Annual Report 2008 I N S U R A N C E | A S S E T M A N A G E M E N T | B A N K I N G
Share price as of December 31 � 75.00 (49.3) % 147.95 154.76 127.94 97.60 33 Market capitalization as of December 31 � mn 33,979 (49.0) % 66,600 66,880 51,949 35,936 6) 35 Other Data
2) Figures for the years ended December 31, 2005 and 2004 do not reflect changes in the presentation relating to the discontinued operations of Dresdner Bank. 3) The Allianz Group uses operating profit to evaluate the performance of its business segments and the Group as a whole. 4) Following the announcement of the sale on August 31, 2008, Dresdner Bank qualified as held-for-sale and discontinued operations. Therefore, all revenue and profit figures presented for our continuing business do not include the parts of Dresdner Bank that we sold to Commerzbank on January 12, 2009. Starting as of 2006 the results from these operations are presented in a separate net income line “net income from discontinued operations, net of income taxes and minority interests in earnings”.
5) Effective January 1, 2005, under IFRS, and on a prospective basis, goodwill is no longer amortized. 6) Excluding treasury shares. 7) Based on average shareholders‘ equity. Average shareholders‘ equity has been calculated based upon the average of the current and the preceding year’s shareholders’ equity. 8) Based on net income from continuing operations.
Group Management Report 39 Detailed Index 40 Executive Summary and Outlook 52 Property-Casualty Insurance
Dresdner Bank 74 Balance Sheet Review 83 Liquidity and Capital Resources 87 Risk Report 106 Business Model and Success Factors 106 The Allianz Group’s Business Model 108 Value-Based Management 110 Main Initiatives 110 Our Employees 114 Corporate Responsibility and
Consolidated Financial Statements 135 Detailed Index 136 Consolidated Financial Statements 142 Notes to the Consolidated Financial
Consolidated Income Statements 233 Other Information 266 Joint Advisory Council and International Advisory Board 268 Mandates 271 Glossary 276 Index
To go directly to any chapter, simply click ÜÜ on the headline or the page number
Property-Casualty Within our property-casualty segment, we offer a wide range of private insurance products designed to protect our client’s property and ensure their personal safety. Furthermore, we are a leading provider of commercial and industrial coverage to enterprises.
– Strong operating profit of � 5,649 million largely unaffected by financial market crisis.
– Operating profit of � 1,206 million despite financial markets turmoil.
Statutory premiums � mn 45,615 49,367 47,421 Operating profit � mn 1,206 2,995 2,565 Net income � mn 327 1,991 1,643
Gross premiums written � mn 43,387 44,289 43,674 Operating profit � mn 5,649 6,299 6,269 Net income � mn 4,335 5,174 4,746 1) After elimination of transactions between Allianz Group companies in different geographic regions and different segments.
Following the sale of Dresdner Bank, we focus in the banking business on our core market Germany under the brand name
“Allianz Bank”. Under the roof of Oldenburgische Landesbank we will offer various banking services to our customers. Outside
– Continuing banking operations recorded an operating loss of � 31 million.
Asset Management Our business activities in the asset management business consist of products and services both for third-party investors and for the
6) Based on the origination of assets. 7) Consists of third-party assets managed by other Allianz Group companies (approximately
4) Does not include minority interests. 5) Compound annual growth rate (CAGR) is the year-over-year growth rate over a multiple year period.
– Revenues fell by � 5,133 million as sales in investment-oriented products were seriously impacted by the financial markets crisis.
– Operating profit of � 7,433 million robust in the circumstances.
Operating revenues � mn 2,887 3,259 3,044 Operating profit � mn 926 1,359 1,290 Net income � mn 379 498 404
For Allianz, 2008 was a year of market upheavals, a test of our business model and the sale of
� 19.3 trillion in market capitalization evaporated – that is 4.3times Germany’s financial assets of
� 4.5 trillion. As I write this letter, the turbulence on the global financial and economic system continues, and it is slowing down the real economy. The result: a flight from risk, massive loss of confidence and a global economic downturn. The general public has begun to realize, to its alarm, how complex and interconnected the global economy is and how far-reaching and abrupt the changes can be – changes that affect everyone. And it is no longer just companies being affected – in 2009, the crisis will hit consumers, the people who buy our products, hard.
Management operations: strong outflows for equity funds, small inflows in the fixed-income business. The property-casualty business remained stable. However, like all our competitors, we had to take writedowns on our investment portfolio. All of these factors led to profits that were less than satisfactory. We will work hard to present you with better results in the future.
Sale of Dresdner Bank. The financial and economic crisis hit Dresdner Bank harder than any other part of the Allianz Group. At the same time, we took advantage of the unprecedented opportunity offered by the turmoil on the markets to consolidate the German banking market. The sale of Dresdner Bank to Commerzbank, completed in January 2009, was the main event of the past financial year. At our 2008 General Meeting, I said that the results on the banking side had not reached the quality of our other operating segments and announced discussions targeting the
We retained our important banking distribution channel in Germany which will be further developed as the enlarged Commerzbank will in future be our German banking sales partner.
Of course the board and I have addressed the critical question of the loss of value which arose from the development of earnings and the timing of the transaction. However, it should not be overlooked that in both 2006 and in the first half of 2007, Dresdner Bank notched up the best results in its long history prior to the crisis which sent banks’ market values tumbling both here in Germany and abroad. In my view, the swift reaction and the timely closure of a transaction with an industrial logic in such a market situation was a positive achievement for Allianz shareholders.
In our view a market for financial services from a single source continues to exist despite the financial crisis. That is why we are retaining our integrated advisory approach in the private client segment following this transaction. We will leverage the reciprocal exchange of knowledge and experience between Allianz and Dresdner Bank over the last seven years, for the global distribution of our insurance products through our 200 bancassurance partners. In collaboration with the former Dresdner Bank subsidiary Oldenburgische Landesbank, our new Allianz Bank will provide the same service to those German banking customers who were introduced by Allianz tied agents.
It will serve as the product supplier for banking services that are required by our insurance customers.
2009 will be characterized by a global recession that will also reach our customers.
On the sales side we will continue to focus on profitability and resist the temptations of an irrational race for market share. Business opportunities exist among customers who place store on solidity and quality. We intend to offset the decreased sales above all in some life insurance markets via enhanced customer retention in Europe, in the U.S.A. and in growth markets.
PS: This is the last annual report of Allianz SE for which Dr. Helmut Perlet as Chief Financial
Within the scope of our monitoring and advisory activities we were regularly provided by the Board of Management, both verbally and in writing, with timely and comprehensive information on the course of the business, the financial and economic development of the Allianz Group and of
Allianz SE, including the risk situation and the risk management, compliance issues as well as basic issues with relation to the company strategy. In Supervisory Board meetings, on the basis of reporting from the Board of Management, we discussed in detail the development of the business and important decisions and business matters. Furthermore we dealt with the Board of Management’s planning for the 2009 financial year and medium-term planning, as well as with deviations from plans in the course of the business.
The Supervisory Board met in total five times during the 2008 financial year. The ordinary meetings were held in
Supervisory Board also held an extraordinary meeting in relation to the sale of Dresdner Bank AG to Commerzbank
AG. In between meetings the Board of Management kept us informed in writing of important issues at all times.
Bank. We paid particular attention to the possible effects on the risk situation and liquidity. We also discussed with the
Board of Management the valuation issues and the further course of action in the wake of the market disruption.
The primary focus of discussion at the meeting of March 18, 2008 was the annual accounts and consolidated financial statements as well as the recommendation for appropriation of earnings made by the Board of Management for financial year 2007. On the basis of detailed reporting from the Board of Management, we further examined the consequences of the financial market crisis on Dresdner Bank and developments in material legal proceedings. We were also kept up-to-date about the squeeze-out procedure at Allianz
Allianz Investment Management SE as well as Allianz Argos 14 GmbH. The Supervisory Board also dealt with the agenda for the 2008 General Meeting of Allianz SE and approved the
Management we formed a detailed picture of the structure and organization of the Compliance function within the
Management informed us about the quarterly financial statements for the first quarter and the current situation of the Allianz Group. During this meeting we were also informed about the effects of the financial market crisis, discussed about the future of Dresdner Bank and were kept up-to-date on current equity investment projects. We also used the meeting to prepare ourselves for the upcoming
Board of Management addressed the structure and conditions of the transaction and informed us in detail about the financial and operative effects on Dresdner Bank and the
In the meeting on September 11, 2008, we discussed in detail Corporate Governance in the Allianz Group and we specifically reviewed the changes to the German Corporate
Board decided to implement these changes. We also approved the extension of the Board of Management mandate of Mr. Jean-Philippe Thierry to December 31, 2009 and discussed the succession of Dr. Helmut Perlet from September 2009 by Mr. Oliver Bäte. On the basis of the report of the
Board of Management on the course of business and the financial situation of the Allianz Group, we also gained an overview of the reorganization of AGF, of the development of material legal issues and of the current situation on the financial and capital markets.
(Aktiengesetz). It is permanently posted on the company website where it can be consulted at will. Allianz SE is in compliance with all recommendations of the June 6, 2008 version of the Government Commission German Corporate
Management and the Supervisory Board report on corporate governance on pages 11 to 15. The Allianz website at www.allianz.com/corporate-governance also contains further information on corporate governance.
Board has set up an Audit Committee, a Standing Committee, a Personnel Committee, a Risk Committee and a Nomination
Committee. The committees prepare the discussion and adoption of resolutions in the plenary session. Furthermore, in appropriate cases, authority to take decisions has been delegated to committees themselves. The Conciliation Committee no longer exists because the German Co-Determination Act (Mitbestimmungsgesetz), which provides for such a committee, does not apply to Allianz SE. The current members of these committees are set out in the following list.
We paid special attention to issues of strategy for the Allianz
Group at the September meeting. On the basis of a thorough presentation by the Chairman of the Board of Management, we dealt with the strategic direction of the Allianz Group and the different business segments, with specific emphasis on the German and international outlook for the life insurance business. We welcomed the decision of the Board of Management to offer Allianz shares to employees of the
Management, we discussed the significant information that emerged from the analysis of the survey, and the opportunities for improvement suggested by that analysis. We also reviewed the remuneration of the Board of Management.
After in-depth consultation, we approved the remuneration system, including the main elements of the service contract.
In addition to regular reporting over the course of business and the situation of the Allianz Group, we also addressed planning for the 2009 financial year as well as mediumterm planning, and issued a declaration of compliance with the German Corporate Governance Code. At the meeting, the Board of Management informed us in detail about a planned change in the transaction structure, which would enable Dresdner Bank to be sold in a single step. This would reduce the complexity and the time required to execute the transaction. We were also informed about the status of preparations for the merger of the two institutions. After discussion of the adjustments presented by the Board of
Board of Management also reported on Allianz Group’s financial investment in the Hartford Financial Services
Meeting, the employee share purchase program and review of the Supervisory Board’s efficiency. In an additional meeting in November 2008, which was held jointly with the Risk
Committee and with the presence of the other members of the Supervisory Board, the committee once again dealt primarily with the integration of Dresdner Bank with
Form 20-F report. In addition, the committee checked the semi-annual financial report and the other quarterly financial statements and, together with the auditors, went through details of the auditor’s review of these financial statements. After carrying out these checks the Audit Committee saw no reason to raise objections. The committee also covered the auditor’s engagement and established priorities for the audit, as well as internal control issues and compliance with the provisions of section 404 of the Sarbanes -Oxley Act. In addition, assignments to the auditors for services not connected to the audit itself were discussed.
Group Audit department and Compliance department about audit and compliance issues on an ongoing basis. In
February 2008 and February 2009 the committee obtained summary reports on significant audit results for the past financial year from the head of the Group Audit department.
Supervisory Board Report Allianz Group Annual Report 2008 nate him for election to the Supervisory Board at the General Meeting on April 29, 2009. Upon the proposal of the employee representatives, the Supervisory Board elected Rolf
Dr. Walter for his successful work for the Allianz Group. In the future, Dr. Gerhard Rupprecht will have responsibility for the Allianz Banking Division. The Supervisory Board appointed Mr. Oliver Bäte to the Board of Management effective January 1, 2008. Mr. Bäte holds the position of Chief
Operating Officer. Beginning in September 2009, he will take over the area of responsibility of Controlling, Reporting, Risk from Dr. Perlet.
The financial statements and the KPMG auditor’s report for financial year 2008 were made available to all members of the Supervisory Board in a timely manner. The financial statements and the results of the KPMG audit were discussed on a provisional basis by the Audit Committee in their meeting held on February 25, 2009. The final financial statements and KPMG auditor’s reports were examined on
On the basis of our own review of the financial statements of Allianz SE and Allianz Group, the management report and the Group management report and the recommendation for appropriation of earnings, we made no objections and agreed with the result of the KPMG audit. We approved the financial statements for Allianz SE and Allianz Group drawn up by the Board of Management; the company financial statements are therefore adopted. We concur with the proposal of the Board of Management as to the appropriation of earnings.
Commerzbank and removed from the scope of consolidation of the Allianz Group. Because of this, as an employee of Dresdner Bank, Ms. Claudia Eggert-Lehmann resigned from the Supervisory Board of Allianz SE under the Agreement concerning the Participation of Employees in Allianz SE
Board, an employee representative from Germany was to be named to succeed her. Mr. Karl Grimm was appointed by resolution of January 28, 2009 of the local court (Amtsgericht)
Good Corporate Governance is essential for long-term business performance. For this reason it is important that the existing Corporate Governance structures are constantly reviewed and developed further, whenever necessary. After the conversion of Allianz into a European Company and its successful implementation in the preceding years there was no reason for further profound changes to the Corporate Governance structure.
Group. It currently comprises 10 members from different countries, making it as international as Allianz itself. Its responsibilities include setting business objectives and strategic direction, coordinating and supervising the operating entities, as well as implementing and supervising an effective risk management system. The chairman of the
Board of Management coordinates the Board’s activities. As a consequence of the transformation into Allianz SE, the position of the chairman was strengthened by providing him with a right of veto under the Statutes with respect to the Board of Management’s decisions. If he objects to a decision, that decision is cancelled. However, the chairman of the Board of Management cannot impose any decision against the majority vote on the Board of Management. In the event of a tied vote, the chairman has the casting vote.
Board of Management. In these rules the Board has in particular regulated the specific responsibilities of Board members, matters reserved for the whole Board and other ways to pass decisions.
The Board of Management reports regularly and comprehensively to the Supervisory Board on business development, the financial position and earnings, budgeting and achievement of objectives, compliance issues, and on the strategy and existing risk exposure. Certain important decisions of the Board of Management require approval from the Supervisory Board. Some of these decisions subject to special approval are stipulated by law or are included in decisions of the General Meeting, such as approval for the
The conversion of the Company into an SE has brought noteworthy changes to the Supervisory Board. The German
These regulations have been implemented by provisions in the Statutes and by the Agreement Concerning the Participation of Employees in Allianz SE, which was signed on
The size of the Supervisory Board is stipulated in the Statutes as 12 members appointed by the General Meeting. Six of these twelve members are appointed on the proposal of the employees. The General Meeting is bound to accept the proposals of the employees.
In accordance with the Agreement Concerning the Participation of Employees in Allianz SE, the seats for the six employee representatives are arranged in proportion to the number of Allianz employees in the EU member states. The
Supervisory Board took place in 2007 for a term until the end of the ordinary General Meeting in 2012.
The Audit Committee is responsible for an initial review of the Company’s and the Group’s annual financial statements, management reports (including the risk report) and the dividend proposal. In addition, it reviews the quarterly reports and the U.S. annual report on Form 20-F. Finally, the
The Personnel Committee is responsible for personnel matters concerning members of the Board of Management.
Board of Management. Following the new recommendation in Section 4.2.2 of the German Corporate Governance Code, the Supervisory Board plenary session shall resolve and regularly review the compensation system of the Board of
The members of the Supervisory Board and its committees can be found on pages 8 and 26 of this report.
SE, an SE works council, currently consisting of 31 employee representatives from 26 EU member states, the European
Europe affecting Allianz. Details of the SE works council are contained in the Agreement Concerning the Participation of
Meetings. As regards the election of employee representatives, General Meetings are bound by the proposals of the employees. General Meetings also approve actions taken by the Board of Management and the Supervisory Board. The
General Meeting decides on the appropriation of earnings, capital transactions, approval of intercompany agreements, the remuneration of the Supervisory Board, and on changes to the Company’s Statutes. Unless at least half of the share capital is represented in adopting a resolution on a change to the Statutes, such resolutions require a majority of at least two thirds of the votes cast, in accordance with European regulations and the Statutes. Each year, an ordinary
Allianz Group accounts comply with international accounting standards, in particular the International Accounting
U.S. rules applicable to foreign issuers. In November 2007 the SEC issued amendments to the regulations, according to which financial statements of foreign issuers in the United States are recognized without a reconciliation statement for U.S.-GAAP, provided such financial statements are prepared in compliance with IFRS.
Code (Handelsgesetzbuch, HGB)), the auditor for the annual financial statements and the auditor for the review of the half year financial report are appointed by the Supervisory Board and not by the General Meeting. The Supervisory
Board’s Audit Committee carries out the preparatory work for the appointments. The statutory audit of the financial statements covers the Company financial statements of
Governance Code (the “Code”) made several amendments to the Code in June 2008. According to a new recommendation of the Code, the Supervisory Board plenary session shall resolve and regularly review the compensation of the Board of Management including the main contract elements. In addition, the former suggestions to introduce severance payment caps in Board of Management contracts became recommendations of the Code.
The German Risk Limitation Act (law on limiting risks arising from financial investments, Risikobegrenzungsgesetz)
§ 161 of the German Stock Corporation Act, listed companies are, however, obliged to make a declaration of compliance following the terms of the Code’s recommendations on the basis “comply or explain”.
Corporation Act as follows: “Declaration by the Board of Management and the Supervisory Board of Allianz SE on the recommendations of the
Government Commission on the German Corporate Governance Code in accordance with § 161 of the German Stock
As our shares are listed on the New York Stock Exchange
(NYSE) we are subject to U.S. corporate governance rules, insofar as these apply to foreign issuers.
As in previous financial years, we have extensively documented our control system for financial reporting and we test its effectiveness on an ongoing basis. As in preceding years we will disclose the results of auditing our compliance with section 404 of the Sarbanes-Oxley Act in our U.S. annual report on Form 20-F.
Committee has established procedures for dealing with complaints relating to accounting policies and financial reporting as well as special procedures to ensure the independence of the statutory auditors. The Allianz SE Supervisory Board has determined that Dr. Wulf Bernotat, Dr. Franz
B. Humer and Mr. Igor Landau fulfill the requirements laid down by U.S. legislation to be an “Audit Committee Financial
Oxley Act, Allianz SE has drawn up, in addition to the Code of Conduct applying to all employees, a special “Code of
At management level in Allianz SE and in the larger Group companies, we have established Disclosure Committees.
