans are placed on non-accrual status when management deter mines that the payment of principal or interest is doubtful. Management’s judgment is applied based on its credit assessment of the borrower. Non-accrual loans consist of loans on which interest income is no longer recognized on an accrued basis, and loans for which a specific provision is recorded for the entire amount of accrued interest receivable. When a loan is placed on non-accrual status, any accrued interest receivable is reversed against interest and similar income in the consolidated income statement.
Loans can only be restored to accrual status when interest and principal payments are made current (in accordance with the contractual terms), and in management’s judgment, future payments in accordance with those terms are reasonably assured. When there is a doubt regarding the ultimate collectibility of the principal of a loan placed in non-accrual status, all cash receipts are applied as reductions of principal. Once the recorded principal amount of the loan is reduced to zero, future cash receipts are recognized as interest income.
Loans and advances to banks and customers include reverse repurchase (“reverse repo”) transactions and securities borrowing transactions. Reverse repo and securities borrowing transactions involve the purchase of securities by the Allianz Group from a counter-party, subject to a simultaneous obligation to sell these securities at a certain later date, at an agreed upon price. If control of the securities remains with the counter-party over the entire lifetime of the agreement of the transaction, the securities concerned are not recognized in the Allianz Group’s consolidated balance sheet. The amounts of cash disbursed are recorded under loans and advances to bank and customers, as appropriate, within the
Securities borrowing transactions generally require the Allianz Group to deposit cash with the securities´ lender. Fees paid are reported as interest expense in the Allianz Group´s consolidated income statement.
To allow management to determine the appropriate level of the loan loss allowance, all significant counterparty relationships are periodically reviewed. A specific allowance is established to provide for specifically identified counterparty risks. Specific allowances are established for impaired loans. The amount of the impairment is based on the present value of expected future cash flows or based on the fair value of the collateral if the loan is collateralized and foreclosure is probable. If the amount of the impairment subsequently increases or decreases due to an event occurring after the initial measurement of impairment, a change in the allowance is recognized in earnings by a charge or a credit to the loan loss provisions.
A country risk allowance is established for transfer risk. Transfer risk is a measure of the likely ability of a borrower in a certain country to repay its foreign currency-denominated debt in light of the economic or political situation prevailing in the country. Country risk allowances are based on a country risk rating system that incorporates current and historical economic, political and other data to categorize countries by risk profile.
Loans are charged-off when, based on management’s judgment, all economically sensible means of recovery have been exhausted. At the point of charge-off, the loan as well as any specific allowance associated with the loan must be removed from the consolidated balance sheet or a charge may be recorded to directly charge-off the loan. A charge-off may be full or partial. Subsequent to a charge-off, recoveries, if any, are recognized in the consolidated income statement as a credit to the loan loss provisions.
The loan loss provisions, which are recognized in the consolidated income statement, is the amount necessary to adjust the loan loss allowance to a level determined through the process described above.
Exchange-traded financial instruments are valued at the exchange prices prevailing on the last exchange trading day of the year. To determine the fair values of unlisted financial instruments, quotations of similar instruments or other valuation models (in particular present value models or option pricing mod els) are used. In the process, appropriate adjustments are made for credit and measurement risks.
Derivative financial instruments The Allianz group’s property-casualty and life/health segments use derivative financial instruments such as swaps, options and futures to hedge against changes in prices or interest rates in their investment portfolios.
For derivative financial instruments used for hedging purposes that meet the criteria for hedge accounting, the Allianz Group designates the derivative financial instrument as a fair value hedge, cash flow hedge, or hedge of a net investment in a foreign entity. Pursuant to IAS 39, the Allianz
Group documents the hedge relationship, as well as its risk management
Allianz Group also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative financial instruments that are used for hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items.
Hedge accounting may be applied to hedge a net investment in a foreign entity (hedged item). Derivative financial instruments (hedging instrument ) are used to hedge currency risk. The proportion of gains or losses arising from valuation of the hedging instrument, which is classified as an effective hedge, is recognized in shareholders’ equity, while the ineffective part is recognized in the consolidated income statement.
Allianz Group continues to carry the derivative financial instrument on the consolidated balance sheet at its fair value and any net unrealized gains and losses accumulated in shareholders’ equity are recognized immediately in the consolidated income statement. When a hedge of a net investment in a foreign entity is discontinued, the Allianz Group continues to carry the derivative financial instrument on the consolidated balance sheet 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.
Cash and cash equivalents Cash and cash equivalents include balances with banks payable on demand, balances with central banks, checks and cash on hand, treasury bills (to the extent they are not included in trading assets), and bills of exchange which are eligible for refinancing at central banks, subject to a maximum term of six months from the date of acquisition. Cash and cash equivalents are stated at their face value, with holdings of foreign notes and coins valued at year-end closing prices.
Reinsurance Premiums ceded for reinsurance and reinsurance recoveries on benefits and claims incurred are deducted from premiums earned and insurance benefits. Assets and liabilities related to reinsurance are reported on a gross basis. Amounts ceded to reinsurers from insurance reserves are estimated in a manner consistent with the claim liability associated with the reinsured risks. Accordingly, revenues and expenses related to reinsurance agreements are recognized consistent with the underlying risk of the business reinsured.
Real estate owned by the Allianz Group used for its own activities
is carried at cost less accumulated depreciation and impairments. The capitalized cost of buildings is calculated on the basis of acquisition cost and depreciated on a straight-line basis over a maximum of 50 years in accordance with their useful lives. Costs for repairs and maintenance are expensed, while improvements if they extend the useful life of the asset are capitalized. An impairment is recognized when the recoverable amount of these assets is less than their carrying amount.
_ incremental to amounts the Allianz Group credits on similar contracts without sales inducements, and
_ higher than the contract’s expected ongoing crediting rates for periods after the inducement.
Group continues to control the financial assets transferred and retains the servicing of such loans.
Group’s consolidated balance sheet. Payments made under operating leases to the lessor are charged to administrative expenses using the straightline method over the period of the lease. When an operating lease is terminated before the lease period has expired, any penalty is recognized in full as an expense at the time when such termination takes place.
Shareholders’ equity Paid-in capital includes issued capital and capital reserves. Issued capital represents the mathematical per share value received from the issuance of shares. Capital reserves represent the premium (additional paid in capital)
Revenue reserves include the retained earnings of the Allianz Group and treasury stock. In the case of acquisitions prior to January 1, 1995, translation differences arising on first-time consolidation have also been recorded in revenue reserves. Treasury stock held by the Allianz Group is stated as own shares held by the Allianz Group. These shares are deducted from shareholders’ equity at cost. Gains and losses arising from trading in treasury stock held by the Allianz Group are added to revenue reserves after income tax has been deducted.
Unrealized gains and losses on investments available-for-sale include derivative financial instruments used for hedge purposes that meet the criteria for hedge accounting, including cash flow hedges and hedges of a net investment in a foreign entity.
Certificated liabilities, participation certificates and subordinated liabilities Certificated liabilities, participation certificates and subordinated liabilities are initially measured at cost, which is the fair value of the consideration received, net of transaction costs incurred. Subsequent measurement is at amortized cost, using the effective interest method to amortize the premium or discount to the redemption value over the life of the liability.
Non-interest bearing liabilities such as zero-coupon bonds are valued at their present value on initial recognition and written up in accordance with the effective interest method at the effective interest rate.
Unearned premiums for reinsurance business assumed are generally based on the calculations of the cedent. Deferred policy acquisition costs for short-duration insurance contracts are amortized over the periods in which the related premiums are earned.
