Minority interest in equity ¤bn 8 0.6 8 17 16 13 12 139
Share price at year-end3) ¤ 100.1 23.9 80.8 237.1 355.3 297.7 282.1 26
Development of the operating cost-income ratio in %Investment structure by segments ¤399 bn
Premium income by regions ¤42.3 bnPremium income by regions ¤43.4 bn
Allianz is one of the leading global services providers in insurance, banking and asset management. We serve our customers in more than 70 countries. The solidity, service and competence of our Group are backed by the commitment of close to 174,000 employees worldwide.
Assets under management¤bn9960.79891,12670038234380 1997 without IAS SIC 12 and SEC adjustment
Development of the operating cost-income ratio in % Investment structure by segments ¤399 bn
When I took over as chairman of your company on May 1, 2003, the day after our Annual General Meeting, your outspoken criticism of our disappointing results was still ringing in my ears. Equally great was the disappointment among those investors with whom my colleagues and I had already met before the
General Meeting in order to convince them of the appropriateness of the planned capital increase. I could understand your discontent and I take this message very seriously.
Allianz shareholders, you must be able to rely on the company to grow its earnings and revenues so that your investment will generate solid, sustainable profits.
By proposing a capital increase, we asked you to support us in this process. And you agreed. I hope that you are satisfied with your decision and the results that the company has achieved since then. We are back in the black, and our share price has followed the upturn in our earnings. At the end of the year, the Allianz share broke through the 100-euro threshold.
Although the Company is much stronger today than it was in the crisis year 2002, and we are certainly pleased to have reached the first milestone on the path to sustainable, profitable growth, it must also be said that we have been helped not only by the indisputable operating improvements but also by the recovery of the financial markets.
Nevertheless we have made considerable progress. The risk position has clearly improved. Our financial position has stabilized. Our business models have been strengthened. Allianz is again winning respect. And each day, we are working with greater momentum.
That is directly attributable to our nearly 174,000 employees world-wide as well as to our agents and to our business partners. To all of them, I would like to express my sincere thanks for their outstanding effort and their trust. The business success of 2003 also demonstrates the ability of the company as a whole to carry out the decisions that were necessary to restore its competitiveness. At the same time, the turnaround in the earnings performance shows that, while Allianz continues to face great challenges, it already has the necessary potential that will continue to make it attractive in the future.
Since we live in an age where simple numbers have lost much of their meaning as indicators of success,
I would like to explain to you the crucial components of our results and to point out what they mean for the future of the company.
The fundamental improvements stem from the efficiency gains in all four business segments and in essentially all Group companies. Cost savings in the reporting year alone came to an impressive 2.4 billion euros. This development is important because its effects are for the most part long lasting. Its true significance is borne out by the fact that it is now, in the first quarter of 2004, already becoming more difficult to impose rate increases for all our products. By way of price adjustments and a very disciplined underwriting policy, mainly in the property and casualty business, we were able to bring down the claims ratio worldwide. This trend was also supported by a favorable loss experience. In asset management and at Dresdner Bank, we significantly improved the cost-income ratio, even though the overall earnings performance of the bank did not meet our expectations. Nevertheless, the progress in the operating business of Dresdner Bank is considerable, in view of where we started. In addition, Dresdner Bank’s balance sheet has been adjusted in material areas to reflect the current risk environment. But the results also show very clearly that we still have some distance to go. In view of the improvements already visible at this time, I am convinced that the implementation of the “New Dresdner” program will be successful as planned and the bank will again earn its cost of capital in 2005.
For me personally, the continuing development of our corporate culture is extremely important. I want to see us work together as a team, to be truly customer-focused and to offer the best products. Furthermore,
program. But can we maintain profitable growth beyond that? Yes, I think so, and I will give two reasons why I am so certain of that.
Dresdner Bank. We have the right strategies and are committed to execute them. We have the resources to implement these strategies, including solid and well-positioned operating units worldwide, motivated and committed employees, capital, customer-oriented multi-channeled distribution organizations, and product development capacities that combine our expertise in insurance and financial markets. Finally, the last few years have given us the added experience that will help us to capitalize on these strengths.
Our strategy also includes the ability to say no, in those cases where the balance between risk and earnings is no longer acceptable.
We limit and control the overall risk and make full use of all value drivers in our sphere of influence to generate a sustainable profit.
We are guided not just by our internal benchmarks; we are also determined to become the best in our industry. In a time of great uncertainty, we want Allianz to be the one brand that stands for trust.
The Supervisory Board held four meetings during the reporting period. Between meetings, the Board of Management informed us in writing on important matters. In addition, the Chairman of the Supervisory Board was kept up-to-date on major developments and decisions.
In several meetings, the Group’s capital resources were discussed. In April 2003, we approved the capital increase with subscription rights for the shareholders. In a difficult market context, this increase was successfully completed with proceeds of 4.4 billion euros, thereby strengthening the company’s equity base and securing the Group’s high rating.
To reduce the dependency of the company’s shareholders’ equity and earnings on fluctuations in the capital markets, the Board of Management substantially reduced the share of equity investments. Among others, this was done through a significant reduction of the shareholdings in Münchener Rückversicherungs-Gesellschaft AG (Munich Re)
service activities of Allianz and Dresdner Bank, which are now combined in AGIS Allianz Dresdner Informationssysteme GmbH.
In addition, the ongoing success of the restructuring of the Group’s U.S. company Fireman’s Fund was presented to us. The same applies to Allianz Global Risks Rückversicherungs-AG, the company that controls the Group’s industrial insurance business.
Other topics of discussion The Board of Management presented its “Three Plus One” program to us, which summarizes the Group’s objectives and initiatives through 2005. The program calls for strengthening the capital base of the company, improving its operational profitability, making its structures less complex and bringing about a sustainable increase of its value. To reach the latter objective, the Holding makes growth capital available to its Group companies.
We critically examined the effects of the tax bill presented by the German Federal Government on the life insurance business. In addition, we welcomed the Board of Management’s decision to relaunch the stock purchase plan for employees of the Allianz Group in 2003. More than 33,000 employees in 22 countries have accepted this offer and acquired a total of about 965,000 Allianz shares at preferential conditions.
More detailed information on corporate governance within the Allianz Group can be found in the report on pages 10 to 13 of the present Annual Report. That report was jointly approved by the Board of Management and the Supervisory Board. Detailed information on this subject is also available at the Allianz website at www.allianzgroup.com/corporate-governance. Information on the measures taken to implement the provisions of the
Board formed the Audit Committee, the Standing Committee, the Personnel Committee and the Mediation Committee as called for by the German Codetermination Act. The current composition of the committees is shown on the accompanying list.
Management and the structure and amount of the remuneration of the Board of Management, as well as the determination of the variable and stock-related remuneration components. There was no need for the Mediation Committee to convene.
It also examined the quarterly reports and dealt with the assignment of the mandate to the Auditor and setting prior-
Committees of the Supervisory Board of Allianz AG As of December 31, 2003
The financial statements and the auditor’s reports submitted by KPMG were made available to all members of the Supervisory Board in due time. These documents were discussed in depth by the Audit Committee on March 5, 2004, as well as by the Supervisory Board at a meeting held for this purpose on March 17, 2004. The independent auditors participated in these discussions. They presented the results of the audits and were available to provide supplementary information.