In addition, we are subject to the NYSE corporate governance standards. These rules are only partially binding on foreign issuers. Nevertheless, we are obliged to disclose the main differences between our own corporate governance and NYSE standards in summary form. The main differences arise particularly from our two-tier board system with a Board of Management and a Supervisory Board, employee representation on the Supervisory Board and different legislation and best practice standards in Germany and in the
These declarations are published on our website under www.allianz.com/corporate-governance. On December 1, 2008 the Chairman of the Board of Management of Allianz SE
The total holdings of members of the Board of Management and the Supervisory Board in Allianz SE as of December 31, 2008 amounted to less than 1 % of the Company’s issued stock.
German Corporate Governance Code. The information is therefore not repeated in the Notes to the Group Financial
Supervisory Board. The structure of the remuneration is regularly reviewed and discussed by the Supervisory Board.
The last review was carried out in December 2008. It confirmed confidence in the current structure, which is seen as appropriate and aligned to the Company’s strategic priorities. The structure therefore remains unchanged.
The remuneration of the Board of Management is designed to be competitive given the nature and global scope of activities of the Allianz Group, the environment in which the
– Incentive plans are structured to operate effectively throughout the business cycle.
– An appropriate balance is maintained between shortterm and long-term remuneration components.
– The overall remuneration for individual Board Members is dependent upon their designated role, accountability and performance.
The remuneration components of the Board of Management are described below: Fixed salary
Base salary is a fixed amount, paid in twelve monthly instalments. It is normally reviewed every 3 years by the Supervisory Board and reflects the individual’s role as well as the market context. Salaries were last reviewed in December 2008 as part of the overall remuneration review carried out by the Supervisory Board. The 2008 base pay levels of the
Individual objectives Business division financial goals and strategic objectives Individual strategic objectives
All members of the Board of Management are eligible to participate in the annual (short-term) and three-year (midterm ) bonus plans.
The annual bonus is a variable pay component that is dependent on the achievement of annual goals, as set out in the table above. The goals are specified at the beginning of the performance period. Performance against these goals is then assessed at the end of the period, with the amount of bonus payable in the beginning of the following year and dependent on the extent to which targets and objectives have been met. The Supervisory Board sets the target bonus level for members of the Board of Management. For 2008, the target bonus amounts to 150.0 % of base salary. The maximum achievement is set at 165.0 % of target performance.
The three-year or mid-term bonus plan was purposely designed to make the sustained increase in value of the company a priority concern of executive management across the Group. Plan participants include the Board of Management and approximately 100 top managers globally. Bonus payouts under the plan depend on the attainment of financial and strategic goals over the defined three-year performance period, as set out in the table above. The mid-term bonus is paid after completion of the defined three-year performance period, with the amount based on the extent to which goals have been achieved. Certain exceptions apply, for example in the event of retirement. Although an interim assessment of the objectives occurs once a year, these projections are only provisional and informative in nature. Mid-term bonus target levels for members of the
Any material exercise of discretion outside the maximum range will be explained in the Remuneration Report.
The Board of Management and approximately 800 top managers and high performing prospective future leaders worldwide participate in the Group Equity Incentives (GEI)
Stock Appreciation Rights (SAR) and “virtual stock” awards, known as Restricted Stock Units (RSU).
EURO STOXX Price Index (600) and an absolute measure requiring a set increase in the price of Allianz SE stock over the period between grant and exercise. Also, the program has a cap of 150.0 % of the grant price on the potential payout from SAR exercises in recognition of the leverage profile.
The members of the Board of Management also receive certain perquisites. These mainly consist of contributions to accident and liability insurances and the provision of a company car. Each member of the Board of Management is responsible for income tax on these perquisites. Where
The following table sets out the total remuneration for the Board of Management of Allianz SE for 2008, including the fair value of the SAR and RSU awards, with previous year figures shown in italics. Although not a requirement, for reasons of transparency, the proportional bonus accrued for each member for 2008 of the three-year bonus plan has been included.
1) Broad range reflects travel allowances for non-German resident Board Members and a long-term service award for Dr. Perlet. 2) Actual bonus paid in 2009 for fiscal year 2008.
3) Estimated amount for 2008 following interim assessment – the actual performance assessment can only take place at the end of the three-year period. 4) Fair value of SAR granted in 2008. 5) Fair value of RSU granted in 2008.
6) Mr. Oliver Bäte joined the Board of Management on January 1, 2008. His mid-term bonus is pro rated to reflect his length of service during the three-year performance period. All other terms are the same as those of the other members.
The following table sets out the details of the awards made to the Board of Management under the GEI program of equity–
related remuneration in 2008 and their outstanding holdings at the end of the fiscal year.
The GEI awards are accounted for as cash-settled plans and the fair value of the awards is accrued as compensation expense over the relevant vesting period. Upon vesting, any changes in the fair value of the outstanding SAR are recognized as compensation expense. The fair value at the end of fiscal year 2008 was below prior year. Therefore, no additional compensation expense was recognized. SAR can be exercised once the two-year vesting period has expired on the condition that the Allianz SE stock price is at least 20.0 % above the price at which the SAR were granted (strike price). Also, the share price of the Allianz SE stock must have exceeded the Dow Jones EURO STOXX Price Index (600) over a period of five consecutive trading days at least once during the plan period. The RSU are released on the first trading day after the end of a five-year vesting period.
If a member of the Board of Management holds a mandate in another company the full compensation amount is transferred to Allianz SE if the company is owned by Allianz.
Allianz Group paid � 4 million (2007: � 4 million) to increase pension reserves and reserves for similar benefits for active members of the Board of Management. On December 31, 2008, pension reserves and reserves for similar benefits to members of the Board of Management who were active at that date, amounted to � 29 million (2007: � 26 million).
The following table sets out the current service cost and contributions arising in relation to the current pension plans for each individual member of the Board of Management of Allianz SE in 2008. For better transparency, we have separated the current service cost for the defined benefit plan (redeemed as of December 31, 2004) from the current pension plans.
Dr. Gerhard Rupprecht 176 196 372 Jean-Philippe Thierry – 35 35 Dr. Herbert Walter 315 209 524 Dr. Werner Zedelius 81 209 290
If service is terminated as a result of a so-called “change of control”, the following separate regulation applies: A change of control requires that a shareholder of Allianz SE
� 7 million (2007: � 5 million) were paid to retired members of the Board of Management and dependents. Additionally, reserves for current pensions and accrued pension rights totaled � 47 million (2007: � 49 million).
The key principles of the Supervisory Board remuneration are: – Total remuneration is set at an appropriate level based on the scale and scope of the Supervisory Board members’
duties and responsibilities as well as the Company’s activities, business and financial situation.
Three components make up the regular remuneration of a member of the Supervisory Board of Allianz SE, i.e. the remuneration without taking into account additional remuneration for the Chairperson, Deputy Chairpersons and/or members and Chairpersons of committees: – The fixed remuneration amounts to � 50,000 per fiscal year.
– The second performance-based component of remuneration depends on the increase of the consolidated earnings -per-share compared to this figure three years ago and therefore seeks to reflect long-term performance. It amounts to � 60 for each tenth percentage point by which the Group’s earnings-per-share increased over the past three years. It is also set at a maximum limit of � 24,000.
The structure of the Supervisory Board’s remuneration complies with the recommendation and the suggestion of the German Corporate Governance Code under which members of the Supervisory Board shall receive fixed as well as performance-based compensation that should contain components based on the long-term performance of the business. We believe that this form of the Supervisory
Board’s remuneration has proven to be effective, and that the earnings-per-share performance measure is appropriate for the calculation of the performance-based remuneration of the Supervisory Board.
The Chairperson and Deputy Chairpersons of the Supervisory Board as well as the Chairperson and members of
Board receives double, and the Deputy Chairpersons receive one-and-a-half times, the regular remuneration of a member of the Supervisory Board. Members of the Personnel
No additional remuneration is granted to the members of the Nomination Committee.
There is a maximum limit on the total remuneration of each member of the Supervisory Board. It is reached when the Chairperson of the Supervisory Board has been awarded triple, and the other members of the Supervisory Board double, the regular remuneration of a member of the Supervisory Board.
The Group’s earnings-per-share were negative in 2008. The performance-based remuneration of the Supervisory Board being based on the increase of the Group’ earnings-pershare, no short-term or long-term performance-based remuneration will be awarded to the Supervisory Board for 2008. For 2008 the regular remuneration for a member of the Supervisory Board thus amounted to a total of � 50,000, being the fixed remuneration. The maximum limit of remuneration applicable to the Chairman of the Supervisory
Board, being three times the regular remuneration, amounted to � 150,000, the maximum limit of remuneration applicable to the other Supervisory Board members amounted to � 100,000.
The total remuneration for the Supervisory Board members including attendance fees amounted to � 1,080,000 in 2008, compared to � 1,598,305 in 2007. Accordingly, the average annual remuneration for the Supervisory Board members decreased to � 90,000 (2007: � 132,274). The reason for this is that no performance-based remuneration was awarded.
Claudia Eggert-Lehmann received � 45,000. Peter Kossubek received � 13,333.33 as member of the Supervisory Board of
Board of Management, this means that the conditions have been set according to the prevailing conditions for Allianz employees.
In addition to members of the Allianz SE’s Board of Management, the International Executive Committee includes the heads of major subsidiaries. Chaired by Michael Diekmann, this body discusses overall strategic issues at an Allianz Group level.
1 Terry Towell, Allianz Australia, Sydney 2 Gerhard Rupprecht, Allianz SE, Munich 3 Manfred Knof, Allianz Suisse, Zurich 4 Jay Ralph, Allianz SE, Munich 5 Jean-Philippe Thierry, Allianz SE, Munich 6 Clement B. Booth, Allianz SE, Munich 7 Maximilian Zimmerer, Allianz Deutschland AG, Munich 8 Thomas Pleines, Allianz Deutschland AG, Munich 9 Markus Rieß, Allianz Deutschland AG, Munich 10 Paul Achleitner, Allianz SE, Munich 11 William S. Thompson, PIMCO, Newport Beach 12 Oliver Bäte, Allianz SE, Munich 13 Gary C. Bhojwani, Allianz Life Insurance, Minneapolis 14 Jacques Richier, AGF, Paris
Allianz Group Annual Report 2008 International Executive Committee 15 Michael E. LaRocco, Fireman’s Fund Insurance Company, Novato 16 Ulrich Rumm, Allianz Deutschland AG, Munich 17 Werner Zedelius, Allianz SE, Munich 18 Herbert Walter, Dresdner Bank, Frankfurt/Main 19 Axel Theis, Allianz Global Corporate & Specialty, Munich 20 Vicente Tardío Barutel, Allianz Companía de Seguros y Reaseguros, Barcelona 21 Charles Kavitsky, Allianz of America, Novato 22 Michael Diekmann, Allianz SE, Munich 23 Wolfram Littich, Allianz Elementar, Vienna 24 Enrico Cucchiani, Allianz SE, Munich 25 Andrew Torrance, Allianz Cornhill Insurance, London 26 Joachim Faber, Allianz SE, Munich 27 Helmut Perlet, Allianz SE, Munich
– Our sustainability program, in place since 2004, has the goal of continuous improvement in our insurance core skills: risk pricing, claims management, and investment management.
It also facilitates integrating all technical improvements into one common set of business processes.
These measures ensure that all our business units use the highest standards to meet the needs of our customers while delivering benefit for our shareholders. We call this approach “Delivering the Best of Allianz”.
However, the financial crisis has clearly left its mark on our numbers, particularly in the second half of 2008. Dresdner
Bank was not alone in being hit hard by the crisis; asset management and life insurance also failed to meet their goals. The intensifying global recession will continue to present major challenges in 2009.
In spite of the greatest financial crisis in many decades, our performance in the year under review cannot help but inspire confidence: – Property-casualty insurance profits were excellent again although prices remained at depressed levels.
– Despite the crisis and the financial upheavals, we succeded in transferring Dresdner Bank to Commerzbank, making a major contribution to banking consolidation in
Our strategy has proven its value in the midst of a financial and economic crisis of extraordinary dimensions. We continued to offer the same service quality, and maintained operational and financial soundness in 2008. This reflects our clarity of focus and integrity, and provides further evidence that we have passed important milestones on our path to becoming a global financial services provider enjoying the highest level of trust.
We are convinced that we earn the trust of our customers and partners by offering the highest level of expertise, integrity and sustainability.
Our highly qualified employees enjoy the respect of customers and competitors and we are successful in our efforts to achieve continuous improvement in the Allianz
– Integrity: For us, integrity means more than just keeping our promises, it means only making promises that we can keep. We maintain a strong focus on securing our financial stability in all circumstances, which is especially important in the current environment. In addition, we review our services regularly to ensure the appropriate balance between the needs of our customers and distributors and the interests of our shareholders.
– Sustainability: We achieve sustainability primarily by taking advantage of the major growth opportunities that present themselves to Allianz. The current environment is confirmation that the need for robust and highly ethical investment and insurance services will continue to grow strongly. For too long, the growth dynamics generated during the financial bubble that is now bursting have obscured the increasing systemic risk in our interconnected world: For example, no sustainable model as a solution to the growing problem of global warming and increasingly frequent natural disasters has been developed yet. The same holds true for the growing retirement and health care system deficits faced by aging societies, and for the lack of capital and risk transfer systems in young, rapidly growing economies.
Those who dreamed in recent years that these and other problems could “solve themselves” through increased leverage and the resulting inflationary economic growth have now received a wake-up call. Even the currently popular position that the “circle can be squared” through wealth redistribution and government regulation is steadily losing ground against the backdrop of deteriorating economic conditions.
This program places emphasis on: 1 Sustainable improvement of our operating profitability, 2 Strengthening our capital base, making us more resilient to crises, 3 Reducing the complexity of structures and procedures,
We have made significant progress on these priorities in recent years. Through our sustainability initiative, we systematically raised the level of performance group-wide in our insurance units in product pricing, risk assessment and claims procedures. We then expanded this method to our production processes. Our operational transformation program (OTP) reshapes our core processes, raising their productivity to benchmark levels. These group programs have increased our operating profitability every year since 2003, despite the soft markets in property-casualty insurance during this period.
We regard our Customer Focus Initiative (CFI) as the key factor for profitable growth. Since 2006 CFI has been a major success and we shall continue to promote it strongly.
Around the globe we regularly measure progress with the help of the Net Promoter Score (NPS) which flags customer satisfaction and their willingness to recommend Allianz to others. NPS scores now flow into the management compensation schemes of most Allianz subsidiaries. Since CFI was launched in 2006 we have seen a trebling in the number of
At the same time, maintaining a clear focus on operating profitability, financial strength, reduction of complexity and sustainable improvement of our competitive position remains our firm objective. Our aim is nothing less than
– Reducing complexity: We will continue to reduce complexity in 2009 by introducing our “target operating model ” (TOM) as a uniform organization platform globally, completing current implementations, and extending the model to additional businesses. The TOM places the strongest possible focus on our leadership structure and allows us to exploit synergies more quickly and consistently. It is also a prerequisite for efficient global best practice transfer.
Our Target Operating Model does more than drive further efficiency improvements. It enables us to systematically strengthen our customer and market orientation. With the establishment of a market management function in all Allianz units, it redefines the area of responsibility for the systematic identification of new customer needs and services, as well as ensuring a high level of service quality for our customers and distribution channels.
EURO STOXX 50 and Dow Jones EURO STOXX Insurance indexed on the Allianz share price in �
Basic earnings per share � (5.43) 18.00 17.09 Price-earnings ratio — 8.2 9.1 Dividend per share � 3.50 5.50 3.80 Dividend yield as of December 31 % 4.7 3.7 2.5
Return on equity after income tax 2) 3) % 9.7 15.0 15.0 1) In comparison with Dow Jones EURO STOXX 50; source: Bloomberg 2) Based on net income from continuing operations. 3) Based on average shareholders‘ equity. Average shareholders‘ equity has been calculated based upon the average of the current and preceding year’s shareholders‘ equity.
Because of the significant drop in our share price, our market capitalization fell to � 34 billion. In spite of this setback,
Our stock is also included in the Global Dow Index, created by Dow Jones in November 2008. This index reflects the performance of 150 blue-chip stocks worldwide. In order to be part to this index, a company must already have established itself as a market leader or be well-positioned to gain a top position in emerging, strong-growth markets.
Weighting of the Allianz share in major indices as of December 31, 2008
Dow Jones EURO STOXX 50 2.7 11 50 Dow Jones EURO STOXX Insurance 22.9 1 17 MSCI World Financials 1.52 7 360
Shareholder structure as of December 31, 2008 in % of subscribed capital
Our Annual General Meeting for the financial year 2007, held on May 21, 2008, was attended by more than 4,400 shareholders. The proportion of the voting share capital represented was 40.2 %, with about 25 % held by equity holders from outside of Germany and close to 15 % by shareholders domiciled in Germany. The Annual General Meeting approved each of the items on the agenda by a significant majority. For detailed information about the Annual General Meeting, please visit www.allianz.com/agm.
The annual analysts’ conference and the teleconferences on our quarterly results and on the sale of Dresdner Bank attracted considerable interest. We also presented Allianz and its strategy at investor conferences in San Francisco, New
Our dialogue with private shareholders is another key component of our Investor Relations work. The number of inquiries we processed from this group of investors was around 8,600, approximately as high in 2008 as in the previous years.
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.
Internet’s advantages: – select individual data and compare key ratios over a number of years,
– To be informed about our range of services at the Annual
You can also register there to receive your invitation via e-mail in the future. You can order your ticket on the web and, if you wish, you can print it yourself. These convenient services, which significantly speed up the process and are environmentally friendly, are already being widely used. We also want to ensure that as many shareholders as possible exercise their voting right at the Annual
General Meeting and we offer support for this online. At www.allianz.com/agm, you can authorize proxies of
Allianz SE , a bank or a shareholders’ association to vote on your behalf.