The aggregate policy reserves for long-duration insurance contracts, such as traditional life and health products, are computed in accordance with SFAS 60 using the net level premium method, which represents the present value of estimated future policy benefits to be paid less the present value of estimated future net premiums to be collected from policyholders. The method uses best estimate assumptions for mortality, morbidity, expected investment yields, surrenders and expenses at the policy inception date, which remain locked-in thereafter. Deferred policy acquisition costs and PVFP for traditional life and health products are amortized over the premium paying period of the related policies in proportion to the earned premium using assumptions consistent with those used in computing the aggregate policy reserves. The aggregate policy reserves, deferred policy acquisition costs and PVFP are adjusted for a provision of adverse deviation, which is used to provide a margin for fluctuation and uncertainty inherent in the assumption setting process.
The aggregate policy reserves for traditional participating insurance contracts are computed in accordance with SFAS 120 using the net level premium method. The method uses best estimate assumptions for mortality, morbidity and interest rates that are guaranteed in the contract or are used in determining the dividends. Deferred policy acquisition costs and PVFP for traditional participating products are amortized over the expected life of the contracts in proportion to estimated gross margins
Contractually agreed sales inducements to contract holders include persistency bonuses and are accrued over the period in which the insurance contract must remain in force to qualify for the inducement.
IBNR reserves are established to recognize the estimated cost of losses that have occurred but where the Allianz Group has not yet been notified.
IBNR reserves, similar to case reserves for reported claims, are estab lished
The process of estimating loss and LAE reserves is by nature imprecise due to the large number of variables affecting the ultimate amount of claims. Some of these variables are internal, such as changes in claims handling procedures, introduction of new IT systems or company acquisitions and divestitures. Others are external, such as inflation, judicial trends, and legislative changes. The Allianz Group attempts to reduce the uncertainty in reserve estimates through the use of multiple actuarial and reserving techniques and analysis of the assumptions underlying each technique.
Premium deficiency reserves are calculated individually for each insurance portfolio on the basis of estimates of future claims, costs, premiums earned and proportionate investment income. For short duration contracts, a premium deficiency is recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, unamortized acquisition costs, and maintenance expenses exceeds related unearned premiums while considering anticipated investment income. For long duration contracts, if actual experience regarding investment yields, mortality, morbidity, terminations or expense indicate that existing contract liabilities, along with the present value of future gross premiums, will not be sufficient to cover the present value of future benefits and to recover unamortized acquisition costs, then a premium deficiency is recognized.
Liabilities to banks and customers Liabilities to banks and customers includes repurchase (“repo”) transactions and securities lending transactions. Repo transactions involve the sale of securities by the Allianz Group to a counter-party, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed price. If control of the securities remains with the Allianz
In securities lending transactions the Allianz Group generally receives cash collaterals which are reported as liabilities to banks or liabilities to
A L L I A N Z G R O U P 115 N O
customers in the Group´s balance sheet. Fees received are shown as interest income the the Group´s income statement.
Other accrued liabilities The Allianz Group uses the projected unit credit actuarial method to determine the present value of its defined benefit plans and the related service cost and, where applicable, past service cost. The principal assumptions used by the Allianz Group are included in Note 22. The census date for the primary pension plans is October or November, with any significant changes through December 31, taken into account.
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 projected 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 in net periodic benefit cost in the consolidated income statement over the expected average remaining working lives of the employees participating in the plans.
Accrued taxes are calculated in accordance with relevant local tax regulations.
Restructuring reserves are defined by programs, which will lead to material changes in the entity’s business purpose. The relevant program must be bindingly planned, executed and monitored.
Premiums Property-casualty insurance premiums 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 cover the unexpired portion of written premiums.
Health insurance premiums for long duration contracts such as noncancelable and guaranteed renewable contracts that are expected to remain in force over an extended period of time are recognized as earned when due. Premiums for short duration health insurance 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 cover the unexpired portion of written premiums.
Life insurance premiums on traditional life insurance policies are rec ognized as earned when due. Premiums on short duration life insurance policies 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 cover the unexpired portion of written premiums. Benefits are recognized when incurred.
Interest income from lending business is recognized using the effective interest method. This line item also includes dividends from available-forsale equity securities and interest recognized on finance leases. Dividends are recognized in income when received. Interest on finance leases is recog nized in income over the term of the respective lease so a constant period yield based on the net investment is attained.
Trading income (net) Trading income comprises all realized and unrealized gains and losses from trading assets and trading liabilities. In addition, commissions and all interest and all dividend income attributable to trading operations and related interest expense and transaction costs are included in this line item.
Income (net) from investments in associated enterprises and joint ventures Income from investments in associated enterprises and joint ventures includes dividends from equity securities and the share of net income from enterprises accounted for using the equity method. Dividends are recognized in income when received. Income from investments in associated enterprises and joint ventures is presented net of related expenses.
(or exercise) price, if any, of the award and is recognized as expense over the vesting period. The amount of total compensation expense for these awards is remeasured at each reporting date based on the underlying share price and is recorded in other accrued liabilites until paid. Compensation expense is reversed in the period in which an unvested award is forfeited. The Allianz Group stock-based compensation plans are more fully described in Note 46.
Explanation of the accounting and valuation policies differing from German law The most important differences are summarized below: Assets
Under IAS-SIC 12 all investment funds in which the Group has holdings in excess of 50.0 % are included within the scope of consolidation. Under
IFRS rules and HGB in the case of investments, trading activities and reserves. The following summary explains the most important aspects of
IFRS which differ from HGB: Claim equalization reserves Claim equalization reserves and major risk reserves are not allowed under IFRS because they do not represent a present obligation toward third parties. The net result for the year is not affected by transfers to or from such reserves.
Treasury shares Under IFRS rules, treasury shares held for account of
In accordance with HGB, goodwill was charged against revenue reserves without affecting earnings.
3 Restatement of prior period consolidated financial statements, changes to significant accounting and valuation policies, recently issued accounting pronouncements, and recently adopted accounting pronouncements
For the year ended December 31, 2002, gross unrealized losses on available -for-sale equity securities included ¤764 mn related to nine specific equity securities (the “Nine Positions”) for which the Allianz Group did not record impairments in 2002 although they were 20 % or more below the Allianz Group weighted-average acquisition cost for the 6 months preceding December 31, 2002. As a result of a comprehensive analysis of each of the Nine Positions, the Allianz Group had concluded that the unrealized losses on those securities were not indicative of objective evidence of impairment. For the year ended December 31, 2003, the Allianz
Subsequent to the release in March 2004 of the Annual Report (Geschäftsbericht ), the Allianz Group has restated its 2002 consolidated financial statements to recognize impairments on the Nine Positions. Further, the Allianz Group restated its 2003 consolidated financial statements to reflect the reversal of the impairments recorded in 2003 on seven of the
December 31, 2003 and 2002 are as follows: ¤ mn 1) ¤ mn1)
Diluted earnings per share – as previously reported2) 4.77 (4.44 )
The Allianz Group’s impairment policy for investment securities is more fully described in Note 2.
Under this method, stock-based employee compensation cost is recognized from the beginning of 2003 as if the fair value method of accounting had been used to account for all employee awards granted, modified, or settled in years beginning after December 15, 1994. Prior period financial statements were not restated.
Share-based compensation expense determined under fair value method for all awards, net of related tax effects (313 ) (206 ) (68)
In December 2003, the IASB issued the revised IAS 32, Financial Instruments: Disclosure and Presentation (“IAS 32 revised”). According to IAS
32 revised, a financial instrument qualifies as a financial liability of the issuer if it gives the holder the right to put the instrument back to the issuer for cash or another financial asset (a ’puttable instrument’). The classification as a financial liability is independent of considerations such as when the right is exercisable, how the amount payable or receivable upon exercise of the right is determined, and whether the puttable instrument has a fixed maturity. IAS 32 revised is effective on January 1, 2005. As a result, the Allianz Group will recognize certain financial liabilities, related to certain consolidated investment funds that were previously considered equity and recognized as minority interests in shareholders’ equity in the consolidated balance sheet.