Members of the Supervisory Board and the Board of Management The five-year mandate of the members of the Supervisory Board elected in 1998 ended with the General Meeting on April 29, 2003. A new Supervisory Board was elected for the term of office from 2003 to 2008. For reasons of age, Dr. Klaus Liesen was not available for re-election. In addition, Ms. Roswitha Schiemann as well as Messrs. Dr. Uwe Haasen, Horst Meyer, Uwe Plucinski, Reinhold Pohl, Jörg
Thau and Dr. Bernd W. Voss departed from the Supervisory Board.
We thanked the departing members for their constructive and trusting collaboration in our body during the past term of office. Our special thanks go to Dr. Liesen, who was a member of the Supervisory Board for almost two decades and presided as its judicious and highly respected chairman for seven years.
For reasons of age, Dr. Horst Müller retired from the Board of Management on December 31, 2003. He had been responsible for Group Financial Risk Management. This function will be assumed at Group level by Dr. Perlet in addition to his present responsibilities. We expressed our thanks to Dr. Müller for the committed work he performed for many years at Dresdner Bank and, since 2001, also at Allianz.
In our capacity as members of the Supervisory Board, we would like to take this opportunity to thank all members of the Allianz Group companies for their personal effort and commitment.
J Ü R G E N D O R M A N N until May 5, 2004
D R . H E R M A N N S C H O L L
P R O F. J Ü R G E N E . S C H R E M P P
D U R I N G T H E P E R I O D
D R . H O R S T M Ü L L E R
In the past twelve months, corporate governance continued to be the subject of intense public debate. Increasingly, the debate has focused on individual details, particularly the question of remuneration for the members of corporate organs. At times, this gave rise to the impression that good corporate governance hinged on only this criteria. But Allianz is convinced that responsible management and control require a comprehensive approach that must take into account a multitude of aspects.
The central elements of our understanding of corporate governance are explained in this Annual Report. On pages 14 to 16 we comply with the demand for a transparent presentation of the remuneration for the Board of Management and the Supervisory Board by presenting a detailed remuneration report.
A L L I A N Z G R O U P 10
Management and the Supervisory Board as well as to questions of financial reporting and disclosure.
On May 21, 2003, the German Corporate Governance Code was enhanced by a decision of the competent commission of the German Government. An essential part of the revision deals with the remuneration of the Board of Management. In section 4.2 of the Code, the following recommendations were added: _ individualized reporting of the remuneration for the Board of
The Code now also recommends individualized reporting for the remuneration of the Supervisory Board. The new version of the Code was applicable for the first time to the annual Declaration of Compliance in accordance with § 161 of the German
Stock Corporation Law (AktG). The Board of Management and the Supervisory Board decided to follow the recommendation of the German Corporate Governance Code in its version of
Allianz AG has, in the past, met all recommendations of the previous version of the Code. For this reason, reservations to the effect that the maximum number of group-external mandates had been exceeded are irrelevant.
Stock Corporation Law (AktG) was published on December 17, 2003 and reads as follows: 1. Allianz AG will comply with the recommendations made by the Government Commission on the German Corporate Governance Code (Code version as of May 21, 2003) with the following exceptions: a) The compensation of the members of the Board of Management is published in the Notes to the Consolidated Financial
Statements subdivided according to fixed, performancerelated and long-term incentive components; however, it is not published individualized (section 4.2.4, sentence 2 of the
Code). An individualized breakdown would not provide more information with relevance for the capital markets than a detailed publication of the overall compensation. Furthermore, practice shows that an individualized publication tends to result in a leveling of the individual compensation of the members of the Board of Management. This is not desirable from the company’s as well as from the shareholders’ perspective.
2. Since the last Declaration of Compliance as of December 18, 2002, which referred to the German Corporate Governance
Code as amended on November 7, 2002, Allianz AG has complied with all the recommendations made by the Government Commission on the German Corporate Governance
Allianz AG is subject to U.S. corporate governance rules to the extent that these are applicable to foreign issuers.
The Supervisory Board of Allianz AG has determined that the chairman of the Audit Committee, Dr. Manfred Schneider, has the attributes that the SEC implementation ruling requires of the Audit Committee Financial Expert. In addition, Allianz
AG has adopted a “Code of Ethics” addressed to the members of the Board of Management and senior financial officers. It sets standards of ethical and righteous behavior in the personal and professional area, particularly regarding the handling of conflicts of interest and the application of the highest corporate disclosure standards. The Audit Committee has adopted new procedures which make sure that the independence of auditors is specially controlled. These procedures meet the stricter independence requirements of the SEC.
The NYSE also enacted new Corporate Governance Rules last year. As an issuer headquartered outside the U.S.A., Allianz
AG is solely held to disclose the material differences between its own corporate governance standards and the new NYSE
rules. This disclosure will be made on our website as of the date of this year’s Annual General Meeting.
An essential part of the Supervisory Board’s work is performed by its committees. The Audit Committee constituted in September 2002 is composed of three shareholder representatives and two employee representatives. In its constitutive meeting, the Supervisory Board elected Dr. Manfred Schneider as chairman of the Audit Committee and named Messrs. Dr. Gerhard
Schulte-Noelle as its other members. The main task of the Audit
The Standing Committee has a total of five members, two of which are employee representatives. Its essential function is the approval of matters for which Supervisory Board approval is required, to the extent that such matters do not fall under the competency of the Personnel Committee or must be decided by the plenary meeting of the Supervisory Board. In particular, this concerns the approval of capital market measures and of the acquisition or divestiture of companies or shareholdings in companies. It is also in charge of drafting the respective Declaration of Compliance in accordance with § 161 of the German Stock
Supervisory Board as well as one representative each of the shareholders and employees on the Supervisory Board. It prepares the appointment of members of the Board of Management, tends to ongoing personnel matters of members of the
At the end of 2003, the Supervisory Board conducted an efficiency review in accordance with a recommendation of the German Corporate Governance Code. For this purpose, every member of the Supervisory Board received a questionnaire, requesting evaluations and suggestions concerning individual aspects of the
In the framework of its “Ten-Point- Program,” the German Federal Government has presented draft laws on corporate integrity and a reform of financial reporting as well as a new balance sheet monitoring bill (enforcement). It is our opinion that future initiatives should focus more strongly on maintaining the international competitiveness of the German corporate governance system.
Up-to-date information on corporate governance is also available on our website at www.allianzgroup.com/corporate-governance.
The remuneration of the Board of Management is determined by the Personnel Committee of the Supervisory Board. The remuneration structure is regularly discussed and examined in the plenary meetings of the Supervisory Board. The remuneration paid to members of the Board of Management from mandates at Group companies is turned over to the company. Of the remuneration received from mandates in companies outside the
Group, 50 percent is turned over to the company. Indications on the amount of remuneration are provided in the appendix to this Annual Report on pages 171 and 172.
In order to meet the above objectives for the remuneration for the Board of Management, this remuneration is made up of several components, which are explained in the following table: The remuneration of the Board of Management of Allianz AG supports sustainable value-oriented management. In the last several years, the remuneration instruments were increasingly differentiated, in parallel to the continued development of the control instruments. The objective of this differentiation is to arrive at a remuneration system that is balanced in its structure, and appropriate and competitive in terms of its amount.
Basic salary, compensation in kind and ancillary compensation Function, Responsibility Monthly Fixed 23 %
Restricted stock units (RSU) Creation of a long-term After a five-year vesting period 1:1 Share price (calculated value equity position at time of grant)
the stock-based remuneration, they form a three-tier incentive system. Assuming that objectives have been met 100 percent, what is the ratio between fixed and variable remuneration? For the annual bonus, the ratio is approximately 55 to 45 percent; for the annual share of the 3-year bonus, it is approximately 50 to 50 percent.