Changes in the Presentation of the Consolidated Financial Statements 48 Recommendation for Appropriation of Profit 48 Events After the Balance Sheet Date 49 Outlook 52 Property-Casualty Insurance Operations 52 Earnings Summary 56 Property-Casualty Operations by Business Division 58 Life/Health Insurance Operations 58 Earnings Summary 62 Life/Health Operations by Business Division 64 Banking Operations 64 Earnings Summary 65 Banking Operations by Geographic Region 66 Asset Management Operations 66 Third-Party Assets Under Management of the Allianz Group 67 Earnings Summary 70 Corporate Activities 70 Earnings Summary 72 Discontinued Operations of Dresdner Bank 72 Earnings Summary 74 Balance Sheet Review 74 Consolidated Balance Sheets 75 Shareholders’ Equity 75 Regulatory Capital Adequacy 75 Total Assets and Total Liabilities 80 Consolidated Special Purpose Entities (SPEs) 81 Off-Balance Sheet Arrangements
Group Management Report 83 Liquidity and Capital Resources 83 Organization 83 Liquidity Resources 83 Debt and Capital Funding 86 Allianz Group Consolidated Cash Flows 87 Risk Report 87 Risk Governance Structure 89 Internal Risk Capital Framework 92 Capital Management 94 Concentration of Risks 95 Market Risk 97 Credit Risk 100 Actuarial Risk 102 Business Risk 103 Other Risks 104 Outlook 106 Business Model and Success Factors 106 The Allianz Group’s Business Model 108 Value-Based Management 110 Main Initiatives 110 Our Employees 114 Corporate Responsibility and Sustainability 116 Global Diversification of our Insurance Business 126 Major Transactions 126 Legal Structure and Significant Changes 126 Major Disposals 126 Major Acquisitions 126 Reorganization 128 Other Information 128 Principal Accountant Fees and Services 129 Statements in Accordance with § 315 (4) of the
Income before Income Taxes and Minority Interests in Earnings 134 Composition of Total Revenue Growth
Cautionary note regarding forward-looking statements The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words “may”, “will”, “should”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Allianz Group’s core business and core markets, (ii) performance of financial markets, including emerging markets, and including market volatility, liquidity and credit events (iii) the frequency and severity of insured loss events, including from natural catastrophes and including the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changing levels of competition, (x) changes in laws and regulations, including monetary convergence and the European Monetary Union, (xi) changes in the policies of central banks and/or foreign governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures, and (xiv) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The matters discussed herein may also be affected by risks and uncertainties described from time to time in Allianz SE’s filings with the U.S. Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statement.
The year under review was marked by the global financial and economic crisis that started in mid-2007 with the collapse of the housing market in the United States. The crisis that was initially observed within the banking sector accelerated in 2008 and spilled-over to various other sectors of the financial industry. Serious disruptions in the global financial system led to deteriorating economic conditions and investors became much more risk averse. In September, the global financial system almost collapsed: large financial institutions faltered, leading to changes in business models, failures, mergers and nationalizations. Some economies were even on the verge of national bancruptcy. In consequence, the weak situation in the financial markets that was observable from falling stock markets and volatile credit spreads became even more intense in the fourth quarter of the year.
Dresdner Bank AG (Dresdner Bank) to Commerzbank. Following the announcement, Dresdner Bank qualified as heldfor -sale and discontinued operations. Therefore, results from these operations have been eliminated from our results of Banking operations and are now presented in a separate line item “net income from discontinued operations, net of income taxes and minority interests in earnings”. In addition to our continuing banking business, our Banking operations also reflect the results from those parts of Dresdner
Landesbank (OLB) and the banking clients that were introduced through our tied agents channel.1)
In common with the industry, Allianz was affected by the difficult economic environment, which impacted both results and asset values to varying degrees across our business segments. Initially, the effects were only seen within our banking segment’s results with the major impact stemming from the investment banking activities of Dresdner
1) For further information on the sale of Dresdner Bank, please refer to page 126. 2) For further information on the impact of the sale of Dresdner Bank on Allianz Group’s results, please refer to page 44.
Casualty operations, sales of investment-oriented products within our Life/Health and Asset Management businesses suffered materially from the difficult market conditions.
Foreign currency exchange effects were also a significant feature, lowering revenues by � 1,690 million whereas deconsolidation effects only accounted for � 325 million of the reduction. At � 92,548 million, revenues were down by 5.3 %
1) Total revenues comprise Property-Casualty segment’s gross premiums written, Life/ Health segment’s statutory premiums, Banking segment’s operating revenues and Asset Management segment’s operating revenues.
3) Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 134 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the Allianz Group as a whole.
Statutory premiums from Life/Health insurance amounted to � 46,297 million on an internal basis representing an 8.3 % decline. Whereas sales remained solid in countries where traditional life business is strong, we recorded significantly lower revenues from unit-linked products and from bancassurance sales channels. On a nominal basis, revenues dropped by 7.6 % to � 45,615 million. This premium figure contains � 1,199 million relating to AGF health business in 2008 (comparatives not restated).
Operating revenues from Banking1) operations decreased by 12.5 % to � 544 million with all revenue components contributing to this development.
Despite the negative impact the crisis had on the fair value of our assets under management, we still generated positive net inflows in the first nine months of 2008. In contrast, we saw large outflows in the fourth quarter as a consequence of increased investment risk aversion of customers. Net inflows for the year as a whole were nil. Due to significant market-related depreciation, third-party assets under management declined by 8.0 % to � 703 billion at year-end 2008.
1) Following the sale of almost all of Dresdner Bank to Commerzbank, our Banking segment reflects our existing banking operations as well as the Oldenburgische Landesbank and the banking clients from Dresdner Bank introduced through our tied agents channel.
� 1,206 million. The 59.7 % decline was mainly due to weak equity markets and widening credit spreads which strongly impacted our net investment result.
In our continuing Banking1) business, we recorded an operating loss of � 31 million, after a profit of � 32 million in 2007. Lower operating revenues and higher loan loss provisions were only partially outweighed by reduced operating expenses. The cost-income ratio increased by 6.3 percentage points to 100.4 %.
3) Includes � (129) mn, � (47) mn and � (137) mn from consolidation in 2008, 2007 and 2006 respectively.
At � 926 million, the operating profit from our Asset Manangement segment declined by 31.9 % after a strong year in 2007. This development was mainly driven by reduced revenues following lower third-party assets and higher expenses.
The operating loss from Corporate Activities decreased by 42.2 % to � 188 million mainly as result of lower administrative and investment expenses in the Holding Function.
Net realized losses and impairments of investments amounted to � 640 million compared to a positive contribution of � 2,085 million a year ago. Due to the weak condition of the capital markets, impairments on investments recorded as non-operating increased from � 294 million to
Acquisition-related expenses halved to � 245 million, mainly benefiting from lower expenses for PIMCO B-Units as the number of outstanding B-units considerably decreased by one quarter, which more than offset the slight increase in underlying earnings.
Income from continuing operations before income taxes and minority interests in earnings was almost halved to
� 5,473 million. Tax expenses were also reduced by 50.0 % to
Due to the lower pre-tax income and the AGF minority buy-out in 2007, minority interests in earnings decreased by 67.6 % to � 219 million.
Including other charges of � 0.2 billion the overall result from discontinued operations for 2008 amounted to � 6,411 million coming from a gain of � 650 million.
The net loss for 2008 amounted to � 2,444 million compared to a net income of � 7,966 million a year ago.
1) � 0.25 bn cash received in exchange for cancellation of trust fund valued at � 0.1 bn. 2) � 1.4 bn cash received as compensation for reduction in number of Commerzbank shares by 152 mn. 3) Marked-to-market as of 01/12/2009.
� 2,472 million and the net loss amounting to � 2,444 million.
Net income (loss) from discontinued operations, net of income taxes and minority interests in earnings — — (6,304) — — (107) (6,411)
Income (loss) from continuing operations before income taxes and minority interests in earnings 7,261 3,102 45 865 (354) (356) 10,563
Net income (loss) from continuing operations 5,174 1,991 55 498 (158) (244) 7,316
Net income (loss) from discontinued operations, net of income taxes and minority interests in earnings — — 322 — — 328 650
The financial markets crisis had its root cause in the subprime crisis, when rising defaults on subprime mortgages in the United States resulted in significant deterioration of prices for securitized assets. Primarily, this affected collateralized debt obligations (CDO) and residential mortgagebacked securities, especially those originating in the United
States (U.S. RMBS). The revaluation of these assets resulted in massive write-downs in the industry. Subsequently, uncertainty about the extent and distribution of losses arose and the interbank market started to freeze. This prompted central banks to take concerted action and provide the capital markets with additional liquidity.
In common with the industry, Allianz was affected by the turbulence in the financial markets, which impacted both results and asset values. However, the impact varied across our business segments.
Unrealized losses on CDOs of � 10 million were recorded in our shareholders’ equity.
As part of the transaction with Commerzbank on January 12, 2009, Allianz committed to purchase certain CDOs with a notional value of approximately � 2.0 billion for consideration of � 1.1 billion. The CDOs were purchased at fair value and the transaction was executed in February 2009.
1) In January 2009, Allianz repurchased certain CDOs from Dresdner Bank. For further information please refer to page 47.
The Board of Management and the Supervisory Board propose that the available net earnings (Bilanzgewinn) of
Allianz SE of � 1,585,675,000 for the fiscal year 2008 be appropriated as follows: – Distribution of a dividend of � 3.50 per no-par share entitled to a dividend: � 1,585,675,000.
Annual General Meeting, which are not entitled to dividends pursuant to § 71 b of the German Stock Corporation Act (Aktiengesetz ), the amount attributable to such shares shall be carried forward to new account.
� bn � bn � mn � mn 2. Conduits business Drawn and funded amounts 4.0 4.6 — — 3. ABS
c. Other ABS Net exposure2) 6.3 2.2 232 356 4. Credit enhancements Gap risk/second loss 2.9 1.6 24 61
CDOs and also as further discussed in consolidated special purpose entities and off-balance sheet arrangements.
We believe that, following an expansion of a good 2 % last year, the global economy will not grow in 2009 (even including the emerging markets). We expect the industrialized countries to shrink by about 1.5 %, while growth will slow down to around 2.5 % (2008: 6 %) in the emerging markets.
The performance in the emerging markets, however, will be very uneven. Asia remains the most dynamic region, with gains of 3 %. China leads the way here, although it is expected to turn in its lowest growth rate since 1990. We estimate growth in Eastern Europe at 1 %, primarily because recent growth in many Eastern European countries has been financed by the rapid expansion of credit, partly in foreign currencies. These countries have been hit so hard by the financial crisis that some of them have already turned to the International Monetary Fund and the European Union for support. Latin America (with the exception of Mexico)
seems to be handling the crisis somewhat better; we expect growth of 2 % there in 2009.
States will shrink in 2009. We forecast a drop of about 1.5 %
there. However, the negative figures for the entire year obscure the fact that a gradual stabilization is expected to take place in the course of the year. The industrialized countries should be back on the path to growth in the second half of the year. There are three reasons – all of them valid globally
– that such a recovery is likely: extensive public economic programs designed to stimulate demand, low interest rates resulting from an extremely expansionary monetary policy and a major gain in consumer purchasing power due to the significant drop in commodity prices.
Financial services providers will continue to face major challenges in 2009 as a result of the global economic crisis.
The most obvious of these are gloomy economic prospects, possible impairments on all types of securities and the loss of consumer confidence. It is imperative that providers restore their customers’ faith in a reliable long-term partnership.
Property-Casualty will likely see new business slowing because of the weak economy; individual sectors such as credit insurance are being directly affected by the crisis.
The long term fundamentals of the Life/Health insurance operations remain intact, but they will be affected by how effectively mandatory health insurance systems are complemented by privately funded health insurance.
Asset Management operations once again have a solid long-term growth and profit outlook, too. First, however, the fund industry will need to provide convincing arguments to customers wary of highly volatile markets.
Whilst the challenging environment described above will clearly impact our business in 2009, Allianz is well positioned, with a solid platform for delivering earnings in the core insurance and asset accumulation businesses. We are strongly capitalized, and with a pro-forma solvency ratio of 161 % net of a � 1.6 billion dividend accrual at the end of the current reporting period, we are able to withstand a prolonged difficult market environment.
� 443 billion at the end of the current reporting period. We will maintain a defensive portfolio, managed under a sustainable investment strategy and generating a reliable stream of coupons and dividend yields. Whilst this portfolio includes a significantly reduced level of equity exposure, in the ongoing financial crisis, we cannot rule out further impairments, or indeed credit defaults on corporate bonds.
� 700 billion of third-party assets. Whilst the equities side has been badly affected by the turmoil and investors’ loss of confidence, the fixed-income side remains resilient, and we expect that to continue.
Furthermore, negative currency translation effects amounted to � 821 million. Overall, gross premiums written were down by 2.0 % to � 43,387 million.
1) We comment on the development of our gross premiums written on an internal basis; meaning adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information.
Gross premiums written by regions as of December 31, in %
On an internal basis, revenues in France were up by 1.2 % or
� 48 million, supported by a positive price effect of approximately 1.9 %. On a nominal basis, the � 1,156 million decrease in revenues was mainly due to the transfer of AGF’s health business to the Life/Health segment.
In South America, premiums increased by � 181 million or 20.6 %, mainly driven by Brazil where all lines of business experienced growth, motor insurance in particular. On a nominal basis, premiums were up by 14.3 %.
Garant in Russia as well as ATF-Polis in Kazakhstan, internal revenue growth in New Europe amounted to � 99 million or 3.6 %. The main driver of this development was motor insurance business in Poland and increased property business in
Nominal growth in the emerging markets1) in total amounted to 12.8 %. Together, these markets contributed � 4,835 million (2007: � 4,286 million) or 11.1 % (2007: 9.7 %) to total gross premiums written.
Travel Insurance and Assistance Services recorded an increase in gross premiums written of � 89 million or 7.8 %, on both an internal and nominal basis.
� 287 million, primarily as a result of higher impairments of investments. These impairments more than offset higher net realized gains.
� 1,736 million to � 2,012 million, reflecting the overall weakness in the financial markets.
States at the end of September, we experienced a lower underwriting result from crop insurance amounting to � (7)
In 2008, an increase in overall claims severity was partly compensated by a slightly lower claims frequency. We benefited from a lower level of natural catastrophe claims, which accounted for � 667 million compared to � 774 million in 2007. Major claims in 2008 were the windstorm
Emma and the hailstorm Hilal as well as hurricane Ike with
� 168 million, � 135 million and � 159 million net impact on the Group, respectively. In contrast to natural catastrophe claims, the impact of other large claims was higher compared to the prior year. There was a favourable net development in prior years’ loss reserves was of 3.8 %. Overall, the calendar year loss ratio increased by 1.9 percentage points
Acquisition and administrative expenses decreased by 2.4 % to � 10,356 million. This was due to a significant reduction in adminstrative expenses, partly driven by further efficiency improvements contributing savings of � 120 million. As a result, our expense ratio improved by 0.4 percentage points to 27.1 %.
Claims and insurance benefits incurred (net) (25,986) (25,485) (24,672) Changes in reserves for insurance and investment contracts (net) 3 (339) (425)
Acquisition and administrative expenses (net) (10,356) (10,616) (10,590) Fee and commission expenses (1,141) (967) (721)
1) Since 2008, health business in Belgium and France is shown within Life/Health segment. Prior year balances have not been adjusted. 2) For the Property-Casualty segment, total revenues are measured based upon gross premiums written.
8) Represents the total of acquisition and administrative expenses (net) and claims and insurance benefits incurred (net) divided by premiums earned (net).
4) Effective 1Q 2008, health business in France and Belgium is shown within Life/Health segment. Prior year balances have not been adjusted. 5) Contains � 16 mn, � 21 mn and � 20 mn for 2008, 2007 and 2006, respectively, from a former operating entity located in Luxembourg and also � 10 mn, � 1 mn and � (8) mn for 2008, 2007 and 2006, respectively, from AGF UK.
� mn � mn � mn � mn � mn � mn � mn � mn � mn � mn � mn
Germany 2) 9,358 9,446 9,558 9,358 9,446 7,367 7,223 7,258 1,365 1,411 1,233 Switzerland 2) 1,241 1,804 1,805 1,210 1,188 1,190 1,595 1,706 145 218 228 Austria 900 915 922 900 896 734 748 782 79 86 82 German Speaking Countries 11,499 12,165 12,285 11,468 11,530 9,291 9,566 9,746 1,589 1,715 1,543
Italy 4,741 5,229 5,396 4,741 5,212 4,647 4,902 4,935 690 719 816 Spain 2,156 2,136 2,013 2,156 2,136 1,863 1,820 1,675 286 253 252 South America 1,049 918 869 1,061 880 764 692 623 82 55 47 Portugal 298 283 287 298 283 247 246 258 36 38 36 Turkey 3) 180 — — — — 128 — — 9 — — Greece 83 79 74 83 79 55 50 46 10 9 10 Europe I incl. South America 8,507 8,645 8,639 8,339 8,590 7,704 7,710 7,537 1,113 1,074 1,161
France 4) 3,930 5,086 5,110 3,930 3,882 3,281 4,422 4,429 280 486 420 Credit Insurance 1,804 1,762 1,672 1,804 1,762 1,360 1,268 1,113 144 496 442 Travel Insurance and Assistance Services 1,228 1,139 1,044 1,228 1,139 1,196 1,093 1,008 106 97 90 Netherlands 913 927 926 913 927 800 809 813 72 108 150 Belgium 4) 335 374 356 335 325 261 301 298 40 40 30 Africa 62 55 47 62 55 37 32 27 9 8 7 Europe II incl. Africa 8,272 9,343 9,155 8,272 8,090 6,935 7,925 7,688 677 5) 1,257 5) 1,151 5)
Reinsurance PC 3,470 3,191 4,035 3,493 3,548 2,824 2,022 2,585 500 217 245 Allianz Global Corporate & Specialty 2,859 2,811 2,802 2,859 2,896 1,813 1,800 1,545 431 414 404 AZ Insurance plc 1,925 2,236 2,396 2,237 2,236 1,769 1,989 1,874 243 206 288 Australia 1,484 1,543 1,452 1,575 1,543 1,171 1,245 1,195 265 296 225 Ireland 672 691 704 672 691 597 614 622 114 180 222 ART 350 — — 271 208 168 — — 55 — — Anglo Broker Markets/
Russia 7) 857 678 30 688 678 705 574 4 41 7 1 Hungary 546 580 575 547 580 471 502 499 80 73 68 Poland 460 367 283 426 367 337 246 200 38 24 20 Romania 346 341 291 383 341 135 155 132 10 11 11 Slovakia 348 319 288 323 319 296 273 251 90 112 52 Czech Republic 278 249 253 251 249 208 183 179 44 41 29 Bulgaria 110 103 95 110 103 81 70 70 19 16 16 Croatia 95 86 70 94 86 78 63 53 6 2 4
Asia-Pacific (excl. Australia) 425 349 310 413 349 226 170 141 23 16 19 Middle East 54 40 20 57 40 25 21 8 3 2 2 Growth Markets 3,519 3,112 2,215 3,292 3,112 2,563 2,258 1,537 326 274 205
Italy 96.7 94.8 91.8 73.1 71.2 68.8 23.6 23.6 23.0 Spain 90.4 91.4 90.3 69.9 71.6 71.0 20.5 19.8 19.3 South America 98.5 99.0 101.2 65.1 62.9 64.8 33.4 36.1 36.4 Portugal 92.5 91.6 91.2 65.0 65.9 64.4 27.5 25.7 26.8 Turkey 3) 109.5 — — 85.6 — — 23.9 — — Greece 90.4 88.7 92.4 59.9 58.2 57.7 30.5 30.5 34.7 Europe I incl. South America 95.4 94.2 92.2 71.4 70.3 68.7 24.0 23.9 23.5
France 4) 97.2 97.3 99.2 69.3 70.9 71.0 27.9 26.4 28.2 Credit Insurance 104.3 76.5 77.6 77.6 47.9 49.7 26.7 28.6 27.9 Travel Insurance and Assistance Services 93.3 93.7 101.8 57.6 58.1 58.7 35.7 35.6 43.1 Netherlands 97.7 94.1 88.7 67.4 62.0 57.1 30.3 32.1 31.6 Belgium 4) 96.7 102.3 104.5 60.2 65.7 66.9 36.5 36.6 37.6 Africa 91.7 92.7 89.1 48.8 53.2 39.8 42.9 39.5 49.3 Europe II incl. Africa 98.0 93.5 95.8 68.3 64.5 64.8 29.7 29.0 31.0
Consolidation 9) — — — — — — — — —
As customers became increasingly cautious about bearing investment risk, we recorded significantly lower sales in investment-oriented products. In consequence, internal revenues were down by � 4,204 million. Overall, operating profit decreased by � 1,789 million, and net income was
AGF health business transferred from the Property-Casualty segment (comparatives not restated).