Further, IAS 39 revised, created a new category, designated at fair value through profit and loss, for financial assets and liabilities. Financial assets and liabilities designated at fair value through profit will be recognized at fair value with change recognized in net income.
In December 2003 and April 2004, the IASB issued improvements to 15 standards. Each of these revised standards are effective on January 1, 2005. As a result of the adoption of IAS 1 revised, the Allianz Group will reclassify minority interests in shareholders’s equity into equity in the consolidated balance sheet as of Janruary 1, 2005.
(“IFRS 2”). In accordance with IFRS 2, share-based compensation plans are required to be classified as equity settled or cash settled plans. Equity settled plans are measured at fair value on the grant date and recognized as expense in the income statement, with an increase in shareholders’
equity, over the vesting period. Cash settled plans are measured at fair value at each reporting date and recognized as liabilities. Changes in the fair value of cash settled plans are recognized as expense in the income statement. Share based compensation plans that have settlement alternatives must be accounted for as cash settled plans if the company has
“puttable instrument” concept of IAS 32 revised, which requires that such instruments be classified as liabilities rather than equity instruments. IFRS
In March 2004, the IASB issued IFRS 4, Insurance Contracts (“IFRS 4”).
Certified Public Accountants (“AICPA“) Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for certain Nontraditional Long-
_ capitalizing sales inducements that meet specified criteria and amortizing such amounts over the life of the contracts using the same methodology as used for amortizing deferred policy acquisition costs, and immediately expensing those sales inducements not meeting such criteria,
_ recognizing contract holder liabilities for persistency bonuses and other sales inducements.
The effect of initially adopting SOP 03-1 was reported in the consolidated statements of changes in shareholders’ equity in the amount of ¤10 mn, net of taxes. In addition, the Allianz Group reclassified ¤26,238 mn of assets and liabilities from separate accounts to general accounts.
Chairman, who has double board voting rights, thereby giving the Allianz Group a majority of board votes. The shareholder agreements for
CreditRas, Duerrevita (merged in 2002 with CreditRas) and Antoniana are subject to automatic renewal and are not terminable prior to their stated terms.
As of December 31, 2004, there were 11 (2003: 13; 2002: 12) joint ventures that were accounted for using the equity method; each of these enterprises is managed by Allianz AG together with a third party not consolidated in the Allianz Group’s consolidated financial statements.
Additionally, there were 181 (2003: 170; 2002: 198) associated enterprises accounted for using the equity method as of December 31, 2004.
All affiliated companies, joint ventures, and associated enterprises are individually listed in the disclosure of equity investments filed with the
Four Seasons Health Care Ltd., Wilmslow 8/31/2004 163 3) 2 141 –
Four Seasons Health Care Ltd., Wilmslow On August 16, 2004, the
The Allianz Group acquired the following additional interests in already consolidated subsidiaries: Riunione Adriatica di Sicurtà S.p.A., Milan On February 17, 2003, the
December 2, 2003, the Allianz Group increased its interest in Münchener und Magdeburger Agrarversicherung AG, Munich, by 6.1 % to 58.5 %. The acquisition cost for the additional interest was ¤0.2 mn.
PIMCO Advisors L.P., Delaware In April 2003, July 2003 and October 2003, the Allianz Group increased its interest in PIMCO Advisors L.P.,
The principal companies deconsolidated in the course of the year are presented in the following table: Effects on the Consolidated Financial Statements for 20041)
Date of Gross Premiums Net Income Disposed Goodwill Deconsolidation charged to Income 2)
Allianz President General Insurance Co. Ltd., Taipeh 9/27/2004 69 10 4
1) Consolidated in the business segments. 2) At the date of deconsolidation.
AFORE Allianz Dresdner S. A. de C. V., Mexico City 11/11/2003 – 10 117
AGF AZ Chile Vida, Santiago de Chile 4/29/2003 – – –
AGF Belgium Bank S. A., Brussels 12/15/2003 – (5 ) –
Allianz Parkway Integrated Care Pte Ltd., Singapore 9/30/2003 7 – –
Pioneer Allianz Life Assurance Corporation, Metro Manila 1/14/2003 – – –
Group acquired 66.8 % of Slovenská poist’ovna a. s. at a purchase price of ¤142 mn. Slovenská poist’ovna operates in both the property-casualty and the life/health insurance business segments. An additional 25.8 % and 6.5 % interests were acquired on July 29, 2002 and December 20, 2002, respectively. The total acquisition cost for the 99.1 % interest in Slovenská
Allianz Group increased its interest in Allianz Lebensversicherungs-AG by 40.5 % to 91.0 %, resulting in additional goodwill of ¤633 mn. The acquisition cost for the additional interest was ¤2,587 mn.
As a result of the Allianz Group’s worldwide organization, the business activities of the Allianz Group are first segregated by product and type of service: insurance activities, banking activities and asset management 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. Thus, the Allianz Group’s segments are structured as Property-Casualty, Life/Health, Banking and Asset Management. Based on various legal, regulatory and other operational issues associated with operating entities in jurisdictions worldwide, the segments of the Allianz
Spain. The Allianz Group conducts its property-casualty insurance operations in these countries through five main groups of operating entities in France, primarily offering automobile, property, injury and liability for both individual and corporate customers; Italy, operating in all personal and commercial property-casualty lines in particular personal automobile insurance; the United Kingdom, offering products generally similar to those offered by the Allianz Group’s German property-casualty operations as well as a number of specialty products, including extended warranty and pet insurance; Switzerland, offering property-casualty insurance, travel and assistance insurance, conventional reinsurance as well as a variety of alternative risk transfer products for corporate customers worldwide; and Spain, offering a wide variety of traditional personal and commercial property-casualty insurance products, with an emphasis on automobile insurance.
Life/Health The Allianz Group is the largest provider of life insurance and the thirdlargest provider of health insurance in Germany as measured by gross premiums written in 2004. Germany is the Allianz Group’s most important market for life/health insurance. The Allianz Group’s German life insurance companies offer a comprehensive and unified range of life insurance and life insurance-related products on both an individual and group basis.
The main classes of coverage offered include endowment life insurance, annuity policies, term life insurance, unit-linked annuities, and other life insurance-related forms of cover, which are provided as riders to other policies and on a stand-alone basis. The Allianz Group’s German health insurance companies provide a wide range of health insurance products, including full private healthcare coverage for the self-employed, salaried employees and civil servants, supplementary insurance for people insured under statutory health insurance plans, daily sickness allowance for the self-employed and salaried employees, hospital daily allowance, supplementary care insurance and foreign travel medical expenses insurance.
United States, offering a wide variety of life insurance, fixed and variable annuity contracts, including equity-indexed annuities to individuals, and
France are also markets where the Allianz Group maintains a significant presence offering products such as unit-linked and investment-oriented products, health insurance and individual and group life insurance.
Banking The Allianz Group’s banking operations primarily comprise the oper ations of the Dresdner Bank Group, whose principal banking products and services include traditional commercial banking activities such as deposit taking, lending (including residential mortgage lending) and cash management, as well as corporate finance advisory services, mergers and acquisitions advisory services, capital and money market services, securities underwriting and securities trading and derivatives business on its own account and for its customers. The Allianz Group operates through the domestic and international branch network of the Dresdner Bank Group and through various subsidiaries both in Germany and abroad, some of which also have branch networks.
Asset Management The Allianz Group’s asset management segment operates as a global provider of institutional and retail asset management products and services to third-party investors and provides investment management services to the
Group’s largest geographic region for third-party assets under management comprising approximately 70 % (2003: 69 % and 2002: 69 %). The
Allianz Group’s total income from asset management operations, before consolidation adjustments, represented approximately 3 % (2003: 3 %; 2002: 3 %) of its consolidated total income in 2004.
