Payments for the purchase or origination of Financial assets designated at fair value through income (8,973) (2,513) (4,107) Available-for-sale investments (153,527) (112,667) (114,041) Held-to-maturity investments (463) (192) (182) Investments in associates and joint ventures (448) (973) (610) Non-current assets and assets of disposal groups classified as held for sale — (36) (97) Real estate held for investment (1,610) (349) (395) Loans and advances to banks and customers (purchased loans) (7,624) (20,584) (10,169) Property and equipment (1,472) (1,160) (953)
Proceeds from sale of subsidiaries, net of cash disposed 193 (26,975) 103 Acquisitions of subsidiaries, net of cash acquired — 77 (152)
Cash flow from financing activities Policyholders’ account deposits 20,061 20,162 13,205 Policyholders’ account withdrawals (12,958) (12,233) (11,020) Net change in liabilities to banks and customers (272) (1,097) (4,920) Proceeds from the issuance of certificated liabilities, participation certificates and subordinated liabilities 7,157 12,541 40,672 Repayments of certificated liabilities, participation certificates and subordinated liabilities (7,428) (14,189) (45,868) Cash inflow from capital increases 44 56 239 Transactions between equity holders (75) 276 (666) Dividends paid to shareholders (1,978) (1,701) (2,759) Net cash from sale or purchase of treasury shares (21) (135) 40
The following table shows the net cash flows provided by (used in) discontinued operations for the twelve months ended December 31, 2010, 2009 and 2008 that are included in the consolidated statements of cash flows above.
Effects from first consolidation of K2 Financial assets held for trading — — 107 Financial assets designated at fair value through income — — 8,665 Loans and advances to banks and customers — — 1,714 Other assets — — 51 Financial liabilites held for trading — — 497 Financial liabilities designated at fair value through income — — 8,889 Liabilities to banks and customers — — 1,076 Other liabilities — — 75
Available-for-sale investments — 746 — Assets of disposal groups classified as held for sale — (746) —
Distribution channel Intangible assets — 480 — Assets of disposal groups classified as held for sale — (480) —
Principles of consolidation Scope of consolidation The consolidated financial statements of the Allianz Group comprise the financial statements of Allianz SE, its subsidiaries and certain investment funds and Special Purpose Entities (SPEs). Subsidiaries, investment funds and SPEs, hereafter “subsidiaries”, which are directly or indirectly controlled by the Allianz Group, are consolidated. Control exists when the Allianz Group has the power to govern the financial and operating policies of the subsidiary generally either when the Allianz Group owns directly or indirectly more than half of the voting rights of the subsidiary or when control can be legally evidenced otherwise because of an agreement with other investors or of a specific corporate charter. In order to determine whether control exists, potential voting rights that are currently exercisable or convertible have to be taken into consideration. If no control exists from a legal perspective, it has to be assessed whether control exists from an economic perspective, as in the case of SPEs.
Subsidiaries are consolidated from the date control is obtained by the Allianz Group. Subsidiaries are consolidated until the date that the Allianz Group no longer maintains control. Accounting policies of subsidiaries 152 Consolidated Financial Statements 159 Notes to the Consolidated Financial Statements 208 Supplementary Information to the Consolidated Balance Sheets 242 Supplementary Information to the Consolidated Income Statements 257 Other Information
Notes to the Consolidated Financial Statements 1 Nature of operations and basis of presentation
Basis of presentation The consolidated financial statements of the Allianz Group have been prepared in conformity with International Financial Reporting Standards (IFRS), as adopted under European Union (E.U.) regulations in accordance with § 315 a of the German Commercial Code (HGB). Within these consolidated financial statements, the Allianz Group has applied all IFRS issued by the IASB and endorsed by the E.U., that are compulsory as of December 31, 2010. IFRS comprise International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), and interpretations developed by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC).
IFRS does not provide specific guidance concerning all aspects of the recognition and measurement of insurance contracts, reinsurance contracts and investment contracts with discretionary participation features. Therefore, as envisioned in IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, the provisions embodied under accounting principles generally accepted in the United States of America (US GAAP) have been applied to those aspects where specific guidance is not provided by IFRS 4, Insurance Contracts.
The accounting policies adopted are consistent with those of the previous financial year except for recently adopted IFRS effective January 1, 2010 and changes in accounting policies as described in note 4.
have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group. The effects of intra- Allianz Group transactions have been eliminated.
Goodwill is measured as the difference at the acquisition date between the cost of the acquisition and the fair value of the net assets acquired. The acquirer remeasures any previously-held equity interest to fair value at the date of obtaining control with the difference being recorded in the consolidated income statement. If the Allianz Group’s proportionate share of the fair value of the net assets exceeds the acquisition cost, the Allianz Group reassesses the identification and measurement of the identifiable assets, liabilities and contingent liabilities as well as the measurement of the cost of the combination and recognizes any excess remaining after that assessment immediately in income.
Any additional acquired share of interest after having obtained control does not affect previously recognized goodwill. Transactions with non-controlling interests, i. e. changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, are accounted for as equity transactions. Losses are allocated to a noncontrolling interest even if they exceed the non-controlling interest’s share of equity in the subsidiary. Any retained non-controlling investment at the date control is lost is remeasured to fair value.
Business combinations prior to January 1, 2010 are accounted for using the purchase method. The purchase method requires that the Allianz Group allocates the cost of a business combination on the date of acquisition by recognizing the acquiree’s identifiable assets, liabilities and certain contingent liabilities at their fair values. The cost of a business combination represents the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the acquisition date, plus any costs directly attributable to the acquisition. If the acquisition cost of the business combination exceeds the Allianz Group’s proportionate share of the fair value of the net assets of the acquiree, the difference is recorded as goodwill. Any non-controlling interest (formerly, minority interest) is recorded at the non-controlling interest ’s proportion of the fair value of the net identifiable assets of the acquiree.
Associated enterprises and joint ventures Associated enterprises are entities over which the Allianz Group can exercise significant influence and which are neither subsidiaries nor joint ventures. Significant influence is the power to participate in, but not to control, the 160 Allianz Group Annual Report 2010 Consolidated Financial Statements
Investments in associated enterprises and joint ventures are generally accounted for using the equity method of accounting, in which the results and the carrying amount of the investment represent the Allianz Group’s proportionate share of the entity’s net income and net assets, respectively. The investments are initially recognized at cost and subsequently increased or decreased to recognize the Allianz Group’s share in profit or loss after the date of acquisition. The investments are tested for impairment when respective triggering events occur. Any impairment loss will correspond to the excess of the investment’s carrying amount over its recoverable amount. In general, the triggering events are similar to those used for impairment testing for financial instruments while the measurement of impairment losses is similar to the measurement of impairment losses for other assets.
In the event that significant influence or joint control over an associate or jointly controlled entity is lost, a gain or loss equal to the difference between (i) the sum of any proceeds from interests disposed of, interests retained and any amounts reclassified from equity and (ii) the carrying amount of the investment at the date significant influence or joint control was lost, is recognized in profit or loss.
Foreign currency translation Translation from any foreign currency into functional currency The individual financial statements of each of the Allianz Group’s subsidiaries are prepared in the prevailing currency in the primary economic environment where the subsidiary conducts its ordinary activities (its functional currency). Transactions recorded in currencies other than the functional currency (foreign currencies) are recorded at the exchange rate prevailing on the date of the transaction. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the closing exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated at historical rates and non-monetary items that are measured at fair value are translated using the closing rate. Foreign currency gains and losses arising from foreign currency transactions are reported in income from financial assets and liabilities carried at fair value through income (net), except when the gain or loss on a non-monetary item measured at fair value is recognized directly in other comprehensive income. In this case, any foreign exchange component of that gain or loss is also directly recognized in other comprehensive income.
Translation to the presentation currency For purposes of the consolidated financial statements, the results and financial position of each of the Allianz Group’s subsidiaries are expressed in Euro, the presentation currency of the Allianz Group. Assets and liabilities of subsidiaries not reporting in Euro are translated at the closing rate on the balance sheet date and income and expenses are translated at the quarterly average exchange rate. Any foreign currency translation differences, including those arising from the equity method, are recorded directly in other comprehensive income, as foreign currency translation adjustments.
Real estate held for investment Real estate held for investment (i. e. real estate and rights equivalent to real property and buildings, including buildings on leased land) is carried at cost less accumulated depreciation and impairments. Real estate held for investment is depreciated on a straight-line basis over its estimated life, with a maximum of 50 years. At each reporting date or whenever there are any indications that the carrying amount may not be recoverable, real estate is tested for impairment by determining its fair value using discounted cash flow methods. Improvement costs are capitalized if they extend the useful life or increase the value of the asset; otherwise they are recognized as an expense as incurred.
Financial instruments Classification, recognition and initial measurement Financial assets within the scope of IAS 39 are either classified as
– financial assets carried at fair value through income, – available-for-sale investments, – held-to-maturity investments, – loans and advances to banks and customers or as – derivative financial instruments used for hedging.
The classification depends on the nature and purpose of the financial instrument and is determined at initial recognition.
Active markets – quoted market price: The fair values of financial instruments that are traded in active markets are based on quoted market prices or dealer price quotations on the last exchange trading day prior to and at the balance sheet date. The quoted market price used for a financial asset held by the Allianz Group is the current bid price; the quoted market price used for financial liabilities is the current ask price.
Recognition of a day one profit or loss A day one profit or loss is recognized when the fair value of a financial instrument differs from its initial transaction price. In this case the fair value is evidenced by comparison with other observable current market transactions in the same instrument or is based on a valuation technique incorporating only observable market data.
have a quoted market price and fair value cannot be reliably measured. In general, the Allianz Group accounts for its investments in limited partnerships with ownership interests of 20 % or greater using the equity method due to the rebuttable presumption that the limited partner has no control over the limited partnership.
Repo transactions involve the sale of securities by the Allianz Group to a counterparty, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed price. If substantially all of the risks and rewards of the securities remains with the Allianz Group over the entire lifetime of the transaction, the securities concerned are not derecognized by the Allianz Group. The proceeds of the sale are reported under liabilities to banks or customers. Interest expense from repo transactions is accrued over the duration of the agreements and reported in interest and similar expenses.
Investment contracts with policyholders Fair values for investment and annuity contracts are determined using the cash surrender values of policyholders ’ and contract holders’ account balances.
Financial guarantee contracts Financial guarantee contracts issued by the Allianz Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts which are not accounted for as insurance contracts are recognized initially at fair value. Subsequently, unless the financial guarantee contract was designated at inception as at fair value through income, the Allianz Group measures it at the higher of the best estimate of the expenditure required to settle the present obligation and the amount initially recognized less cumulative amortization when appropriate.
If an available-for-sale debt security is impaired, the related impairment loss is measured as the difference between the security’s amortized cost and current fair value, less any previously recognized impairment losses.
Reclassification of financial instruments Once a financial instrument has been classified into a particular category at initial recognition, transfers into or out of that category from or to another category are prohibited for some categories and are expected to be rare in all other circumstances.
At the reclassification date, non-derivative financial assets have to be reclassified at their fair value, which becomes the new cost or amortized cost of the financial asset, as applicable. Previously recognized gains and losses cannot be reversed. After the reclassification date the existing requirements of IAS 39 for measuring financial assets at cost or at amortized cost apply.
Derivative financial instruments The Allianz Group uses derivative financial instruments such as swaps, options and futures to hedge against market risks (i. e. interest rates, equity prices or foreign exchange rates) or credit risks in its investment portfolios.
Cash flow hedges Cash flow hedges offset the exposure to variability in expected future cash flows that is attributable to a particular risk associated with a recognized asset or liability or a forecasted transaction. Changes in the fair value of a derivative financial instrument that represent an effective hedge are recorded in unrealized gains and losses (net) in other comprehensive income, and are transferred to the consolidated income statement when the offsetting gain or loss associated with the hedged item is recognized. Any ineffectiveness of the cash flow hedge is recognized directly in income from financial assets and liabilities carried at fair value through income (net).
The Allianz Group discontinues hedge accounting prospectively when it is determined that the derivative financial instrument is no longer highly effective, when the derivative financial instrument or the hedged item expires, or is sold, terminated or exercised, or when the Allianz Group determines that designation of the derivative financial instrument as a hedging instrument is no longer appropriate. After a fair value hedge is discontinued, the Allianz Group continues to report the derivative financial instrument at its fair value with changes in fair value recognized in the consolidated income statement, but changes in the fair value of the hedged item are no longer recognized in the consolidated income statement. After hedge accounting for a cash flow hedge is discontinued, the Allianz Group continues to record the derivative financial instrument at its fair value; any net unrealized gains and losses accumulated in other comprehensive income are recognized in the consolidated income statement (i. e. recycled) when the planned transaction affects the consolidated income statement. After a hedge of a net investment in a foreign entity is discontinued, the Allianz Group continues to report the derivative financial instrument at its fair value and any net unrealized gains or losses accumulated in other comprehensive income remain there until the disposal of the foreign entity.
Disclosures relating to financial instruments IFRS 7, Financial Instruments: Disclosures, requires the grouping of financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. The scope of IFRS 7 includes recognized and unrecognized financial instruments. Recognized financial instruments are those financial assets and financial liabilities within the scope of IAS 39. Unrecognized financial instruments are financial instruments that are outside of the scope of IAS 39 but within the scope of IFRS 7. The classes of financial instruments within Allianz Group are mainly in line with the categories according to IAS 39.
The risk report is an integral part of the consolidated financial statements.
The following table summarizes the relationship between the balance sheet positions and the classes of financial instruments according to IFRS 7. The balance sheet positions are the same as the IAS 39 categories except when noted in parenthesis.
Investments – Available-for-sale investments Fair value – Held-to-maturity investments Amortized cost
– Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments Fair value
– Non-unit-linked investment contracts Amortized cost Financial liabilities for unit-linked contracts Fair value Other liabilities
– Financial liabilities for puttable equity instruments Redemption amount Certificated liabilities (Other liabilities) Amortized cost Participation certificates and subordinated liabilities (Other liabilities) Amortized cost Liabilities held in trust 1 Fair value
Insurance and investment contracts Contracts issued by insurance subsidiaries of the Allianz Group are classified according to IFRS 4 as insurance or investment contracts. Contracts under which the Allianz Group accepts significant insurance risk from a policyholder are classified as insurance contracts. Contracts under which the Allianz Group does not accept significant insurance risk are classified as investment contracts. Certain insurance and investment contracts include discretionary participation features. All insurance contracts and investment contracts with discretionary participating features are accounted for under the related insurance accounting provisions of US GAAP when IFRS 4 does not provide specific guidance. Investment contracts without discretionary participation features are accounted for as financial instruments in accordance with IAS 39.
To the extent that the assuming reinsurers are unable to meet their obligations, the Allianz Group remains liable to its policyholders for the portion reinsured. Consequently, allowances are made for receivables on reinsurance contracts which are deemed uncollectible.