Corporate retirement provision and comparable benefits The pension agreements for members of the Board of Management stipulate retirement benefits of a fixed amount that is not linked to the development of the fixed or variable remuneration components. The agreements are examined and revised at irregular intervals. If the amount is raised, the reserves must be increased on a pro-rata basis in relation to the number of years of employment.
If the performance targets are attained, the ratio between fixed and variable remuneration is approximately one-fourth to three-fourths, based on the mathematical value of the stockbased remuneration at the date of grant.
In order to ensure a competitive remuneration structure, comparative market analyses are performed. The insights derived from these studies are incorporated into the design of the remuneration components.
The individual remuneration components include: Fixed remuneration The amount of the fixed remuneration is, on the one hand, determined by the delegated function or responsibility. On the other hand, it is influenced by external market conditions.
Group objectives Meeting pre-defined strategic three-year objectives Sustained increase of the share price
The remuneration of the members of the Supervisory Board includes two components: a fixed amount of 4,000 euros and a variable amount dependent on the dividend. This amount is calculated as follows: for each cent by which the dividend per share exceeds the amount of 15 cents, an additional remuneration of 500 euros is paid. The amount of the dividend is determined by the appropriation of profit decided by the Annual
The additional remuneration of the committee members is capped by an upper limit. This limits takes effect when the remuneration of the chairman of the Supervisory Board has reached triple and that of the other members of the Supervisory
Board double the basic remuneration. Since the dividend policy of the Allianz Group is oriented toward the long-term, the remuneration of the Supervisory Board contains no additional component that is based on the long-term performance of the company.
W I L L I A M S . T H O M P S O N
J O A C H I M FA B E R
V I C E N T E TA R D Í O B A R U T E L
J E A N - P H I L I P P E T H I E R R Y
PA U L A C H L E I T N E R
T H O M A S P L E I N E S
M A R K Z E S B A U G H
J E F F R E Y H . P O S T
Allianz is one of the leading global services providers in insurance, banking and asset management. We serve our customers in more than 70 countries. The solidity, service and competence of our Group are backed by the commitment of our approximately 174,000 employees worldwide.
the risk capital required for an entire risk portfolio is less than the sum of the capital needs of all the individual risks it contains, because the probability that various worst-case scenarios will occur at the same time is extremely low. To limit our exposure to stock market fluctuations, we scaled down shareholdings such as those in Beiersdorf and Munich Re, which concentrated risk because of their size, and reduced the overall share of stocks in our investment portfolio from 19 to 16.4 percent. At the same time, the proceeds from these transactions and from the sale of sub-critical activities strengthened our shareholders’ equity. Overall, our equity capital grew by 6.9 billion euros to 28.6 billion euros.
Dresdner Bank. These indicators are the most effective levers for improving operating income.
We have learned the lessons from last year’s loss and adapted our strategy to the new market and risk situation. The result is our “Three Plus One”
goes beyond these initiatives. Its purpose is to make sure that our future competitiveness is the key driver in the implementation of all these measures.
That is the program with which we will fortify the foundation of our business activity. In the “Plus One” concept, we are focusing on the fundamental strengthening of our competitiveness and increasing value.
Down the line, the reduction of complexity will increase efficiency, for example by pooling IT procurement worldwide. In the reporting year, we generated savings of about 55 million euros from the part of our global purchasing volume analyzed thus far (160 million euros). That is 35 percent of the budget considered. Increased efficiency and better service are also the objectives of merging similar businesses or placing them under central control. Allianz Marine & Aviation and Allianz Risk
The reduction of complexity and the concomitant increase of earnings are also served by efficient synergy management.
Projects in “Allianz Group Business Services”. The mission of this Group Center is to support the operating units worldwide in increasing their earnings power through an even more targeted transfer of know-how, best practice exchanges, and the exchange of experts.
This element of our strategy, the “Plus One,” is our “On Top
Satisfaction” and “Sales Culture”. The quality of our services and products, our marketing drives, our customer interfaces and the back office processes supporting them must all converge in one point: we want to be the consumer’s first choice and not compete on price alone. Our objective is to create life-long customer relations that are beneficial to both partners.
In order to reinforce the entrepreneurial outlook of the company, we have changed the process of capital allocation (more about this topic on page 25 of this Annual Report). The holding has now taken on the role of a capital market in which each operating unit competes for additional capital. And only those units that present the best business plans and can prove the highest creation of added value will qualify for more risk capital. In keeping with this concept, we have reduced the volume of risk capital in those units of Dresdner Bank that are nonstrategic or unprofitable, for example in the credit restructuring unit IRU and in the investment portfolio. Instead, this risk capital was allocated to segments that generated higher income.
We are convinced that this customer relations oriented approach creates added value and secures the basis for sustainable profitable growth. That makes it the decisive vector for the implementation of the entire “Three Plus One” initiative, right up to our highest strategic objective: we want to be the leading international financial services provider for insurance, private pensions and asset management, we want to be the one company that people can really trust.
concept company-wide. Adapted to the specific requirements of our industry and the needs of Allianz, EVA® determines our company’s economic goals. It provides a measure of our performance and plays an important role in setting the remuneration of management.
The basic idea behind EVA® involves comparing profit with the cost of capital. EVA® – whether positive or negative – is the difference between the two. It tells us whether or not our profits exceed the return expected by our shareholders. Thus, EVA® is the result of the following calculation: EVA® = Profit – (Capital employed x Cost of capital)
As holding company, we assign available capital to our operational entities on the basis of efficiency and risk. In this process, only those units can count on growth capital
_ whose orientation and competency fit in with the long-term strategic orientation of the Allianz Group, and
Profits that exceed capital costs can be retained by the companies to finance their internal growth. That means: our most profitable companies have direct access to considerable funds to finance their growth. This dividend model, which applies as of 2004, provides for two exceptions: _ When a group company must be restructured, it can temporarily be exempted from the dividend rule in order to be able to build equity.
_ Certain units which are building up business in strategically important future markets are, for the time being, not held to pay dividends – for example our organizations in China and
Added value results only when this threshold is exceeded. But that is only the minimum we demand. Over the medium term, we expect our business units to generate a return of 15 percent or more on the capital employed. That means that the units must know which business activities will increase the value of their companies and concentrate on these activities. New value drivers must also be built up, for example, through new products, more cost-effective processes and optimized distribution channels. Local management must also prevent value from being destroyed along the value added chain. If this happens, countermeasures must be adopted immediately.
Since EVA® is the key indicator that shows us whether or not we are generating a profit, the remuneration of senior management is based to a significant extent upon this factor. That means we have opted for an incentive system that helps make the continuous increase in the value of the company a priority concern that cuts across our entire organization.
Our plan for achieving economic value added primarily benefits our shareholders. However, our customers, employees and the society in which we operate benefit just as much. After all, sustainable success can only be achieved by offering excellent products at attractive prices that satisfy our customers, generate sales to secure jobs and produce profits that allow us to continue and increase our involvement in society.
After the difficult stock market years 2001 and 2002, the Allianz share got back on track in the reporting year. Parallel to the escalation of the crisis in Iraq, however, our share price suffered another steep decline until March. But thereafter, it recovered very well and started a sustained catch-up rally, which ended with an annual plus of 23.9 percent. At that level, the Allianz share outperformed both the Dow Jones EURO STOXX Insurance (+ 16.5 percent) as well as the cross-industry Dow Jones
EURO STOXX 50 (+ 15.7 percent); but the recovery was weaker than that of the German stock index DAX (+ 37.1 percent). The rise of the Allianz share price after the capital increase is a convincing proof of trust and an indication that the market is well aware of our financial strength and our marked improvements in operations.