Business Segment Information – Consolidated Balance Sheets as of December 31, 2004 and 2003
Investments in associated enterprises and joint ventures 48,359 48,385 5,532 5,717
Business Segment Information – Consolidated Income Statements for the years ended December 31, 2004, 2003 and 2002
Earnings from ordinary activities before taxes 5,936 5,729 7,306 1,646 856 (153 )
¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn
1) The loss ratio represents net claims incurred as a percentage of net premiums earned. 2) The expense ratio represents net acquisition costs and administrative expenses as a percentage of net premiums earned. 3) Group‘s own investments, which reflect the definition of investments as used by management for controlling purposes, are presented before consolidation adjustments representing the elimination of intra-Allianz Group investment holdings held by Allianz Group companies in different geographic regions. Real estate owned by the Allianz Group and used for its own activities is, however, not considered by management to be an investment and, therefore, does not mirror the real estate category under Note 39 to our Consolidated Financial Statements, which includes real estate owned by the Allianz Group and used for its own activities in the real estate category. For further information on the composition of group‘s own investments, see Note 39 to the Consolidated Financial Statements.
Business Segment Information – Banking for the years ended December 31, 2004, 2003 and 2002
3) Represents earnings after taxes before minority interests and excludes amortization of goodwill. 4) Consists of non-Dresdner Bank banking operations within our banking segment.
2) Represents earnings after taxes before minority interests and excludes amortization of goodwill. 3) Represents elimination of intercompany transactions between Allianz Group companies in different geographical regions.
Group defines segment operating profit as earnings from ordinary activities before taxation, excluding, as applicable for each respective segment, either all or some of the following items: net capital gains and impairments on investments, net trading income, intra-Allianz Group dividends and profit transfer, interest expense on external debt, restructuring charges, other non-operating income/(expense), acquisition-related expenses and amortization of goodwill.
Allianz Group’s discretion. Operating profit is not a substitute for earnings from ordinary activities before taxation or net income as determined in accordance with IFRS. The Allianz Group’s definition of operating profit may differ from similar measures used by other companies, and may change over time.
The following table sets forth the total revenues, operating profit and IFRS
net income for each of our business segments for the years 2004 and 2003, as well as IFRS consolidated net income of the Allianz Group.
Combined ratio in % 92.9 97.0 1) Net of earned premiums ceded to reinsurers of ¤5,298 mn (2003: ¤5,539 mn). 2) Net of investment management expenses of ¤352 mn (2003: ¤412 mn) and interest expenses of
4) Comprises net acquisition costs of ¤5,781 mn (2003: ¤5,509 mn) and administrative expenses of ¤3,849 mn (2003: ¤4,002 mn). Net acquisition costs and administrative expenses do not include expenses for the management of investments and, accordingly, do not reconcile to the acquisition costs and administrative expenses as presented in the Consolidated Financial Statements.
2) Net of earned premiums ceded to reinsurers of ¤2,048 mn (2003: ¤1,953 mn). 3) Net of investment management expenses of ¤450 mn (2003: ¤493 mn) and interest expenses of ¤33 mn (2003: ¤23 mn). 4) Net insurance benefits were adjusted for an income of ¤1,324 mn (2003: expense of ¤661 mn)
relating to the policyholders’ participation of net capital gains and impairments on investments that were excluded from the determination of operating profit.
Net capital gains and impairments on investments 140 1) 134 (123 )1) (170 )
Other non-operating income/(expenses) (net) (288 ) (278 ) (553 ) (613 )
The reclassification in 2002 represents the goodwill in associated companies, which beginning in 2002, is recognized as part of the investments in associated enterprises and joint ventures within the Allianz Group’s consolidated balance sheet.
_ ¤47 mn related to AV Packaging GmbH and Schmalbach-Lubeca AG,
Accumulated amortization as of 12/31 previous year (1,041 ) (851 ) (625 )
Changes in the group of consolidated companies (4 ) (5 ) (48 )
The additions in 2002 include primarily ¤525 mn related to an increase in ownership interest from 40.5 % to 91.0 % in Allianz Lebensversicherungs-
The amount of interest accrued on unamortized PVFP in 2004 was ¤94 mn (2003: ¤102 mn; 2002: ¤78 mn).
The percentage of PVFP as of December 31, 2004 that is expected to be amortized in 2005 is 13.97 % (12.89 % in 2006, 11.61 % in 2007, 10.17 %
The market value is primarily based on stock exchange quotations and internal valuations.
The amount of investments in associated enterprises and joint ventures that relates to banks was ¤2,385 mn (2003: ¤2,686 mn).
Loans to associated enterprises and joint ventures and fixed income securities available-for-sale issued by associated enterprises and joint venture held by the Allianz Group amounted to ¤19,011 mn as of December 8 Investments 12/31/2004 12/31/2003
The following tables present proceeds from sales, gross realized gains, and gross realized losses of securities available-for-sale: ¤ mn ¤ mn ¤ mn
Contractual maturities The amortized cost and estimated fair value of securities available-for-sale and securities held-to-maturity with fixed maturities as of December 31, 2004, by contractual maturity, are as follows: Actual maturities may deviate from the contractually defined maturities, because certain security issuers have the right to call or repay certain obligations ahead of schedule, with or without redemption or early repayment penalties. Investments that are not due at a single maturity date are, in general, not allocated over various maturity buckets, but are shown within their final contractual maturity dates.
Securities lending and borrowing and repurchase and reverse repurchase agreements Certain entities within the Allianz Group participate in securities lending arrangements whereby specific securities are loaned to other institutions for short periods of time. The Allianz Group had ¤28,147 mn of loaned securities outstanding as of December 31, 2004 (2003: ¤34,941 mn). The fair value of collateral accepted that can be sold or repledged amounted to ¤40,474 mn at December 31, 2004 (2003: ¤43,503 mn), of which
¤14,275 mn was sold or repledged as of December 31, 2004. The Allianz
Group has a variety of collateral policies in place. Collateral requirements vary depending on the type of facility and whether or not any existing contracts are in place with clients. The minimum level varies by collateral type, more risky collateral types demanding a higher degree of collateralization.
¤47,118 mn as of December 31, 2004 and 2003, respectively, and primarily consisted of government and corporate debt securities.
Changes in the Group of consolidated companies 83 (228 ) (712 )
Due after 1 year and in less than 5 years 99,286 103,943 1,446 1,530
Due after 5 years and in less than 10 years 76,595 81,313 1,903 1,991
Loans and advances to banks net of loan loss allowance 126,618 117,511 86,822
Receivables due within one year totaled ¤123,022 mn (2003: ¤115,455 mn), and those due after more than one year totaled ¤3,827 mn (2003: ¤2,356 mn).
Loans and advances to customers net of the loan loss allowance, by type of customer 12/31/2004 12/31/2003 12/31/2002
Loans and advances to customers, net of loan loss allowance 188,168 203,259 188,084
Loans and advances due within one year totaled ¤97,666 mn (2003: ¤131,471 mn), and those due after more than one year totaled ¤94,406 mn (2003: ¤77,213 mn).