DAC generally consist of commissions, underwriting expenses and policy issuance costs, which vary with and are directly related to the acquisition and renewal of insurance contracts. If such costs are deemed recoverable over the life of the contracts, then they are deferred accordingly. Loss recognition tests at the end of each reporting period ensure that only the amount of DAC that has future utility is carried on the consolidated balance sheet.
– 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.
Unearned premiums For short-duration insurance contracts, like most of the property and casualty contracts, premiums written to be earned in future years are recorded as unearned premiums according to the insurance accounting provisions of US GAAP. These premiums are earned in subsequent years in relation to the insurance coverage provided.
Amounts charged as consideration for origination of certain long-duration insurance contracts (i. e. initiation or front-end fees) are reported as unearned revenue which are included in unearned premiums. According to the insurance accounting provisions of US GAAP, these fees are recognized using the same methodology as DAC amortization.
Unbundling The deposit component of an insurance contract is unbundled when both of the following conditions are met: 1. the deposit component (including any embedded surrender options) can be measured separately (i. e. without taking into account the insurance component ); and 2. the Allianz Group’s accounting policies do not require the recognition of all obligations and rights arising from the deposit component.
Case reserves for reported claims are based on estimates of future payments that will be made with respect to claims, including LAE relating to such claims. Such estimates are made on a case-by-case basis, based on the facts and circumstances available at the time the reserves are established. The estimates reflect the informed judgment of claims personnel based on general insurance reserving practices and knowledge of the nature and value of a specific type of claim. These case reserves are regularly re-evaluated in the ordinary course of the settlement process and adjustments are made as new information becomes available.
There is no adequate statistical data available for some risk exposures in liability insurance, such as environmental and asbestos claims and large-scale individual claims, because some aspects of these types of claims become known very slowly and continue to evolve. Appropriate provisions have been made for such cases based on the Allianz Group’s judgment and analyses of the portfolios in which such risks occur. These provisions represent the Allianz Group’s best estimate. Current reserves reflect subsequent loss development and re-estimation of initial reserves. The reserves for loss and loss adjustment expenses for asbestos claims in the U.S.A. were reviewed by independent actuaries in 2005; an update of the independent asbestos analysis was completed in 2010 with no impact on the financial results of the Allianz Group. In addition, operating entities regularly monitor asbestos and environmental claims emergence and trends.
Aggregate policy reserves for traditional long-duration insurance contracts, such as traditional life and health products, are computed in accordance with the related insurance accounting provisions under US GAAP using the net level premium method, which represents the present value of estimated future policy benefits to be paid including future claims handling costs and administration fees less the present value of estimated future net premiums to be collected from policyholders. The method uses best estimate assumptions adjusted for a provision for adverse deviation for mortality, morbidity, expected investment yields, surrenders and expenses at the policy inception date, which remain locked in thereafter unless a premium deficiency occurs. DAC and PVFP for traditional life and health products are amortized over the premium paying period of the related policies in 152 Consolidated Financial Statements 159 Notes to the Consolidated Financial Statements 208 Supplementary Information to the Consolidated Balance Sheets 242 Supplementary Information to the Consolidated Income Statements 257 Other Information
proportion to the earned premium using assumptions consistent with those used in computing the aggregate policy reserves.
The aggregate policy reserves for participating life insurance contracts are computed in accordance with the related insurance accounting provisions under US GAAP using the net level premium method. The method uses assumptions for mortality, morbidity and interest rates that are guaranteed in the contract or used in determining the policyholder dividends (or premium refunds). DAC and PVFP for traditional participating insurance products are amortized over the expected life of the contracts in proportion to EGMs based upon historical and anticipated future experience, which is determined on a best estimate basis and evaluated regularly. The present value of EGMs is computed using the expected investment yield. EGMs include premiums, investment income including realized gains and losses, insurance benefits, administration costs, changes in the aggregate reserves and policyholder dividends. The effect of changes in EGMs are recognized in net income in the period revised.
The aggregate policy reserves for universal life-type insurance contracts and unit-linked insurance contracts in accordance with the related insurance accounting provisions under US GAAP are equal to the account balance, which represents premiums received and investment return credited to the policy less deductions for mortality costs and expense charges. DAC and PVFP for universal life-type and investment contracts are amortized over the expected life of the contracts in proportion to EGPs based upon historical and anticipated future experience, which is determined on a best estimate basis and evaluated regularly. The present value of EGPs is computed using the interest rate that accrues to the policyholders, or the credited rate. EGPs include margins from mortality, administration, investment income including realized gains and losses and surrender charges. The effect of changes in EGPs are recognized in net income in the period revised.
Current and historical client data, as well as industry data, is used to determine the assumptions.
The interest rate assumptions used in the calculation of deferred acquisition costs and aggregate policy reserves were as follows: Traditional long-duration insurance contracts
Deferred acquisition costs 2.5 – 6.0 % 3.1 – 5.3 % Aggregate policy reserves 2.5 – 6.0 % 2.0 – 4.3 %
Equipment is carried at cost less accumulated depreciation and impairments. Depreciation is generally computed using the straight-line method over the estimated useful lives of the assets. The estimated useful life of equipment ranges from 2 to 10 years, except for purchased information technology equipment, which is 2 to 8 years.
The Allianz Group also records the fixed assets of its fully consolidated private equity investments and Alternative Investments, e.g. wind parks, solar parks, production plants and vending machines, within property and equipment. These assets are carried at cost less accumulated depreciation and impairments. Depreciation is generally computed using the straight-line method over estimated useful lives of the assets. The estimated useful life for the wind parks ranges from 20 to 25 years, for the production plants from 5 to 15 years and for the vending machines from 4 to 8 years.
Non-current assets and disposal groups classified as held for sale and discontinued operations Non-current assets or disposal groups are classified as held for sale if their carrying amounts will be principally recovered through a sale transaction rather than through continuing use. This requires that the asset or disposal group must be available for immediate sale in its present condition and its sale must be highly probable. The appropriate level of management must be committed to a plan to sell the asset or disposal group and the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Income and expenses from discontinued operations are reported in the consolidated income statement of the reporting period and the comparable period of the previous years, separately from income and expenses from continuing operations.
Goodwill resulting from business combinations is initially recorded at cost and subsequently measured at cost less accumulated impairments. Goodwill is allocated to each of the Allianz Group’s cash generating units that is expected to benefit from the business combination.
The Allianz Group conducts an annual impairment test of goodwill during the fourth quarter or more frequently if there is an indication that goodwill is not recoverable. The impairment test includes comparing the recoverable amount to the carrying amount, including goodwill, of all relevant cash generating units. A cash generating unit is impaired if the carrying amount is greater than the recoverable amount. The impairment of a cash generating unit is equal to the difference between the carrying amount and recoverable amount and is allocated to reduce any goodwill, followed by allocation to the carrying amount of any remaining non financial assets. Impairments of goodwill are not reversed. Gains or losses realized on the disposal of subsidiaries include any related goodwill. Please refer to note 3, where the processes and controls for ensuring an appropriate use of estimates and assumptions are explained.
Intangible assets with indefinite useful lives are not subject to amortization and are subsequently recorded at cost less accumulated impairments. Intangible assets with finite useful lives are amortized over their useful lives and are subsequently recorded at cost less accumulated amortization and impairments.
Fi na nc ia l S ta te m en ts mating the recoverable amount of an individual asset, the Allianz Group estimates the recoverable amount of the cash generating unit to which the intangible asset belongs. An intangible asset is impaired if the carrying amount is greater than the recoverable amount. The impairment of an intangible asset is equal to the difference between the carrying amount and the recoverable amount. For finite life intangibles, an impairment is recognized when the recoverable amount of these assets is less than their carrying amount. Where it is not possible to identify separate cash flows for estimating the recoverable amount of an individual asset, an estimate of the recoverable amount of the cash generating unit to which the asset belongs is used.
Other liabilities Other liabilities include payables, unearned income, provisions, deposits retained for reinsurance ceded, derivative financial instruments for hedge accounting purposes that meet the criteria for hedge accounting, firm commitments, financial liabilities for puttable equity instruments and other liabilities. These liabilities are reported at redemption value.
Interest and similar income/expenses Interest income and interest expenses are recognized on an accrual basis. Interest income is recognized using the effective interest method. This line item also includes 152 Consolidated Financial Statements 159 Notes to the Consolidated Financial Statements 208 Supplementary Information to the Consolidated Balance Sheets 242 Supplementary Information to the Consolidated Income Statements 257 Other Information
dividends from available-for-sale equity securities, interest recognized on finance leases and income from investments in associated entities and joint ventures. Dividends are recognized in income when the right to receive the dividend is established. Interest on finance leases is recognized in income over the term of the respective lease so that a constant period yield based on the net investment is attained.
Fee and commission income and expenses Fee and commission income is recognized when the corresponding service is provided. Such fees comprise commission income received on security transactions, financial advisory services, trust and custody services, brokerage of insurance policies, and services related to credit cards, home loans, savings contracts and real estate.
Investment advisory fees receivable for private accounts consist primarily of accounts billed on a quarterly basis. Private accounts may also generate a fee based on investment performance, which is recognized at the end of the respective contract period if the prescribed performance hurdles have been achieved.
Leases 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.
For defined benefit plans, 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 48. The census date for the primary pension plans is October or November, with any significant changes through December 31, taken into account.
IAS 19 provides for defined benefit plans three recognition options for actuarial gains and losses using : – immediate recognition of all actuarial gains and losses in the income statement,
The Allianz Group applies the corridor approach, i. e. that for each individual defined benefit pension plan, the Allianz Group recognizes a portion of its actuarial gains and losses in income or expense if the unrecognized actuarial net gain or loss at the end of the previous reporting period exceeds the greater of: a) 10 % of the defined benefit obligation at that date; or b) 10 % of the fair value of any plan assets at that date.
Any unrecognized actuarial net gain or loss exceeding the greater of these two values is generally recognized as income or expense in the consolidated income statements over the expected average remaining working lives of the employees participating in the plans.
Restructuring plans Provisions for restructuring plans are recognized when the Allianz Group has a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or by announcing its main features. The detailed formal plan includes the business concerned, approximate number of employees who will be compensated for terminating their services, the expenses to be incurred and the time period over which the plan will be implemented. The detailed plan must be communicated such that those affected have an expectation that the plan will be implemented. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, i. e. those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity. The income statement line item restructuring charges includes additional restructuring related expenditures that are necessarily entailed by the restructuring and not associated with the ongoing activities of the entity but which are not included in the restructuring provisions, such as impairments of assets affected by restructuring.
– reserves for loss and loss adjustments expenses of € 66,474 mn mainly for the Property-Casualty operations, including run-off business and reinsurance business assumed,
– reserves for insurance and investment contracts of € 349,793 mn mainly for the Life/Health operations,
– deferred acquisition costs of € 20,733 mn for both insurance operations.
Both sides of the Allianz Group’s balance sheet have a high degree of estimation and numerous assumptions embedded in the valuation of assets and liabilities. The estimation process and selection of appropriate assumptions requires significant judgment to be applied and management decisions to be taken in order to establish appropriate values for these assets and liabilities. Any change in the assumptions and estimates could, in certain circumstances, significantly affect the reported results and values because the range of reasonable judgment in some cases may be very large. The Allianz Group understands the degree of impact that these judgments may have and has established a strong system of governance as well as controls, procedures and guidelines to ensure consistency and soundness over these judgments.
At the Allianz Group level, processes and committees have been established to ensure sound judgment and consistent application of the Allianz Group’s standards. Furthermore, the Allianz Group has a culture that is strongly committed to reliability, encourages open and transparent discussions, provides a venue for asking questions and admitting mistakes, recognizes experts and expertise, and respects the four eyes principle of review. Committees, none of which are chaired by the CFO of the Allianz Group, ensure that judgmental decisions and selection of assumptions are discussed in an open setting among experts, and inconsistencies are identified and resolved.
Using the development patterns and expected loss ratios described above, local reserving actuaries produce estimates of ultimate loss and allocated LAE using several methods, such as Loss Development (Chain-Ladder) Method, Bornhuetter-Ferguson Method, or FrequencySeverity Methods.
Using the above estimate of ultimate loss and LAE by accident year – i. e. with respect to the origin year of losses – subsidiaries of the Allianz Group directly estimate total loss and LAE reserves by subtracting cumulative payments for claims and LAE through the relevant balance sheet date. Finally, local reserving actuaries calculate the relevant IBNR reserves as the difference between a) the total loss and LAE reserves and b) the case reserves as established by claims adjusters on a case-by-case basis.
As loss reserves represent estimates of uncertain future events, the local reserving actuaries determine a range of reasonably possible outcomes. To analyze the variability of loss reserve estimates, actuaries employ a range of methods and approaches, including simple sensitivity testing using alternative assumptions, as well as more sophisticated stochastic techniques. The Allianz Group’s reserving standards require that all local reserve committees in Allianz subsidiaries meet quarterly to discuss and document reserving decisions and to select the best estimate of the ultimate amount of reserves within a range of possible outcomes and the rationale for that selection for the particular entity.
– Regular quantitative and qualitative reserve monitoring: On a quarterly basis, the Allianz Group Actuarial Department monitors reserve levels, movements and trends across the Allianz Group. This monitoring is conducted on the basis of quarterly data submitted by the subsidiaries as well as through frequent dialogue with local actuaries.
– € 230,739 mn of the financial assets and € 66,288 mn of the financial liabilities carried at fair value are classified within level 1 of the fair value hierarchy (quoted prices in active markets)
1 Please refer to the consolidated financial statements note 2 Summary of significant accounting policies, note 37 Impairments of investments (net), and note 45 Financial instruments for further details regarding financial instruments and impairments.
Estimates and assumptions are particularly significant when determining the fair value of financial instruments for which at least one significant input is not based on observable market data (classified within level 3 of the fair value hierarchy). The availability of market information is determined by the relative trading levels of identical or similar instruments in the market, with emphasis placed on information that represents actual market activity or binding quotations from brokers or dealers. When appropriate, values are adjusted on the basis of available market information including pricing, creditrelated factors, volatility levels, and liquidity considerations.
If sufficient market information is unavailable, management’s best estimate of a particular input is used to determine the value.
The evaluation of whether a financial debt security is impaired requires analysis of the underlying credit of the relevant issuer and involves significant management judgment. In particular, current publicly available information relating to the issuer and the particular security is considered relating to factors including, but not limited to, evidence of significant financial difficulty of the issuer and breach of contractual obligations of the security, such as a default or delinquency on interest or principal payments. The Allianz Group also considers other factors which could provide objective evidence of a loss event, including the probability of bankruptcy and the lack of an active market due to financial difficulty. The presence of either a decline in fair value below amortized cost or the downgrade of an issuer’s credit rating does not by itself represent objective evidence of a loss event, but may represent objective evidence of a loss event when considered with other available information.
In general, the subsidiaries assume responsibility for assessing fair values and evaluating impairments of financial instruments. This process is consistent with the decentralized organizational structure and reflects the fact that local managers are often best suited to analyze securities trading in local markets. Nevertheless, the
Fi na nc ia l S ta te m en ts 152 Consolidated Financial Statements 159 Notes to the Consolidated Financial Statements 208 Supplementary Information to the Consolidated Balance Sheets 242 Supplementary Information to the Consolidated Income Statements 257 Other Information subsidiaries are responsible for adhering to the Allianz Group’s internal control policy regarding impairment assessment, measurement and disclosure. Subsidiaries must report all impairment decisions on debt securities to the Allianz Group Financial Reporting department, which then reviews them for consistency and resolves discrepancies.