The surprisingly quick end of the war in Iraq allayed many fears on the part of the investors and paved the way for widespread market optimism. This change in mood also drove up stock market indicators. Considered over the entire year, the Allianz share price went up 23.9 percent and outperformed the corresponding Dow
Development of the Allianz share price versus Dow Jones EURO STOXX 50 and Dow Jones EURO STOXX Insurance indexed on the Allianz share price (Xetra)*) in ¤
Current information on the development of the Allianz share price is available on the Internet at www.allianzgroup.com/investor-relations.
Allianz shares entitled their holders to acquire seven new shares at a price of 38 euros each, so that the transaction strengthened our capital with 4.4 billion euros. On this basis, we are better able to bring our competitive advantages into play. The capital increase was well received: close to 100 percent of shareholders accepted the very attractive offer and subscribed new shares.
With a market capitalization of 37 billion euros at the end of the year, Allianz remains one of the most highly valued financial services providers in Europe. Our share is listed in all the major indexes: Germany’s DAX, Dow Jones STOXX 50 and
Trading in subscription rights April 15, 2003 – April 25, 2003
In a voluntary public offer, we invited the holders of Allianz profit participation certificates to exchange their certificates for
The increase is mainly attributable to Munich Re, which reduced its stake in Allianz from about 20 percent to close to 12 percent.
Up-to-date information on our shareholder structure is available on the Internet at www.allianzgroup.com/investor-relations.
The higher free float and the capital increase also led to a rise of the number of shareholders, from 510,000 to over 570,000.
Shareholder structure on December 31, 2003 Free float: 83 %, Long-term investments: 17 %
“Economic Value Added” (EVA®) as the key indicator for controlling our business. For more information on this subject, see pages 24 and 25 of this Annual Report.
The number issued to each senior manager depends mainly on the EVA created; in addition, the achievement of individual objectives is taken into account. The combination of stock appreciation rights and restricted stock units balances earnings and risk and reduces the leverage effect that comes about especially with a relatively low share price. The new system also meets the demands of shareholder representatives and of corporate governance bodies. These had expressed their objection to having senior management participate in the development of the company’s value solely by issuing stock options. In 2003, approximately 550 senior managers were entitled to stock-based remuneration. Due to the unsatisfactory share price development in the past years, the stock appreciation rights for the years 1999 to 2002 are far out of the money, so that the participants were not yet able to derive any benefits from them. For detailed information about the Group Equity Incentive Plan, see pages 167 and 168 of this Annual Report.
Share price performance in the year (excluding dividend)2) % 23.9 – 65.9 – 33.3
Earnings per share, before depreciation of goodwill2) ¤ 8.92 – 0.24 8.62
Return on equity, before depreciation of goodwill % 12.1 – 0.3 7.1 1) Excluding treasury shares 2) Adjusted for capital measures (capital increase)
able to change their instructions during the meeting, as long as voting had not yet begun. For the first time, we offered to send out the documentation for the Annual General Meeting by e-mail.
We continued to strengthen our investor communication, particularly in view of the capital increase. After the announcement, we approached our investors in the leading European financial centers, informed them about current business developments and showed them the importance of the capital increase for the future return on their investment. Overall, we held about 250 meetings with analysts and institutional investors in the reporting year.
Private investors can follow our telephone conferences live on the Internet. And they continue to have access to the Investor
Line that answers their questions on Allianz and the Allianz share 24 hours a day, seven days a week. Altogether, the investor relations team answered around 5,000 inquiries from private investors.
Additional information concerning Allianz and the Allianz share is available on our website at www.allianzgroup.com/
March 17, 2005 Financial press conference for the 2004 fiscal year
The balance of unrealized gains and losses from securities held for sale is part of shareholders’ equity. Following the increase of valuations in the capital markets in the second half of 2003, this balance grew to 4.3 (1.1) billion euros.
After deduction of taxes, minority interests and interests of policyholders, these amounted to 1.6 (5.1) billion euros at the end
As of December 31, 2003, Allianz Group calculated the capital elements eligible for the legally required solvency margin of insurance groups to have a total value of 26.0 (21.7) billion euros. At the end of 2003, the solvency margin of insurance groups required by law is expected to be 12.6 billion euros, which corresponds to a cover ratio of 206.3 (152.8) percent.
In addition, all entities of the Allianz Group had sufficient own funds and met local solvency requirements.
Unrealized gains and losses 1) For further details see “Changes in shareholder’s equity” on page 104 2) Revenue reserves include currency translation effects (2002: – 342 million euros; 2003: – 1,916 million euros)
The Allianz Group still has recourse to short-term financing instruments, predominantly commercial papers. At the end of the year, these liabilities added up to approximately 3 billion euros. Interest paid on commercial papers amounted to 53.4 million euros in 2003.
In the spring and summer of 2003, the Allianz Group’s ratings were slightly downgraded by several rating agencies. This was a reaction to the reticent attitude of the capital markets and our weak prior-year operating result. The deterioration of our capital base in the previous year was also reflected in this evaluation.
But the rating agencies did acknowledge the substantial increase of our shareholders’ equity after the capital increase in
and the average share price of Munich Re during a twenty-day reference period. On August 25, 2003, 5.5 million Munich Re shares were delivered to MILES investors. This transaction lowered our interest in Munich Re by approximately 3 percent. The bonds still outstanding, were repaid in cash on March 2, 2004.
In February 2003, the Deutsche Bank convertible bond reached maturity. Since the share price of Deutsche Bank was below the striking price, the 1-billion euro bond was repaid in cash. Another 767-million euro bond, which reached maturity in May 2003, was repaid on time.
Index-linked exchangeable bond (Miles) issued by Allianz Finance II B. V., Amsterdam At the issuer’s discretion, exchangeable or repayable in shares of E.ON AG, BASF AG,
Münchener RückversicherungsGesellschaft AG or certain other shares Volume ¤ 1.0 bn Year of issue 2001 Maturity date 2/20/2004 Exchange ratio Relevant DAX reference price divided by the relevant reference price of the shares selected
Interest cost ¤17.7 mn 1.25 % exchangeable bond issued by Allianz Finance B. V., Amsterdam Exchangeable for RWE AG shares Volume ¤ 1.1 bn Year of issue 2001 Maturity date 12/20/2006 Current exchange price ¤ 50.16
Interest cost2) ¤49.6 mn Received option premium at issue ¤ 178.1 mn
Matured on 5/14/2003 Interest cost ¤17.4 mn 3.0 % exchangeable bond issued by Allianz Finance B. V., Amsterdam
Interest cost ¤52.5 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 cost ¤33.0 mn 6.5 % bond issued by Allianz Finance II B. V., Amsterdam Volume ¤ 1 bn Year of issue 2002 Maturity date 1/13/2025
Total interest cost for subordinated bonds ¤222.6 mn 1) Bonds and exchangeable bonds issued or guaranteed by Allianz AG, excluding private placements 2) Includes coupon payment and option premium at amortized cost
73 Asia-Pacific Region 74 South America 75 Banking Business 76 Segment reporting according to the 2003 reporting structure 76 Private & Business Clients 77 Corporates & Markets 78 Segment reporting after the transfer of business activities of Dresdner Bank to the IRU
A L L I A N Z G R O U P 35To go directly to any chapter, simply click ➤➤ on the headline or the page number.