Loans and advances to customers include amounts receivable under finance leases at their net investment value totaling ¤1,247 mn (2003: ¤933 mn). The corresponding gross investment value of these leases amounts to ¤1,517 mn (2003: ¤1,030 mn), and the associated unrealized finance income is ¤270 mn (2003: ¤97 mn). The residual values of the entire leas ing portfolio were fully insured as of December 31, 2004 and 2003. Lease payments received during 2004 were recognized as income in the amount of ¤42 mn (2003: ¤80 mn; 2002: ¤141 mn). An allowance for uncollectable lease payments was not recorded at December 31, 2004
(2003: ¤42 mn). The total amounts receivable under leasing arrangements include ¤371mn (2003: ¤114 mn) due within one year, ¤388 mn
At December 31, 2004, the Allianz Group had ¤48 mn (2003: ¤129 mn)
Equities and fixed-income securities held in trading assets are primarily marketable and listed securities. The fixed-income securities include
December 31, 2004, amounted to ¤2,285 mn (2003: ¤2,213 mn) and to
Trading assets includes ¤26,238 mn of assets related to unit linked contracts that do not meet the criteria for classification as separate account assets.
Additions charged to the income statement 1,313 2,154 2,927 117 42 111 9 4 90 1,439 2,200 3,128
Treasury bills, discounted treasury notes and similar treasury securities 465 799
¤264 mn (2003: ¤3,357 mn), including balances held with the Deutsche
¤ 50 mn in 2004, ¤50 mn in 2003 and ¤38 mn in 2002. The limits for catastrophe events were ¤125 mn in 2004, ¤75 mn for 2003 and ¤50 mn in 2002. For life business, the Allianz Group retains up to ¤4 mn on a per risk basis and up to ¤5 mn per event.
Reinsurance does not legally discharge the Allianz Group from primary liability under the reinsured policies. Although the reinsurer is liable to 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, 2004 and 2003.
Changes in the Allianz Group of consolidated companies 691 (1 ) (17 )
The fair value of real estate owned by the Allianz Group used for its own activities as of December 31, 2004 amounted to ¤7,232 mn (2003: ¤5,741 mn). Assets pledged as security and other restrictions on title amounted to
Equipment The gross capitalized values totaled ¤7,186 mn as of December 31, 2004
Accounts receivable on direct insurance business Accounts receivable on direct insurance business amounted to ¤4,041 mn
(2003: ¤4,349 mn) for policyholders and ¤3,671 mn (2003: ¤3,936 mn)
The accounts receivable on direct insurance business and accounts receivable on reinsurance business are due within one year.
(2003: ¤5,394 mn). Of the tax refunds, ¤1,671 mn (2003: ¤1,821 mn)
Other receivables due within one year amounted to ¤10,518 mn (2003: ¤7,299 mn), and those due after more than one year totaled ¤1,099 mn
Changes in the deferred sales inducements for the year ended December 31 were: ¤ mn
Supplementary Information on Allianz Group Liabilities and Equity 14 Shareholders’ equity
Shareholders’ equity is comprised of the following as of December 31: ¤ mn ¤ mn
Issued capital In November 2004, 1,056,250 shares were issued at a price of ¤81.61 per share, enabling employees of Allianz Group enterprises in Germany and abroad to purchase 1,051,191 shares at prices ranging from ¤57.13 to
In November 2003, 965,625 shares were issued at a price of ¤82.95 per share, enabling employees of Allianz Group enterprises in Germany and abroad to purchase 944,625 shares at prices ranging from ¤58.07 to
All shares issued in 2003 are qualifying shares from the beginning of the year of issue.
Issued capital at December 31, 2004 amounted to ¤987,584,000 divided into 385,775,000 registered shares. The shares have no par value but a mathematical per share value of ¤2.56 each as a proportion of the issued capital.
(97,256,250 shares) of unissued conditional authorized capital which will be issued upon exercise of any subscription or conversion rights granted to holders of bonds issued by Allianz AG or any of its subsidiaries or upon satisfaction of conversion obligations resulting from such bonds.
The Annual General Meeting on May 5, 2004 (2003: April 29, 2003), authorized Allianz AG to acquire its own shares for other purposes pursuant to clause 71 (1) no. 8 of the German Stock Corporation Law (Aktiengesetz ). During 2004 and 2003, the authorization was used to acquire 0 and 293,686 shares of Allianz AG, respectively.
In accordance with this authorization, the credit institutions in the Allianz
Allianz AG’s shares or acquired them by way of securities borrowing during the course of 2004 at an average price of ¤88.84 per share (2003: ¤76.67; 2002: ¤179.86), which included previously held Allianz AG shares.
of or ceded from borrowed holdings during the course of 2004 at an average price of ¤88.82 per share (2003: ¤77.74; 2002: ¤181.11). The losses arising from treasury stock transactions during the year ended December 31, 2004, were ¤53 mn (2003: gain of ¤7 mn; 2002: losses of ¤23 mn), which were transferred to revenue reserves.
Acquision Number Issued Acquision Number Issued Acquision Number Issued costs of shares capital costs of shares capital costs of shares capital
Dividends The Management Board will propose to shareholders at the Annual General Meeting the distribution of a dividend of ¤1.75 (2003: ¤1.50) per qualifying share for the fiscal year 2004. Details on the recommendation for appropriation of profit are provided in the Allianz Group Management
The primary subsidiaries of the Allianz Group included in minority interests in 2004 and 2003 are the AGF Group, Paris, the RAS Group, Milan, and the PIMCO Group, Delaware.
Interest rate (range in %) – – – – – 3.50 – 8.15
Change in the group of consolidated companies (624 ) (25 ) 122
Previous years claims (net) reflects 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. The Allianz Group recorded additional income of
¤446 mn during the year ended December 31, 2004 (2003: losses of ¤279 mn and 2002: losses of ¤646 mn) with respect of losses occurring in prior years. These amounts as percentages of the net balance of the beginning of the year were 1.0% in 2004 (2003: 0.6 % and 2002: 1.4 %).
Change due to fluctuations in market value 5,139 1,960 (488 )
Liabilities to banks 191,354 178,316 *) Including registered bonds totaling ¤2,724 mn for the year ended December 31, 2004 (2003: ¤3,045 mn).
Liabilities to banks due within one year totaled ¤180,723 mn (2003: ¤165,125 mn) and those due after more than one year totaled ¤10,631 mn (2003: ¤13,191 mn) as of December 31, 2004.
Liabilities to customers include ¤24,989 mn (2003: ¤27,834 mn) of noninterest bearing deposits as of December 31, 2004. Liabilities to customers due within one year totaled ¤148,449 mn (2003: ¤139,698 mn) and those due after more than one year totaled ¤8,825 mn (2003: ¤15,030 mn) as of December 31, 2004.
The Allianz Group issues fixed and floating rate debt denominated in various currencies, predominantly in Euros. The interest rates for the floating rate debt issues are generally based on the London Inter-Bank
Other trading liabilities 6,319 2,968 22 Other accrued liabilities 12/31/2004 12/31/2003
Money market securities 854 – – – – – 854 1,484
Interest rate (range in %) 2.13 – – – – –
Money market securities 21,693 – – – – – 21,693 16,256
1) Except for rates. 2) Includes bonds and exchangeable bonds issued by Allianz Finance B.V. and Allianz Finance II B.V. and guaranteed by Allianz AG.
Thereof direct commitments of Allianz Group enterprises 6,649 5,930 commitments through plan assets 6,761 6,027
As of December 31, 2004, postretirement health benefits included in the projected benefit obligation and net amount recognized amounted to ¤97 mn and ¤107 mn, respectively.
Information for defined benefit plans with an accumulated benefit obligation in excess of plan assets as of December 31: 12/31/2004 12/31/2003
The actual return on plan assets amounted to ¤431 mn, ¤379 mn and losses of ¤256 mn during the years ended December 31, 2004, 2003 and 2002.
Assumptions The assumptions for the actuarial computation of the projected benefit obligation, accumulated benefit obligation and the net periodic benefit cost depend on the circumstances in the particular country where the plan has been established.
Plan assets The pension plan’s weighted-average asset allocations by asset category are as follows for the years ended December 31: Asset category 2004 2003
The Allianz Group plans to gradually increase its actual equity securities allocation to be more in line with its target equity securities allocation by decreasing its holdings in debt securities.