– € 614 mn related to the business segment Corporate and Other
Goodwill represents the excess of the cost of a business over the fair value of net assets acquired. Upon acquisition, goodwill is allocated to the cash generating units (CGU) that are expected to benefit from the acquisition. Since goodwill is not amortized, the Allianz Group must evaluate at least annually whether the carrying value per CGU is deemed recoverable. This is assumed as long as the carrying value is not in excess of the unit’s estimated value in use (present value of expected cash flows). If it is not deemed recoverable, the excess goodwill will need to be impaired. The determination of a unit’s estimated recoverable value requires significant judgment regarding the selection of appropriate valuation techniques and assumptions. These assumptions include selection of appropriate discount rates, planning horizons, capitalization requirements and the expected future business results. Assumptions may need to change as economic, market and business conditions change. As such, the Allianz Group continually evaluates external conditions and the operating performances of the CGUs.
The Allianz Group’s processes and controls around the estimation of recoverable values are generally applied at the Allianz Group level and are designed to minimize subjectivity. For example, the assumptions used are 1 Please refer to note 2 Summary of significant accounting policies, and note 15 Intangible assets, for further details.
Assessments as to the recoverability of deferred tax assets require the use of judgment regarding assumptions related to estimated future taxable profits. This includes the estimation of the character and amounts of taxable future profits as well as the periods in which those profits are expected to occur.
Reserves for pensions As of December 31, 2010, the Allianz Group reported pension liabilities for defined benefit plans of € 15,320 mn which is offset by the fair value of plan assets of € 9,780 mn. 1
Restructuring provisions As of December 31, 2010, the Allianz Group reported a provision for restructuring programs of € 409 mn 2.
– Losses are allocated to a non-controlling interest even if they exceed the non-controlling interests’ share of equity in the subsidiary.
Further amendments and interpretations In addition to the above mentioned recently adopted accounting pronouncements, the following amendments and revisions to standards and interpretations have been adopted by Allianz Group as of January 1, 2010: – IAS 39, Financial Instruments: Recognition and Measurement – Amendments for eligible hedged items
– IFRS 2, Share-based Payment – Amendments relating to group cash settled share-based payment transactions
4 Recently adopted and issued accounting pronouncements, changes in accounting policies and changes in the presentation of the consolidated financial statements
Recently adopted accounting pronouncements (effective January 1, 2010 and early adoption) IFRS 3, Business Combinations – revised and IAS 27, Consolidated and Separate Financial Statements – amended In January 2008, the IASB issued a revised version of IFRS 3, Business Combinations, and an amended version of IAS 27, Consolidated and Separate Financial Statements. The revised version of IFRS 3 contains the following major changes: – The scope of IFRS 3 has been extended and applies now also to business combinations achieved by contract alone.
– For each business combination, non-controlling interests are measured at their proportionate interest in the net identifiable assets or at fair value of the interests.
IFRS 9 is effective for annual periods beginning on or after January 1, 2013. IFRS 9 has not yet been adopted under E.U. regulations. The Allianz Group is currently evaluating the impact on its consolidated financial statements.
IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments annual periods beginning on or after July 1, 2010 IAS 24, Related Party Disclosures – revised annual periods beginning on or after January 1, 2011 IFRIC 14, IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction – Amendments annual periods beginning on or after January 1, 2011
Improvements to IFRSs 2010: – Amendments to IFRS 3 Business Combinations – Amendments to IAS 27 Consolidated and Separate Financial
Improvements to IFRSs 2010: – IFRS 7 Financial Instruments: Disclosures – IAS 1 Presentation of Financial Statements – IAS 34 Interim Financial Reporting – IFRIC 13 Customer Loyalty Programs annual periods beginning on or after January 1, 2011
The voluntary change in accounting policy is applied retrospectively and results in changes in the presentation as described in the tables below.
ASSETS Cash and cash equivalents 6,089 — 6,089 8,958 — 8,958 Financial assets carried at fair value through income 14,321 — 14,321 14,240 — 14,240
Non-current assets and assets of disposal groups classified as held for sale — — — 419,513 — 419,513
Liabilities of disposal groups classified as held for sale — — — 411,816 — 411,816
Income from fully consolidated private equity investments 1,910 — 1,910 2,549 — 2,549
Acquisition and administrative expenses (net) (20,325) 207 (20,118) (18,299) (300) (18,599) Fee and commission expenses (2,212) — (2,212) (2,344) — (2,344) Amortization of intangible assets (125) — (125) (23) — (23)
Income from continuing operations before income taxes 5,328 (138) 5,190 5,473 126 5,599
Scope of consolidation In addition to Allianz SE, the consolidated financial statements for the period ended December 31, 2010, generally include all German and foreign operating companies in which Allianz SE directly or indirectly holds a majority of voting rights, or whose activities it can in some other way control. The companies are consolidated from the date on which Allianz SE is able to exercise control.
All subsidiaries, joint ventures and associated enterprises are individually listed in the List of participations of the Allianz Group from page 290 onward of this annual report.
Significant acquisitions No significant acquisitions were made in the year 2010. The significant acquisitions in the years 2009 and 2008 are listed below: Equity interest
Ayudhya Allianz C.P. Life Public Company Limited, Bangkok 62.6 06/29/2009 Life/Health — Obtain control
The impact of Ayudhya on the Allianz Group’s net income for the year ended December 31, 2009, was € 4 mn.
The premiums written of the combined entity ( Allianz Group including Ayudhya Allianz C.P. Life Public Company Limited) for the year ended December 31, 2009, would have been € 65,172 mn, if the acquisition date had been on January 1, 2009. The net income of the combined entity for the year ended December 31, 2009, would have been € 4,279 mn if the acquisition date had been on January 1, 2009.
The amounts recognized for major classes of assets and liabilities were as follows: Fair value Carrying amount € mn € mn
The impact of Allianz Sigorta AŞ and Allianz Hayat ve Emeklilik AŞ on the Allianz Group’s net income for the year ended December 31, 2008, was € 8 mn.
The premiums written of the combined entity ( Allianz Group including Allianz Hayat and Allianz Sigorta) for the year ended December 31, 2008, would have been € 66,367 mn, if the acquisition date had been on January 1, 2008. The net loss of the combined entity for the year ended December 31, 2008, would have been € 2,071 mn if the acquisition date had been on January 1, 2008.
Phenix Compagnie d’assurances sur la vie SA, Lausanne 11/01/2010 219 PropertyCasualty
DEGI Deutsche Gesellschaft für Immobilien - fonds mbH, Frankfurt am Main 94.0 01/01/2008 103 Corporate and Other
Allianz Bank Zrt., Budapest In September 2010, the Allianz Group completed the sale of Allianz Bank Zrt., Budapest. The impact of the disposal, net of cash disposed, on the consolidated statement of cash flows for the year ended December 31, 2010, was: € mn
2009 Significant disposals Dresdner Bank AG The transfer of ownership of Dresdner Bank to Commerzbank was completed on January 12, 2009. According to the agreement Allianz received a total of € 3.215 bn in cash plus cash and cash equivalents of the Asset Manager cominvest of € 48 mn.
Prices for transactions between reportable segments are set on an arm’s length basis in a manner similar to transactions with third parties. Transactions between reportable segments are eliminated in the consolidation. For the reportable segment Asset Management interest revenues are reported net of interest expenses.
Asset management activities represent a separate reportable segment. Due to differences in the nature of products, risks and capital allocation, corporate and other activities are divided into three reportable segments: Holding & Treasury, Banking and Alternative Investments. In sum, the Allianz Group has identified 15 reportable segments in accordance with IFRS 8, Operating Segments.
To better understand the ongoing operations of the business, the Allianz Group generally excludes the following non-operating effects: – acquisition-related expenses and the amortization of intangible assets, as these relate to business combinations; – restructuring charges, because the timing of these are largely at the discretion of the Allianz Group, and accordingly their exclusion provides additional insight into the operating trends of the underlying business; – interest expenses from external debt, as these relate to the capital structure of the Allianz Group; – income from fully consolidated private equity investments (net), as this represents income from industrial holdings, which is outside the Allianz Group’s normal scope of operating business; – income from financial assets and liabilities carried at fair value through income (net), as this does not reflect the Allianz Group’s long-term performance; – realized capital gains and losses (net) or impairments of investments (net), as the timing of sales that would result in such realized gains or losses is largely at the discretion of the Allianz Group and impairments are largely dependent on market cycles or issuer-specific events over which the Allianz Group has little or no control and which can and do vary, sometimes materially, through time.
Against this general rule the following exceptions apply: – in all segments, income from financial assets and liabilities carried at fair value through income (net) is treated as operating profit if the income refers to operating business; – besides, for Asset Management and Banking, income from financial assets and liabilities held for trading (net) is generally treated as operating income; – regarding Life/Health insurance business and Property -Casualty insurance products with premium refunds all items listed above are included in operating profit if the profit sources are shared with policyholders. This is also applicable to tax benefits, which are shared with policyholders. IFRS requires that the consolidated income statements present all tax benefits in the income taxes line item, even though these belong to policyholders. In the segment reporting, the tax benefits are reclassified and shown within operating profit in order to properly reflect the policyholder participation in tax benefits.
Operating profit should be viewed as complementary to, and not a substitute for, income from continuing operations before income taxes or net income as determined in accordance with IFRS.
2 Comprise the liabilities from the disposal group Allianz Bank Polska S.A., Warsaw, in Corporate and Other. See note 14 for further information.
Asset Management Corporate and Other Consolidation Group € mn € mn € mn € mn € mn € mn € mn € mn
Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (64) (45) 44 (40) (22) (26) Non-operating realized gains/losses (net) 605 732 2,349 36 63 (39) Non-operating impairments of investments (net) (191) (519) (2,012) (47) (76) (414) Subtotal 350 168 381 (51) (35) (479)
Asset Management Corporate and Other Consolidation Group € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
German Speaking Countries Europe incl. South America 1 € mn € mn € mn € mn € mn € mn
Loss ratio 3 in % 73.1 70.8 69.5 72.2 73.9 70.3 Expense ratio 4 in % 26.5 27.0 25.6 26.3 26.3 26.0 Combined ratio 5 in % 99.6 97.8 95.1 98.5 100.2 96.3 1 Corporate customer business in Spain transferred to AGCS in 2010. Prior year balances have not been adjusted. 2 From 2010 on Allianz Fire and Marine Insurance Japan Ltd. is shown within AGCS. Prior year balances have not been adjusted. 3 Represents claims and insurance benefits incurred (net) divided by premiums earned (net).
Operating income from financial assets and liabilities carried at fair value through income (net) 2 3 4 18 118 9
Acquisition and administrative expenses (net) (1) 5 (4) (11,044) (10,540) (10,478)
Global Insurance Line & Anglo Markets Growth Markets Consolidation Life/Health € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
Interest and similar income 293 359 819 683 708 989 Operating income from financial assets and liabilities carried at fair value through income (net) (41) (122) 135 1 17 6 Fee and commission income 198 209 53 445 389 430 Other income — — 1 — — — Operating revenues 450 446 1,008 1,129 1,114 1,425
Debt and equity securities included in financial assets held for trading Debt and equity securities included in financial assets held for trading are primarily marketable and listed securities. As of December 31, 2010, the debt securities include € 173 mn (2009: € 31 mn) from public sector issuers and € 373 mn (2009: € 332 mn) from other issuers.
Debt securities Government and agency mortgage-backed securities (residential and commercial) 5,043 235 (6) 5,272 8,202 209 (53) 8,358 Corporate mortgage-backed securities (residential and commercial) 10,023 625 (174) 10,474 8,116 76 (444) 7,748
Fair Value € mn € mn € mn € mn € mn € mn € mn € mn
Government and government agency bonds 2,264 165 (5) 2,424 1,859 108 (4) 1,963 1 Includes also corporate mortgage-backed securities.
Government and agency mortgage-backed securities (residential and commercial) 761 (6) 1 — 762 (6) Corporate mortgage-backed securities (residential and commercial) 627 (33) 1,230 (141) 1,857 (174)
Corporate bonds Total unrealized losses amounted to € 2,747 mn as of December 31, 2010. The Allianz Group holds a large variety of bonds issued by corporations mostly domiciled in OECD countries. For the vast majority of the Allianz Group’s corporate bonds, issuers and/or issues are of “investment grade”. The unrealized losses have increased by € 827 mn, primarily due the negative bond market performance of the financial sector. Based on a detailed analysis of the underlying securities the Allianz Group does not consider these investments to be impaired at December 31, 2010.
Equity securities As of December 31, 2010, unrealized losses from equity securities amounted to € 148 mn. These unrealized losses concern equity securities that did not meet the criteria of the Allianz Group’s impairment policy for equity securities as described in note 2. Substantially all of the unrealized losses have been in a continuous loss position for less than 6 months.
Available-for-sale debt securities Due in 1 year or less 24,481 24,731 Due after 1 year and up to 5 years 89,189 91,274 Due after 5 years and up to 10 years 74,749 76,526 Due after 10 years 94,173 95,136
Held-to-maturity debt securities Due in 1 year or less 130 135 Due after 1 year and in up to 5 years 1,790 1,908 Due after 5 years and in up to 10 years 835 880 Due after 10 years 1,232 1,288
Investments in associates and joint ventures As of December 31, 2010, loans to associated enterprises and joint ventures and available-for-sale debt securities issued by associated enterprises and joint ventures held by the Allianz Group amounted to € 192 mn (2009: € 114 mn). As of December 31, 2010, the fair value of investments in associates and joint ventures was € 2,598 mn (2009: € 3,045 mn).
Cost as of January 1, 10,413 10,139 10,114 Accumulated depreciation as of January 1, (2,899) (2,588) (2,356) Carrying amount as of January 1, 7,514 7,551 7,758
Reclassifications into non-current assets and assets of disposal groups classified as held for sale (46) — (62) Foreign currency translation adjustments 292 14 93
As of December 31, 2010, the fair value of real estate held for investment was € 12,929 mn (2009: € 11,444 mn). As of December 31, 2010, real estate held for investment pledged as security and other restrictions on title were € 73 mn (2009: € 146 mn).