1) We comment on the development of our statutory premiums written on an internal basis; meaning adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information.
Pacific and the United States. In contrast, sales remained solid in countries where traditional life business is strong such as France, Switzerland and Spain.
In Italy, revenues dropped by 39.0 % or � 3,813 million.
– Traditional business held firm. – Operating profit of � 1,206 million despite financial markets turmoil.
In Switzerland, we recorded an 18.3 % or � 182 million revenue increase stemming mainly from single premium products, especially in group business.
The highest negative impacts on operating profit were recorded in our operations in the United States, France, South
Net impairments on investments increased by � 4,923 mil lion to � 5,747 million mainly due to weak equity markets.
These impairments were almost entirely attributable to our available-for-sale equity portfolio. The highest impairments were recorded in Germany (� 3,012 million) and France
At � 874 million, net realized gains dropped by 75.6 % mainly owing to lower realizations compared to 2007 when higher levels of realized gains from equity and real estate were harvested. Furthermore, higher realized losses triggered by the weak capital markets contributed to this development.
Net loss from financial assets and liabilities carried at fair value through income stood at � 235 million compared to
Interest and similar income remained stable and on a high level, at � 13,772 million.
As of December 31, 2008, our asset base amounted to � 331.2 billion. Despite net inflows to debt securities of � 17.1 billion, the reduction of � 18.8 billion compared to year-end 2007 was to a large extent attributable to poor equity markets.
Net claims and insurance benefits incurred were up 11.5 %, amounting to � 19,673 million including the reclassification of AGF’s health business from the Property-Casualty segment. In 2007 we benefited from an extraordinary reserve release in South Korea amounting to � 170 million.
Our statutory expense ratio increased by 0.3 percentage points to 9.7 %.
The non-operating loss amounted to � 533 million coming from a gain of � 107 million a year earlier. Similar to the development within operating profit, the major drivers for this development were higher impairments and higher net realized losses.
We recorded net income of � 327 million, a large decline of
� 1,664 million. Income tax expenses decreased by � 637 million to � 260 million with an effective tax rate of 38.6 %
(2007: 28.9 %). The relatively high effective tax rate is mainly driven by non-tax-deductible impairments.
4) The total of these items equals realized gains/losses (net) in the segment income statement included in Note 6 to the consolidated financial statements. 5) The total of these items equals impairments of investments (net) in the segment income statement included in Note 6 to the consolidated financial statements. 6) The total of these items equals restructuring charges in the segment income statement included in Note 6 to the consolidated financial statements. 7) Represents acquisition and administrative expenses (net) divided by statutory premiums (net).
NAFTA 6,111 6,968 8,758 6,423 6,968 802 672 533 AZ Reinsurance LH 294 313 339 294 313 291 293 317 United Kingdom — — — — — — — — Anglo Broker Markets / Global Lines 6,405 7,281 9,097 6,717 7,281 1,093 965 850
2) Reflect statutory premiums on an internal basis (adjusted for foreign currency translation and (de-) consolidation effects). 3) Loss ratios were 74.7 %, 71.6 % and 68.4 % for 2008, 2007 and 2006, respectively. 4) Effective July 21, 2008, Koç Allianz Hayat ve Emeklilik AS was consolidated following the acquisition of approximately 51 % of the shares in Koç Allianz Hayat ve Emeklilik AS by the
Allianz Group, increasing our holding to approximately 89 %. To be continued on page 63
Germany Life 620 695 521 8.5 5.8 9.1 Germany Health 3) 112 164 184 9.0 9.8 9.3 Switzerland 71 66 50 9.9 10.6 9.9 Austria 17 40 29 8.8 11.8 12.1 German Speaking Countries 820 965 784 8.7 6.9 9.2
Asia-Pacific 41 300 81 13.8 10.1 11.2 Hungary 16 13 12 15.9 20.4 25.7 Slovakia 29 29 16 15.5 16.8 18.2 Czech Republic 4 10 9 14.2 18.0 20.1 Poland 6 10 6 32.6 19.7 17.6 Romania 2 — — 31.9 33.8 39.3 Bulgaria 2 4 3 17.7 15.0 14.2 Croatia 4 2 4 22.5 17.1 20.4 Russia (15) (7) — 132.2 99.5 28.1
Operating revenues decreased by 12.5 % to � 544 million with all revenue components contributing to this development. The biggest downward movement was recorded in net fee and commission income (down � 58 million to � 237 million) mainly due to lower third-party assets in Italy caused by market-related effects. Net interest income decreased by 4.0 % to � 312 million, as lower at-equity results of investments at Banque AGF 2) outweighed the positive performance in our other banking entities.
The net loss from our continuing operations before income taxes and minority interests in earnings amounted to � 161 million (2007: income of � 45 million). Due to the loss, we recorded an income tax credit of � 54 million which led to an effective tax rate of 33.5 % and therefore was comparable to the expected tax rate of 33 %. The effective tax rate last year was (22.2) % due to a positive effect from the German tax reform.
– Oldenburgische Landesbank and banking customers introduced by Allianz tied agents are included.
4) For the Banking segment, total revenues are measured based upon operating revenues. 5) Represents operating expenses divided by operating revenues. 6) Presentation not meaningful.
– Solid asset base ensures profitability even under extreme conditions. – Operating profit of � 926 million. – Fixed income business continued to deliver robust results, while equity business suffered from the difficult market environment.
The regional allocation of assets under management moved slightly towards investments originated in the United
States, driven by the appreciation of the U.S. Dollar. Strong outflows from the equity business combined with this foreign exchange impact led to a shift from equity to fixedincome products, which made up 15 % and 85 % of the total assets under management, respectively, at year-end 2008.
The severe turbulences in the financial markets influenced the development of our third-party assets under management. At � 703 billion, these were � 62 billion below the level of year-end 2007.
3) � 54 million have been reclassified from other expenses to commission expenses each for the years ended December 31, 2007 and 2006.
Net loss from financial assets and liabilities carried at fair value through income amounted to � 80 million coming from a gain of � 29 million in 2007. The swing stemmed to a large extent from � 74 million negative mark-to-market valuations of seed money investments.
Administrative expenses of � 1,909 million, were 2.8 % higher than the prior year level mainly as non-personnel expenses showed a double-digit increase driven by business expansions in the fixed-income business and in U.S. distribution units. In addition, expenses increased following higher costs for further improvements of compliance and risk management infrastructures. Personnel expenses declined due to lower bonus costs, partly offset by associated non-bonus related staff costs due to an increase in headcount.
At 67.9 %, the cost-income ratio was up 9.5 percentage points.
Tax charges were reduced by 27.0 % amounting to � 246 million. The effective tax rate was 39.9 % and remained almost unchanged compared to the prior year level of 40.7 %.
The aggregate operating loss decreased by 42.2 % to � 188 million due to lower administrative and investment expenses in the Holding Function.
At � 318 million the operating loss in the holding function was 28.7 % lower than in 2007 largely due to a decline in administrative and investment expenses. The latter benefited from increased foreign currency gains of � 111 million. Revenues declined slightly, as higher interest income was more than offset by a decrease in all other revenue positions.
We recorded a net loss of � 812 million, or a � 644 million larger loss compared to the prior year’s level. The lower nonoperating result described above was partially compensated by higher tax income of � 662 million. In 2007 tax income was lower due to tax expense from the German tax reform.
The non-operating loss declined from � 66 million to � 2 million, stemming from higher net capital gains.
In the full year results of 2008, we show results from operating activities only until September 30, 2008. In the discussion below, we do not present operating revenues and operating profit for the period between October 1, 2008 and
December 31, 2008 because the value of the Dresdner Bank activities is not measured by their operating performance during this period but rather by the value of Dresdner Bank reflected in the agreements to sell this entity to Commerzbank, as discussed below under “Net loss from discontinued operations for the year ended December 31, 2008”. Accordingly, operating revenues and operating profit for 2008 and 2007 are not comparable because the figures are based on a nine month period for 2008 and on a full year calendar period for 2007.
Operating revenues decreased significantly and amounted to � 1,910 million with all revenue components contributing to this development. The net dealing loss, which comprises net trading loss and net income (loss) from financial assets and liabilities designated at fair value through income, at
Additionally, we recognized declines in net interest income and net fee and commission income.
Operating profit (loss) for the nine months ended September 30, 2008
As the massive decline in operating revenues could not be outweighed by reductions in operating expenses, we recorded an operating loss of � 1,797 million, which included loan loss provisions of � (327) million.
Net loss from discontinued operations for the year ended December 31, 2008
� 6,411 million. This comprised the negative result from operating activities of � 2,074 million, plus an impairment loss recognized as of September 30, 2008 of � 1,409 million representing the remeasurement of assets of disposal group to fair value less costs to sell – together with the result of transaction between September 30, 2008 and December 31, 2008 of � (2,928) million mainly reflecting the change in fair value of the considerations agreed.
– Net loss from discontinued operations amounted to � 6,411 million.
Net income (loss) from discontinued operations (6,411) 650 381 1) For the year ended December 31, 2008, the result from operating activities of discontinued operations represents the nine months ended September 30, 2008. Previous year figures represent 12 months ended December 31 of the relevant year.
2) Represents interest and similar income less interest expenses. 3) Represents fee and commission income less fee and commission expenses.
Loans and advances to banks and customers 115,655 396,702 Financial assets for unit-linked contracts 50,450 66,060 Reinsurance assets 14,599 15,312 Deferred acquisition costs 22,563 19,613 Deferred tax assets 3,996 4,771 Other assets 34,004 38,025 Non-current assets and assets of disposal groups classified as held-for-sale 419,513 3,503 Intangible assets 11,451 13,413 Total assets 955,576 1,061,149
Financial liabilities carried at fair value through income 6,244 126,053 Liabilities to banks and customers 18,451 336,494 Unearned premiums 15,233 15,020 Reserves for loss and loss adjustment expenses 63,924 63,706 thereof attributable to the Property-Casualty segment � 55,616 mn (2007: � 56,943 mn) 4)
Financial liabilities for unit-linked contracts 50,450 66,060 Deferred tax liabilities 3,833 3,973 Other liabilities 32,930 48,031 Liabilities of disposal groups classified as held-for-sale 411,816 1,293 Certificated liabilities 9,544 42,070 Participation certificates and subordinated liabilities 9,346 14,824 Total liabilities 918,328 1,009,768
Total liabilities and equity 955,576 1,061,149 1) Due to the disposal of almost all of Dresdner Bank AG to Commerzbank AG, all assets and liabilities that are part of the disposal group have been reclassified and presented in separate line items “Non-current assets and assets from disposal groups classified as held-for-sale” and “Liabilities of disposal groups classified as held-for-sale”, respectively, on the face of the consolidated balance sheet as of December 31, 2008. Certain prior period amounts have been reclassified to conform to the current period presentation. For further information please refer to Note 4 to our consolidated financial statements.
– Shareholders’ equity of � 33.7 billion. – Asset allocation of Allianz is well diversified and of high quality.
Shareholders’ equity in � mn 1) Does not include minority interests of � 3.6 bn, of � 3.6 bn and of � 7.2 bn as of December 31, 2008, 2007 and 2006, respectively. Please refer to Note 25 to the consolidated financial statements for further information.
Unrealized gains and losses (net) arising during the year 3) (9,170) Transferred to net income on disposal or impairment 4) 697
Paid-in capital 248 Treasury shares 25 Transactions between equity holders (530) Dividends paid (2,472) Balance as of December 31, 2008 33,684
4) During the year ended December 31, 2008, realized gains and losses (net) transferred to net income on disposal or impairment are net of income tax benefit of � 755 mn (2007: income tax charge of � 206 mn; 2006: income tax charge of � 308 mn).
Life/Health and Banking segments as presented on pages 176 and 177. Relative to Allianz Group’s total assets and total liabilities, we consider the total assets and total liabilities from our Asset Management segment as immaterial and have, accordingly, excluded these assets and liabilities from the following discussion. Our Asset Management segment’s results of operations stem primarily from its management of third-party assets. 1)
Investment assets from our Property-Casualty, Life/Health and Corporate segments amounted to � 358.2 billion as of
Fixed-income portfolio of � 315.8 billion by investment country in %
From a regional perspective our portfolio of debt securities is well diversified.
4) 5 %-p are mainly seasoned self-originated German Private Retail Mortgage Loans and 3 %-p are short-term loans.
5) Includes � 7 bn U.S. Agency MBS. 6) Type of covered bond issued in Germany.
Pfandbrief and covered bond portfolio of � 85.2 billion in %
Property-Casualty asset base fair values 1) in � bn 1) Loans and advances to banks and customers, held-to-maturity investments, and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending upon, among other factors, our ownership percentage. For further information please refer to Note 2 to the consolidated financial statements.
Of our Property-Casualty asset base, ABS made up � 4.4 bil lion as of December 31, 2008, which is around 5 % of our asset-base. CDOs accounted for � 0.1 billion of this amount.
1) After group consolidation. For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty segment please refer to Note 19 to the consolidated financial statements.
2) Includes approximately � 1.4 bn reclassification of AGF Group’s health insurance business from the Property-Casualty segment to the Life/Health segment.
Our Life/Health asset base declined by 5.4 % to � 331.2 billion. Equity investments were reduced by � 19.0 billion as the weak market environment led to market-related effects of � 14.4 billion and � 4.5 billion of equity securities were disposed of. Furthermore, assets for unit-linked contracts declined by � 15.6 billion of which � 15.3 billion were attributable to market effects.
Within our Life/Health asset base, ABS amounted to � 15.3 billion as of December 31, 2008, which is less than 5 % of total Life/Health assets. Of these, � 0.3 billion are CDOs.
Unrealized losses on CDOs of � 10 million were recorded in our shareholders’ equity. Subprime exposures within CDOs were negligible.
Banking loans and advances to banks and customers in � bn
In our continuing Banking operations, loans and advances to banks and customers amounted to � 13.9 billion.
� 4.2 billion, savings deposits for � 1.6 billion and repurchase agreements for � 1.3 billion.
Dresdner Bank’s loans and advances to banks and customers in � bn
� 78.5 billion, repurchase agreements for � 24.3 billion, term deposits and certificates of deposit for � 45.9 bil lion, collaterals received from securities lending transactions for � 5.9 billion and savings deposits for � 3.4 billion.
Group may in some instances have a financial interest in such financing structures. However, the risk of financial loss may be mitigated through participations in such losses by other third-party investors.
1) Includes loan loss allowance of � (1.9) bn as of December 31, 2008.
Group receives fee and commission income from investors for the management of these SPEs.
named “K2” which was consolidated on March 18, 2008) are presented as part of the disposal group held-for-sale and discontinued operations.
The conclusion to consolidate was primarily based on the fact that the Allianz Group has the majority of the benefits and retains the majority of the risks. Compared to the prior year, the set-up of an SPE led to consolidation. Total assets of the consolidated SPE as of December 31, 2008, for continuing operations of the Allianz Group amounted to � 734 million. The amount of consolidated assets which represent collateral for the SPE’s obligations are � 734 million, and the creditor’s recourse to the Allianz Group assets is � 0. Consolidated assets include loans to corporate customers and cash.
Total assets of consolidated SPEs that formed part of the disposal group classified as held-for-sale and discontinued operations amounted to � 33,306 million as of December 31, 2008. These SPEs were transferred to Commerzbank in connection with the sale of Dresdner Bank and accordingly have been deconsolidated from Allianz Group’s consolidated financial statements. Allianz Group will only continue to be involved with one SPE that was transferred to
Group did not provide any financial or other support to the
December 31, 2008. A significant beneficial interest is considered to be either an investment greater than � 100 million in an SPE, or a smaller investment in an SPE that leads to expected losses greater than � 5 million. The non-consolidated SPEs are aggregated based on principal business activity, as reflected in the first column. The nature of the 1) For further information please refer to Note 46 to our consolidated financial statements.
Allianz Group’s interest in these SPEs can take different forms, as described in the second column.
Investment funds Guarantee obligations 1,202 — 1,160 Investment funds Investment manager and/or equity holder
Allianz Group has various types of interests in certain nonconsolidated SPEs including equity interests, fund investment interests and loans. For certain mutual funds, Allianz
Allianz Group’s maximum exposure to loss comprises the total amount of investment, including note positions, or guarantee notionals. It describes a worst case scenario without considering the asset rating, available collateral, other types of protection or hedging activities that can and do significantly reduce the economic exposure of these SPEs to the Allianz Group. The maximum exposure to loss for investment funds related to guarantee obligations includes capital maintenance guarantees that are summarized with a maturity of less than one year. The maximum exposure to loss for investment funds related to investment manager and/or equity holder comprise loans with a maturity of more than five years. For all other SPEs, the maximum exposure to loss consists of equity of � 12 million and loans of
In addition to the SPEs that are part of continuing operations, Allianz Group through its subsidiary Dresdner Bank held significant beneficial interests in SPEs. These nonconsolidated SPEs that formed part of discontinued operations included ABS transactions, special investment vehicles, investment and hedge funds. Total assets of these non-consolidated SPEs that formed part of discontinued operations amounted to � 11,871 million as of December 31, 2008. With the completion of the sale of Dresdner Bank to
Our liquidity resources result predominantly from the operations of our Property-Casualty, Life/Health, Banking and
Allianz executes external debt financing and other corporate financing purposes primarily through two finance companies: Allianz Finance B.V. and Allianz Finance II B.V., both incorporated in the Netherlands.
Total certificated liabilities outstanding 9,544 42,070 thereof: due within one year 2) 5,191 28,523 Total participation certificates and subordinated liabilities outstanding 9,346 14,824 thereof: due within one year 3) – 1,476
In December 2003, Allianz SE (then Allianz AG) implemented a Medium Term Note (MTN) program which was established for the purposes of external and internal debt issuance.
and Allianz Finance II B.V. for the years ended December 31, 2008 and 2007 was � 1.5 billion and � 0.3 billion, respectively.