Estimated future benefit payments The following estimated future benefit payments are based on the same assumptions used to measure the Allianz Group’s projected and accumulated benefit obligations at December 31, 2004, and reflect expected future service, as appropriate.
Miscellaneous accrued liabilities Miscellaneous accrued liabilities primarily include provisions for restructuring of ¤739 mn (2003: ¤845 mn), reserves for the lending business of
AG, none of the individual restructuring programs is significant. These provisions for restructuring mainly include personnel costs, which result from severance payments for employee terminations, and contract termination costs, include those relating to the termination of lease contracts, that will arise in connection with the implementation of the respective initiatives.
Release of provisions recognized in previous years (73 ) (54 ) (87 )
Changes in the provisions for restructuring for Dresdner Bank AG for the year ended December 31, 2004: ¤mn ¤mn ¤mn
Release of provisions recognized in previous years (62 ) (47 ) (87 )
Other liabilities primarily include liabilities arising from tax charges on income totaling ¤1,163 mn (2003: ¤1,601 mn), interest and rental liabilities amounting to ¤471 mn (2003: ¤472 mn), social security liabilities of ¤241 mn (2003: ¤197 mn), derivative financial instruments used for hedging purposes that meet the criteria for hedge accounting of ¤1,254 mn (2003: ¤933 mn), and unprocessed sales totaling ¤473 mn (2003: ¤577 mn). Of the tax liabilities ¤619 mn (2003: ¤979 mn) are attributable to taxes on income.
Years ended 12/31 ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn
Realized gains from investments in associated enterprises and joint ventures 856 3,966 4,381
Realized losses on investments in associated enterprises and joint ventures (271 ) (727 ) (708 )
In 2004, ¤749 mn (2003: ¤3,023 mn; 2002: ¤4,391 mn) of the income
(2003: ¤243 mn; 2002: ¤1,507 mn) includes trading income of the Allianz
Group’s banking segment totaling ¤1,502 mn (2003: ¤1,485 mn; 2002: ¤1,081 mn) and trading income of the Allianz Group’s property-casualty and life/health insurance segments of ¤1,301 mn (2003: expense of
During the years ended December 31, 2004, 2003 and 2002, gains on derivative financial instruments embedded in exchangeable bonds issued amounted to ¤6 mn, ¤2 mn and ¤387 mn. Also included in trading income are losses totaling ¤290 mn (2003: ¤10 mn loss; 2002: ¤25 mn gain) arising from the use of other derivative financial instruments by
Of total fee and commission income, and income from service activities of ¤6,823 mn for the year ending December 31, 2004 (2003: ¤6,060 mn; 2002: ¤6,102 mn), ¤2,804 mn (2003: ¤2,705 mn; 2002: ¤2,784 mn) is attributable to the Allianz Group’s banking operations and ¤3,015 mn in 2004 (2003: ¤2,815 mn; 2002: ¤2,816 mn) is attributable to the Allianz
Trading income of the property-casualty and life/health segments is comprised of expenses amounting to ¤284 mn (2003: expense of ¤1,359 mn; 2002: income of ¤412 mn) from derivative financial instruments used by
Allianz Group insurance companies for which hedge accounting is not applied under IAS 39 and other trading income of ¤1,585 mn (2003: ¤86 mn; 2002: ¤12 mn).
During the year ended December 31, 2003, equity exposure was substantially reduced through the use of derivatives and direct sales. Futures and put options on indexes were used for hedging purposes that did not meet the criteria for hedge accounting. The change in the fair value of the derivatives of this macro hedge are recognized as trading income in the
Net fee and commission income 2,593 (254 ) 2,339 2,452 (208 ) 2,244 2,658 (119 ) 2,539
Net fee and commission income from the Allianz Group’s asset management operations
Income from other assets 199 73 86 *) After eliminating intra-Allianz Group transactions between segments.
Recoveries on loans previously impaired (112 ) (70 ) (70 )
Less commissions and profit received on reinsurance business ceded (864 ) 3 (861 ) (920 ) 2 (918 ) (1,004 ) 3 (1,001 )
Total acquisition costs and administrative expenses 10,004 (97 ) 9,907 9,972 (79 ) 9,893 10,521 (127 ) 10,394
Change in deferred acquisition costs (1,537 ) – (1,537 ) (1,768 ) – (1,768 ) (1,437 ) (1 ) (1,438 )
Total acquisition costs and administrative expenses 4,399 (55 ) 4,344 3,713 (57 ) 3,656 4,263 6 4,269 *) After eliminating intra-Allianz Group transactions between segments.
All personnel and operating expenses in banking business are reported under acquisition costs and administrative expenses.
Total acquisition costs and administrative expenses 2,380 (315 ) 2,065 2,300 (245 ) 2,055 2,473 (196 ) 2,277 *) After eliminating intra–Allianz Group transactions between segments.
Amortization of capitalized loyalty bonuses to senior management of PIMCO Group 125 137 155
Expenses for assistance to victims under joint and several liability and road casualties 101 97 117 38 Taxes
Taxes are comprised of the following for the years ended December 31: ¤ mn ¤ mn ¤ mn
The tax rates used in the calculation of the Allianz Group deferred taxes are the applicable national rates, which in 2004 and 2003 ranged from 12.5 % to 46.1 %. Changes to tax rates already adopted on December 31, 2004, are taken into account. For reasons of commensurability and because of the Allianz Group’s current tax loss situation in Germany, the
Tax deferrals are recognized if a future reversal of the difference is expected. Deferred taxes on losses carried forward are recognized as an asset to the extent sufficient future taxable profits are available for realization.
(2003: ¤33 mn). The recognition of deferred tax assets on losses carried forward from earlier periods, for which no deferred taxes had yet been recognized or which had been devalued resulted in a deferred tax income of ¤87 mn (2003: income of ¤443 mn).
The non-recognition of deferred taxes on tax losses for the current fiscal year increased tax charges by ¤83 mn (2003: ¤254 mn). The abovementioned effects are shown in the reconciliation statement as “effects of tax losses”.
Unused tax losses carried forward at December 31, 2004 of ¤16,566 mn
(2003: ¤17,633 mn) result in recognition of deferred tax assets to the extent there is sufficient certainty that the unused tax losses will be utilized.
¤11,097 mn (2003: ¤11,301 mn) of the tax losses carried forward can be utilized without time limitation.
The tax rate for domestic Allianz Group companies applied in the reconciliation includes corporate tax and the solidarity surcharge and amounts
The changes in German tax law passed in December 2003 have abo lished the tax-exempt status of dividends and gains from the sale of interests in corporations for life and health insurance companies. In addition, the taxation regarding investment funds has been changed, partly with retroactive effect.
Due to the “moratorium” introduced by the “bill on the reduction of tax privileges”, the dividend distribution proposed for fiscal 2004 and 2003 does not lead to a reduction of corporate taxes for 2004 and 2003 (2002: reduction of ¤62 mn).
Deferred tax assets and liabilities are comprised of the following balance sheet headings: ¤ mn ¤ mn
Valuation allowance for deferred tax assets on tax losses carried forward (835 ) (1,008 )
Deferred tax charge included in shareholders’ equity in 2004 amounted to
Management of 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.
Allianz Life of North America Company (ALONA) has been under audit by the Internal Revenue Service (IRS) for the years ended December 31, 1991 through 1997. During the fourth quarter of 2004, ALONA and the
IRS agreed on a proposed settlement of all open issues for those years.
Other securities *) Presentation of investments is made in conformity with the European Union (EU) insurance accounting guideline and after eliminating intra-Allianz Group transactions between segments.