Short-term investments and certificates of deposit 1 5,216 — 5,216 10,530 — 10,530
Loans and advances to banks 6,738 3,787 10,262 9,243 46,150 76,180 Loans and advances to customers 2,849 2,985 6,541 7,007 27,262 46,644
Collateral paid for securities borrowing transactions and derivatives 25 13 38 — — —
Wholesale and retail trade 450 405 Financial institutions (excluding banks) and insurance companies 439 122 Service providers 2,171 1,503
Changes in the consolidated subsidiaries of the Allianz Group (19) — — (1) — — (20) — — Additions charged to the consolidated income statements 110 212 118 13 3 3 123 215 121
Reclassifications to non-current assets and assets of disposal groups classified as held for sale — — (721) (6) — (192) (6) — (913)
214 Allianz Group Annual Report 2010 Consolidated Financial Statements 11 Reinsurance assets
Unearned premiums 1,372 1,424 Reserves for loss and loss adjustment expenses 6,986 7,456 Aggregate policy reserves 4,674 4,613 Other insurance reserves 103 66
Reinsurance involves credit risk and is subject to aggregate loss limits. Reinsurance does not legally discharge the Allianz Group from primary liability under the reinsured policies. Although the reinsurer is liable to the Allianz Group to the extent of the reinsurance ceded, the Allianz Group remains primarily liable as the direct insurer on all risks it underwrites, including the portion that is reinsured. The Allianz Group monitors the financial condition of its reinsurers on an ongoing basis and reviews its reinsurance arrangements periodically in order to evaluate the reinsurer’s ability to fulfill its obligations to the Allianz Group under existing and planned reinsurance contracts. The Allianz Group’s evaluation criteria, which include the credit risk claims-paying and debt ratings, capital and surplus levels, and marketplace reputation of its reinsurers, are such that the Allianz Group believes that its reinsurance credit risk is not significant, and historically has not experienced noteworthy difficulty in collecting from its reinsurers. Additionally, and as appropriate, the Allianz Group may also require letters of credit, deposits, or other financial guarantees 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, 2010 and 2009. The Allianz Group is primarily exposed to highly rated reinsurers.
Impaired loans 1,074 1,149 Impaired loans with specific allowances 1,063 1,129 Average balance of impaired loans 874 713 Interest income recognized on impaired loans 10 4
Present value of future profits 1,180 1,212 Deferred sales inducements 821 693
Property and equipment Real estate held for own use € mn € mn € mn
Impairments — — (9) Reversals of impairments 1 — 11 Carrying amount as of December 31, 3,075 2,916 3,122 Accumulated depreciation as of December 31, 1,194 1,092 1,014 Cost as of December 31, 4,269 4,008 4,136
As of December 31, 2010, the fair value of real estate held for own use was € 4,363 mn (2009: € 4,053 mn). As of December 31, 2010, assets pledged as security and other restrictions on title were € 266 mn (2009: € 262 mn).
Reclassification out of/(into) noncurrent assets and assets of disposal groups classified as held for sale 1 (8) 18 (234) Carrying amount as of December 31, 2 1,287 1,297 1,116 Accumulated amortization as of December 31, 2,875 2,531 2,284 Cost as of December 31, 4,162 3,828 3,400 1 Includes software of Allianz Bank Polska, Selecta and Dresdner Bank for the years ended December 31, 2010, 2009 and 2008, respectively.
2 As of December 31, 2010, includes € 829 mn (2009: € 812 mn; 2008: € 701 mn) for software developed inhouse and € 458 mn (2009: € 485 mn; 2008: € 415 mn) for software purchased from third parties.
Cost as of January 1, 3,311 3,102 4,189 Accumulated depreciation as of January 1, (2,508) (2,279) (2,876) Carrying amount as of January 1, 803 823 1,313
Changes in the consolidated subsidiaries of the Allianz Group 3 6 (48)
Carrying amount as of December 31, 735 803 823 Accumulated depreciation as of December 31, 2,562 2,508 2,279 Cost as of December 31, 3,297 3,311 3,102 1 Includes equipment of Allianz Bank Polska and Dresdner Bank for the years ended December 31, 2010 and 2008, respectively.
Fixed assets of Alternative Investments 1 € mn € mn € mn
Cost as of January 1, 1,152 538 426 Accumulated depreciation as of January 1, (330) (119) (73) Carrying amount as of January 1, 822 419 353
Changes in the consolidated subsidiaries of the Allianz Group 248 164 35
Reclassifications out of non-current assets and assets of disposal groups classified as held for sale 2 — 309 — Foreign currency translation adjustments 13 (4) —
The sale is expected to occur during the first half 2011 and is subject to approval by the regulatory authorities. Upon measurement of the disposal group at fair value less cost to sell an impairment loss of € 34 mn was recognized in the consolidated income statement.
Real estate classified as held for sale During the fourth quarter of 2010, the Allianz Group contractually agreed to dispose of various residential properties of Allianz IARD S.A. and Allianz Vie S.A. in Paris on an individual basis. Thus, the assets allocated to the segments Property-Casualty and Life/Health and previously classified as real estate held for investment were reclassified and presented as non-current assets held for sale. The sales are expected to occur during the first quarter of 2011. Upon measurement of the non-current assets held for sale at fair value less cost to sell no impairment loss was recognized in the consolidated income statement.
Allianz Bank Zrt., Budapest In September 2010, the Allianz Group completed the sale of Allianz Bank Zrt., Budapest, which was classified as disposal group held for sale during the second quarter of 14 Non-current assets and assets and liabilities of disposal groups classified as held for sale
As of December 31, 2010, cumulative losses recognized in other comprehensive income relating to the disposal group classified as held for sale amount to € 11 mn.
and bancassurance agreements of € 14 mn (2009: € 14 mn).
Additions include goodwill from the acquisition of a 100 % participation in cominvest Asset Management GmbH, Frankfurt am Main.
The allocated goodwill of the cash generating unit (CGU) Banking was impaired as a result of the annual impairment test.
The reclassification affects the goodwill of Selecta AG, Muntelier, as this subsidiary was reclassified out of disposal groups held for sale.
Impairment test for goodwill and intangible assets with indefinite useful lives For purposes of impairment testing, the Allianz Group has allocated goodwill to CGU. These CGU represent the lowest level at which goodwill is monitored for internal measurement purposes.
For purposes of impairment testing, the capitalized longterm distribution agreement with Commerzbank AG has been allocated to the CGU German Speaking Countries in the Life/Health segment since the cash flows are economically generated in this CGU.
2010. Total impairment losses from the measurement at fair value less costs to sell until disposal amounted to € 43 mn.
Galleria Commerciale Porta di Roma S.p.A., Rome During the second quarter of 2010, the Allianz Group acquired 100 % of the Galleria Commerciale Porta di Roma S.p.A. shopping mall in Rome, Italy. At the same time, the Allianz Group agreed to sell a 50 % stake. The sale was completed during the third quarter of 2010. The remaining 50 % stake is accounted for as joint venture measured at equity. The reclassification did not have an impact on the consolidated income statement.
Specialty and Credit Insurance, – Specialty Lines II, including Travel Insurance and
Goodwill attributable to the former CGU Alternative investments and Banking was reallocated to each of the constituent CGU for which goodwill was originally identified during initial consolidation as no other CGU within the Allianz Group benefited from these recognized goodwill.
The recoverable amounts for all CGU are determined on the basis of value in use calculations. The Allianz Group applies generally acknowledged valuation principles to determine the value in use, whereas the valuation methods applied for the CGU manroland AG and Selecta AG are based on industry-specific standards.
In this regard, the Allianz Group utilizes the capitalized earnings method to derive the value in use for all CGU in the Property-Casualty segment, for the CGU Asset Management as well as for the CGU Banking Germany and Banking Europe. Generally, the basis for the determination of the capitalized earnings value is the business plan (“detailed planning period”) as well as the estimate of the sustainable returns and eternal growth rates which can be assumed to be realistic on a long-term basis (“terminal value”) for the companies included in the CGU. The capitalized earnings value is calculated by discounting the future earnings using an appropriate discount rate. The business plans applied in the value in use calculations are the results of the structured management dialogues between the Board of Management of the Allianz Group and the companies in connection with a reporting process integrated into these dialogues. Generally, the business plans comprise a planning horizon of three years and are based on the current market environment. The terminal values are largely based on the expected profits of the final year of the detailed planning period. Where necessary, the planned profits are adjusted to reflect long-term sustainable earnings. The financing of the assumed eternal growth in the terminal values is accounted for by appropriate profit retention.
Sensitivity analyses were performed with regard to discount rates and key value drivers of the business plans. Changes in capitalized earnings values for the PropertyCasualty CGU due to changes in applied long-term sustainable combined ratios and changes in capitalized earnings values for the Asset Management and Banking CGU due to changes in assumptions regarding cost income ratios were analyzed.
For all CGU excluding PC Asia-Pacific and Middle East, PC NAFTA Markets and Banking Germany capitalized earnings value sensitivities still exceeded their respective carrying values.
The Market Consistent Embedded Value is an industry specific valuation method to determine the fair value of the current in force portfolio and is in compliance with the general principles of the discounted earnings methods. The Market Consistent Embedded Value approach applied is based on the Allianz Group’s Embedded Value guidelines.
South America 21 — 21 — Asia-Pacific and Middle East 87 — 78 — Central and Eastern Europe 467 25 576 23 Global Insurance Lines & Anglo Markets 312 — 286 — NAFTA Markets 94 — 94 — Specialty Lines I 38 — 38 — Specialty Lines II 18 — 18 —
Banking Germany 95 — 95 — Banking Europe — — 51 manroland AG 28 — 143
Intangible assets with finite useful lives Amortization expenses of intangible assets with finite useful lives are estimated to be € 96 mn in 2011, € 88 mn in 2012, € 73 mn in 2013, € 73 mn in 2014 and € 73 mn in 2015.
Banks Customers Total Banks Customers Total € mn € mn € mn € mn € mn € mn
Collateral received from securities lending transactions and derivatives 591 — 591 44 — 44
As of December 31, 2010, liabilities to customers include € 987 mn (2009: € 1,017 mn) of non-interest bearing deposits.
Foreign currency trans lation adjustments and other changes 1 2,188 (344) 1,844 679 (88) 591 (497) 48 (449) Changes in the consolidated subsidiaries of the Allianz Group (242) 26 (216) — — — 127 (39) 88 1 Includes effects of foreign currency trans lation adjustments for loss and loss adjustment expenses for prior years claims of gross € 1,999 mn (2009: € 607 mn; 2008: € (313) mn) and of net € 1,707 mn (2009: € 536 mn; 2008: € (284) mn).
The run-off triangle, also known as “loss triangle” is a tabular representation of loss-related data (such as payments, loss reserves, ultimate losses) in two, time- related dimensions. One of these is the calendar year, while the other is the accident year (year of loss occurrence ). Run-off triangles – as the basis for measuring loss reserves – make clear how the loss reserves change over the course of time due to payments made and new estimates of the expected ultimate loss at the respective balance sheet date.
Calendar Year 2003 & Prior € mn € mn € mn € mn € mn € mn € mn € mn € mn
The following table summarizes the development of the Allianz Group’s loss and LAE reserves over the past six years. The table presents calendar year data, not accident year data.
Each column of this table shows reserves as of a single reporting date and subsequent development of these reserves. The top row of each column shows net reserves as initially established at the end of each stated year. The next section, reading down, shows the cumulative net amounts paid as of the end of the successive years with respect to the reserve initially established. The next section shows the retroactive re-estimation of the initially established net reserves for loss and LAE as of the end of each successive year. This re-estimation results primarily from additional facts and circumstances that pertain to open claims.
Given that the table below presents calendar year data and not, like the one above, accident year data, conditions and trends that have affected development of liability in the past may or may not necessarily occur in the future. Consequently, conclusions about future results may not be derived from information presented in this table.
Reserves for loss and loss adjustment expenses (gross) 55,529 60,259 58,664 56,943 55,616 55,715 57,509 Reserves for loss and loss adjustment expenses (ceded) 10,049 10,604 9,333 8,266 7,820 7,175 6,659 Reserves for loss and loss adjustment expenses (net) 45,480 49,655 49,331 48,677 47,796 48,540 50,850 Net paid (cumulative) as of
2 Three major reclassifications occurred in 2008 in which the accident and health unit of Allianz IARD and the health unit from Allianz Belgium were transferred from the Property-Casualty segment into the Life/Health segment and the health unit of the Brazilian subsidiary Allianz Seguros was transferred from the Life/Health segment into the Property-Casualty segment, accounting for the € 1,458 mn gross effect and € 1,371 mn net effect in 2008. The effect on the liability re-estimated consists of effects on paid and unpaid losses for prior years in the year of the transaction, while the effect of (divestitures)/acquisitions presented in the table “Changes in the reserves for loss and loss adjustment expenses” states the total amount of loss reserves being deconsolidated or consolidated for the first time. During 2010 Alba and Phenix were sold to an external party, accounting for the € 242 mn gross effect and € 216 mn net effect (as of the third quarter of 2010).
In 2010, net loss and LAE reserves increased by € 2,310 mn or 4.8 % to € 50,850 mn, resulting primarily from the impact of currency fluctuations during 2010. Reserve developments during 2010 are described in further detail in the succeeding section “Changes in reserves for loss and LAE during 2010”.
Loss and LAE reserves by year and line of business, gross of reinsurance € mn € mn € mn
General Liability 11,619 11,063 10,930 Case Reserves 7,211 6,909 6,255 IBNR Reserves 4,408 4,153 4,674
Property 4,127 3,952 3,682 Case Reserves 3,862 3,595 3,269 IBNR Reserves 265 357 414
Personal Accident 1,377 1,278 1,264 Case Reserves 1,366 1,243 1,167 IBNR Reserves 11 35 98
2 In % of net reserves as of December 31, 2009. 3 Alba and Phenix were sold to an external party during 2010. As a result, the historical data for this unit was removed from the 2009 gross and net reserves. The reduction in the gross reserves associated with the sale was € 214 mn on gross basis and € 191 mn on a net basis in 2009. Furthermore, a portfolio from the Spanish subsidiary was transferred to AGCS and hence the history for 2009 has been restated. The total reserves transferred were € 154 mn on a gross basis and € 14 mn on a net basis.
€ 94 mn at the Allianz Group’s Australian subsidiary for motor third party liability, primarily as a result of continuing positive experience in medium-tail classes, where the impact of superimposed inflation and of prior years’ legislative changes continued to be better than assumed in prior reporting years.
€ 91 mn at the Allianz Group’s Italian subsidiary. The benefit from the payment exchange mechanism between the Italian subsidiary and other market players under the direct indemnity system was significantly better than anticipated.
€ 51 mn at the Allianz Group’s U.K. subsidiary, predominantly from savings on bodily injury claims as a result of changing claims development patterns, mainly on
Changes in reserves for loss and LAE during 2010 As noted above, prior year loss and LAE reserves of the Allianz Group developed favorably during 2010 by € 2,551 mn gross of reinsurance and € 1,544 mn net of reinsurance, representing 4.6 % of gross reserves and 3.2 % of net reserves as of December 31, 2009. The following table provides a breakdown of these amounts by line of business.
1 The wide range of interest rates is the result of the presentation of the above information by line of business thus each line reflecting interest rates used in various countries.
commercial motor lines. These changes are due to claim division reorganizations and sustainability project initiatives delivering benefits faster and greater than anticipated.
€ 51 mn in the global aviation portfolio driven mostly by favorable settlements on larger airline accidents from year 2009.