2) Please refer to Note 23 to our consolidated financial statements for further information. 3) Please refer to Note 24 to our consolidated financial statements for further information. Additionally, see Note 43 to our consolidated financial statements for information regarding how we use certain derivatives to hedge our exposure to interest rate and foreign currency risk related to certificated and subordinated liabilities.
– Allianz Group is well capitalized. – Net cash flow provided by operating activities amounted to � 25.3 billion in 2008.
At the final maturity date of February 18, 2008, the Allianz
Group redeemed the remaining 35.65 % of the BITES indexlinked bond with Munich Re shares.
On June 10, 2008, Allianz SE issued USD 2.0 billion of subordinated perpetual bonds with a coupon rate of 8.375 %.
Maturity structure of Allianz SE’s certificated liabilities and subordinated bonds as of December 31, 2008 2)
Floating coupon rate bond issued by Allianz Finance II B.V., Amsterdam Volume USD 0.4 bn Year of issue 2007 Maturity date 4/2/2009
Interest expense � 9.8 mn 5.625 % bond issued by Allianz Finance II B.V., Amsterdam Volume � 0.9 bn Year of issue 2002 Maturity date 11/29/2012
Interest expense � 61.6 mn Total interest expense for senior bonds � 185.7 mn 2. Subordinated bonds 2)
Interest expense � 66.0 mn 7.25 % bond issued by Allianz Finance II B. V., Amsterdam Volume USD 0.5 bn Year of issue 2002 Maturity date Perpetual Bond
Interest expense � 71.1 mn Total interest expense for subordinated bonds � 470.5 mn 3. Participation certificates Allianz SE participation certificate Volume � 85.1 mn
Interest expense � 19.9 mn 0.75 % Basket Index Tracking Equity Linked Securities (BITES) issued by Allianz Finance II B.V., Amsterdam Underlying DAX®
2) The terms of the subordinated bonds (except for the two subordinated bonds mentioned in footnote 1 above) do not provide for early termination rights in favor of the bond holder. Interest payments are subject to certain conditions which are linked, inter alia, to our net income, and may have to be deferred. Nevertheless, the terms of the relevant bonds provide for alternative settlement mechanisms which allow us to avoid an interest deferral using cash raised from the issuance of specific newly issued instruments.
Dresdner Bank. Additionally, we recorded lower net inflows from financial assets and liabilities held for trading also driven by Dresdner Bank.
Bank as well as lower outflows from transactions between equity holders (in 2008 mainly Allianz Leben).
Balances with banks payable on demand 7,760 23,848 Balances with central banks 456 6,301 Cash on hand 169 918 Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks 573 270 Cash and cash equivalents of continuing operations 8,958 31,337 Cash and cash equivalents reclassified to assets of disposal groups held-for-sale 30,238 –
As a provider of financial services, we consider risk management to be one of our core competencies. It is therefore an integrated part of our business processes. The key elements of our risk management framework are: – Promotion of a strong risk management culture supported by a robust risk governance structure.
– Integrated risk capital framework consistently applied across the Group to protect our capital base and to support effective capital management.
– Monitors solvency and risk profile – Defines risk standards and Group and operating entity limits – Recommends/approves actions to mitigate risks
The Board of Management of Allianz SE formulates business objectives and allocates capital resources across the Allianz
The Group Risk department (“Group Risk”), which reports to the Chief Financial Officer, develops methods and processes for identifying, assessing and monitoring risks across the
Group Legal Services seek to mitigate legal risks with support from other departments. Legal risks include legislative changes, major litigation and disputes, regulatory proceedings and contractual clauses that are unclear or construed differently by the courts. The Allianz Group’s objective is to ensure that developments in laws and regulations are observed, to react appropriately to all impending legislative changes or new court rulings, to attend to legal disputes and litigation, and to provide legally appropriate solutions for transactions and business processes.
Group’s risk profile. Furthermore, Allianz is an active member of the CRO Forum Emerging Risk Initiative that continuously monitors the industry-wide risk landscape and raises awareness of major risks which are relevant for the insurance industry. This initiative promotes stakeholder dialogue and also proposes best practice monitoring and management approaches via regular publications on specific topics.
The Allianz Climate Core Group is a panel of internal experts that specifically examines the possible effects of climate change on our business, developing risk management strategies and identifying potential opportunities resulting from climate change.
We define internal risk capital as the capital required to protect against unexpected, extreme economic losses. We aggregate internal risk capital consistently across all business segments (Property-Casualty, Life/Health, Banking,
We use an internal risk capital model based on a Value-at-
To calculate internal risk capital using the VaR approach at the Allianz Group level, we assume a confidence level of 99.97 % and a holding period of one year, which is assumed to be equivalent to an “AA” rating of Standard & Poor’s. We apply a holding period of one year because it is generally assumed that it may take up to one year to identify a counterparty to whom to transfer the liabilities in our portfolio.
This capital requirement is sufficient to cover a loss in any one year equivalent to a 3-in-10,000 year event. Although our internal risk capital is based on extreme events, it nonetheless aims to provide adequate indications to manage the risks resulting from reasonably possible smaller adverse events that we might identify in the near-term, because the results allow us to analyze separately and in aggregate our exposure to each source of risk.
Our internal risk capital model considers both concentration and correlation when aggregating results on the Allianz
For example, the greatest diversification is in general obtained in a balanced portfolio without any disproportionately large exposures to any one or more risks. In addition, the diversification effect depends upon the relationship between sources of risks. The degree of relationship between two sources of risk is referred to as correlation, characterized by a value between “–1” and “+1”. Where possible, we develop correlation parameters for each pair of risks through statistical analysis of historical data. If only insufficient historical data is available, we use conservative professional judgment, ruling out negative correlations, and, in general, we set the correlation parameters to represent the level of interdependency of risks under adverse conditions.
Our internal risk capital model takes into account the following sources of risk, classified as risk categories per segment: Our internal risk capital model covers: – Substantially all of our major insurance and banking operations.
– Substantially all of our derivatives (options, swaps and futures), in particular if they form part of the operating entity ’s regular business model (e.g., at Allianz Life Insurance
Actuarial risk: – premium CAT – premium non-CAT – reserve – biometric
Unexpected financial losses due to the inadequacy of premiums for catastrophe and non-catastrophe risks, due to the inadequacy of reserves or due to the unpredictability of mortality or longevity
Cost risks, as well as operational risks which represent the risk of a loss resulting from inadequate or failed internal processes, or from personnel and systems, or from external events
Group insurance entities and, therefore, do not result in significant market and credit risk for the Asset Management segment. As a result, the internal risk capital requirements for the Asset Management segment only reflect business risk. However, the evaluation of market risk and credit risk on the account of third parties is an integral part of the risk management process of our local operating entities.
Applying an approach based on risk weighted assets, and following the sale of our former banking subsidiary, Dresdner
“worst case” amount in economic value that we might lose at a certain level of confidence. However, there is a statistically low probability of 0.03 % that actual losses could exceed this threshold.
Overall, we believe that our model adequately assesses the risks to which we are exposed.
As our internal risk capital model considers the change in economic fair value of our assets and liabilities, it is crucial to accurately estimate the fair market value of each item.
For some assets and liabilities, it has become increasingly difficult in today’s financial markets, if not impossible, to obtain either a current market price or to apply a mark-tomarket approach. For certain assets and liabilities, where a current market price for that instrument or similar instruments is not available, we apply a mark-to-model approach.
For some of our liabilities, the accuracy of fair values depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed.
Group. Internal risk capital is a key parameter of our EVA®approach.
Our objective is to maintain available capital at the Group level in excess of the minimum requirements that are determined by our internal risk capital model according to a solvency probability of 99.97 % over a holding period of one year. In support of this objective, we require each of our local operating entities to hold available capital resources allowing them to remain solvent at a lower confidence level of 99.93 % over the same one-year holding period. This approach is designed to ensure a consistent capital standard across the Group that helps mitigate potential constraints of capital fungibility - i.e., by requiring our local operating entities to hold such levels of capital resources, the Group is less likely to be required to allocate capital to a local operating entity that may have incurred a loss, and accordingly the Group is less likely to encounter constraints inherent in moving capital across the many different jurisdictions in which the Group conducts business. In addition, we take into account the benefits of a single operating entity being part of a larger, diversified Group.
�42.5 billion (2007: � 63.8 billion), while our corresponding internal risk capital at December 31, 2008 amounted to 1) Available capital and internal risk capital as of December 31, 2008 including discontinued operations were adjusted to reflect the pro-forma view. For example, we removed hybrid capital and the pension deficit related to Dresdner Bank from available capital, deleted internal risk capital requirements of our discontinued operations and included those related to the shares and the silent participation in Commerzbank.
Including discontinued operations, the Allianz Group-wide internal risk capital after Group diversification and before minority interests of � 32.9 billion at December 31, 2008 reflects a realized diversification benefit on the Group level of approximately 56 %. Non-diversified and Group diversified internal risk capital are broken down as follows: Allocated internal risk capital by risk category
Taking into account discontinued operations as of December 31, 2008, total internal risk capital is still at a comparable level as at December 31, 2007 due to offsetting effects across the different risk categories (e.g., interest rate risk increased while equity risk decreased). The discontinued operations contributed 12 % to total internal risk capital as of December 31, 2008. More detailed discussions of movements are provided in the sections specifically related to the risk categories.
German law. The law requires that a financial conglomerate calculates the capital needed to meet its solvency requirements on a consolidated basis, which we refer to below as
Based on pro-forma calculations assuming the completion of the Dresdner Bank transaction prior to year end of 20081), our available funds for the solvency margin, required for our insurance segments and our banking and asset management business, is � 32.7 billion (2007: � 46.5 billion) at
December 31, 2008 including off-balance sheet reserves 2), surpassing the minimum legally stipulated level by � 12.4 billion (2007: � 17.6 billion). This margin results in a preliminary pro-forma cover ratio3) of 161 % at December 31, 2008 (2007: 161 %)4). The decrease of 30 % in available funds was primarily driven by a decrease in shareholders’ equity.
Rating agencies apply their own models to evaluate the relationship between the required risk capital of a company and its available capital resources. Assessing capital adequacy is usually an integral part of the rating process. At
A. M. Best as “A+” (stable outlook), and by Moody’s as “Aa3”
1) Available funds and requirement as of December 31, 2008 including discontinued operations were adjusted to reflect the pro-forma view. For example, we removed hybrid capital related to Dresdner Bank from available funds and adjusted the deduction of goodwill and other intangible assets. Furthermore, we deleted the requirement of our discontinued operations.
2) Off-balance sheet reserves represent the difference between fair value and amortized cost of real estate held for investment and investments in associates and joint ventures, net of deferred taxes, policyholders’ participation and minority interests.
Standard & Poor’s determines a separate rating for “Enterprise Risk Management” (ERM). As of September 2008,
Standard & Poor’s has assigned Allianz a “Strong” rating for the ERM capabilities of our insurance operations. This rating indicates that Standard & Poor’s regards it “unlikely that
We also apply regular stress tests on a local operating entity level in order to monitor capital requirements imposed by local regulators and rating agencies.
For example, stress test results on a Group level indicated that a 10 % price decline in our available-for-sale equity securities as of December 31, 2008 would have resulted in a
� 1.7 billion decline in shareholders’ equity before minority interests. An increase in the interest rate by 100 basis points would have decreased shareholders’ equity before minority interests by � 3.5 billion, if available-for-sale fixed income securities are taken into account as of December 31, 2008.
As we are an integrated financial service provider offering a variety of products across different business segments and geographic regions, diversification is key to our business model. Diversification helps us to manage our risks efficiently by limiting the economic impact of any single event and by contributing to relatively stable results and risk profile in general. As discussed above, the degree to which the diversification effect can be realized depends not only on the correlation between risks but also on the level of relative concentration of those risks. Therefore, our aim is to maintain a balanced risk profile without any one or more disproportionately large risks.
Disproportionately large risks that might accumulate and have the potential to produce substantial losses (e.g., natural catastrophes or credit events) are closely monitored on a standalone basis (i.e., before the diversification effect) and are subject to a global limit framework. For example, the
Management Board of Allianz SE has implemented a framework of natural catastrophe limits at both the operating entity and Group levels in an effort to reduce potential earnings volatility and restrict potential losses from events having an occurrence probability of once in 250 years. Group limits are linked to the planned operating profit and the limits on operating entity level are based on the Property-
Similarly, the Group monitors and limits credit exposures to single obligors and groups using its overall limit-setting framework to ensure that Allianz Group’s credit and counterparty risk profile is appropriately controlled. As a fundamental principle underlying the limit system, several risk criteria of a counterparty have to be taken into account: financial statements, creditworthiness, country and industry assignment, the current Allianz Group’s portfolio composition and the concentration a particular counterparty introduces within the portfolio. Counterparty limits serve not only to restrict the exposure, but also to identify open investment opportunities for the operating entities while at the same time taking into consideration the current portfolio structure at the Group level.
In general, we identify and measure risk concentrations in terms of non-diversified internal risk capital in line with the risk categories covered in our internal risk capital model. In the subsequent sections all risks are presented before and after diversification and concentrations of single sources of risk are discussed accordingly.
Internal equity risk capital decreased in the aggregate mainly driven by the worldwide market drop in 2008 and an active reduction of exposure throughout the year. In our insurance segments, parts of the equity exposure were reinvested in fixed income resulting in an increase in internal interest rate risk capital. Furthermore, the drop in interest 1) 2008 figures exclude discontinued operations. On a total Group basis, internal market risk capital would amount to � 26,043 million on a non-diversified basis and � 14,009 million on a Group diversified basis, if discontinued operations were taken into account.
2) 2007 figures include discontinued operations. 3) Foreign currency risks are mainly allocated to the Corporate segment (please refer to
Group Management Report Allianz Group Annual Report 2008 rates across the world raised internal interest rate risk capital as well, in particular in our Life/Health segment which suffered from diminishing “buffers” (e.g., a decrease in unrealized gains in equity investments) that would otherwise help mitigate the impact of adverse developments. In this segment, internal risk capital additionally increased significantly due to the model change for which more details are provided in the following section.
Corporate segment was also due to the market developmodel provides management with information regarding the cash flow profiles of the segments’ liabilities, which allows for active monitoring and management of our assets and liabilities. While the potential payments related to our liabilities in the Property-Casualty segment are typically shorter in maturity than the financial assets backing them, the opposite usually holds true for our Life/Health segment, which provides us with a natural hedge at the Allianz Group level.
We have allocated a significant part of the Life/Health segment ’s non-diversified internal risk capital for interest rate risk to Western Europe (74 % as of December 31, 2008), mainly to cover traditional life insurance products. Traditional products sold in Western Europe generally feature policyholder participation in the profits (or losses) of the insurance company issuing the contract, subject to a minimum guaranteed crediting rate. In particular, our Life/
Average, high and low allocated internal market risk capital by source of risk (total portfolio before minority interests, after
The Allianz Group holds and uses many different financial instruments in managing its businesses. Grouped according to our internal risk capital model categories, the following are the most significant market risks in terms of market values: equity price risk (including risks arising from common shares and preferred shares) and interest rate risk
The Allianz Group’s insurance operating entities hold equity investments usually to diversify their portfolios. 66 %
Property-Casualty and Life/Health segments for equity risk is assigned to our operating entities in Germany, Italy,
Life/Health segments are exposed arises from the net position between our insurance liabilities and the investments in fixed income instruments, in particular bonds, loans and mortgages, backing policyholder obligations that are different in terms of maturity and size. Our internal risk capital
an ag em en t R ep or t mum rates for individual contracts (e.g., in Germany,
France, U.S., Italy and South Korea). As interest rates may fall below the guaranteed crediting rates in those markets, we are exposed to interest rate risk. The valuation of these guarantees, which takes into account the interaction of investment strategy and obligations to policyholders, forms an integral part of our internal risk capital model.
In 2008, we enhanced our internal risk capital model for the purpose of quarterly risk reporting and risk related-performance measurement (EVA®) in the Life/Health segment.
The enhanced model is part of an integrated approach and is more closely linked to the calculation of Market Consistent
Embedded Value (“MCEV”), which, on an economic basis, is considered the shareholders’ future profit embedded in the issued Life/Health business. This model, applied from January 1, 2008, increased 2007 Group diversified internal risk capital for the Life/Health segment by approximately a third.
Following the sale of Dresdner Bank, we do not consider market risk related to our continuing Banking operations to be significant at the Group level.
models, sensitivity analyses and stress tests that estimate the potential loss under extreme market conditions. All underlying models are regularly reviewed by the risk departments of the respective local operating entities.
The primary Corporate risks are interest rate, equity and foreign currency risks. The Corporate segment manages the equity investments of Allianz SE and its finance subsidiary holding companies, as well as securities issued to fund the capital requirements of the Allianz Group. The issued securities include structured products that might be partly repaid with equity participation securities held in our asset portfolio.
Some of the securities issued qualify as eligible capital for existing regulatory solvency requirements to the extent they constitute subordinated debt or are perpetual in nature.
local currencies are different from the Euro. If non-Euro foreign exchange rates decline against the Euro, from a
Group perspective, the Euro equivalent net asset values also decline. Our primary exposures to foreign currency risk are related to the U.S. Dollar, Swiss Franc, British Pound and
Our internal credit risk capital increased in 2008 mainly due to rating downgrades of some of our counterparties following the financial turmoil throughout 2008. The high credit quality of our investment and reinsurance portfolio mitigated the impact that the broad credit deterioration had on
1) 2008 figures exclude discontinued operations. On a total Group basis, internal credit risk capital would amount to � 9,353 million on a non-diversified basis and � 6,614 million on a Group diversified basis, if discontinued operations were taken into account.
2) 2007 figures include discontinued operations. 3) The premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model is also covered here, as this type of risk is a special form of credit risk. 4) The internal risk capital requirements for the Asset Management segment only reflect business risk (please refer to “Internal Risk Capital Framework – Scope” for further information).
In the Property-Casualty and Life/Health segments, credit risks arising from reinsurance counterparties are considered separately from issuer and counterparty risks arising from our investment activities, though the same methodology is applied. For the Corporate segment, our internal risk capital model covers only investment credit risk, as reinsurance activities are generally allocated to the Property-
This risk category also covers the premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model, as this type of risk is a special form of credit risk. As of December 31, 2008, it represented 64 % of our total
As of December 31, 2008, 9 % of our total Group non-diversified internal risk capital allocated to credit reinsurance risk was assigned to our operating entities in the U.S.
Reinsurance recoverables by rating class 1) as of in � bn
Life/Health segment. In the Banking and Asset Management segments, actuarial risks are not relevant. Although the
Corporate segment provides some guarantees that transfer small parts of the actuarial risk away from local entities, such risk is primarily transferred by internal reinsurance and allocated to the Property-Casualty segment.
Percentage of total 1) As risks are measured by an integrated approach on an economic basis, internal risk capital takes reinsurance effects into account.