Subordinated assets Assets are recorded as subordinated assets if, in the event of liquidation or bankruptcy, the related claim cannot be realized before the claims of other creditors are realized.
1) Presentation of investment income is made in conformity with the European Union (EU) insurance accounting guideline and after eliminating intra-Allianz Group transactions between segments. 2) After eliminating intra-Allianz Group transactions between segments.
Collateral pledged for own liabilities of banking operations For the following liabilities and contingencies, assets having the values indicated below were pledged as collateral: ¤ mn ¤ mn
Total Up to > 3 months to > 1 year to More than 3 months 1 year 5 years 5 years
Savings deposits and home-loan savings deposits 5,345 1,370 3,793 147 35
A L L I A N Z G R O U P 171
¤2,441 mn (2003: ¤2,223 mn) at December 31, 2004. The Allianz Group received no deposits on terms other than those available in the normal course of banking operations. An amount of ¤196 mn (2003: ¤134 mn)
eligible for refinancing with the central bank is held in cash funds.
The aggregate amount of certificates of deposit and other time deposits in the amount of ¤100,000 or more issued by the Allianz Group’s German offices at December 31, 2004 was ¤77,498 mn, including banks and customers (2003: ¤92,876 mn).
Insurance companies in the Allianz Group use derivatives to manage the risk exposures in their investment portfolios based on general thresholds and targets. The most important purpose of these instruments is hedging against adverse market movements for selected securities or for parts of a portfolio. Specifically, the Allianz Group selectively uses derivative financial instruments such as swaps, options and forwards to hedge against changes in prices or interest rates in their investment portfolio.
Allianz Group therefore closely monitors the credit rating of counterparties for OTC derivatives. In the derivatives portfolios of the Allianz Group’s banking operations 96 % of the positive replacement values, which are essential for assessing counterparty risk, involve counterparties with “investment grade” ratings. To reduce the counterparty risk from trading activities, so-called cross-product netting master agreements with the business partners are established. In the case of a defaulting counterparty, netting makes it possible to offset claims and liabilities not yet due.
The following tables show the distribution of derivative positions on the
Allianz Group’s consolidated balance sheet date between its insurance segments and banking and asset management segments.
The major exposures in equity contracts are in the form of options used for hedging the Allianz Group’s insurance portfolio against market fluctuations. In managing interest rate risk, long-term interest income is primarily controlled by the use of interest rate caps. In addition, exchange rate fluctuations are hedged by synthetically transforming financial assets and liabilities in foreign currencies into Euro-denominated financial instruments through foreign exchange deals and currency swaps.
Up to 1–5 Over Notional Positive Negative Notional Positive Negative 1 year years 5 years principal market market principal market market amounts values values amounts values values
The primary derivative financial instruments used include interest rate derivatives, in particular interest rate swaps which are primarily entered into during the course of trading activities by our banking companies.
The Allianz Group principally uses fair value hedging. Important hedging instruments used by banking entities are interest rate swaps and forwards and currency swaps and forwards. Hedging instruments may be implemented for individual transactions (micro hedge) or for a portfolio of similar assets or liabilities (portfolio hedge).
The interest rate swaps used by banking entities in fair value hedges of the interest rate risk of certificated and subordinated liabilities had a total net fair value as of December 31, 2004 of ¤707 mn (2003: ¤453 mn).
Thereof, inter est rate swaps with a positive fair value of ¤744 mn (2003: ¤499 mn) are recorded in the Allianz Group’s consolidated balance sheet in other assets, and interest rate swaps with a negative fair value of ¤37 mn (2003: ¤46 mn) are recorded in other liabilities. During 2004, the fair value of the interest rate swaps decreased by ¤5 mn (2003: ¤140 mn), whereas the certificated and subordinated liabilities hedged increased in fair value by ¤13 mn (2003: ¤159 mn), resulting in a net ineffectiveness of the hedge of ¤8 mn (2003: ¤19 mn) that is recognized in the Allianz
The derivative financial instruments used for all fair value hedges of the
As of December 31, 2002, foreign exchange hedging transactions in the form of foreign currency forwards with a total fair value of ¤107 mn were outstanding with respect to hedges of currency risks related to a net investment in a foreign entity. This hedging strategy was terminated in the sec ond quarter of 2003. Total unrealized gains of ¤182 mn related to this hedging strategy remain in other reserves.
Derivative Financial Instruments Indexed to Allianz AG’s stock The Allianz Group enters into various types of option contracts indexed to
Allianz AG shares with third-parties, both as a hedge of Allianz Group’s future obligations under its Stock Appreciation Right incentive plans (SARs)
and in connection with various banking products offered by the Dresdner
The following table summarizes these option positions: The above contracts are all accounted for as trading assets and liabilities, respectively, and are thus carried at fair value with changes in fair value recorded in earnings.
Total Up to 1–5 More of which of which Fair Weighted- Allianz AG 1 year years than cash share value average shares 5 years settled settled strike price
Investments (including trading assets and liabilities) The fair value of fixed-term securities is based on market prices, provided these are available. If fixed-term securities are not actively traded, their fair value is determined on the basis of valuations by independent data suppliers. The fair value of equities is based on their stock-market prices. The carrying amount and the fair value for fixed-term securities and equities do not include the fair value of derivative contracts used to hedge the related fixed-term securities and equities.
The fair value of derivatives is derived from the value of the underlying assets and other market parameters. Exchange-traded derivative financial instruments are valued using the fair-value method and based on publicly quoted market prices. Valuation models established in financial markets
Participation certificates, subordinated liabilities, and certificated liabilities The fair value of bonds and loans payable is estimated using discounted cash flow analyses, using interest rates currently offered for similar loans and other borrowings.
The following table presents the carrying amount and estimated fair value of the Allianz Group’s financial instruments: 43 Related party transactions
Allianz Group companies maintain various types of ordinary course business relations (particularly in the area of insurance, banking and asset management) with related enterprises. In particular, the business relations with associated companies, which are active in the insurance business, take on various forms and may also include special service, computing, reinsurance, cost-sharing and asset management agreements, whose terms are deemed appropriate by management. Similar relationships may exist with pension funds, foundations, joint ventures and companies, which provide services to Allianz Group companies.
Group’s ownership interest in Munich Re was approximately 9.8 % (the strategic holdings remained at approximately 9.4 %).
In the past, the relationship between Allianz AG and Munich Re was set forth in an agreement called “Principles of Cooperation” of May 2000.
After several transactions during the previous fiscal years, in particular the reduction of mutual participations in other insurance companies and the reduction of the mutual cross-shareholdings, this agreement became irrelevant and was formally canceled with effect from December 31, 2003.
As Munich Re is one of the biggest reinsurers in the world, the reinsurance relationship between companies of the Allianz Group and Munich
Re will continue. All reinsurance and retrocession agreements are a result of the ordinary course business within which Allianz Group companies purchase reinsurance coverage from, among other reinsurers, Munich Re.
Of the Allianz Group’s total third-party reinsurance premiums ceded, approximately 33.9 % and 31.3 % were ceded to the Munich Re Group for the years ending December 31, 2003 and 2002, respectively. These amounts represented approximately 3.7 % and 3.8 % of the Allianz Group’s gross premiums written for the years ending December 31, 2003 and 2002, respectively.
Publication and notification of securities’ transactions as required by clause 15 a WpHG – Securities Trading Law (indications according to section 6.6 of the German Corporate Governance Code) A transaction in Allianz securities for which publication is required by clause 15 a WpHG was notified during fiscal 2004 by a member of the
Supervisory Board of Allianz AG. The member concerned was Mr. Sultan
Salam who sold 100 shares of the company for a price of ¤95.92 per share on December 7, 2004.