Discounting of reserves for loss and LAE As of December 31, 2010, 2009 and 2008, the Allianz Group’s consolidated Property-Casualty reserves reflected discounts of € 1,846 mn, € 1,675 mn and € 1,712 mn respectively.
Asbestos and environmental (A&E) loss reserves There are significant uncertainties in estimating A&E reserves for loss and LAE. Reserves for asbestos-related illnesses and environmental clean up losses cannot be estimated using traditional actuarial techniques due to the long latency period and changes in the legal, socioeconomic and regulatory environment. Case reserves are established when sufficient information is available to indicate the involvement of a specific insurance policy. In addition, IBNR reserves are established to cover additional exposures on both known and not yet reported claims. To the extent possible, A&E loss reserve estimates are based not only on claims reported to date, but also on a survey of policies that may be exposed to claims reported in the future (i. e. an exposure analysis).
In establishing liabilities for A&E claims, management considers facts currently known and the current state of the law and coverage litigation. However, given the expansion of coverage and liability by the courts and the legislatures in the past and the possibilities of similar interpretation in the future, there is significant uncertainty regarding the extent of remediation and insurer liability. As a result, the range of reasonable potential outcomes for A&E liabilities provided in these analyses is particularly large. Given this inherent uncertainty in estimating A&E liabilities, significant deviation from the currently carried A&E reserve position is possible.
Gross and net loss and LAE reserves for A&E claims € mn € mn € mn
A&E net reserves 2,713 2,652 2,618 A&E gross reserves 3,272 3,099 3,140 As percentage of the Allianz Group’s Property-Casualty gross reserves 5.7 % 5.6 % 5.6 %
reserves 368 125 52 Loss and LAE reserves as of December 31, 3,272 3,099 3,140
Foreign currency translation adjustments 748 1,220 5 262 Changes in the consolidated subsidiaries of the Allianz Group — (67) — 1,942 Changes recorded in consolidated income statements 4,265 929 1,933 736 Dividends allocated to policyholders 1,135 461 1,193 311
Changes in aggregate policy reserves for universal life-type insurance contracts and non-unit-linked investment contracts for the years ended December 31, 2010 and 2009 were as follows: Universal life-type insurance contracts
As of December 31, € mn € mn € mn € mn € mn € mn € mn
Concentration of insurance risk in the Life/Health segment The Allianz Group’s Life/Health segment provides a wide variety of insurance and investment contracts to individuals and groups in approximately 30 countries around the world. Individual contracts include both traditional contracts and unit-linked contracts. Without consideration of policyholder participation, traditional contracts generally incorporate significant investment risk for the
In most of these markets, the effective interest rates being earned on the investment portfolio exceed these guaranteed minimum interest rates. In addition, the operations in these markets may also have significant mortality and expense margins. As a result, as of December 31, 2010 and 2009, the Allianz Group does not believe that it is exposed to a significant risk of premium deficiencies in its Life/Health segment. However, the Allianz Group’s Life/Health operations in Switzerland, Belgium, South Korea and Taiwan have high guaranteed minimum interest rates on older contracts in their portfolios and, as a result, may be sensitive to declines in investment rates or a prolonged low interest rate environment.
1 These transfers mainly relate to insurance contracts when policyholders change their contract from a unit-linked to a universal life-type contract.
Fi na nc ia l S ta te m en ts 23 Certificated liabilities
Contractual interest rate — — — — — 2.11 % — — Floating rate — — — — — — — 25 Current interest rate — — — — — — — —
Total all other subsidiaries — — — — — 3 3 28 1 Except for the interest rates. The interest rates represent the weighted average. 2 Includes senior bonds issued by Allianz Finance II B.V., guaranteed by Allianz SE and money market securities issued by Allianz Finance Corporation, a wholly-owned subsidiary of Allianz SE, which are fully and unconditionally guaranteed by Allianz SE.
238 Allianz Group Annual Report 2010 Consolidated Financial Statements 24 Participation certificates and subordinated liabilities
Contractual interest rate — — — — — 4.62 % — — Floating rate — — — — — — — 225 Current interest rate — — — — — — — —
4 The decrease relates to the early redemption of subordinated bonds amounting to € 450 mn issued by Allianz France.
Issued capital Issued capital at December 31, 2010, amounted to € 1,163,520,000 divided into 454,500,000 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.
Authorized capital As of December 31, 2010, Allianz SE had an authorized capital for the issuance of further 214,843,750 shares until May 4, 2015, with a notional amount of € 550,000,000 (Authorized Capital 2010/I). The shareholders ’ subscription rights can be excluded for capital increases against contribution in kind as well as for fractional amounts. For a capital increase against contributions in cash, the shareholders’ subscription rights can be excluded if the issue price is not significantly below the market price and the shares issued under exclusion of the subscription rights pursuant to § 186 (3) sentence 4 of the German Stock Corporation Law (“Aktiengesetz”) do not exceed 10 % of the share capital. Finally, shareholders ’ subscription rights can be excluded to the extent necessary to grant holders of bonds that carry conversion or option rights a subscription right. An overall limit for the exclusion of subscription rights of up to 20 % of the share capital (calculated as of year end 2009) applies for the Authorized Capital 2010/I and the Conditional Capital 2010.
In addition, Allianz SE had another authorized capital for the issuance of further 5,259,375 shares against cash until May 4, 2015, with a notional amount of € 13,464,000 (Authorized Capital 2010/II). The shareholders ’ subscription rights can be excluded in order to issue new shares to employees of Allianz SE and its Group companies.
Issued shares outstanding as of January 1, 451,197,223 451,490,223 448,910,648 Exercise of warrants — — 2,200,000 Capital increase for employee shares 600,000 850,000 700,000 Change in treasury shares held for non-
In November 2010, 600,000 (2009: 850,000) shares were issued at a price of € 83.34 (2009: € 77.62) per share, enabling employees of Allianz Group subsidiaries in Germany and abroad to purchase 373,380 (2009: 599,968) shares at prices ranging from € 58.34 (2009: € 36.78) to € 69.58 (2009: € 64.68) per share. The remaining 226,620 (2009: 250,032) shares continue to be recognized as treasury shares for further subscriptions by employees in the context of the employee share purchase plan in 2011. As a result, issued capital increased by € 2 mn and capital reserves increased by € 48 mn.
Dividends For the year ended December 31, 2010, the Board of Management will propose to shareholders at the Annual General Meeting the distribution of a dividend of € 4.50 per qualifying share. For the years ended December 31, 2009 and 2008, Allianz SE paid a dividend of € 4.10 and € 3.50, respectively, per qualifying share.
Treasury shares As of December 31, 2010, Allianz SE held 2,832,789 (2009: 2,584,367) own shares. Thereof, 226,620 (2009: 250,032) shares were held for covering subscriptions by employees of the Allianz Group in the context of the Employee Stock Purchase Plan 2011, whereas 2,606,169 (2009: 2,334,335) shares were held as a hedge for obligations from the Allianz Equity Incentive Program (former Group Equity Incentive Program).
Unrealized gains and losses (net) 36 52 Share of earnings 156 48 Other equity components 1,879 2,021
On January 1, 2005, the Financial Conglomerates Directive, a supplementary European Union (E.U.) directive, became effective in Germany. Under this directive, a financial conglomerate is defined as any financial parent holding company that, together with its subsidiaries, has significant cross-border and cross-sector activities. The Allianz Group is a financial conglomerate within the scope of the directive and the related German laws. The directive requires that the financial conglomerate calculates the capital needed to meet the respective solvency requirement on a consolidated basis.
In addition to regulatory capital requirements, Allianz SE also uses an internal risk capital model to determine how much capital is required to absorb any unexpected volatility in results of operations.
As of December 31, 2010, the Allianz Group’s insurance subsidiaries were in compliance with all applicable solvency and capital adequacy requirements.
Some insurance subsidiaries are subjected to regulatory restrictions on the amount of dividends which can be remitted to Allianz SE without prior approval by the appropriate regulatory body. Such restrictions provide that a company may only pay dividends up to an amount in excess of certain regulatory capital levels or based on the levels of undistributed earned surplus or current year income or a percentage thereof. By way of example only, the operations of the Allianz Group’s insurance subsidiaries located in the United States are subject to limitations on the payment of dividends to their parent company under applicable state insurance laws. Dividends paid in excess of these limitations generally require prior approval of the insurance commissioner of the state of 1 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not submitted an application so far. The solvency ratio excluding off-balance sheet reserves would be 164 % (2009: 155 %).
Interest from held-to- maturity investments 177 171 180 Dividends from available- for-sale investments 1,001 873 1,864 Interest from available- for-sale investments 11,699 10,618 10,164 Share of earnings from investments in associates and joint ventures 183 80 (37) Rent from real estate held for investment 699 693 703 Interest from loans to banks and customers 5,507 5,617 5,991 26 Premiums earned (net) – continued
Income (expenses) from financial assets and liabilities held for trading (net) Life/Health segment Income (expenses) from financial assets and liabilities held for trading for the year ended December 31, 2010 includes in the Life/Health segment expenses of € 1,040 mn (2009: € 584 mn; 2008: income of € 1,812 mn) from derivative financial instruments. This includes expenses of € 351 mn (2009: € 158 mn; 2008: income of € 2,229 mn) of German entities from financial derivative positions to protect against equity and foreign exchange rate fluctuations as well as for duration management. Also included are expenses from U.S. entities amongst others from embedded derivatives required to be separated related to fixed-indexed annuity products and guaranteed benefits under unit-linked contracts of € 670 mn (2009: € 313 mn; 2008: € 627 mn).
28 Income from financial assets and liabilities carried at fair value through income (net)
Income (expenses) from financial assets and liabilities held for trading (net) (23) (584) 5 293 4 (305) Income (expenses) from financial assets and liabilities designated at fair value through income (net) 158 1,499 106 19 — 1,782 Income (expenses) from financial liabilities for puttable equity instruments (net) (31) (400) (71) (4) — (506) Foreign currency gains and losses (net) (31) 99 — (165) — (97)
Fi na nc ia l S ta te m en ts 29 Realized gains/losses (net)
Investments in associates and joint ventures 1 237 26 158 Real estate held for investment 277 206 268 Loans to banks and customers 135 150 101
2 During the year ended December 31, 2010, includes realized losses from the disposal of subsidiaries of € 15 mn (2009: € 2 mn; 2008: € 1 mn).
246 Allianz Group Annual Report 2010 Consolidated Financial Statements 30 Fee and commission income
Investment advisory — — — — — — 8 — 8
152 Consolidated Financial Statements 159 Notes to the Consolidated Financial Statements 208 Supplementary Information to the Consolidated Balance Sheets 242 Supplementary Information to the Consolidated Income Statements 257 Other Information
Fi na nc ia l S ta te m en ts 31 Other income € mn € mn € mn
Realized gains from disposals of real estate held for own use 18 3 374 Other income from real estate held for own use 1 5 11
32 Income and expenses from fully consolidated private equity investments € mn € mn € mn
248 Allianz Group Annual Report 2010 Consolidated Financial Statements 33 Claims and insurance benefits incurred (net)
Life/Health Consolidation Group € mn € mn € mn € mn
Ceded Claims and insurance benefits paid 2,300 451 (11) 2,740 Change in loss and loss adjustment expenses (834) 41 (5) (798)
Net Claims and insurance benefits paid (26,459) (18,738) — (45,197) Change in loss and loss adjustment expenses (682) (217) — (899)
Net Aggregate policy reserves (123) (8,094) — (8,217) Other insurance reserves 4 (243) — (239) Expenses for premium refunds (181) (4,992) (242) (5,415)
Liabilities to banks and customers (379) (483) (753) Deposits retained on reinsurance ceded (74) (72) (71)
Held-to-maturity investments (1) — — Investments in associates and joint ventures — (4) (71) Real estate held for investment (106) (199) (128) Loans and advances to banks and customers (28) — — Non-current assets and assets and liabilities of disposal groups classified as held for sale (82) — —
Fi na nc ia l S ta te m en ts 39 Acquisition and administrative expenses (net)
Amortization of deferred acquisition costs (2,450) 1 (2,449) (2,582) — (2,582) (1,692) — (1,692)
Corporate and Other 1 The allocation of overhead expenses between functional areas in the business segment Property-Casulty was prospectively changed in 2010. The change led to a reclassification of € 746 mn from administrative expenses into acquisition costs.
The net loss from discontinued operations, net of income taxes, for the years ended December 31, 2009 and 2008, respectively, relate to the transfer of ownership of Dresdner Bank to Commerzbank AG, which was completed on January 12, 2009. Accordingly assets and liabilities of Dresdner Bank, that were classified as held for sale as of December 31, 2008, were deconsolidated in the first quarter of 2009. The loss from derecognition of discontinued operations of € 395 mn in 2009 represents mainly the reclassification of components of other comprehensive income to net income.
For the years ended December 31, 2010, 2009 and 2008, the income taxes relating to components of the other comprehensive income consist of the following: € mn € mn € mn
Due to the transition from the imputation system to the classical tax system in Germany (so called “Halbeinkünfteverfahren ”), provided by the Tax Reduction Act 2001, Allianz lost potential tax savings. This has been corrected by the Annual German Tax Act published in December 2010 leading to a tax income of € 110 mn from recognition of additional corporate tax credits. This tax benefit is included in current income taxes related to previous years mentioned above.
In 2009, decisions of the European Court of Justice (Steko case) and the German Federal Tax Court (BFH) effected that impairments recognized in 2001 on certain investments are considered tax deductible. These court decisions led in 2009 to a tax benefit for the Group of € 283 mn and for the policyholders of € 730 mn. The tax benefit from these court decisions consisted of current and deferred taxes in respect of 2009 and previous years.
Of the deferred income taxes for the year ended December 31, 2010, an income of € 69 mn (2009: income of € 197 mn; 2008: expense of € 431 mn) is attributable to the recognition of deferred taxes on temporary differences and an expense of € 117 mn (2009: income of € 452 mn; 2008: income of € 227 mn) is attributable to tax losses carried forward. Additionally, changes of applicable tax rates due to changes in tax law produced deferred tax income of € 5 mn (2009: income of € 6 mn; 2008: expense of € 21 mn).
The recognized income tax expense for the year ended December 31, 2010, is € 135 mn (2009: € 1,007 mn; 2008: € 312 mn) lower than the expected income tax expense. The following table shows the reconciliation from the expected income tax expense of the Allianz Group to the effectively recognized tax expense. The Allianz Group’s reconciliation is a summary of the individual company-related reconciliations, which are based on the respective country-specific tax rates after taking into consideration consolidation effects with impact on the group result. The expected tax rate for domestic Allianz Group companies applied in the reconciliation includes corporate tax, trade tax and the solidarity sur-
Expected income taxes 2,099 1,547 1,643 Trade tax and similar taxes 176 150 166 Net tax exempt income (571) (599) (469) Effects of tax losses 279 (59) 28
In the tax reconciliation for 2009, the other effects of € (499) mn include € (505) mn current and deferred taxes for prior years, a major part resulting from the court decisions (Steko/BFH) mentioned above.