2) 2008 figures exclude discontinued operations. On a total Group basis, internal actuarial risk capital would amount to � 22,533 million on a non-diversified basis and � 6,614 million on a Group diversified basis, if discontinued operations were taken into account. Although our discontinued operations are not exposed to actuarial risks, they have an impact on Group diversified internal risk capital due to diversification effects. The discontinuation of certain banking operations results in less diversified insurance operations.
3) 2007 figures include discontinued operations. 4) Allianz SE has a conditional commitment to make capital payments to its U.S. subsidiary,
� mn � mn � mn � mn � mn � mn of potential losses. Where such models do not exist
Reserve risk represents the risk of losses emerging on claims provisions over a one-year time horizon. We measure and manage reserve risks by constantly monitoring the development of the provisions for insurance claims and change the provision for reserves in line with actuarial standards if necessary. We use approaches that are similar to the methods used for setting the reserves.
As previously discussed, we determine internal risk capital figures on a quarterly basis. The table below presents the average internal risk capital calculated for actuarial risks over the four quarters of 2008 and 2007, as well as the high and low quarterly internal risk capital amounts calculated in both years. All figures include discontinued operations.
A substantial portion of the Property-Casualty segment’s non-diversified internal actuarial risk capital is assigned to our operating entities in Germany, Italy, France and the U.S.
Premium risk represents risk that, during a one-year time horizon, underwriting profitability is less than expected.
(such as the geographic distribution and characteristics of insured objects and their values), with simulated natural disaster scenarios to estimate the magnitude and frequency
As discussed, because substantially all of the investments managed by the Asset Management segment are held for the benefit of either third parties or Allianz insurance entities, we are not exposed to significant market and credit risk in the Asset Management segment. As a result, the internal risk capital requirements for the Asset Management segment only reflect business risk.4)
2) 2007 figures include discontinued operations. 3) The internal risk capital requirements for the Asset Management segment only reflect business risk (please see “Internal Risk Capital Framework – Scope” for further information).
4) Internal risk capital for guarantees in the Asset Management segment are not significant.
We consider mortality and longevity risks which can cause variability in policyholder benefits resulting from the unpredictability of the (non-)incidence of death and the timing of its occurrence. For modeling these risks within our internal risk capital model, we distinguish level, trend and calamity risk. Biometric assumptions, such as life expectancy, play a significant role. To the extent available, we use assumptions approved by supervisory authorities and actuarial associations to enhance our models.
Operational risks represent the loss resulting from inadequate or failed internal processes, or from personnel and systems, or from external events, such as interruption of business operations due to a break-down of electricity or a flood, damage caused by employee fraud or the losses caused by court cases. Operational risks include legal risk, whereas strategic risk and reputational risks are excluded in accordance with the requirements of Solvency II and
an ag em en t R ep or t assessment. Furthermore, operational losses are collected in a central loss database. From the middle of 2008, the data collection has been extended to all our operating entities.
An analysis of the causes for significant losses is used to enable the operating entities to implement measures to avoid or reduce future losses. The measures adopted may include revising processes, improving failed or inappropriate controls, installing comprehensive security systems and strengthening emergency plans. This structured reporting is designed to provide comprehensive and timely information to senior management of the Allianz Group and the relevant local operating entities.
On the Group level, liquidity risks arise mainly from capital requirements of subsidiaries and necessary refinancing of expiring strategic financial liabilities. The liquidity position of Allianz SE is monitored on a daily basis and reported to the Board of Management regularly. The main tools to limit unforeseen liquidity requirements are committed credit lines from banks, commercial paper facilities, mediumterm debt issuance programs, access to the market of sale and repurchase agreements (the so-called “Repo market”)
as well as internal resources in the form of intra-Group loans and an international cash pooling infrastructure.
Our insurance operating entities manage liquidity risk locally, using local asset-liability management systems designed to ensure that assets and liabilities are adequately matched. To the extent available, the approaches used to project the liability cash flows for the Property-Casualty segment are similar to the methods used for setting reserves.
The quality of our investments also provides comfort that we can meet high liquidity requirements in unlikely events.
Furthermore, in the case of an extraordinary event, a portion of the applicable payments may usually be made with a certain time lag, which reduces the risk that short-term current payment obligations cannot be met. We employ actuarial methods for estimating our liabilities arising from insurance contracts. In the course of standard liquidity planning we reconcile the cash flows from our investment portfolio with the estimated liability cash flows. These analyses are performed on the operating entity level and aggregated at the Group level. Excess liquidity is centrally pooled on the Group level and can be transferred to single operating entities if necessary.
Due to the small size of risk weighted assets and total assets
(as of December 31, 2008, � 7.4 billion and � 19.8 billion, respectively), liquidity risk related to our continuing Banking operations is not significant at the Group level.
Our operating entities identify and assess reputational risks within their business processes. In addition, Group Risk identifies and assesses reputational risk qualitatively as part of a quarterly evaluation. On the basis of this evaluation,
These risks are evaluated and analyzed quarterly in the same way as reputational risk.
Solvency II is a major European project and is expected to lead to significant changes to the European insurance solvency requirements in the coming years; the Allianz Group is actively participating in the process. We are continuously providing feedback on the proposals and analyses of the
Risk Officers of the major European insurance companies and financial conglomerates. It is our aim to have our internal risk capital model and our risk management practices comply with the forthcoming internal model supervisory requirements at an early stage. Accordingly, we are constantly reviewing them on the basis of the evolving standards. In order to fulfill future Solvency II requirements,
(iv) ensure that all future qualitative Solvency II requirements will be met.
In addition to the key objectives defined by the Solvency II
umbrella project for all risk types, the credit risk implementation project aims to streamline the existing credit risk data submission process and to develop a new web-based
Credit Risk Reporting Platform for comprehensive and flexible portfolio analyses as well as for a more powerful limitsetting framework including monitoring and management processes. This reporting tool will support all operating entities and the Group in their decisions regarding asset management and strategic portfolio optimization.
As part of the Solvency II umbrella project, a subproject has been launched to roll-out a new operational risk management platform to all operating entities which will automate the operational risk management process, complemented by a refined risk and control self-assessment based on scenarios.
As an integrated and globally operating financial services provider we seek to offer our clients value by providing a wide range of insurance and financial products as well as an extensive advisory capacity through our subsidiaries under strong and well-known brands. We operate and manage our activities primarily through four operating segments: Property-Casualty, Life/Health, Banking and Asset
1) Source: As published by Gesamtverband der deutschen Versicherungswirtschaft e.V. (GDV) in 2008. The GDV is a private association representing the German insurance industry.
Our insurance products are distributed via a broad network of self-employed agents, brokers, banks and other channels.
Increasingly, we distribute our insurance products in cooperation with car manufacturers and dealers in Europe and
Group’s subsidiaries against natural catastrophes, which provides the benefit of internal Group diversification.
Commerzbank AG (Commerzbank)1), we reduced our banking operations which now comprise Allianz Banking Germany as well as our existing banking operations in Italy,
Our business activities in this segment consist of asset management products and services both for third-party investors and for the Allianz Group’s insurance operations.
We serve a comprehensive range of retail and institutional asset management clients. Our institutional customers include corporate and public pension funds, insurance and other financial services companies, governments and charities as well as financial advisors.
(AGI) through our operating companies worldwide. In our institutional asset management business, we operate under the brand names of our investment management entities, with AGI serving as an endorsement brand. With � 673 billion of third-party assets as of December 31, 2008, AGI managed 95.7 % (2007: 94.8 %) of our total third-party assets on a worldwide basis.
2) Including the banking customers introduced to Dresdner Bank through the tied agent network 3) Based on total assets under management as of December 31, 2008.
Allianz Finanz Management. Furthermore, effective January 12, 2009, we acquired cominvest, the former asset management division of Commerzbank AG, which will add approximately � 60 billion assets under management, predominantly domiciled in Germany, to our third-party assets under management.
Our distribution channels vary by product and geographic market. In Europe and in the United States, AGI markets and services its institutional products through specialized operations and personnel. Retail products in Europe are mostly distributed through proprietary Allianz Group channels. In the United States, AGI’s local asset management operating entities also offer a wide range of retail products. In addition we have committed substantial resources to the expansion of the third-party asset management business in the Asia-
Our Corporate segment’s activities include the management and support of Allianz Group’s businesses through its strategy, risk, corporate finance, treasury, financial control, communication, legal, human resources and technology functions. The Corporate segment also includes the Group’s alternative investment activities coordinated by Allianz
The goal of our value-based management approach is to sustainably meet our shareholders’ return expectations over the long run. Furthermore, we want shareholders, employees, customers and other stakeholders to profit from the value our company creates.
EVA® involves profit compared to cost of capital, representing the return an investor can expect from an alternative 1) EVA® is a registered trademark of Stern Stewart & Co.
an ag em en t R ep or t investment with comparable risk. EVA® – whether positive or negative – is the difference between profit and the cost of capital. A positive EVA® means that an added value has been achieved and a negative EVA® indicates that a shareholder would have received a greater return from another risk equivalent investment than from Allianz SE shares.
To get the normalized profit we smooth the impact of equity market fluctuations by basing our calculations on “normalized ” long-term average returns.
It is our role to ensure that the sum of our risks is affordable for the Group and that the achieved return justifies the amount of capital employed. Therefore we assign available capital to our operating entities based on their risk-return profile and their strategic position. Using this process, our companies can only ensure that they receive growth capital if they: – operate in a profitable market or business; – transform their market position into sustainable creation of value and a leading market position; 1) For detailed information on the determination of our internal risk capital please refer to pages 89 to 92 of our risk report.
– maintain an orientation and competency that fits within the long-term strategy of the Allianz Group; and
Therefore, our companies must determine what business activities will increase their value and concentrate their efforts and resources on these activities. Further, new value drivers must be created, for example, through new products, more cost-effective processes and optimized distribution channels. Local management must also prevent value being destroyed along the complete value chain. If value diminishes, countermeasures must be implemented immediately.
We have in place a Sustainability Program for our insurance segments as well as for distribution. This program is designed to identify and redefine best practices for products, processes and services to make them common practice throughout the Group’s insurance operations. In an effort to optimize the management of our client segments and sales channels, we analyze the development of proprietary sales channels, brokers and market management.
The Allianz Group is modernizing its entire organization following a shared Target Operating Model (TOM). In order to drive these change processes and to take best practice experience into account, an Operational Transformation
– We appreciate the diversity of our talent base as an asset to be fostered continuously, supporting our diverse customer needs worldwide.
– Our compensation and benefits plans are designed to motivate our employees to successfully implement our strategies and business plans.
Allianz Group is a diverse organization, both from a business and people perspective, offering exciting job and development opportunities. In relevant “Employer of Choice”
Allianz offers dedicated development programs for different job areas, such as actuaries, for newly recruited as well as inhouse talent alike. We have implemented a new online recruiting platform (worldwidejobs@allianz.com) that went live in eight companies across six countries in 2008. As of December 31, 2008, after six months of implementation alone, there were more than 100,000 job views for more than 370 positions posted. Almost 13,000 prospective external candidates registered permanently, in addition to more than 21,000 internal employees.
Our behaviors and actions are guided by a set of mandatory
Leadership Values. Allianz Group annually queries its managers worldwide on the implementation of these values. For this Leadership Survey, almost 4,900 managers from 57
These surveys allow for a continuous and systematic improvement process for our management.
Allianz Management Institute (AMI). AMI is embedded into the management development process, is the key body in helping our executives and experts strengthen their leadership skills, and facilitates learning and best-practice sharing between executives of our organizations. In 2008, the central AMI Group welcomed 479 participants from 38 countries into programs. In addition, managers and employees within our operating units attended programs at local and regional levels. Sales Academies (Allianz
Underwriting Academy are examples of an array of institutionalized training investments in our respective lines of business. They work closely together with the AMI as well as with our functional Centers of Competence and Group
Centers, ensuring that best practices and Group standards are adequately taught and implemented at the working level.
We placed great emphasis on skill training and spent a total of � 147 million (� 159 million) and trained 57 % of our people in 2008.1)
Developing talent is also achieved by international job placements, serving the dual purpose of individual development measures while at the same time helping to fill critical expertise needs locally. In 2008, around 350 employees from 33 countries were officially sent on long term secondments to 65 different units in 36 countries across the globe.
cade goals to create focus and commitment and maintain a high motivation of our people.
In that context, in 2008, we invested in a number of further improvements for our performance management system to support the implementation of our strategy and vision, guided by our leadership values: – Streamlining processes and activities to trim excess bureaucracy.
– Implementing effective new tools to support line management, accelerate organizational learning and cultural change.
– Reviewing standards across the Group to increase consistency while maintaining sufficient flexibility to account for different businesses and markets.
Our Total Reward approach ensures that we look at all elements of reward holistically. Our reward programs are regularly reviewed to ensure their suitability and competitiveness and to effectively support our talent strategy.
Reward Governance mechanisms. This included the introduction of new standards for Compensation Committees to ensure their effective operation as well as the launch of a new global reward framework paving the way to a Groupwide language and more commonality across businesses and regions, as appropriate.
an ag em en t R ep or t promote share ownership amongst employees and to increase their financial awareness as well as interest in the company’s performance. Around 125,000 employees in 24 countries were eligible to participate in the ESPP. Despite highly volatile stock markets at the time of the offer, around 22,000 employees decided to accept the offer. Allianz employees in total represent 1.35 % of our shareholders and own 11.9 % of Allianz shares.
Recognizing the demographic challenge, Allianz offers a number of flexible benefit solutions, particularly deferred compensation schemes, to help employees enhance their retirement income. Numerous such programs are offered in various countries. Equally, Allianz offers flexible work schemes, medical care for employees’ families, childcare and permanent sports facilities in a number of locations.
For legal, market and cultural reasons, our selection of employee benefits is determined locally as part of the total reward offered.
Total payments made by the Group to its employees worldwide in 2008 amounted to � 9.21) billion (� 9.7 billion). Of this figure, � 1.6 billion or 17 % was solely performancerelated. Social security contributions, pensions and other additional employee benefits amounted to � 2.5 billion
sessions in 2008. Besides the business situation and prospects of Allianz in Europe, the items discussed included cross-border operational strategy, cross-border activities in
The constructive dialogue with the SE Works Council has helped us to build a good mutual understanding of the challenges ahead and ensures a productive cooperation between management and employee representatives at
– Allianz Slovenská poist´ovna winning the silver medal in the Best Employer in Slovakia 2008 competition.
– ADAG (Allianz Germany) has been ranked in the ‘top employer ’ as well as the ‘top employer for apprentices’ (Top
Ausbildungsbetrieb) categories by Trendence, a leader in the employer rating market.
One of its tasks is to work with the business and holding units to strengthen the area of sustainable development and make it a regular component of our business activities.
We also promote sustainable business development by encouraging our employees to make social commitments.
Fund and Allianz Life also ask their employees to lend support to these social projects financially and by volunteering.
We are also initiating cooperative efforts with external partners with the goal of carrying out joint studies on global challenges and of developing innovative financial solutions.
(WWF) and with CARE; the results of these efforts can be seen at www.knowledge.allianz.com.
Together with the WWF, we are investigating the effects of climate change, which represents a serious business risk and will have far-reaching consequences for people, nature and economic development. This is already clear from the fact that weather-related damage has increased by a factor of 15 in the last 30 years. Among other things, we are working with the WWF to analyze the effects of global warming and climate policy on individual industries.
European wind farms for Allianz alone. The company is developing more product concepts that are, for example, expected to help moderate the effects of climate change through improved energy efficiency. We are also working on
an ag em en t R ep or t solutions to problems in the global trade in emissions rights. In the U.S., we now offer a discounted rate for insurance on LEED-certified properties (LEED: Leadership in
Energy and Environmental Design) and in Germany we sell a car insurance policy with ECOmotion that guarantees
emissions of Allianz by 20% from their 2006 levels by the year 2012.
Birth rates are falling and life expectancy is increasing almost everywhere in the world; this is leading to enormous changes in society’s age structure. By 2020, more than a billion people will be over 60 years old – twice as many as today. These changes are already pushing social security systems to their limits. People are worried about financing their retirement and are looking at solutions that involve the use of their own capital. Allianz has been active in this area for decades and has international experience in innovative pension products. In 2008, we created the unit Global
More than two billion people live in extreme poverty and with no social protection. Micro-insurance policies, some of which cost less than one euro a year, can now provide financial support to these people in the event of death, illness or material loss. We have been selling micro-insurance policies in India since 2003, a country where nearly a billion people, 80% of the population, lives on less than two U.S.dollars per day. Together with the aid organization CARE
Bajaj, we now sell life, property, injury, credit and health micro-insurance. We now have about 1.4 million microinsurance customers in India. We have an additional 200,000 customers for these products in Indonesia and in
We were also honored for our efforts in the areas of corporate responsibility and sustainability in 2008. Our stock was included in the Dow Jones Sustainability Index for the eighth time in a row; we have been the largest cedent in the index since 2006. We received national awards such as the
As an integrated financial services provider we offer insurance, banking and asset management products and services to approximately 75 million customers in about 70 countries. With respect to our insurance business, Allianz is the market leader in Germany and has a strong international presence.
October 2008 the companies operate under the names Allianz Sigorta AŞ and Allianz Hayat ve Emeklilik AŞ.
– Allianz announced strategic partnership with HSBC at the Annual General Meeting
– Euler Hermes started operations in Qatar, Oman and Kuwait through fronting agreements with local insurers.
– Allianz launched variable annuities in Europe and introduced the latest innovation “Invest4Life”
Fund Insurance Company under the umbrella of AGCS to form the largest marine insurer in the world based on gross premiums.
(Allianz Private Kranken). In addition, Allianz Beratungsund Vertriebs-AG serves as a distribution company. All entities are organized under the umbrella of the holding company Allianz Deutschland AG. At the end of 2008, Allianz
2) Source: Based on preliminary data provided by German Insurance Association, GDV
German Speaking Countries For life insurance, Allianz Leben is market leader based on statutory premiums in 2008 2). In addition to Allianz Leben, we operate through a variety of smaller operating entities in the German market. We are active both in the private and commercial markets and offer a comprehensive range of life insurance and related products on both an individual and a group basis. The main classes of coverage offered include annuity, endowment and term insurance. In our commercial lines, we offer group life insurance and provide companies with services and solutions in connection with pension arrangements and defined contribution plans.
In 2008 we introduced a new variable annuities product. For our life business, we anticipate strong growth opportunities as we see an increasing demand for private retirement products and retirement provisions in general.
On the other hand, we believe that supplementary insurance will further increase, despite ongoing competition from statutory health insurers which have been allowed to offer special supplementary insurance (so called “Wahltarif ”) from 2007 onwards.
We offer products not only for all three insurance lines but also with a clear focus on products combining coverage from life, health and property-casualty insurance to better serve customer needs. Sales of these combined products grew in 2008. In order to strengthen our market position, we intend to further develop our customer-focused organization and aim to provide our clients with more integrated products for every stage of their lives.