In May 2001, a consolidated class action complaint seeking class action status, in re Deutsche Telekom Securities Litigation, was filed in the United
Dresdner Bank AG, which was one of the underwriting syndicate’s joint global coordinators, was one of the named defendants. The complaint
Deutsche Telekom announced that, without conceding any wrongdoing, it had entered into a stipulation to settle all claims against a payment by it of USD 120 mn. The settlement, which requires U.S. court approval, would also resolve all claims involving the underwriters, including
Court for the Southern District of New York against certain insurers and reinsurers, including Allianz Global Risks U.S. Insurance Company. 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. In connection with the terrorist attack of September 11, 2001 we recorded net claims expense of approximately ¤1.5 bn in 2001 for the Allianz Group on the basis of one occurrence. On December 6, 2004, a New York jury rendered a verdict that the World Trade Center attack constituted two occurrences under the alleged terms of various coverages. At December 31, 2004, this decision had no adverse impact on the Allianz Group’s operating results. The final implications of this decision for the Allianz Group will not be determined until the completion of further proceedings.
In September 2004, PEA Capital LLC, PA Fund Management LLC and
and various state regulators related to matters involving market timing and revenue sharing. Since February 2004, Allianz Global Investors of America
Furthermore, the SEC is investigating practices in the mutual fund industry relating to mutual fund purchases of other mutual funds. Allianz
Other contingencies Liquiditäts-Konsortialbank GmbH (LIKO) is a bank founded in 1974 in order to provide funding for German banks which experience liquidity problems. 30 % of LIKO shares are held by Deutsche Bundesbank, while the remaining shares are being held by other German banks and banking associations. The shareholders have provided capital of ¤200 mn to fund
Securing Customer Deposits (Joint Fund), which covers liabilities to each respective creditor up to specified amounts. As a member of the Joint
Fund for Securing Customer Deposits, the Allianz Group has undertaken to indemnify the Federal Association of German Banks (Bundesverband deutscher Banken e.V.) for any losses it may incur by reason of measures taken on behalf of any bank in which the Allianz Group owns a majority interest.
Bankhaus Reuschel & Co. due to the legal form in which this enterprise is organized. The financial status of the other partners involved is sound.
The following table represents the amounts at risk should customers draw fully on all facilities and then default, excluding the effect of any collateral.
Since the majority of these commitments may expire without being drawn upon, the amounts shown may not be representative of actual liquidity requirements for such commitments: ¤ mn ¤ mn
L.P. (“PIMCO”). The Allianz Group had originally acquired a 69.5 % interest in PIMCO, whereby minority interestholders had the option of putting their share to Allianz of America, Inc. On December 31, 2004, the remaining interest of Pacific Life (the minority interest holder) in PIMCO was 5.35 %, resulting in a commitment to Pacific Life amounting to USD 603 mn on
Protektor is ¤523 mn in the aggregate. During the year ended December 31, 2003, Protektor intervened in one case in which Allianz Lebensversicherungs -AG was required to contribute ¤24 mn. No intervention was necessary during the year ended December 31, 2004. Consequently, Allianz
¤499 mn at December 31, 2004. Pursuant to a reform of the German
Insurance Supervision Act (Versicherungsaufsichtsgesetz, VAG), which became effective in December 2004, a mandatory insurance guarantee scheme (Sicherungsfonds) was implemented and exists independent of
Protektor. Each member of the scheme is obliged to make a certain annual contribution to the scheme. The exact amount of costs for each member will be calculated according to the provisions of a Federal Regulation which has not been enacted yet. The annual contribution of all members together equals 0.02 % of the sum of their technical provisions (net). The scheme is administered by a public bank, unless its functions and competences will be conferred on a legal entity under Private Law as a private trustee.
It is likely that Protektor will become this trustee. The final impact of this new legislation on Protektor is currently unclear and subject to ongoing discussions.
office equipment. Rental expense for the year ending December 31, 2004, was ¤280 mn (2003: ¤296 mn; 2002: ¤185 mn).
In the context of the “Silver Tower” asset-backed program of the Dresdner
Dresdner Bank Group in which third-party receivables are securitized and refinanced by commercial paper, Dresdner Bank Group has granted short-term liquidity lines in the amount of USD 4.42 bn. These liquidity lines provide Beethoven with an alternative source of funding apart from the placement of commercial paper notes. As of December 31, 2004, no liquidity lines have been drawn. Furthermore, Dresdner Bank Group has granted a letter of credit to Beethoven providing credit support to the underlying assets. As of December 31, 2004, the letter of credit limit was USD
224 mn, but the letter was undrawn. The risk exists that the Dresdner Bank
In addition the Allianz Group has made other commitments of ¤1,068 mn referring to maintenance, real estate development, sponsoring and purchase obligations.
Maximum contractual monetary amounts of the guarantee contracts of the Allianz Group
Employee information At the end of 2004, the Allianz Group employed a total of 162,180 people 2002: 86,768) were employed in Germany and 86,513 (2003: 91,505; 2002: 94,883) abroad. The number of employees undergoing training decreased by 1,157 in 2004 to 4,906 .
The reconciliation of basic and dilutive earnings per share is as follows: The weighted average number of shares does not include 18,915,201
The difference between the exercise price and market price of Allianz shares of ¤18 mn during the year ended December 31, 2004 (2003: ¤16 mn; 2002: ¤5 mn) was reported as part of compensation expense.
AGF shares were sold to employees. The plan imposes restrictions on the disposal of shares for a period of five years. The expense recorded during the year ended December 31, 2004 was ¤8 mn (2003: ¤11 mn; 2002: ¤15 mn).
During the year ended December 31, 1999, Allianz AG introduced Stock
Denominator for basic earnings per share (weighted-average shares) – not including treasury shares held by the Allianz Group 365,930,584 338,201,031 276,854,381
_ during their contractual term, the price of Allianz AG shares has outperformed the Dow Jones Europe STOXX Price Index (600) at least once for a period of five consecutive stock exchange days; and
Under the conditions of the SAR plans, Allianz Group companies are obligated to pay, in cash, the difference between the stock market price of
Allianz AG shares on the day the rights are exercised and the reference price, as specified in the respective plan. The maximum difference is capped at 150 % of the reference price. Upon exercise of the SARs, payment is made in the relevant local currency by the Allianz Group company granting the SARs. SARs not exercised by the last day of a plan will be exercised automatically where the necessary conditions have been met. Where these conditions have not been met or a plan participant ceases to be employed, the plan participant’s SARs are forfeited.
Grant Date Vesting Reference SARs SARs SARs period price granted forfeited exercised years ¤
The fair value as of the grant date of the SARs during the year ended
December 31, 2004 was ¤55 mn (2003: ¤41 mn; 2002: ¤69 mn) based on standard option valuation methods (Black-Scholes or Binomial Method ).
As of December 31, 2004, none of the awards currently exercisable have met the second condition defined above (20 % increase of the share price). As of December 31, 2004, a total of 4,666,820 (2003: 3,061,673; 2002: 1,507,414) SARs were outstanding under SAR award grants.
The total compensation expense related to the SAR plan is calculated as the amount by which the quoted Allianz AG share price exceeds the SAR
reference price. The total compensation expense is remeasured at each reporting period based on changes in the Allianz AG share price and is accrued over the two-year vesting period. As of December 31, 2004, the total compensation expense related to the 4,666,820 (2003: 3,061,673)
outstanding SARs was ¤66 mn (2003: ¤54 mn). Taking into account the expired portion of the vesting period, a reserve of ¤41 mn (2003: ¤18 mn) was established on December 31, 2004, and reported in other accrued liabilities, with a corresponding ¤23 mn (2003: ¤18 mn) of compensation expense recognized in 2004. No liability or compensation expense was recorded in 2002, as the Allianz AG share price did not exceed the reference price of outstanding SARs at that time.