Deferred tax assets Financial assets carried at fair value through income 84 45
Deferred acquisition costs 4,114 3,819 Other assets 448 573 Intangible assets 336 346 Insurance reserves 2,468 2,552 Pensions and similar obligations 228 203 Other liabilities 702 728 Total deferred tax liabilities 13,021 11,923 Effect of netting (9,045) (8,048) Net deferred tax liabilities 3,976 3,875 Net deferred tax assets/(liabilities) (1,313) (1,156)
Tax losses carried forward Tax losses carried forward at December 31, 2010, of € 10,829 mn (2009: € 10,191 mn) resulted in recognition of deferred tax assets to the extent there is sufficient certainty that the unused tax losses will be utilized. € 9,572 mn (2009: € 9,049 mn) of the tax losses carried forward can be utilized without time limitation.
Market and counterparty risks arising from the use of derivative financial instruments are subject to control procedures. Credit risks related to counterparties are assessed by calculating gross replacement values. Market risks are monitored by means of up-to-date value-at-risk calculations and stress tests and limited by specific stoploss limits.
The counterparty settlement risk is virtually excluded in the case of exchange-traded products, as these are standardized products. By contrast, over-the-counter (OTC) products, which are individually traded contracts, carry a theoretical credit risk amounting to the replacement value. The Allianz Group therefore closely monitors the credit rating of counterparties for OTC derivatives. 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.
Negative fair values Up to 1 year 1–5 years years € mn € mn € mn € mn € mn € mn € mn € mn € mn
Structured note — — — — — — 6 — —
Derivative financial instruments used in accounting hedges Important hedging instruments are equity forward contracts, equity options, total returns swaps, interest rate swaps, interest rate forwards, currency swaps and currency forwards. Hedging instruments may be implemented for individual transactions (micro hedge) or for a portfolio of similar assets or liabilities (portfolio hedge).
Hedge of net investment in foreign operations As of December 31, 2010, the Allianz Group hedges part of its U.S. Dollar and Australian Dollar net investments through the issuance of U.S. Dollar and Australian Dollar denominated liabilities with a nominal amount of USD 1.2 bn and AUD 211 mn.
Fair value hedges The Allianz Group uses fair value hedges to hedge its equity portfolio against equity market risk. The financial instruments used in the related fair value hedges had a positive fair value of € 302 mn (2009: € 26 mn) as of December 31, 2010.
Additionally the Allianz Group uses fair value hedges to protect against the change in the fair value of financial assets due to movements in interest rates or exchange rates. The derivative financial instruments used for the related fair value hedges of the Allianz Group had a total negative fair value as of December 31, 2010 of € 92 mn (2009: negative fair value of € 75 mn).
For the year ended December 31, 2010, the Allianz Group recognized for fair value hedges a net loss of € 1 mn 45 Financial instruments
Financial assets Cash and cash equivalents 8,747 8,747 6,089 6,089 Financial assets held for trading 2,101 2,101 2,131 2,131 Financial assets designated at fair value through income 7,742 7,742 12,190 12,190 Available-for-sale investments 318,315 318,315 279,045 279,045 Held-to-maturity investments 3,987 4,211 3,475 3,629 Loans and advances to banks and customers 122,678 127,351 128,996 130,444 Financial assets for unit-linked contracts 64,847 64,847 56,963 56,963 Derivative financial instruments and firm commitments included in other assets 452 452 304 304
Financial liabilities Financial liabilities held for trading 5,013 5,013 4,891 4,891 Liabilities to banks and customers 21,155 21,445 21,248 21,248 Investment contracts with policyholders 130,741 130,741 115,003 115,003 Financial liabilities for unit-linked contracts 64,847 64,847 56,963 56,963 Derivative financial instruments and firm commitments included in other liabilities 225 225 310 310 Financial liabilities for puttable equity instruments 3,111 3,111 3,451 3,451 Certificated liabilities, participation certificates and subordinated liabilities 17,227 17,534 17,309 17,351 1 Include receivables and obligations of deferred compensation plans outsourced to a trust.
Determination of fair value for financial instruments not carried at fair value In the following the determination of the fair value for financial instruments, that are not carried at fair value in the consolidated balance sheet, but for which a fair value has to be disclosed under IFRS 7, is described: Cash and cash equivalents: Cash and cash equivalents comprises cash and demand deposits with banks together with short-term highly liquid investments that are readily convertible to known amounts of cash and subject to insignificant risk of change in value. They are carried at nominal value, which represents a reasonable estimate of the fair value for these short term financial instruments.
Held-to-maturity investments: The fair value of heldto -maturity investments is determined using the quoted market price as of the balance sheet date.
Determination of fair value for financial instruments carried at fair value For the following financial instruments, carried at fair value in the consolidated balance sheets, the fair value is determined as described in note 2 Summary of significant accounting policies: – Financial assets and liabilities held for trading – Financial assets and liabilities designated at fair value through income – Available-for-sale investments – Financial assets and liabilities for unit-linked contracts – Derivative financial instruments and firm commitments included in other assets and other liabilities – Investment contracts with policyholders – Financial liabilities for puttable equity instruments – Assets and liabilities held in trust
The following tables present the fair value hierarchy for financial instruments carried at fair value in the consolidated balance sheets as of December 31, 2010 and 2009.
Government and agency mortgage-backed securities (residential and commercial) 1 5,271 — 5,272 Corporate mortgage-backed securities (residential and commercial) 24 10,251 199 10,474 Other asset-backed securities 91 3,386 176 3,653 Government and government agency bonds 108,951 16,842 19 125,812
Financial liabilities for unit-linked contracts 62,641 2,054 152 64,847 Derivative financial instruments and firm commitments included in other liabilities — 225 — 225 Financial liabilities for puttable equity instruments 3,008 26 77 3,111 Liabilities held in trust 221 — 25 246 1 Excludes universal life-type contracts.
Level 3 Financial instruments for which the fair value is determined by using valuation-techniques, with at least one significant input not being based on observable market data (non-observable inputs) are classified into this category.
Financial assets for unit-linked contracts 54,798 2,152 13 56,963 Derivative financial instruments and firm commitments included in other assets — 304 — 304 Assets held in trust 265 — — 265
Financial liabilities for unit-linked contracts 54,798 2,152 13 56,963 Derivative financial instruments and firm commitments included in other liabilities — 310 — 310 Financial liabilities for puttable equity instruments 3,388 2 61 3,451 Liabilities held in trust 265 — — 265 1 Excludes universal life-type contracts.
The fair value of € 1.5 bn of certain corporate bonds within available-for-sale investments is determined using matrix pricing, which is based on unobservable inputs. The remaining corporate bonds classified as Level 3 consist of various porfolios for which different valuation techniques with non-observable inputs including broker quotes and pricing services are used. While in total the effect of changing the valuation assumptions to reasonable possible alternative values might have a significant impact on the fair values, when considered individually for each portfolio, the impact would not be significant.
Financial liabilities held for trading include € 4.1 bn of embedded derivative financial instruments relating to annuity products. Internal discounted cash flow models are used to determine the present value of the underlying insurance benefits and expenses. Sensitivities of the fair value to reasonable possible alternative assumptions are calculated by varying the annuitizations and surrenders by 10 %. A 10 % increase in annuitizations and a 10 % decrease in surrenders would increase the fair value by € 158 mn, whereas a 10 % decrease in annuitizations and a 10 % increase in surrenders would decrease the fair value by € 156 mn.
Significant transfers of financial instruments carried at fair value between Level 1 and Level 2 € mn
Financial assets transferred from Level 2 to Level 1 Debt securities designated at fair value through income 111 Corporate bonds 4,181 Total 4,292
Certain debt securities designated at fair value through income and corporate bonds were transfered from Level 2 to Level 1 during the year ended December 31, 2010, because of improved liquidity, trade frequency and activity of the markets, where those bonds are traded.
Financial assets held for trading Debt securities 44 1 — — Derivative financial instruments 61 28 — (6) Subtotal 105 29 — (6) Financial assets designated at fair value through income
Government and agency mortgage-backed securities (residential and commercial) 4 — (4) — Corporate mortgage-backed securities (residential and commercial) 54 99 123 (78) Other asset-backed securities 330 127 (126) (228) Government and government agency bonds 39 — (21) —
Net gains (losses) for financial instruments held at the reporting date € mn € mn € mn € mn € mn € mn € mn
Tabular disclosure of contractual obligations The table sets forth the Allianz Group’s contractual obligations as of December 31, 2010. Contractual obligations do not include contingent liabilities or commitments. Only transactions with parties outside the Allianz Group are considered.
As of December 31, 2010, the income tax obligations amounted to € 1,661 mn. Thereof € 1,316 mn the Allianz Group expects to pay within the twelve months after the balance sheet date. For the remaining amount of € 345 mn an estimate of the timing of cash outflows is not reasonably possible. The income tax obligations are not included in the table below.
During mid-2009, the CDOs were transferred to one of the Allianz Group’s USD functional currency subsidiaries. As of December 31, 2009, the carrying amount and fair value of the CDOs was € 863 mn and € 856 mn, respectively. As of December 31, 2010, the carrying amount and fair value of the CDOs was € 808 mn and € 810 mn, respectively. For 2010, the changes in carrying amount and fair value were primarily affected by cash receipts and the appreciation of the USD; foreign currency effects were recognized in other comprehensive income. The net profit related to the CDOs was not significant.
Furthermore, these amounts do not include € 158,255 mn of premiums and fees expected to be received, expenses incurred to parties other than the policyholders such as agents and administrative expenses; nor do they include investment income earned. In addition, these amounts are presented net of reinsurance expected to be received as a result of these cash flows. For further information on reserves for insurance and investment contracts, see note 20 to the consolidated financial statements.
For contracts which do not have payments that are fixed and determinable, the Allianz Group has made assumptions to estimate the undiscounted cash flows of contractual policy benefits including mortality, morbidity, interest crediting rates, policyholder participation in profits and future lapse rates. These assumptions represent current best estimates and may differ from the estimates originally used to establish the reserves for insurance and investment contracts as a result of the lock-in of assumptions on the issue dates of the contracts as required by the Allianz Group’s established accounting policy. The effect of discounting and differences between locked-in and best estimate assumptions is € 497,787 mn. For further information, see note 2 to
Information on the remuneration of Board members and transactions with these persons can be found in the remuneration report, starting on page 35.
court review of the appropriate amount of the cash settlement in a mediation procedure (“Spruchverfahren”), which is pending with the district court (“Landgericht”) of Frankfurt. The Management believes that a claim to increase the cash settlement does not exist. In the event that the court were to determine a higher amount as an appropriate cash settlement, this would affect all of the approximately 16 mn shares that were transferred to Allianz.
Allianz Global Investors of America L.P. and certain of its subsidiaries have been named as defendants in multiple civil U.S. lawsuits commenced as putative class actions and other proceedings related to matters involving market timing in the mutual fund industry. These lawsuits have been consolidated into and transferred to a multidistrict litigation proceeding in the U.S. District Court for the District of Maryland. The potential outcomes cannot be predicted at this time. However, management currently does not expect any material negative financial impact on Allianz Group.
Pacific Investment Management Company LLC (PIMCO), a subsidiary of Allianz Global Investors of America L.P., and PIMCO Funds have been defendants in a complaint alleging that plaintiffs each purchased and sold 10-year Treasury note futures contracts and suffered damages from an alleged shortage when PIMCO held both physical and futures positions in 10-year Treasury notes for its client accounts in violation of the federal Commodity Exchange Act provisions on market manipulation. Certification of a class consisting of those persons who purchased futures contracts to offset short positions between May 9, 2005 and June 30, 2005 was granted in 2007. Management is of the opinion that all such trades were properly designed to secure best execution for its clients. The parties agreed on a settlement, that resolves all of the claims against PIMCO and PIMCO Funds, which both denied any liability. The court preliminarily approved the settlement on January 26, 2011.
On May 24, 2002, pursuant to a statutory squeeze-out procedure, the general meeting of Dresdner Bank AG resolved to transfer shares from its minority shareholders to Allianz as principal shareholder in return for payment of a cash settlement amounting to € 51.50 per share. The amount of the cash settlement was established by Allianz on the basis of an expert opinion, and its adequacy was confirmed by a court appointed auditor. Some of the former minority shareholders applied for a
Other contingencies In accordance with § 5 (10) of the Statutes of the Joint Fund for Securing Customer Deposits (“Einlagensicherungsfonds ”), Allianz SE has undertaken to indemnify the Federal Association of German Banks (“Bundesverband deutscher Banken e.V.”) for any losses it may incur by reason of supporting measures taken in favor of Oldenburgische Landes bank AG (OLB), Münster ländische Bank Thie & Co.KG and Bankhaus W. Fortmann & Söhne KG.
False Claims Act in connection with FFIC’s involvement as a provider of federal crop insurance from 1997 to 2003. The investigation concerns the issue of whether FFIC employees submitted false claims to the government through various practices, including backdating and inappropriately designating new producer status. Two former FFIC claims employees and one contract adjuster have pled guilty to assisting farmers in asserting fraudulent crop claims. The DOJ and FFIC are in negotiations to reach a final resolution of this matter. The outcome cannot be predicted at this stage.
Allianz Life Insurance Company of North America ( Allianz Life) has been named as a defendant in various putative class action lawsuits in connection with the marketing and sale of deferred annuity products. Three of those lawsuits are currently pending as certified class actions in California. The complaints allege generally that the defendant engaged in, among other practices, deceptive trade practices and misleading advertising in connection with the sale of such products. The parties reached settlement of one of the California class actions, and the Court has preliminarily approved the settlement. The other lawsuits have not yet progressed to a stage at which the outcome or exposure can be determined. In another class action lawsuit in Minnesota, containing allegations similar to those in the California lawsuits as well as the allegation that the defendant violated the Minnesota Consumer Fraud and Deceptive and Unlawful Trade Practices Act, the case went to trial before a jury. Based upon a jury verdict in October 2009, the Court entered final judgment in favor of Allianz Life in January 2010.
Leasing commitments The Allianz Group occupies property in many locations under various long-term operating leases and has entered into various operating leases covering the longterm use of data processing equipment and other office equipment.
Purchase obligations The Allianz Group has commitments for mortgage loans and to buy multi-tranche loans of € 3,647 mn (2009: € 3,937 mn) as well as to invest in private equity funds totaling € 2,517 mn (2009: € 2,556 mn) as of December 31, 2010. As of December 31, 2010, commitments outstanding to purchase real estate used by third parties and owned by the Allianz Group used for its own activities amounted to € 310 mn (2009: € 393 mn). As of December 31, 2010, commitments outstanding to purchase items of equipment amounted to € 16 mn (2009: € — mn).
In December 2002, Protektor LebensversicherungsAktien gesellschaft (“Protektor”), a life insurance company whose role is to protect policyholders of all German life insurers, was founded. Allianz LebensversicherungsAktiengesellschaft and some of its subsidiaries are obligated to provide additional funds either to the mandatory insurance guarantee scheme or to Protektor, in the event that the funds provided to the mandatory insurance guarantee scheme are not sufficient to handle an insolvency case. Such obligation amounts to a maximum of 1 % of the sum of the net underwriting reserve with
Assets pledged and collateral The carrying amounts of the assets pledged as collateral are as follows: As of December 31, 2010 2009 € mn € mn
Credit derivatives Credit derivatives consist of credit default swaps, which require payment in the event of default of debt obligations, as well as of total return swaps, under which the performance of underlying assets is guaranteed. The notional principal amounts and fair values of the Allianz Group’s credit derivative positions as of December 31, 2010 are provided in note 44.