The economic expectations of companies and consumers alike were not met in the year under review. Germany experienced stagnation for the third year in a row, and economic growth in the European Union came to a meager 0.7 percent. The main reason for this economic slowdown was the Iraq conflict. It prevented the nascent optimistic undercurrent from budding, and put brakes on consumption and investment plans, even though the consolidation in businesses and households had well progressed. The job market situation in the industrialized countries also remained tense and improved only in the second half of 2003, albeit very gradually in most cases.
China (8.8 percent) radiated throughout the entire region, which increased its performance by an average of 5.8 percent.
With a solid 5 percent growth, the East European economy also made remarkable progress. The lion’s share of this expansion, however, was due to a special effect in Russia, where growth accelerated to 6.4 percent, mainly as a result of higher oil prices.
On the other hand, many other East European economies which are exporting to the West, felt the full impact of virtual stagnation in the European Union and registered only moderate growth. Latin America, which is still coping with internal problems and suffered from the political crisis in Venezuela, rebounded after the slump in 2002 and expanded by a modest 1.5 percent.
But there were positive impulses as well. In Germany, they came from the pension reform and the concomitant reevaluation of company retirement provision schemes. At the same time, the sale of private provision instruments, such as the statesubsidized “Riester” pension plans, left much to be desired.
Overall, industry-wide premium income was up 3 percent. The development in other important Allianz markets such as Italy and France, however, was extremely dynamic. On the whole, the life insurance industry still felt the reluctance of customers with respect to unit-linked life insurance, which is a natural reaction to the development of the financial markets.
The introduction of a higher income limit for mandatory health insurance, which reduced the number of voluntarily insured policyholders likely to opt for private insurance, had a negative effect.
Union, workers are required by law to make retirement provisions by paying into pension funds. A part of these contributions is directly invested in pension funds that are managed by institutional asset managers and not by the state. The funds industry also benefits from the fact that the baby boomer generation is now growing into a phase of life where retirement planning is receiving increasing attention. This effect was observed in broader base. The most important property and casualty line, automobile insurance, developed quite differently in various markets: in Germany, it grew by about 2 percent after close to 3 percent in the previous year, mainly due to the lower number of new car registrations (see chart). At the same time, Spanish automobile insurers enjoyed an extraordinarily dynamic upsurge of over 6 percent.
That is a reaction to the turbulence in the capital markets, which made it very difficult for a number of smaller insurers to generate the returns on investment that their customers expected. Another drop in stock performance at the beginning of the year and persistently low interest rates put noticeable pressure on the investment income of many life insurers. And while interest rates went up slightly in the second half, they are still at a very low level, which will be a daunting challenge for the financial management of life insurers for some time to come.
gave the turnaround considerable traction, which sustained these through the end of the year. Over the full year, the DAX
Banks After the serious difficulties of 2002, the German banking sector was dominated by such buzzwords as consolidation and restructuring. Now, it is in a process of fundamental transformation. The liberalization of the financial market and, even more, technical progress, are opening the door to vast economies of scale and thereby increase the pressure towards consolidation.
To a growing extent, the banks are concentrating their efforts on profitable core business areas, a process that is accelerated by the prospect of new equity rules (“Basel II”). They are reducing vertical integration and breaking up the value-creation chain to make more effective use of their capital. In parallel, they are cutting costs through process automation, product standardization, outsourcing and other efficiency drivers. Risk management is being improved so that risk costs are leveling off, despite the still high number of insolvencies. These measures have strengthened the operating base of the banking business.
At the same time, the general business context is showing signs of improvement. While the gradual recovery of the economy in the second half was not sufficient to bring about a decisive revitalization of the retail business, the overall brighter picture in the capital markets had a positive impact on trading income and lent support to the securities business. But whether the current year will bring a palpable revival in the IPO business and in merger and acquisitions consulting remains to be seen.
Bond markets The markets for fixed-interest securities essentially moved in the opposite direction of the stock markets. Until March 2003, investors decidedly clamored for quality bonds.
The euro also gained 8.3 percent on the pound sterling and 7 percent on the Swiss franc.
Investments held on account and at risk of life insurance policy holders 32.5 25.7
Insurance reserves for life insurance where the investment risk is carried by policyholders 32.5 25.7
_ In fiscal 2003, total premium income from the insurance business increased 2.8 percent.
After adjustment for currency and consolidation effects, growth came to 7.3 percent.
_ After a loss of 1.2 billion euros in the previous year, we returned to the profit zone and posted net income of 1.6 billion euros.
_ The reporting year was marked by the following initiatives: we strengthened our capital base, mainly through the capital increase in spring of 2003, but also supported by the price gains in our investment portfolio. The improvements we made across all segments in the operating business, quickly returned the company to sustainable profitability. We also divested non-strategic activities and thereby reduced the complexity of our business portfolio.
Shareholders’ equity increased by a total of 6.9 billion euros in fiscal 2003. This is primarily attributable to the capital increase in the spring of 2003. In addition, unrealized gains from our investments grew by 2.5 billion euros. The rising value of the euro, particularly with respect to the U.S. dollar, depressed our shareholders’ equity by 1.7 billion euros at the end of 2003. To limit the influences of strong fluctuations in the capital markets on our shareholders’ equity, we continually reduced our stock portfolio. With a cover ratio of 206.3 (152.8) percent, we clearly surpassed the legally required solvency margin. All entities of the
Allianz Group had adequate own funds and met local solvency requirements. Our solid financial resources are also acknowledged by the ratings agencies. Standard & Poor’s, for example, attests to our “very strong” financial status and continues to maintain its “AA–” rating.
A L L I A N Z G R O U P 42
At the beginning of 2003, we were confronted with several important challenges: we had to strengthen our capital base and restore the profitability of our operations. After a period of expansion including major acquisitions, we also decided to launch a consolidation phase. We want to rebuild the strength of the
Allianz Group by concentrating on businesses in which we have reached a future-oriented market position and by streamlining overly complex organizational structures without compromise.
_ In our initiatives aimed at strengthening our competitiveness, we placed particular emphasis on restoring the solid capital base of our company and on limiting risk. For this purpose, we launched a capital increase and reduced the equity quota in our investment portfolio.
_ The combined ratio in property and casualty insurance improved to 97.0 (105.7) percent, aided by the success of the turnaround programs at Fireman’s Fund, Allianz Global Risks and AGF.
_ The operating loss in the banking business was reduced by 1.6 billion euros to 357 million euros.
_ In asset management, we increased the operating result by 48 percent to 733 million euros.
of competitiveness and value creation are met, we have changed the rules for the allocation of capital within the Group. On principle, our operating units are held to meet the following conditions in order to receive growth capital. They must: _ operate in a profitable market or business segment; _ transform their market position into sustainable creation of value and become a market leader; _ fit in with the long-term strategic orientation of the Allianz
G R O U P M A N A G E M E N T R E P O R T Overview 43
_ New tax laws that increased the tax charges in our German life and health insurance business by 428 million euros.
Group. Structures and workflows at Allianz Global Risks, our international industrial insurer, and at the Global Equity Platform, an administrative and organizational unit of Allianz Dresdner
Asset Management. A total of 18 Group companies to which we assign no strategic importance were sold, wound up, or, as in the case of Advance Bank, reintegrated into existing units.
Gesellschaft (Munich Re) and Beiersdorf AG. In the course of 2003, we cut our interest in Munich Re from 22.4 percent to 12.4 percent. In the fourth quarter of 2003, we agreed on the disposal of most of our interest in Beiersdorf AG; after completion of the transaction, we only hold 7.4 percent of the share capital of this company. With these initiatives, we not only reduced the complexity and the risks of concentration in our equity portfolio but also gained an additional measure freedom for its management.