Suisse ranks fourth in Switzerland 1). In the property-casualty business, the most important line of business is motor, contributing almost 50 % of gross premiums written in 2008.
In 2008 we expanded our product portfolio for assistance products. In the very competitive property-casualty business in Switzerland, we will continue to focus on profitable growth. In order to further improve our efficiency and effectiveness, we are currently revising our processes and structure for claims handling and management.
In addition to the traditional sales channels in 2008, we started to distribute our products through the new direct sales channel allianz24.ch and entered into a new retail cooperation with Migros.
1) Source : Statistics of the Swiss Federal Office of Private Insurance (FOPI).
We operate in the Austrian insurance market mainly through our insurance companies Allianz Elementar Versicherungs -AG and Allianz Elementar Lebensversicherungs-
AG. Via these companies we offer a broad range of propertycasualty and life/health products to individual and group customers primarily through salaried sales forces, tied agents and brokers.
In the life/health business, Allianz Elementar Lebensversicherungs -AG represents the sixth largest life insurance provider in Austria based on statutory premiums in 2008 2).
Italian insurance group based on gross premiums written and statutory premiums written in 20072). In addition, we distribute through Genialloyd (a leading company in “direct ” via phone and web), Allianz Bank, with its associated
Financial Advisors network (one of the top 3 in the market)
In life/health as well as in property-casualty, we will seek to deliver further product innovations to our customers.
Eurovida, our joint venture with Banco Popular. Our Portugese company is Allianz Companhia de Seguros.
Since July 2008, we serve our Turkish customer base by our majority-owned entities Allianz Sigorta A.S. and Allianz
We offer a wide variety of property and casualty products, both in retail markets (distributed mainly via agents) and in commercial markets (distributed mainly via brokers). We also provide life and pension solutions to our customers.
In 2008, we introduced a plan in order to reduce costs by rationalizing the structure of the company by 2011.
We serve the African market through thirteen local subsidiaries in nine sub-Saharan countries, including 400 collaborators and partners in bordering countries. With this capacity, we provide insurance and reinsurance coverage.
Euler Hermes provides enterprises with protection against the risk of non-payment of receivables and insolvency.
1) In contrast to our other geographically-focused insurance businesses, we manage and offer the services of Euler Hermes and Mondial Assistance Group on a worldwide basis.
2) Source: Own estimate based on information from International Credit Insurance and Surety Association, ICISA.
Our life and annuity business primarily underwrites fixed, fixed-indexed and variable annuities, which are sold through independent distribution channels, as well as through large financial institutions.
After a year characterized by challenging financial market developments, Allianz Life U.S. will continue to focus on creating and offering products that help our customers address their financial needs, particularly regarding retirement. The company will seek to further grow its annuity products business by expanding distribution with brokerdealers, banks and wire-houses, designing channel-specific products and also reinforcing development of fixed-indexed and variable products.
in order to support operating profitability. We seek to capitalize on growth opportunities that offer a profitable correlation between premium rates and risks and forego premium growth in areas with increasing pricing pressure.
Through Fireman’s Fund, we underwrite personal, commercial and specialty lines, selling these products primarily through independent agents and brokers. Our personal business unit focuses on affluent and high net worth individuals, while our commercial business unit offers specialized property and casualty coverage for small and mediumsized businesses. Our crop unit offers multiperil crop and hail insurance.
Asia-Pacific is generated by Allianz Australia, which serves the Australian and New Zealand markets. Since 2006, Allianz has sold life insurance products in Australia under the company name Allianz Australia Life Insurance Ltd.
compensation market, as well as in rehabilitation and occupational health, safety and environment services. We also operate in certain niche markets, including premium financing and pleasure craft insurance. Allianz Australia markets products through brokers and non-tied agents, as well as directly to customers. In 2008, we began offering term life directly over the internet. Further, we expanded our premium financing business to include receivables financing.
In Australia, market conditions remain competitive as insurance margins have declined in recent years. All insurers have begun reacting to lower profitability and decreasing investment returns, resulting in increasing insurance rates across all classes of business. This pattern is expected to continue into 2009.
In Ireland, we expect private motor and home rates, and to a lesser extent commercial lines, to slowly become more favorable in 2009. Risk volumes in the market, however, could be under pressure if the Irish economic downward movement is severe.
Allianz Global Corporate & Specialty delivers solutions for corporate and specialty clients in many industries.
Specialty, managing a diversified portfolio of risk management solutions and services, we expect to realize synergies and increase efficiency.
Today, Allianz is active in all key markets of the region, offering its core businesses of property and casualty insurance, life and health insurance and asset management. With more than 13,000 staff, Allianz serves over 7.2 million customers in the region.
The majority of our life/health business in this region is conducted in South Korea through Allianz Life Insurance
We are seeking to expand in all of our selected markets in the region through further organic growth and selected acquisitions. We will further strengthen our distribution capabilities and use the hub-and-spoke approach in order to increase operational effectiveness. We view especially
We consider Asia-Pacific to be one of our major growth regions. Allianz has been present in the region since 1917, when we began providing fire and marine insurance in the coastal cities of China.
1) Banking activites are related to Dresdner Bank and will not be continued due to the sale of Dresdner Bank to Commerzbank. Please refer to “Major transactions – Major disposals – Sale of Dresdner Bank AG” for further information.
Our presence in New Europe dates back to the acquisition of the Hungarian state-run insurance company Hungaria
Biztosito in 1989. Today, we operate our business in this region through more than 25 companies in 10 countries, and we are the largest foreign insurer based on both statutory premiums and gross premiums written in 2007 1). We offer life, health, property and casualty insurance, as well as pension fund products and banking services.
For property-casualty we are the leading international insurance company in New Europe based on gross premiums written in 2007 1) and serve the market through our operating subsidiaries in Bulgaria, Croatia, the Czech
The primary products sold in these countries are compulsory motor third-party liability, motor own damage coverage as well as industrial, commercial and private property lines.
We continued to expand our life/health product range and sales capacity throughout New Europe by following a multichannel distribution approach. We also continued to expand offerings of investment-oriented products in life business. In 2008, we also started to offer pension fund products in Romania. New Europe represents one of the fastest growing life insurance markets in the world, primarily resulting from the current low penetration levels. We see a trend in the rising ages of population, which we expect to serve with a strong position in pension fund business. Following the capital market crisis, we expect a shift from investmentoriented to traditional life products.
To elevate our presence in the Middle East region and to set the course for further internal and external growth, we established the Middle East / North Africa (MENA) as our third major growth region. The regional unit comprises
Saudi Arabia and Sri Lanka, and is directed from a central office in Bahrain.
Our Indian joint-ventures contribute more than 90 % to the region’s total gross premiums written. We also sell property -casualty products in this region mainly through Allianz
Egypt and Allianz SNA (Lebanon). Both entities also offer life/health products. Allianz Life Egypt has experienced strong growth for some time and is ranked fourth in the period 2007/2008, based on statutory premiums 1). Allianz
In Bahrain, we started to sell life and property-casualty products through our new entity Allianz Takaful. Bahrain will serve as a hub for future operations in other countries of the Middle East.
The consideration comprised a cash component of � 3,215 million, 163.5 million Commerzbank shares, the asset manager cominvest and a 15-year exclusive sales partnership. On
Like SoFFin, Allianz will receive a 9 % coupon on this investment. In addition, Allianz acquired Collateralized Debt
Obligations (CDOs) with a face value of � 2 billion for a consideration of approximately � 1.1 billion. With SoFFin’s capital support to Commerzbank, Allianz’ stake in Commerzbank will be approximately 14 %. Major financial impacts of the transaction are described in the chapter “Executive
Koç Allianz Sigorta AŞ, Istanbul, and 51.0 % of the shares in the life-insurance and pension company Koç Allianz Hayat ve Emeklilik AŞ, Istanbul, for a total consideration of � 373 million. The transaction became effective on July 21, 2008 so that the Allianz Group now controls 84.2 % and 89.0 % of these companies, respectively. Since October 7, 2008, the companies operate under the name Allianz Sigorta AŞ and
The reorganization of our German insurance operations was successfully completed by year-end 2008 . This process was part of our ongoing effort to simplify structures and reduce complexity within the Allianz Group with the aim to concentrate stronger on our clients’ needs as well as enabling us to react to changes in our markets with greater speed, focus and flexibility. Our goal was to create one joint presence of our insurance operations, with customers perceiving Allianz as one unit with comprehensive high quality
We believe that the reorganization program leads to reduced complexity and will allow us to reduce costs in the long-term.
In the framework of the reorganization, back office functions were lined up based on a shared services approach. This process was already started in 2006 and was implemented in autumn 2008 according to schedule. In the course of 2007, the Allianz north-east service region tested the functionality of the new business model in a pilot phase. In 2008, the remaining three areas were also successfully reorganized.
With effect from January 1, 2009, the newly created Banking division was grouped under the roof of Allianz Deutschland
AG. It is headed by a former member of the Board of Managing Directors of Dresdner Bank. The Banking division comprises the Oldenburgische Landesbank and the banking customers introduced by the Allianz sales force within the last couple of years.
The table set forth below contains aggregate fees billed for each of the last two fiscal years by KPMG AG or KPMG AG
“KPMG”) in the following categories: (i) Audit fees, which comprise fees billed for services rendered for the audit of the Allianz Group’s consolidated financial statements, the statutory audits of the financial statements of Allianz SE
� mn � mn � mn � mn 1) KPMG AG and affiliated entities comprises KPMG operations in Germany, the United Kingdom, Spain and Switzerland. Effective October 1, 2007, KPMG operations in Germany and the United Kingdom became affiliated entities; effective October 1, 2008 and retroactively effective October 1, 2007 operations in Spain and Switzerland joined. Fee amounts pertaining to the year 2007 have been adjusted accordingly.
KPMG billed the Allianz Group an aggregate of � 50.5 million
KPMG billed the Allianz Group an aggregate of � 6.1 million
KPMG billed the Allianz Group an aggregate of � 7.5 million
(2007: � 4.1 million) for other services, which consisted primarily of services under the guidance of Allianz Group management and general consulting services.
All services provided by KPMG to Allianz Group companies must be approved by the Audit Committee of the Allianz SE
Supervisory Board. Services other than audit services must be pre-approved by the Audit Committee. The Audit Committee pre-approval process is based on the use of a “Positive
Group Compliance and KPMG report to the Audit Committee periodically with respect to services performed.
Statements in Accordance with § 315 (4) of the German Commercial Code and Explanations
December 31, 2008. It was divided into 453,050,000 registered shares with no par value and a corresponding share capital amount of � 2.56 per share. The shares are fully paid in. All shares carry the same rights and obligations. Each no-par-value share grants one vote. The shareholders’ share in the Company’s profit is determined in proportion to their share in the share capital (§ 60 German Stock Corporation
Act (Aktiengesetz, AktG)). Excepted from this are treasury shares held by the Company, which do not entitle the Company to any rights (§ 71b German Stock Corporation Act).
Under German stock corporation law in case of registered shares only those persons who appear in the share register are deemed by the company to be shareholders (§ 67 (2)
German Stock Corporation Act). This is particularly important for such things as taking part in general meetings and making use of voting rights. Appearing in the share register also facilitates direct communications with the shareholders. In this way, for instance, all shareholders can be personally invited to attend general meetings.
With the standardization of share transfer processes, the restriction on share transferability does not cause any delay in the registration in the share register and does not impede in any way the quotation of the shares on stock exchanges.
Interests in the share capital exceeding 10 % of the voting rights
that exceed 10 % of the voting rights have not been reported to Allianz SE, nor is it otherwise aware of any such interests.
The members of the Board of Management of Allianz SE are appointed by the Supervisory Board for a maximum term of
42 sentence 2 SE Regulation must be a shareholder representative, is decisive (§ 8 (3) of the Statutes). If the Chairperson does not participate in the vote, the Deputy Chairperson has the casting vote, provided that the Deputy Chairperson is a shareholder representative. A Deputy Chairperson who is an employee representative has no casting vote (§ 8 (3) of the Statutes). These provisions make sure that the shareholder side of the Supervisory Board has the right to finally decide in case of a tie.
The members of the Board of Management may be dismissed by the Supervisory Board if there is an important reason (§ 84 (3) German Stock Corporation Act). If a required member of the Board of Management is absent, in urgent cases the court must appoint the member upon the application of an involved party, by virtue of § 85 of the
German Stock Corporation Act. With respect to the appointment, it is essential to ensure in particular that the members of the Board of Management are suited to managing an insurance company in terms of reliability and professional competence (§§ 121a, 7a German Insurance Supervision
Act (SE-Ausführungsgesetz). This does not apply to a change in the corporate object, relocation of the registered office to another Member State and to cases in which a higher majority is mandatory by law (§ 51 sentence 2 SE
Board of Management is authorized to exclude shareholders ’ subscription rights with the consent of the Supervisory Board for fractional amounts, for safeguarding the rights pertaining to holders of convertible bonds or bonds with warrants, and in the event of a cash capital increase by up to 10 %, if the issue price of the new shares is not significantly less than the stock market price. The Board of
Management is furthermore authorized to exclude shareholders ’ subscription rights with the consent of the Supervisory Board in the event of a capital increase against contributions in kind (§ 2 (3) of the Statutes).
� 250,000,000; this conditional capital increase is only carried out to the extent that conversion or option rights resulting from bonds which Allianz SE or its subsidiaries have issued on the basis of the authorization granted by the General Meeting of February 8, 2006 are exercised, or conversion obligations arising from such bonds are fulfilled (§ 2 (6) of the Statutes).
(§ 71 (1) no. 8 German Stock Corporation Act). On that basis, the Company is authorized, on or before November 20, 2009, to acquire treasury shares; together with other treasury shares that are in the possession of Allianz SE or which are attributable to it under Sections 71a et seq.
– There is also an authorization to acquire treasury shares for the purposes of securities trading (§ 71 (1) no. 7 German Stock Corporation Act) that is valid until November 20, 2009. The trading position in shares acquired for this purpose shall not, at the end of any day, exceed 5 % of the share capital of Allianz SE. The treasury shares acquired, together with other treasury shares, shall at no time exceed 10% of the share capital.
The authorities explained to issue convertible bonds or bonds with warrants, to issue new shares out of authorized capital or to acquire and use treasury shares enables the
Allianz stock as consideration when making acquisitions of participations. Furthermore Allianz stock can be offered to employees of the Allianz Group. The authority to deal in own stock for trading purposes gives credit institutions that are majority owned by Allianz SE the possibility to deal in
Munich Stock Exchange for the last three months prior to termination of the participation certificate relationship, if an enterprise acquires a majority shareholding in Allianz
SE. These rules correspond to usual market practice and protect in an adequate way the interests of holders of participation certificates.
Board of Management contain a change of control clause. If, within 12 months after acquisition of more than 50 % of the share capital by one shareholder or several shareholders
Group Management Report Allianz Group Annual Report 2008 acting in concert (change of control), the appointment as a member of the Board of Management is revoked unilaterally by the Supervisory Board, the mandate is ended by mutual agreement, or the mandate is ended by the Management
The Group Equity Incentive (GEI) scheme also contains provisions in respect of a change of control. Under this scheme, Stock Appreciation Rights (SAR) and Restricted
Group to pay in cash an amount corresponding to the average market price for Allianz shares in the ten trading days preceding the vesting date, or to issue one Allianz share, or other equivalent equity instrument, for each RSU granted.
RSUs vest after a five years’ blocking period and are exercised by the Allianz Group on the first trading day after their vesting date. If a majority of the voting capital in Allianz SE
is acquired, directly or indirectly, by one or more third parties who do not belong to the Allianz Group, the RSUs shall be exercised, pursuant to the general conditions for the
Reconciliation of operating profit on a consolidated basis to the Allianz Group’s income before income taxes and minority interests in earnings
Non-operating realized gains/losses (net) and impairments of investments (net) (640) 2,085 2,667 Non-operating income from financial assets and liabilities carried at fair value through income (net) 47 (35) (134) Interest expenses from external debt (945) (1,051) (775) Non-operating restructuring charges (130) (166) (402) Acquisition-related expenses (245) (506) (532) Amortization of intangible assets (23) (17) (51) Reclassification of tax benefits (24) (60) (429) Income before income taxes and minority interests in earnings 5,473 10,563 9,563
Reconciliation of Consolidated Operating Profit and Income Before Income Taxes and Minority Interests in Earnings
Group’s underlying operating performance and the comparability of its operating performance over time. Operating profit highlights the portion of income before income taxes and minority interests in earnings attributable to the ongoing core operations of the Allianz Group. To better understand the on-going operations of the business, we exclude the effects of acquisition-related expenses and the amortization of intangible assets, as these relate to business combinations; and we exclude interest expense from external debt and non-operating income from financial assets and liabilities carried at fair value through income (net) as these relate to our capital structure.
Similarly, we exclude restructuring charges because the timing of the restructuring charges are largely within our control, and accordingly their exclusion provides additional insight into the operating trends of the underlying business.
Thierry Dr. Zedelius 1) Total revenues comprise Property-Casualty segment’s gross premiums written, Life/ Health segment’s statutory premiums, Banking segment’s operating revenues and Asset Management segment’s operating revenues. Segment growth rates are presented before the elimination of transactions between Allianz Group companies in different segments.