The Allianz Group’s Asset Management segment, in the ordinary course of business, issues market value guarantees in connection with investment trust accounts and mutual funds it manages. The levels of market value guarantees, as well as the maturity dates, differ based on the separate governing agreements of the respective investment trust accounts and mutual funds. As of December 31, 2010, the maximum potential amount of future payments of the market value guarantees was € 799 mn (2009: € 1,150 mn), which represents the total value guaranteed under the respective agreements including the obligation that would have been due had the investments matured on that date. The fair value of the investment trust accounts and mutual funds related to these guarantees as of December 31, 2010, was € 881 mn (2009: € 1,248 mn).
The Allianz Group’s banking operations in France, in the ordinary course of business, issue market value and performance -at-maturity guarantees in connection with mutual funds offered by the Allianz Group’s asset management operations in France. The levels of market value and performance-at-maturity guarantees, as well as the maturity dates, differ based on the underlying agreements. In most cases, the same mutual fund offers both a market value guarantee and a performance-at-maturity guarantee. Additionally, the performance-at-maturity guarantees are generally linked to the performance of an equity index or group of equity indexes. As of December 31, 2010, the maximum potential amount of future payments of the market value and performance-atmaturity guarantees was € 1,271 mn (2009: € 1,518 mn), which represents the total value guaranteed under the respective agreements. The fair value of the mutual funds related to the market guarantees as of December 31, 2010, was approximately € 1,204 mn (2009: € 1,425 mn). Such funds generally have a duration of five to eight years.
2 In addition, the Allianz Group paid € 257 mn (2009: € 255 mn) directly to plan participants.
As of December 31, 2010, post-retirement health benefits included in the defined benefit obligation and in the net amount recognized amounted to € 11 mn (2009: € 6 mn) and € 11 mn (2009: € 7 mn), respectively.
Retirement benefits in the Allianz Group are either in the form of defined benefit or defined contribution plans. Employees, including agents in Germany, are granted such retirement benefits by the various legal entities of the Allianz Group. In Germany, these are primarily defined benefit plans in nature.
Defined benefit plans Amounts recognized in the Allianz Group’s consolidated balance sheets for defined benefit plans are as follows: As of December 31, 2010 2009 € mn € mn
During the year ended December 31, 2010, the expense recognized in profit or loss includes expense related to post-retirement health benefits of € 1 mn (2009: € (46) mn; 2008: € (7) mn).
The expense recognized in profit and loss is recorded based on the assumptions of the corresponding previous year. For the assumptions regarding the expected longterm return on plan assets the value of the corresponding current year is relevant.
Group Equity Incentives Plans The Group Equity Incentives Plans (GEI) of the Allianz Group support the orientation of senior management, in particular the Board of Management, toward the longterm increase of the value of the Allianz Group. Until 2010, the GEI include grants of stock appreciation rights (SAR) and restricted stock units (RSU). From the grant 2011 onwards, the Allianz Equity Incentive Plan (AEI) replaces the GEI plans. With the AEI Plan only restricted stock units (RSU) are granted to the plan participants.
Stock appreciation rights The SARs granted to a plan participant obligate the Allianz Group to pay in cash the excess of the market price of an Allianz SE share over the reference price on the exercise date for each SAR granted. The excess is capped at 150 % of the reference price. The reference price represents the average of the closing prices of an Allianz SE share for the ten trading days following the Financial Press Conference of Allianz SE in the year of issue. Until the grant 2008, the SARs vest after two years and expire after seven years. From the grant 2009 onwards, the SARs vest after four years and expire as well after seven years. Upon vesting, the SARs may be exercised by the plan participant if the following market conditions are attained: Defined contribution plans Defined contribution plans are funded through independent pension funds or similar organizations. Contributions fixed in advance (e.g. based on salary) are paid to these institutions and the beneficiary’s right to benefits exists against the pension fund. The employer has no obligation beyond payment of the contributions.
For the year ended December 31, 2010, the weighted expected long-term return on plan assets was derived from the following target allocation and expected longterm rate of return for each asset category: Target allocation Weighted expected long-term rate of return
Equity securities 14.4 14.1 Debt securities 75.6 78.3 Real estate 4.8 4.5
The Allianz Group plans to gradually increase in the long term its actual equity securities allocation towards the target allocation for plan assets of defined benefit plans.
Contributions During the year ending December 31, 2011, the Allianz Group expects to contribute € 288 mn to its defined benefit plans and to pay € 263 mn directly to plan participants of its defined benefit plans.
– during their contractual term, the market price of Allianz SE share has outperformed the Dow Jones Europe STOXX Price Index at least once for a period of five consecutive trading days; and
– the Allianz SE market price is in excess of the reference price by at least 20 % on the exercise date.
In addition, upon death of plan participants, a change of control or notice for operational reason the SARs vest immediately and will be exercised by the company provided the above market conditions have been attained.
Upon the expiration date, any unexercised SAR will be exercised automatically if the above market conditions have been attained. The SARs are forfeited if the plan participant ceases to be employed by the Allianz Group or if the exercise conditions are not attained by the expiration date.
In addition, upon death of plan participants, a change of control or notice for operational reason the RSUs vest immediately and will be exercised by the company.
The following table provides the assumptions used in calculating the fair value of the RSUs at grant date: Average interest rate 1.4 2.1 3.4 Average dividend yield 5.5 7.1 5.7
Allianz Equity Incentive Plan Since the grant year 2011, the AEI plan replaces the GEI plans.
As of December 31, 2010, the Allianz Group recorded a provision of € 17 mn for these RSUs in other liabilities.
Share-based compensation plans of subsidiaries of the Allianz Group PIMCO LLC Class B Unit Purchase Plan When acquiring Allianz Global Investors of America L.P. (AGI L.P.) during the year ended December 31, 2000, Allianz SE caused Pacific Investment Management Company LLC (PIMCO LLC), a subsidiary of AGI L.P., to enter into a Class B Purchase Plan (the “Class B Plan”) for the benefit of members of the management of PIMCO LLC. The plan participants of the Class B Plan have rights to a 15 % priority claim on the adjusted operating profits of PIMCO LLC.
The Class B equity units issued under the Class B Plan vest over 3 to 5 years and are subject to repurchase by AGI L.P. upon death, disability or termination of the participant prior to vesting. Starting January 1, 2005, AGI L.P. has the right to repurchase, and the participants have the right to cause AGI L.P. to repurchase, a portion of the vested Class B equity units each year. The call or put right is exercisable for the first time 6 months after the initial vesting of each grant. On the repurchase date, the repurchase price will be based upon the determined value of the Class B equity units being repurchased. As the Class B equity units are puttable by the plan participants, the Class B Plan is accounted for as a cash settled plan.
The maximum of 250,000 M-units are authorized for issuance under the M-unit Plan.
Risk free rate of return 1.9 % 1.7 % 2.7 %
Exercisable as of December 31, — — — — — —
During the year ended December 31, 2010, the Allianz Group recognized total compensation expenses related to the modified share option plans of € (0.4) mn (2009: € 3 mn; 2008: € (33) mn). As of December 31, 2010, the Allianz Group recorded a liability for these plans of € 10 mn (2009: € 14 mn).
Allianz SE share option plan of former RAS Group (modified RAS Group share option plan 2005) The former RAS Group awarded eligible members of senior management with share purchase options on RAS ordinary shares.
The aggregate intrinsic value of share options outstanding was € 93 mn and € 59 mn for the years ended December 31, 2010 and 2009, respectively.
The shares settled by delivery of PIMCO LLC shares are accounted for as equity settled plans by PIMCO LLC. Therefore, PIMCO LLC measures the total compensation expense to be recognized for the equity settled shares based upon their fair value as of the grant date. The total compensation expense is recognized over the vesting period.
During the year ended December 31, 2010, the Allianz Group recorded compensation expense of € 28 mn (2009: € 9 mn; 2008: € 2 mn) related to these share options.
The aggregate intrinsic value of share options outstanding was € 4 mn (2009: € 4 mn) for the year ended De-
Additions to existing provisions 3 — — — — 24 27 Release of provisions recognized in previous years (53) — — — — (16) (69) Utilization of provisions via payments (16) (40) (28) — — (81) (165) Utilization of provisions via transfers (27) — (2) — — (57) (86) Foreign currency translation adjustments — — — — — 1 1
Release of provisions recognized in previous years — — — (5) — (12) (17) Utilization of provisions via payments (7) (25) (44) — — (63) (139) Utilization of provisions via transfers (13) — — (21) — (24) (58) Foreign currency translation adjustments — — — — — 2 2 1 Provision was already created before 2008. There is no connection with the restructuring activities in 2009. 2 Consists of the provision for restructuring of the Dresdner Bank Group, which was reclassified to liabilities of disposal groups classified as held for sale during the year 2008.
The development of the restructuring provisions reflects the implementation status of the restructuring initiatives. Based on the specific IFRS guidance, restructuring provisions are recognized prior to when they qualify to be recognized under the guidance for other types of provisions. In order to reflect the timely implementation of the various restructuring initiatives, restructuring provisions, as far as they are already “locked in”, have been transferred to the provision type, which would have been used not having a restructuring initiative in place. This applies for each single contract. For personnel costs, at the time an employee has contractually agreed to leave Allianz Group by signing either an early retirement, a partial retirement (Altersteilzeit, which is a specific type of an early retirement program in Germany), or a termination arrangement the respective part of the restructuring provision has been transferred to employee related provisions. In addition, provisions for vacant office spaces that result from restructuring initiatives have been transferred to “other” provisions after the offices have been completely vacated.
Allianz Deutschland AG’s provisions for restructuring In 2006, Allianz Deutschland AG announced a restructuring plan for the insurance business in Germany. The original objective to reduce approximately 5,345 positions has nearly been achieved. With the exception of two insurance centers, the restructuring program ended on December 31, 2009. For the remaining two insurance centers, the restructuring measures will be completed until December 31, 2012. Further costs of the restructuring plan mainly relate to ongoing payments for onerous contracts until their expiration.
New provisions — Additions to existing provisions 13 Release of provisions recognized in previous years — Restructuring charges directly reflected in the consolidated income statement 2 Total restructuring charges during the year ended December 31, 2010 15 Total restructuring charges incurred to date 469
A summary of the changes in the provisions for restructuring of the Allianz Deutschland AG during the year ended December 31, 2010 is: Provisions as of
A summary of the changes in the provisions for restructuring of the Allianz France during the year ended December 31, 2010 is: Provisions as of
Allianz France’s provisions for restructuring In 2008, the Allianz France announced for the insurance business in France a restructuring plan called “Comprehensive Adaptation Plan” (“Plan Global d’Adaptation”), which is expected to be completed in 2011. The objectives of the restructuring program are to regain market share and increase the quality of service by increasing the number of sales staff and enhancing sales effectiveness, developing employees’ competencies and implementing a comprehensive plan of competitiveness.
Through the Comprehensive Adaptation Plan, Allianz France has committed itself to reducing the number of administrative positions by 688. The reduction of staff within this program includes measures for voluntary termination under restricted conditions and early retirement for the employees affected by the closure of locations.
In 2010, the Allianz France extended the restructuring activities comprising a second wave of voluntary terminations with a new objective of 830 positions (instead of 688) and the vacation of seven rented or owner-occupied buildings in downtown Paris (relocation of activities mainly to La Defense). As of December 31, 2010, 685 employees have been laid off through voluntary departures, early retirement measures and terminations.
During the year ended December 31, 2010, the Allianz France recorded restructuring charges of € 36 mn (2009: € — mn; 2008: € 81mn).
Manroland AG‘s provision for restructuring Due to tense economic conditions in the printing industry and still low demand, manroland AG was forced to expand its restructuring activities in 2010 which were originally commenced in 2009. The company reached further agreements (“Interessenausgleich” and “Sozialplan ”) with the workers’ council to implement the additional redundancies. Partial retirement was also effectively used in order to reduce staff. Additionally, to minimize the consequences for the affected employees of the program, a “Qualifizierungs- und Beschäftigungsgesellschaft ” will be set up in early 2011. The restructuring program affects all lines of business and several locations. A staff reduction of approximately 24 % is envisaged.
The program is planned to be finalized in 2012. These measurements will positively affect the cost basis and ensure the competitiveness of the company.
Allianz Beratungs- und Vertriebs AG’s provision for restructuring (ABV AG) In 2009, the ABV AG announced restructuring plans for the reorganization of sales division in Germany that will be completed in 2012. The objective of the restructuring program is to increase quality, efficiency and process stability of office work and special sales department. In context of office work restructuring the head office and local offices have been reorganized. Furthermore, the human resources administration and the contract processing have been reorganized and centralized. Special sales department has been restructured in order to provide a better support to insurance agencies. The reduction of staff within this program mainly occurs in consent with the employees. From the original objective to reduce approximately 225 positions, approximately 76 positions are still left as of December 31, 2010.
As of December 31, 2010 the ABV AG restructuring provision for the plan announced in 2009 was € 11 mn (2009: € 37 mn). During the year ended December 31, 2010 restructuring charges of € (5) mn (2009: € 37 mn) were recorded.
Euler Hermes Group’s provision for restructuring The Euler Hermes Group launched in 2010 the program “Excellence” which will be executed over a period of three years. This program comprises several measures including voluntary leaver programs, early and partial retirements, involuntary dismissals and termination of rent contracts. It is expected to reduce total headcount by approximately 570 full time equivalents by the end of 2013. The staff reduction concerns mainly Euler Hermes in Germany, U.K., Italy, Belgium and France.
Companhia de Seguros Allianz Portugal S.A. ( Allianz Portugal) 3 16 (5) 21 —
Allianz S.p.A., Italy In 2007, the Boards of RAS, Lloyd Adriatico and AZ Subalpina announced a restructuring program for the integration of these three companies into Allianz S.p.A. effective since October 1, 2007. The objective is to reorganize its strategic and commercial direction by aligning the underwriting strategies, refocusing some lines of business in the insurance business, as well as in the Asset Management segment, unifying all the support functions leveraging on best practices. Further some activities will be relocated within Italian sites whereas other operations will be integrated into one single organization.
cominvest Group The Allianz Global Investors Deutschland Group (AGI) took over the cominvest entities from the Allianz Group with effect from January 12, 2009. Based on management decision of AGI and cominvest, operations and functions of those entities have been integrated since takeover accompanied by a reduction of employees where unavoidable. The integration of cominvest was completed in the second quarter of 2010 with cominvest companies being merged into AGI entities with retroactive economic effect as of January 1, 2010. The completed integration of cominvest comprising the integration of operating functions and staff, the consolidation of product range, including rebranding, and the adoption of cost optimization measures allows a further extension of the AGI market position in Germany.