Return on equity after taxes*) % 6.4 – 4.6 *) Calculated as net income in percent of average shareholders’ equity
Premium income from the insurance business grew 2.8 percent to 85.0 (82.7) billion euros. After adjustment for consolidation and currency effects, growth came to 7.3 percent. In IFRS accounts, which only recognize the risk and cost elements in premiums from investment-oriented products, we increased our revenues 0.4 percent to 63.4 billion euros.
In the asset management segment, we increased investments for third-party investors in euro accounts by 4 to 565 billion euros.
At constant exchange rates, the increase would have amounted to 72 billion euros. The operating result grew 48 percent to 733 million euros. Adjusted for currency effects, mainly due to the weaker U.S. dollar with respect to the euro, the operating result would have grown 73 percent to 855 million euros.
While current income fell to 15.5 (17.8) billion euros, the balance of realized gains and losses – essentially from the sale of shares in Beiersdorf AG – increased by 1.6 billion euros to 5.7 billion euros. Despite the recovery in the financial markets, the balance of write-ups and write-downs was still clearly negative
(1.2) billion euros, mainly due to an unscheduled write-down of 224 million euros on our company in South Korea.
The claims ratio in the property and casualty insurance business improved by 6.7 percentage points to 71.5 percent, boosted by our portfolio restructurings and the success of our turnaround programs, and additionally favored by relatively low payouts for major and elementary losses.
Earnings before taxes and amortization of goodwill came to 3.9 billion euros, following a loss of 147 million euros in the previous year. The amount of taxes actually paid reached 1,565
(918) million euros. But this was offset by deferred tax assets of 1,435 (1,686) million euros, which resulted in a tax charge of 130 (tax income of 768) million euros. After deduction of minority interest, which increased from 688 million to 782 million euros, we posted net income of 1.6 billion euros. Earnings per share amounted to 4.77 (– 4.44) euros.
At the end of the year, the current value of the Group’s investments was 398.8 billion euros. This figure also includes 86.4 billion euros of investments from banking business. On the whole,
Before amortization of goodwill, we thus reached a return on equity of 12.1 (– 0.3) percent. But the improvement of this indicator was still limited by the increase of unrealized gains from our equity portfolio, since these valuation reserves increase shareholders’ equity but are not recognized as profit in the income statement.
The number of employees worldwide declined from 181,651 to 173,750 in 2003. This is the result of our extensive efforts towards streamlining our business processes and of the consolidation of certain business areas.
In the following breakdown according to countries and regions, transactions between reporting units are not consolidated. In order to present a clear picture of our business operations, we have adjusted the results reported for the individual regions by eliminating the amortization of goodwill as well as minority interests.
G R O U P M A N A G E M E N T R E P O R T Overview: Property and Casualty Insurance 47
_ Premium income in property and casualty insurance grew 4.0 percent to 43.4 billion euros, before currency and consolidation effects. In IFRS accounts, the increase in premium income was 0.3 percent.
_ The combined ratio fell 8.7 percentage points to 97.0 percent.
The 4.0 percent premium growth (after consolidation and exchange rate effects) is the result of the following influences: _ we rigorously eliminated unprofitable business from our portfolio; _ we imposed more risk-adequate rates, particularly in Germany, France, Spain and the U.S.A.; and
We were able to bring down the claims ratio to 71.5 (78.2) percent. In particular, we attribute this improvement to: _ portfolio-restructurings throughout the company; _ successful turnarounds at our companies Fireman’s Fund,
Current income fell to 4.3 (5.9) billion euros. Realized gains and losses came to 6.4 billion euros (8.8 billion euros, including 3.9 billion euros from Group-internal transactions) and were essentially determined by the sale of shares of Beiersdorf AG, which contributed 2.8 billion euros to income. The balance of write-ups and write-downs decreased 17 percent to – 1.4 billion euros.
(370) million euros. Tax expenses came to 619 million euros in the reporting year. After deduction of minority interests in earnings (– 384 million euros) net income in property and casualty insurance amounted to 4.5 billion euros. That is a significant improvement over the prior-year figure which, after adjustment for Group-internal transactions, amounted to 3.4 billion euros.
_ With revenues of 10.1 billion euros, Allianz Sachgruppe Deutschland (SGD) is number one in the German property and casualty insurance market.
Total premium income in Germany increased by 313 million euros or 2.5 percent to 12.6 billion euros.
Premium income of SGD grew by 3.4 percent to 10.1 billion euros, driven mainly by premium growth in automobile insurance
(2.7 percent), casualty insurance (3.9 percent) and liability insurance (4.5 percent).
Putting this aside as one separate occurance, the improvement comes to 0.3 percentage points. Comprehensive cost cutting, mainly in administrative expenses and IT costs, which had already been launched in the previous year, brought down the expense ratio to 24.9 (28.0) percent.
Premium growth of 8.6 percent is primarily attributable to rate adjustments. All business lines contributed to this increase. Premium growth in the private insurance lines came primarily from automobile and household insurance. In international corporate business, we mainly increased rates in liability insurance. While we also increased rates in the business with small- and mediumsized companies, our very restrictive underwriting policy meant that the number of contracts slightly decreased. AGF’s cooperation with Crédit Lyonnais continues to develop well. Premium income at our joint subsidiary, Assurances Fédérales, climbed 15.8 percent to 94.6 (81.7) million euros.
Despite high payouts amounting to 24.3 million euros in connection with the fire and flood catastrophes in the South of
France, the measures introduced as part of our turnaround program were able to bring down the claims ratio by 4.7 percentage points to 79.8 percent. In particular, these measures included rate adjustments, agreements on higher retentions, the introduction of a stricter underwriting policy and the elimination of unprofitable business from our portfolio. Substantial increases in the international corporate business also helped to improve the claims ratio. The efforts of the French authorities to enforce road discipline, for example through more rigorous speed checks, clearly reduced the loss frequency in automobile insurance, which was also reflected in the lower claims ratio.
Significant savings in information technology and administration brought down the expense ratio by 2.0 percentage points to 24.4 percent.
_ Premium income at AGF amounted to 5.4 (4.9) billion euros.
_ AGF thus maintained its third place ranking among French property and casualty insurers.
The strong surge in business at our Italian direct insurer Genialloyd continued to gather momentum as its growth rate jumped by over 54 percent to 170 million euros. At present, almost 40 percent of its premium volume is generated through the Internet, which once again strengthenes Genialloyd’s position as Italy’s undisputed leader in this market segment.
Earnings after taxes of our Italian operations came to 402 (842)
million euros. Of this amount, 278 (742) million euros were generated by RAS Group, while Lloyd Adriatico contributed 124
We expect our Italian property and casualty insurance business to continue its growth in the current year while the claims and expense ratios remain stable or show slight improvement. However, this forecast is contingent upon the positive effects that the legal reform aimed at greater discipline in road traffic (driver ’s permit with point system, for example) is expected to have on automobile insurance.
Due to a risk-adequate pricing policy and the absence of major and elementary losses, the claims ratio improved 1.9 percentage points to 66.9 percent. The expense ratio fell to 28.7 (29.5)
_ Our subsidiary Allianz Cornhill ranks sixth in the British property and casualty insurance market.
A lower claims frequency and the restructuring of the group health insurance business reduced the claims ratio to 74.3
(76.3) percent. Despite investments in new IT systems to improve the efficiency of our workflows, the expense ratio remained nearly stable at 24.7 (24.3) percent.