Notes to the Consolidated Financial Statements 142 1 Nature of operations and basis of presentation 142 2 Summary of significant accounting policies 158 3 Recently adopted and issued accounting pronouncements and changes in the presentation of the consolidated financial statements 167 4 Assets and liabilities of disposal groups classified as held for sale and discontinued operations 175 6 Segment reporting
Non-current assets and assets of disposal groups classified as held for sale 4, 14 419,513 3,503
Financial liabilities carried at fair value through income 16 6,244 126,053 Liabilities to banks and customers 17 18,451 336,494
Ceded premiums written (5,474) (5,934) (6,218) Change in unearned premiums (253) (492) (533)
Interest and similar income 27 19,072 18,624 17,430 Income from financial assets and liabilities carried at fair value through income (net) 28 (686) (817) (370) Realized gains/losses (net) 29 3,603 6,008 5,921 Fee and commission income 30 6,032 6,553 6,025
Income from fully consolidated private equity investments 32 2,549 2,367 1,392
Claims and insurance benefits incurred (gross) (48,287) (46,409) (45,523) Claims and insurance benefits incurred (ceded) 2,628 3,287 3,226 Claims and insurance benefits incurred (net) 33 (45,659) (43,122) (42,297)
Change in reserves for insurance and investment contracts (net) 34 (5,140) (10,685) (11,375)
Income from continuing operations before income taxes and minority interests in earnings 5,473 10,563 9,563
Unrealized gains and losses (net) arising during the year 1) — — — 4,731 4,731 20 4,751 Transferred to net income on disposal or impairment 2) — — — (1,744) (1,744) (146) (1,890)
Total recognized income and expense for the year — 7,267 (1,175) 2,984 9,076 998 10,074
Unrealized gains and losses (net) arising during the year 1) — — — (1,123) (1,123) (41) (1,164) Transferred to net income on disposal or impairment 2) — — — (2,484) (2,484) (101) (2,585)
Unrealized gains and losses (net) arising during the year 1) — — — (9,170) (9,170) (78) (9,248) Transferred to net income on disposal or impairment 2) — — — 697 697 34 731
Total recognized income and expense for the year — (2,509) (340) (8,491) (11,340) 359 (10,981)
Cash and cash equivalents at beginning of period 31,337 33,031 31,647 Cash and cash equivalents at end of period 39,196 31,337 33,031
Cash flow from operating activities: Net income (loss) (2,444) 7,966 7,021
Minority interests in earnings 262 748 1,289 Share of earnings from investments in associates and joint ventures (12) (521) (287) Realized gains/losses (net) and impairments of investments (net) of: Impairment loss recognized on remeasurement of assets of disposal group to fair value less costs to sell as of September 30, 2008 1,409 — — Available-for-sale and held-to-maturity investments, investments in associates and joint ventures, real estate held for investment, loans to banks and customers 5,710 (5,276) (5,376) Other investments, mainly financial assets held for trading and designated at fair value through income 3,497 681 (938)
Result of transaction of Dresdner Bank between September 30 and December 31, 2008 2,928 — — Depreciation and amortization 640 891 983 Loan loss provisions 385 (113) 36 Interest credited to policyholder accounts 4,008 3,225 3,126 Net change in: Financial assets and liabilities held for trading 6,443 18,948 19,265 Reverse repurchase agreements and collateral paid for securities borrowing transactions 32,463 30,215 (27,294) Repurchase agreements and collateral received from securities lending transactions (30,763) (48,143) 14,188
Cash flow from investing activities: Proceeds from the sale, maturity or repayment of: Financial assets designated at fair value through income 4,105 5,678 5,001 Available-for-sale investments 106,665 130,421 118,747 Held-to-maturity investments 497 317 336 Investments in associates and joint ventures 1,285 1,902 730 Non-current assets and assets of disposal groups classified as held for sale 2,199 4 2,253 Real estate held for investment 491 889 1,376 Loans and advances to banks and customers (purchased loans) 8,557 8,689 8,365 Property and equipment 431 607 453
Change in other loans and advances to banks and customers (originated loans) (8,673) 43 (19,224)
Supplementary information on the consolidated statement of cash flows: Income taxes paid (2,846) (2,856) (2,241)
Effects from buy-out of AGF minorities (Note 5): Revenue reserves — (1,843) — Unrealized gains and losses (net) — 146 — Minority interests — (1,068) — Paid-in capital — 2,765 —
Effects from first consolidation of K2: Financial assets held for trading 107 — — Financial assets designated at fair value through income 8,665 — — Loans and advances to banks and customers 1,714 — — Other assets 51 — — Financial liabilites held for trading 497 — — Financial liabilities designated at fair value through income 8,889 — — Liabilities to banks and customers 1,076 — — Other liabilities 75 — —
The following table shows the net cash flows provided by (used in) discontinued operations for the year ended December 31, 2008, 2007 and 2006 that are included in the consolidated statement of cash flows above.
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2008
SE, Munich. It is recorded in the Commercial Register of the municipal court Munich under its registered address at
Allianz SE is a stock corporation in the form of a European
The consolidated financial statements of the Allianz Group have been prepared in conformity with International Financial Reporting Standards (“IFRS”), as adopted under European Union (“EU”) regulations in accordance with section 315 a of the German Commercial Code (“HGB”). The consolidated financial statements of the Allianz Group have also been prepared in accordance with IFRS as issued by the
Allianz Group has applied all IFRS issued by the IASB that are compulsory as of December 31, 2008. IFRS comprise
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 2 Summary of significant accounting policies
Subsidiaries, investment funds and SPEs, hereafter “subsidiaries ”, which are directly or indirectly controlled by 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.
The Allianz Group has used interim financial statements for certain subsidiaries whose fiscal year is other than December 31, but not exceeding a lag of three months. Adjustments are then made for the effects of significant transactions or events that occur between that date and the date of the
SPEs as the Allianz Group continues to control the financial assets transferred and retains the servicing of such loans.
The Allianz Group accounts for all material investments in associates on a time lag of no more than three months. Income from investments in associated enterprises and joint ventures is included in interest and similar income. The positive difference between the cost of the investment and the Allianz Group’s share of the net fair value of the associate ’s identifiable assets and liabilities is accounted for as goodwill and included in the carrying amount of the investment. Profits and losses resulting from upstream and downstream transactions between the Allianz Group and an associated enteprise are recognized in Allianz Group’s financial statements only to the extent of unrelated interests in the associate. Allianz Group’s share in the associate’s profits and losses resulting from these transactions is eliminated. Accounting policies of associated enterprises and joint ventures have been adjusted where necessary to ensure consistency with the accounting policies adopted by the
Group’s subsidiaries are prepared in the prevailing currency in the 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,
Third party assets held in an agency or fiduciary capacity are not assets of the Allianz Group and are not presented in these consolidated financial statements.
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 recognises immediately in profit or loss any excess remaining after that assessment. Acquisitions and disposals of minority interests are treated as transactions between equity holders. Therefore, any difference between the acquisition cost or sale price of the minority interest and the carrying amount of the minority interest is recognized as an increase or decrease of equity.
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2008 monetary assets and liabilities recorded in foreign currencies are translated into the functional currency using the closing exchange rate and non-monetary assets and liabilities are translated at historical rates.
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. Furthermore financial assets comprise funds held by others under reinsurance contracts assumed and financial assets for unit-linked contracts.
Financial instruments are initially recognized at fair value plus, in the case of financial instruments not carried at fair value through income, directly attributable transaction costs.
The Allianz Group applies the IAS 39 fair value hierarchy to determine the fair value of financial instruments.
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 including 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. The impact of the Allianz Group´s own credit spread on financial liabilities carried at fair value is calculated by discounting future provement 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.
The amortized cost of a financial instrument is the amount at which the financial instrument is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between that initial amount and the maturity amount, and minus any reduction for impairment or uncollectability.
If the fair value of a financial instrument differs from its initial transaction price (i.e. by comparing it to other observable current market transactions or by using a technical valuation model incorporating only observable market data), it is required that the recognition of a “day one profit or loss“ is consistent with the subsequent measurement of the financial instrument with all the other requirements regarding the calculation of fair value. A profit or loss should be recognized after initial recognition only to the extent that it arises from a change in a factor that market participants would consider in setting a price.
Financial assets and liabilities are classified as held for trading if they have been principally acquired for the purpose of generating a profit from short-term fluctuations in price or for the purpose of selling in the near future.
In all other cases Allianz Group used model-based valuation techniques. Regardless of the valuation technique used, that technique reflects current market conditions and appropriate risk adjustments that market participants would make.
This treatment is also applicable for bifurcated embedded derivatives of hybrid financial instruments.
The recognized net gains and losses include dividends and interest of the underlying financial instruments. A financial instrument may only be designated at inception as held at fair value through income and cannot be subsequently changed.
equity, net of deferred taxes and the latent reserve for premium refunds to the extent that policyholders will participate in such gains and losses on the basis of statutory or contractual regulations when they are realized. When an available-for-sale investment is derecognized or determined to be impaired, the cumulative gain or loss previously recorded in shareholders´ equity is transferred and recognized in the consolidated income statement. Realized gains and losses on securities are generally determined by applying the average cost method at the subsidiary level.
Held-to-maturity investments are debt securities with fixed or determinable payments and fixed maturities for which the Allianz Group has the positive intent and ability to hold to maturity. These securities are recorded at amortized cost using the effective interest method over the life of the security, less any impairment losses. Amortization of premium or discount is included in interest and similar income.
Loans and advances to banks and customers are non-derivative financial assets with fixed or determinable payments, that are not quoted in an active market, are not classified as available-for-sale investments or held-to-maturity investments, financial assets held for trading, or financial assets designated at fair value through income. Loans to banks and customers are initially recorded at fair value plus transaction costs, and subsequently recorded at amortized cost using the effective interest rate method. Interest income is accrued on the unpaid principal balance, net of charge-offs.
Loans are placed on non-accrual status when the payment of principal or interest is doubtful based on the credit assessment of the borrower. Non-accrual loans consist of loans on which interest income is no longer recognized on an accrued basis, and loans for which a specific provision is recorded for the entire amount of accrued interest receivable. When a loan is placed on non-accrual status, any accrued interest receivable is reversed against interest and similar income. Loans can only be restored to accrual status when interest and principal payments are made current
Loans and advances to banks and customers include reverse repurchase (“reverse repo”) agreements and collateral paid for securities borrowing transactions. Reverse repo transactions involve the purchase of securities by the Allianz
ot es the counterparty over the entire lifetime of the agreement of the transaction, the securities concerned are not recognized as assets. The amounts of cash disbursed are recorded under loans and advances to banks and customers. Interest income on reverse repo agreements is accrued over the duration of the agreements and is reported in interest and similar income.
Group’s gross investment in leases, less unearned finance income, related to lease financing transactions for which the
Liabilities to banks and customers are subsequently measured at amortized cost. Herein included are repurchase
Group to a counterparty, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed price. If control of the securities remains with the Allianz 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.
Financial liabilities for puttable equity instruments include the minority interests in shareholders’ equity of certain consolidated investment funds. These minority interests qualify as a financial liability of the Allianz Group, as they give the holder the right to put the instrument back to the
Certified liabilities, participation certificates and subordinated liabilities are subsequently measured at amortized cost, using the effective interest method to amortize the premium or discount to the redemption value over the life of the liability.
A held-to-maturity or available-for-sale debt security is impaired if there is objective evidence that a loss event has occurred, which has impaired the expected cash flows, i. e.
If an available-for-sale equity security is impaired based upon the Allianz Group’s qualitative or quantitative impairment criteria, any further declines in the fair value at subsequent reporting dates are recognized as impairments.
Therefore, at each reporting period, for an equity security that is determined to be impaired based upon the Allianz
Group’s impairment criteria, an impairment is recognized for the difference between the fair value and the original cost basis, less any previously recognized impairments.
In a subsequent period, if the fair value of an available-for sale debt security instrument increases and the increase can be objectively related to an event occurring after the recognition of an impairment loss, such as an improvement in the debtor’s credit rating, the impairment is reversed through impairments of investments (net). Reversals of impairments of available-for-sale equity securities are not recorded through the income statement.
A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Allianz Group transfers the asset and substantially all of the risks and rewards of ownership or transfers the asset and loses control of the asset. A financial liability is derecognized when it is extinguished.
Derivative financial instruments that do not meet the criteria for hedge accounting are reported at fair value as financial assets held for trading or financial liabilities held for trading.
For derivative financial instruments used in hedge transactions that meet the criteria for hedge accounting (“accounting hedges”), the Allianz Group designates the derivative financial instrument as a fair value hedge, cash flow hedge, or hedge of a net investment in a foreign entity. The Allianz
Group documents the hedge relationship, as well as its risk management objective and strategy for entering into various hedge transactions. The Allianz Group assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative financial instruments that are used for hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items. Derivative financial instruments used in accounting hedges are recognized as follows: Fair value hedges
Fair value hedges are hedges of a change in the fair value of a recognized financial asset or liability or a firm commitment due to a specified risk. Changes in the fair value of a derivative financial instrument, together with the share of the change in fair value of the hedged item attributable to the hedged risk are recognized in net income.
Hedge accounting may be applied to derivative financial instruments used to hedge the foreign currency risk associated with a net investment in a foreign entity. The proportion of gains or losses arising from valuation of the derivative financial instrument, which is determined to be an effective hedge, is recognized in unrealized gains and losses (net) in shareholders’ equity, while any ineffectiveness is recognized directly in net income.
The Allianz Group discontinues hedge accounting prospectively when it is determined that the derivative financial instrument is no longer highly effective, when the derivative financial instrument or the hedged item expires, or is sold, terminated or exercised, or when the Allianz Group determines that designation of the derivative financial instrument as a hedging instrument is no longer appropriate. After a fair value hedge is discontinued, the Allianz Group continues to report the derivative financial instrument at its fair value with changes in fair value recognized in net income, but changes in the fair value of the hedged item are no longer recognized in net income. After hedge accounting for a cash flow hedge is discontinued, the Allianz Group continues to record the derivative financial instrument at its fair value; any net unrealized gains and losses accumulated in shareholders ’ equity are recognized when the planned transaction occurs. After a hedge of a net investment in a foreign entity is discontinued, the Allianz Group continues to report the derivative financial instrument at its fair value and any net unrealized gains or losses accumulated in shareholders’
equity remain in shareholders’ equity until the disposal of the foreign entity.
Derivative financial instruments are netted when there is a legally enforceable right to offset with the same counterparty and the Allianz Group intends to settle on a net basis.
The risk disclosure requirements of IFRS 7 and the requirements of IAS 1 with regard to capital disclosures are reflected in the risk report in the group management report.
The following table summarizes the relations between balance sheet positions, classes according to IFRS 7 and categories according to IAS 39.
Balance sheet line item and IFRS 7 classes of financial assets Measurement basis IAS 39 category Financial assets
Cash and cash equivalents Nominal value — Financial assets carried at fair value through income
– Financial assets held for trading Fair value Held for trading – Financial assets designated at fair value through income Fair value Designated at fair value through income
Loans and advances to banks and customers Amortized cost Loans and receivables Financial assets for unit-linked contracts Fair value — Other Assets
– Derivative financial instruments used for hedging that meet the criteria for hedge accounting and firm commitments Fair value —
Financial guarantees Nominal value — Irrevocable loan commitments Nominal value —
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 provisions of US GAAP, including
The Allianz Group’s consolidated financial statements reflect the effects of ceded and assumed reinsurance contracts.
Deferred sales inducements on insurance contracts that meet the following criteria are deferred and amortized using the same methodology and assumptions used for amortized deferred acquisition costs: – recognized as part of reserves for insurance and investment contracts,
Premiums ceded for reinsurance and reinsurance recoveries on benefits and claims incurred are deducted from premiums earned and insurance and investment contract benefits. Assets and liabilities related to reinsurance are reported on a gross basis. Amounts ceded to reinsurers from reserves for insurance and investment contracts are estimated in a manner consistent with the claim liability associated with the reinsured risks. Revenues and expenses related to reinsurance agreements are recognized in a manner consistent with the underlying risk of the business reinsured.
These acquisition costs are deferred, to the extent they are recoverable, and are subject to recoverability testing at the end of each accounting period.
and limited payment products (SFAS 97), DAC is amortized in proportion to premium revenue recognized. For universal life, participating life, and investment-type products (SFAS
97 and SFAS 120), DAC is amortized over the contract life of a book of contracts based on estimated gross profit (“EGP”)
PVFP is the present value of net cash flows anticipated in the future from insurance contracts in force at the date of acquisition and is amortized over the life of the related contracts. PVFP was determined using discount rates ranging from 12.0 % to 16.9 %. Interest accrues on the PVFP balance based upon the policy liability rate or contract rate. Interest accrues on PVFP at rates between 2.0 % and 18.7 %.
IBNR reserves are established to recognize the estimated cost of losses that have occurred but where the Allianz Group has not yet been notified. IBNR reserves, similar to case reserves for reported claims, are established to recognize the estimated costs, including expenses, necessary to bring claims to final settlement. The Allianz Group relies on its past experience, adjusted for current trends and any other relevant factors to estimate IBNR reserves. IBNR reserves are estimates based on actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other societal and economic factors. Trends in claim frequency, severity and time lag in reporting are examples of factors used in projecting the
The process of estimating loss and LAE reserves is by nature uncertain due to the large number of variables affecting the ultimate amount of claims. Some of these variables are internal, such as changes in claims handling procedures, introduction of new IT systems or company acquisitions and divestitures. Others are external, such as inflation, judicial trends, and legislative changes. The Allianz Group reduces the uncertainty in reserve estimates through the use of multiple actuarial and reserving techniques and analysis of the assumptions underlying each technique.
Reserves for insurance and investment contracts include aggregate policy reserves, reserves for premium refunds and other insurance reserves.
The aggregate policy reserves for traditional participating insurance contracts are computed in accordance with SFAS
120 using the net level premium method. The method uses assumptions for mortality, morbidity and interest rates that are guaranteed in the contract or used in determining the
Notes to the Consolidated Financial Statements Allianz Group Annual Report 2008 policyholder dividends (or “premium refunds”). DAC and
The aggregate policy reserves for universal life-type insurance contracts and unit-linked insurance contracts in accordance with SFAS 97 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.
Aggregate policy reserves also include liabilities for guaranteed minimum death, and similar mortality and morbidity benefits related to non-traditional contracts, annuitization options, and sales inducements. These liabilities are calculated based on contractual obligations using actuarial assumptions. Contractually agreed sales inducements to contract holders include persistency bonuses, and are accrued over the period in which the insurance contract must remain in force to qualify for the inducement.
The aggregate policy reserves for unit-linked investment contracts are equal to the account balance, which represents premiums received and investment returns credited to the policy less deductions for mortality costs and expense charges. The aggregate policy reserves for non unit-linked investment contracts are equal to amortized cost, or account balance less DAC. DAC for unit-linked and non unit-linked investment contracts are amortized over the expected life of the contracts in proportion to revenues.
Reserves for premium refunds include the amounts allocated under the relevant local statutory or contractual regulations to the accounts of the policyholders and the amounts resulting from the differences between these IFRSs based financial statements and the local financial statements
Group Life all sources of profit 90 % Individual Life all sources of profit 100 %
Other assets primarily consist of receivables, prepaid expenses, derivative financial instruments used for hedging that meet the criteria for hedge accounting, and firm commitments, property and equipment and other assets.
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.
– represents a major line of business or geographical area of operations,
In the consolidated income statement of the reporting period and the comparable period of the previous years, income and expenses from discontinued operations are reported separately from income and expenses from continuing operations.
Goodwill resulting from business combinations represents the difference between the acquisition cost of the business combination and the Allianz Group’s proportionate share of the net fair value of identifiable assets acquired and liabilities and certain contingent liabilities assumed. Goodwill resulting from business combinations is not subject to amortization. It is initially recorded at cost and subsequently measured at cost less accumulated impairments.
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 assets.
Intangible assets acquired in business combinations are initially recorded at fair value on the acquisition date if the intangible asset is separable or arises from contractual or other legal rights. 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.
Similar to goodwill, an intangible asset with an indefinite useful life is subject to an annual impairment test, or more frequently if there is an indication that it is not recoverable.
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 and firm commitments, financial liabilities for puttable equity instruments and other liabilities. These liabilities are reported at redemption value.
Health insurance premiums for long-duration contracts such as non-cancelable and guaranteed renewable contracts that are expected to remain in force over an extended period