286 Allianz Group Annual Report 2010 Consolidated Financial Statements 51 Earnings per share
Basic earnings per share Basic earnings per share are calculated by dividing net income (loss) attributable to shareholders by the weighted average number of common shares outstanding for the period.
Net income (loss) attributable to shareholders used to calculate basic earnings per share 5,053 4,207 (2,362) from continuing operations 5,053 4,602 4,049 from discontinued operations — (395) (6,411)
Net income (loss) attributable to shareholders 5,053 4,207 (2,362) Effect of potentially dilutive common shares (22) — (49) Net income (loss) used to calculate diluted earnings per share 5,031 4,207 (2,411)
Diluted earnings per share (in €) 11.12 9.30 (5.29) from continuing operations 11.12 10.17 8.77 from discontinued operations — (0.87) (14.06)
For the twelve months ended December 31, 2010, the weighted average number of common shares excludes 2,725,114 (2009: 2,365,661; 2008: 2,004,155) treasury shares.
Salaries and wages 8,344 7,707 9,153 Social security contributions and employee assistance 1,107 1,051 1,298 Expenses for pensions and other post-retirement benefits 1,100 1,123 1,223 1 Includes in 2008 personnel expenses of € 2,532 mn of Dresdner Bank Group.
Issuance of the Declaration of Compliance with the German Corporate Governance Code according to § 161 AktG On December 15, 2010, the Board of Management and the Supervisory Board of Allianz SE issued the Declaration of Compliance according to § 161 AktG and made it available on a permanent basis to the shareholders on the company’s website.
KPMG worldwide thereof: KPMG AG and affiliated entities 1 € mn € mn € mn € mn
Audit fees KPMG billed the Allianz Group an aggregate of € 34.4 mn (2009: € 35.5 mn) in connection with professional services rendered for the audit of the Allianz Group’s consolidated financial statements, statutory audits of the financial statements of Allianz SE and its subsidiaries and services normally provided by KPMG in connection with statutory and regulatory filings or engagements. These services consisted mainly of periodic review engagements and the annual audit.
Tax fees KPMG fees for professional services, rendered for tax advice and tax compliance, amounted to € 1.9 mn (2009: € 1.6 mn) and resulted primarily from tax advice.
1 As of December 31, 2010, KPMG AG and affiliated entities comprised KPMG operations in Belgium, Germany, Kazakhstan, Luxembourg, the Netherlands, Russia, Spain, Switzerland, Turkey, Ukraine and the United Kingdom.
288 Allianz Group Annual Report 2010 Consolidated Financial Statements 53 Subsequent events
Floodings in Australia Since January 10, 2011, floodings have caused great damage in Queensland, Australia. Based on current information, net claims are expected to amount to approximately € 87 mn before income taxes.
Cyclone “Yasi” in Australia On February 2, 2011, cyclone “Yasi” caused great damage in eastern Australia. Based on current information, net claims are expected to amount to approximately € 37 mn before income taxes.
Earthquake in Christchurch, New Zealand On February 22, 2011, the City of Christchurch, New Zealand, was hit by an earthquake. Currently a reliable forecast for net claims arising from this earthquake is not possible.
All other fees KPMG invoiced the Allianz Group an aggregate of € 1.8 mn (2009: € 2.6 mn) for other products and services, which consisted primarily of services under the guidance of Allianz Group management and general consulting services.
Remuneration for the Board of Management As of December 31, 2010, the Board of Management had 10 (2009: 10) active members.
Remuneration to former members of the Board of Management and their beneficiaries totaled € 7.0 mn (2009: € 4.0 mn). Reserves for current pensions and accrued pension rights totaled € 58.0 mn (2009: € 52.0 mn).
ECJ-Decision on European Gender Directive On March 1, 2011, the Court of Justice of the European Union has ruled that the permission of the Member States under European law for gender specific differentiation of insurance premiums justified by statistical data (Art. 5 (2) of directive 2004/113/EC) will become invalid with effect from December 21, 2012. The judgement does not contain a statement that already existing contracts will be effected by the invalidity of the before mentioned provision.
Allianz APKR Pimco Emerging Markets Fonds, Frankfurt am Main 100.0 3
Allianz Private Equity Partners Verwaltungs GmbH, Munich 100.0 Allianz Private Krankenversicherungs-Aktiengesellschaft, Munich 100.0
List of participations of the Allianz Group as of December 31, 2010 according to § 313 (2) HGB
German Real Estate Equity Fund I, Frankfurt am Main 100.0 3 grapho metronic Mess- und Regeltechnik GmbH, Munich 100.0
Jota-Vermögensverwaltungsgesellschaft mbH, Munich 100.0 manroland 1. Verwaltungsgesellschaft mbH, Offenbach 100.0 manroland AG, Offenbach 100.0 5 manroland Vertrieb und Service GmbH, Mühlheim am Main 100.0 manroland Vertrieb und Servicegesellschaft Süddeutschland mbH, Munich 100.0
Werner Lies GmbH Großhandel für die Graphische Industrie, Neuhausen a.d.F. 100.0
Windpark Werder Zinndorf GmbH & Co. KG, Sehestedt 100.0 1 Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under 100 %.
Mühl Product & Service und Thüringer Baustoffhandel Beteiligungs- und Verwaltungs GmbH, Kranichfeld 25.0
Allianz Life Insurance Company of New York, Corp., New York, NY 100.0
Allianz Life Insurance Company of North America, Corp., Minneapolis, MN 100.0
Allianz Gestion Sociedad Gestora de Instituciones de Inversion Colectiva S.A., Madrid 100.0
Allianz Scalinvest, Paris 97.8 3 1 Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under 100 %.
SOCIETE EUROPEENNE DE PROTECT. ET DE SERVICES D'ASSIST. A DOMICILE "S.E.P.S.A.D." S.A., Paris 56.0
Primacy Underwriting Agency Pty Ltd., Milson's Point 70.0 printcom (Asia) Limited, Hong Kong 100.0
Allianz Global Corporate & Specialty AG Escritorio de Representacao no Brasil Ltda., Sao Paulo 99.0
Allianz Northern Ireland Limited, Belfast 100.0 1 Percentage includes equity participations held by dependent enterprises in full, even if the Allianz Group’s share in the dependent enterprise is under 100 %.
Autoelektro tehnicki pregledi drustvo s ogranicenom odgovornoscu za trgovinu i usluge, Vojnić 49.0
EUROPENSIONES S.A. - Entidad Gestora de Fondos de Pensiones, Madrid 49.0
Fondika SA de CV sociedad distribuidora integral de aciones de sociedades de inversion, Mexico City 26.8
KNIGHTSBRIDGE ALLIANZ LP, Bartlesville, OK 99.5 manroland Malaysia Sdn. Bhd., Kuala Lumpur 100.0
Auditor’s Report We have audited the consolidated financial statements prepared by Allianz SE, Munich comprising the consolidated balance sheet, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows and the notes, together with the group management report for the business year from January 1 to December 31, 2010. The preparation of the consolidated financial statements and the group management report in accordance with IFRSs, as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315 a Abs. 1 HGB [Handelsgesetzbuch “German Commercial Code”] and supplementary provisions of the articles of in corporation are the responsibility of the parent company`s management. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit.
In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs, as adopted by the EU, the additional requirements of German commercial law pursuant to § 315 a Abs. 1 HGB and supplementary provisions of the articles of incorporation and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.
Dr. Nicola Leibinger-Kammüller President and Chairwoman of the Managing Board, Trumpf GmbH + Co. KG since July 1, 2010
Dipl.-Kfm. Holger Strait Managing Partner, J. G. Niederegger GmbH & Co. KG
Alfonso Cortina de Alcocer Senior Advisor, Rothschild Senior Advisor, Texas Pacific Group
Dr. Henning Schulte-Noelle Membership in other statutory supervisory boards and SE administrative boards in Germany E.ON AG ThyssenKrupp AG (until January 21, 2011)
Dr. Wulf H. Bernotat Membership in other statutory supervisory boards and SE administrative boards in Germany Bertelsmann AG Deutsche Telekom AG METRO AG
Prof. Dr. Renate Köcher Membership in other statutory supervisory boards and SE administrative boards in Germany BMW AG Infineon Technologies AG MAN SE
Peter Kossubek Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in group bodies Allianz Versorgungskasse VVaG (until May 25, 2011)
Peter D. Sutherland Membership in comparable 2 supervisory bodies BW Group Ltd. Goldman Sachs International (Chairman) Koç Holding A.Ş.
Michael Diekmann Membership in other statutory supervisory boards and SE administrative boards in Germany BASF SE (Deputy Chairman) Linde AG (Deputy Chairman) Siemens AG
Membership in Group bodies Allianz Deutschland AG Allianz Global Investors AG (Chairman)
Dr. Paul Achleitner Membership in other statutory supervisory boards and SE administrative boards in Germany Bayer AG Daimler AG RWE AG
Oliver Bäte Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Global Corporate & Specialty AG (Deputy Chairman) Allianz Global Investors AG Allianz Investment Management SE (Deputy Chairman)
Enrico Cucchiani Membership in comparable 2 supervisory bodies Pirelli & C. S.p.A. Unicredit S.p.A.
Membership in Group bodies Allianz Compañía de Seguros S.A. Barcelona (Vice Chairman) Allianz Hayat ve Emeklilik A.Ş. (Vice Chairman) Allianz Sigorta P&C A.Ş. (Vice Chairman) Allianz S.p.A. (Chairman) Companhia de Seguros Allianz Portugal S.A.
Dr. Joachim Faber Membership in other statutory supervisory boards and SE administrative boards in Germany Deutsche Börse AG
Membership in comparable 2 supervisory bodies Membership in Group bodies Mondial Assistance Group SAS (Chairman)
Jay Ralph Membership in other statutory supervisory boards and SE administrative boards in Germany Membership in Group bodies Allianz Global Corporate & Specialty AG
Membership in comparable 1 supervisory bodies Bajaj Allianz General Insurance Company Limited (until December 31, 2010) Bajaj Allianz Life Insurance Company Limited (until December 31, 2010)
CFO Forum The European Insurance CFO Forum is a high-level discussion group formed and attended by the Chief Financial Officers of major European listed insurance companies. Its aim is to influence the development of financial reporting, value based reporting, and related regulatory developments for insurance enterprises on behalf of its members, who represent a significant part of the European insurance industry.
Corridor approach With defined benefit plans, differences come about between the actuarial gains and losses which, when the corridor approach is applied, are not immediately recognized as income or expenses as they occur. Only when the cumulative actuarial gains or losses fall outside the corridor is recognition made from the following year onwards. The corridor is 10 % of the present value of the pension rights accrued or of the market value of the pension fund assets, if this is higher.
300 Joint Advisory Council and International Advisory Board 301 Mandates 304 Glossary 308 Index
Deferred tax assets/liabilities The calculation of deferred tax is based on tax loss carry forwards, tax credit carry forwards and temporary differences between the carrying amounts of assets or liabilities in the published balance sheet and their tax base, and on differences arising from applying uniform valuation policies for consolidation purposes. The tax rates used for the calculation are the local rates applicable in the countries of the enterprises included in the consolidation; changes to tax rates already adopted on the balance sheet date are taken into account.
Earnings per share (basic/diluted) Ratio calculated by dividing the net income for the year attributable to shareholders by the weighted average number of shares outstanding. For calculating diluted earnings per share the number of shares and the net income for the year attributable to shareholders are adjusted by the dilutive effects of any rights to subscribe for shares which have been or can still be exercised. Subscription rights arise in connection with participation certificates and share based compensation plans.
Functional currency The functional currency is the prevailing currency in the primary economic environment where the subsidiary conducts its ordinary activities.
Goodwill Difference between the cost of acquisition and the fair value of the net assets acquired.
Gross/Net In insurance terminology the terms gross and net mean before and after deduction of reinsurance, respectively. In the investment terminology the term “net” is used where the relevant expenses (e. g. depreciations and losses on the disposal of assets) have already been deducted.
Group share (%) The Group share is the total of all interests held by affiliated enterprises and joint ventures in affiliated enterprises, joint ventures, and associated enterprises.
Non-controlling interests Those parts of the equity of affiliated enterprises which are not owned by companies in the Group.
Net income attributable to non-controlling interests That part of net income for the year which is not attributable to the shareholders of the Allianz Group but to other third parties who hold shares in affiliated enterprises.
Premiums written/earned Premiums written represent all premium revenues in the year under review. Premiums earned represent that part of the premiums written used to provide insurance coverage in that year. In the case of life insurance products where the policyholder carries the investment risk (e. g. variable annuities), only that part of the premiums used to cover the risk insured and costs involved is treated as premium income.
Repurchase and reverse repurchase agreements A repurchase (repo) transaction involves the sale of securities by the Group to a counterparty, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed price. The securities concerned are retained in the Group’s balance sheet for the entire lifetime of the transaction, and are valued in accordance with the accounting principles for financial assets carried at fair value through income or investment securities, respectively. The proceeds of the sale are reported in liabilities to banks or to customers, as appropriate. A reverse repo transaction involves the purchase of securities with the simultaneous obligation to sell these securities at a future date, at an agreed price. Such transactions are reported in loans and advances to banks, or loans and advances to customers, respectively. Interest income from reverse repos and interest expenses from repos are accrued evenly over the lifetime of the transactions and reported under interest and similar income or interest expenses.
Reserve for premium refunds That part of the operating surplus which will be distributed to policyholders in the future. This refund of premiums is made on the basis of statutory, contractual, or company by-law obligations, or voluntary undertaking.
AGCS 77, 79 Allianz Worldwide Care 59 Alternative Investments 59, 95 Analysts 16
Conglomerate solvency 105 Consolidation 188 Corporate and Other 59, 94, 110 Corporate governance and the declaration of compliance 8 Corporate governance report 22 Corporate governance statement pursuant to
§ 289 a of the German Commercial Code 28 Corporate Social Responsibility 64 Cost-income ratio 93, 100
E Economic environment 65 Employee stock purchase plan 50, 280 Employees 63, 287 Equity incentive plans 44, 275 Executive remuneration below the Board of Management 47 Executive remuneration principles 36 Executive summary 68
Global Insurance Lines & Anglo Markets 100 Goodwill 181 Growth Markets 100
Internal controls over financial reporting (ICOFR) 148 International Executive Committee 13 Investment result 79, 107
O Off-balance sheet arrangements 111 Online services 20 Opportunity management 103 Outlook 96
Reconciliations 117 Reinsurance PC 59 Remuneration of the members of the Supervisory Board 52 Remuneration of the Supervisory Board – Principles 52 Remuneration of the Supervisory Board – Structure 52 Remuneration report 35
S Share 16 Share price 16 Shareholders’ equity 71, 105 South America 77
T Takeover-related statements and explanations 31 Talent management 63 Third-party assets under management 91 Total assets under management 91 Travel Insurance and Assistance Service 58, 76
The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact, irrespective of the communicated schedules. Therefore we cannot exclude that we have to announce key figures of quarterly and fiscal year results ahead of the dates mentioned above.
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