Investment income increased to 88 (0) million euros, mainly because lower write-downs of equities were required.
In the current fiscal year, we will continue our restructuring efforts and improve the efficiency of our distribution system. Both measures have the objective of further improving our earnings performance.
With the expiration of two high-volume contracts in the traditional reinsurance business, revenues are expected to decline by about 130 million euros in 2004.
_ With revenues of 1.3 (1.2) billion euros, it ranks fourth in the Swiss market.
_ Premium income rose to 1.7 (1.5) billion euros. This makes us number two in Spain.
With a clearly structured product portfolio and an expanded agency network, our companies generated premium growth of 12.8 percent and thus again outstripped the estimated market average (plus 9.4 percent). All insurance lines and business areas contributed to this success.
Net investment income rose to 89 (49) million euros, mainly due to exchange rate and capital gains. Compared to 2002, the impairment charges on our investments were considerably lower.
Higher net investment income and successful operations boosted earnings after taxes to 97 (62) million euros.
In the current fiscal year, the Spanish market for property and casualty insurance will probably grow less dynamically than in 2003. We expect our companies to match this growth rate or even exceed it; our brand and competence have a good reputation in the market, and we have continuously expanded our distribution network. We aim to further boost efficiency and lower the expense ratio. All in all, we feel confident that we can again improve our results in Spain.
_ In addition, we provide property and casualty insurance in Belgium, Luxembourg and Greece.
Due to a very favorable loss situation and effective cost management, actual earnings were better than our budget projections.
For the current fiscal year, we expect premium income in Central and Eastern Europe to continue its strong growth. On May 1, 2004, Hungary, Poland, the Czech Republic and Slovakia will join the European Union. This historic event is likely to give an additional boost to our future business. We are confident that increasing revenues paired with strict cost management will enable us to further improve our earnings performance in these countries.
Agreement (NAFTA) region continued on their consolidation course. Premium income declined by 10.8 percent to 5.3 billion euros. In local currency terms, premiums dropped by 6.4 percent.
_ Fireman’s Fund Insurance Company (FFIC) provides insurance to private and commercial customers in the U.S.A.
_ In Canada, we are represented by Allianz Insurance Company of Canada and Trafalgar Insurance Company of Canada; their focus is on private client business.
_ Allianz México Compañía de Seguros S.A. operates in Mexico. It is mainly active in commercial business.
Allianz Insurance Company of Canada generated premium income of 568 (549) million euros.
Allianz Australia – by far our largest company in this region –
After the Chinese authorities granted us the requisite license, we started business operations in China in March 2003. For the time being, the license is limited to the city of Guang Zhou
(Canton) and to the industrial business only. We are working towards expanding our business without restrictions throughout China over the medium-term.
We had to close down our property and casualty insurer in South
Korea. The company had been set up the previous year, with the intention of selling products mainly across bank counters.
Korean government announced that the distribution of property insurance through banks would not be authorized until 2006, rather than 2003.
_ Premium income in the Asia-Pacific region increased by 3.4 percent and our total revenues amounted to 1.7 billion euros.
Adjusted for currency effects, premium income in the region grew 7 percent. The biggest contribution to premium income came with 270 million euros from Brazil. Second was our company in Columbia, which posted a premium income of 164 million euros.
We have introduced measures designed to reduce our risk in this region and will closely follow further developments.
_ Total premium income from the region came to 614 (768) million euros in 2003.
The claims ratio improved to 70.9 (100.8) percent. A selective underwriting policy and additional portfolio restructuring measures decreased the claims frequency. Lower claims expenses for elementary losses also helped to bring down the claims ratio.
Allianz Global Risks is a virtual business unit which, in addition to the reinsurance activities of AGR Re, also includes the worldwide industrial clients business of Allianz Group. We were able to lower its combined ratio to 93.8 (126.3) percent.
In the current fiscal year, the company will further diversify its portfolio. We expect the company to enhance its earnings performance.
What were the determining factors in this downturn? The lackluster economic climate hurt our clients’ business, while we set tighter standards for the risk-oriented underwriting policy and eliminated bad risks from our portfolio. In addition, currency effects diminished revenues in euro accounts.
Due to the absence of major losses and the improved risk quality of the portfolio, the claims ratio fell 22.8 percentage points to 49.3 percent. At the same time, the expense ratio improved to 32.7 (34.2) percent, even though revenues declined and administrative cost-cutting programs in many countries required considerable expenditures. This success is the result of significant cost reductions in the IT area due to synergies achieved through the integration of Euler and Hermes.
Although the worldwide business climate continues to be difficult, we expect higher revenues and improved earnings for the current fiscal year.
_ Total revenues of the Mondial Assistance Group, the leading provider of assistance services and travel insurance worldwide, declined slightly to 995 million euros.
With this result, the company maintained itself at a high level and went against the market trend, although the crises and wars in Afghanistan and in Iraq, as well as the SARS outbreak, severely hampered the travel industry, while falling automobile sales in the major European markets put the travel assistance industry under heavy pressure.
The 24.7 percent drop in revenues is mainly attributable to the depreciation of the U.S. dollar with respect to the euro and the restrictive underwriting policy of Allianz Marine & Aviation
The expanded business of Allianz Marine & Aviation Versicherungs -AG (Germany) was not able to compensate for the extremely prudent underwriting in France.
Insurance reserves ¤ mn 233,868 224,673 215,217 *) In relation to total premiums earned (net).
G R O U P M A N A G E M E N T R E P O R T Overview: Life and Health Insurance 63
_ The revenues from investment-oriented life insurance products contained therein increased 10.8 percent to 21.6 billion euros. Their share of total revenues was 51.1 percent.
In life and health insurance, our growth continued. After adjustment for currency and consolidation effects, revenues were up 10.9 percent. In IFRS accounts, which only recognize the risk and cost elements in premiums from investment-oriented products, premium income increased 0.1 percent to 20.7 billion euros.
Our investments increased to 112.1 (107.9) billion euros. The income they produced rose by 11 percent or 441 million euros to 4.4 billion euros. In part, this was due to the positive development of the stock market, which reduced the need for writedowns on the investment portfolio.
Earnings after taxes fell to – 50 (80) million euros, mainly due to significantly higher taxes, which increased from 38 million euros to 241 million euros. The higher tax charge is primarily due to the changes in tax law, which retrospectively no longer permits the deduction of disposal losses and write-downs on investment fund shares, if the impairment was caused by stocks that are part of the funds’ assets.
Total premium income increased 7.7 percent to 10.4 billion euros. In IFRS accounts, which recognize only the risk and cost components of premiums from investment-oriented life insurance products, premium income came to 9.9 (9.4) billion euros.
Our analyses show that the population is increasingly accepting the necessity of assuming individual responsibility for old-age provision. For this reason, we expect new business to continue its growth in the current fiscal year. To some extent, that is contingent upon the fiscal environment. Against this backdrop, we are expanding our product offerings, particularly in two areas: in view of the upcoming Law on the taxation of pensions and annuities (Alterseinkünftegesetz), we will develop new retirement provision products. We will also substantially expand our offer for three target groups, namely children, families and senior citizens. Given a stable development of the capital markets, and on the basis of thorough risk management, we expect threedigit after-tax earnings.
rose 3.3 percent to 3.0 billion euros. The main contributing factors to premium growth of 4.4 percent in the core health insurance business were rate adjustments to compensate for higher health care costs, new business and the legal premium supplement. Revenues from mandatory care insurance dropped off 9.1 percent to 209 million euros, due to a market-wide rate cut. The number of policyholders increased by 2.9 percent to some 2.3 million. The higher income limit for mandatory health insurance that took effect on January 1, 2003, and the uncertainty on the part of potential customers as a result of the ongoing debate about a reform of the German health care system reduced the number of contracts for comprehensive insurance packages. Inversely, supplementary insurance sales picked up noticeably.
Due to a moderate rise in the claims trend in past years, we expect lower rate adjustments in the current fiscal year and little change in premium income at Allianz Private Krankenversicherungs -AG.
If the recovery of the financial markets continues, we consider it likely that we will succeed in further increasing our revenues from unit-linked life insurance in the current fiscal year.
_ Through the RAS Group and Lloyd Adriatico, we have an excellent position in the Italian life insurance market.
_ Together, these two companies increased their revenues to 9.0 (7.7) billion euros, making them number two in the Italian market.
Total premium income increased by 3.6 percent as a result of two developments: _ In private customer business, we registered slight revenue growth of 1.2 percent. Revenues from the sale of guaranteed interest products declined but were more than compensated by the successful sale of unit-linked life insurance.
(which rose by 11 percent) increased premium income from health insurance by 12 percent.
Substantial cost reductions and efficiency gains, particularly in information technology, drove down the expense ratio 1.4 percentage points to 16.5 percent. But we are not yet satisfied with these improvements and will continue our cost-cutting efforts.
Net investment income rose to 1.9 (0.7) billion euros, mainly due to gains from the disposal of our interest in Crédit Lyonnais as well as other stock disposals as part of the systematic downsizing of our equity portfolio.
After taxes, our company returned to the profit zone and posted earnings of 191 million euros, following a loss of 223 million euros in the previous year.
In the current fiscal year, premium income should grow at the same rate as the overall market. After adjusting our product lines to the needs of our agents, our field representatives and their customers, we expect clear gains from sales through these channels. The upcoming reform of the French social security system in 2004 is likely to sustain further growth in health insurance.
Earnings after taxes ¤ mn 191.3 – 223.1 97.4 *) In relation to total premiums earned (net).
This regulatory measure enables us to once again underwrite profitable new business. In addition, we have introduced comprehensive measures aimed at revising our product portfolio, standardizing our administrative systems and implementing new requirements due to changes in the regulatory environment.
Earnings after taxes ¤ mn – 8.5 – 79.6 – 17.1 *) In relation to total premiums earned (net).
_ That makes the company number six in the Swiss market.
The expense ratio improved 3.7 percentage points to 8.6 percent. Write-downs of deferred acquisition costs were lower than in the previous year, and our cost-cutting measures in distribution began to show palpable results.
This loss came to 9 (loss of 80) million euros and is again attributable to an excessive guaranteed interest in the Swiss life insurance business. This interest rate had been lowered from 4 to 3.25 percent at the beginning of 2003, but even that level cannot be sustained under the prevailing conditions in the financial markets. Swiss government bonds, for example, have a yield of 2.5 percent. A further cut of the interest rate to 2.25 percent was decided, effective January 1, 2004. In the group insurance business, this new rate also applies to the insurance portfolio.
In the current fiscal year, we will continue to build up our private customer business in Spain. We are upgrading the local coverage of our distribution network and investing to improve the quality of the advice and service provided by our representatives. These initiatives are expected to bring about a further improvement to our earnings performance.
Earnings after taxes ¤ mn 33.1 29.5 27.5 *) In relation to total premiums earned (net).
Total revenues from the life and health insurance business in the other European markets came to 2.1 (1.7) billion euros. Due to the development of the capital markets over the course of the past years, many clients turned away from unit-linked products. In contrast there was growing demand for traditional life insurance products. In IFRS accounts, premium income increased to 1.4 (1.3) billion euros.
Eastern Europe, we were nonetheless able to boost our revenues by 38.4 percent, mainly due to the first-time consolidation of
In the current fiscal year, we expect continued growth of premium income and improved earnings performance. With Hungary, Poland, the Czech Republic and Slovakia joining the European Union in 2004, our business prospects for the coming years should be even more successful.
_ Product portfolio and flexibility enable our company to respond at all times to fluctuations in demand between classic retirement insurance and unit-linked retirement insurance and thus gear its activities to client needs.
Although fixed annuity sales in the U.S.A. were down significantly over the previous year, the sales volume at Allianz Life was down only 2 percent. This expanded our market share and moved us up to the number two position in fixed annuity sales in 2003. The interest rate environment posed substantial challenges to us as well as fixed annuity writers in general. We responded with lower profit participation, lower commissions for our agents and by withdrawing products from the market, if their profitability could not be maintained at acceptable levels.
The continuing expansion of our distribution network and the revival of the U.S. equity market gave our variable annuities business an uplift. In local currency, variable annuity sales increased by 41 percent, thereby strengthening our market share. After the sustained growth of the past years, we are now poised to reach critical mass in the unit-linked life insurance segment.
The expense ratio declined from 4.8 percent to 4.6 percent, the fruit of our continuing efforts to improve organizational structures and workflows.
It profited from a significantly larger investment portfolio and an upturn in the financial markets, which led to lower writeoffs on securities as well as higher realized gains.
Earnings after taxes reflect a pronounced turnaround in profits: after the previous year’s loss of 18 million euros, Allianz Life generated a profit of 165 million euros in the reporting year.
In the current fiscal year, we expect a moderate expansion of premium income. We have confidence in a business policy that does not hesitate in adjusting the range of products and tariffs to new market conditions.
_ Total premium income dropped from 9.5 billion euros to 8.6 billion euros.
Earnings after taxes ¤ mn 164.9 – 17.7 – 23.7 *) In relation to total premiums earned (net).
Allianz President Life resulted in very successful sales of unitlinked life insurance products and pushed premium income up to 827 million euros. This boosted our market position from fourteenth to fifth place.
In Thailand, our joint venture Ayudhya Allianz CP Life increased its premium income which put it in third place among Thailand ’s life insurers. In new business, it ranks second.
In India, our joint venture continued its growth and raised its premium income.
In Malaysia, our life insurer posted 35 percent growth in new business; in Indonesia premium income was up 57 percent.
The combination of a low-interest environment and high guaranteed minimum interest rates has brought South Korea to the point where income generated by the current portfolio no longer corresponds to the assumptions we made at the time of acquisition. Whilst the interest rates in the market dropped from 7 percent at the start of 2003 to 5.5 percent at the end of the year (and fell as low as 4.5 percent in between), the guaranteed interest for new business stayed at 5 percent. To shore up our earnings potential, we had to act without delay. We therefore embarked on the reorientation of our company: _ We revised the product portfolio and will primarily launch capital market-oriented products as well as products with low guaranteed minimum interest.
In view of the prevailing uncertainties, we have abandoned most our life insurance activities in this region and sold our companies in Brazil and Chile. In Columbia, we are expanding the sale of investment-oriented products, for which there is a strong demand. The other life insurance activities were discontinued in this market as well. Total revenues in South America came to 130 million euros.
In fiscal year 2003, the banking business recorded an operating result of – 357 million euros. An operating loss from the Institutional Restructuring Unit of Dresdner Bank of 728 million euros was partly compensated by a positive operating result of 371 million euros in the other banking business. Overall, operating income declined in fiscal year 2003 by 10.9 percent to 6.7 billion euros. This is essentially due to consolidation and exchange rate effects. Adjusted for these effects, the decline is only 3.1 percent. At the same time, we managed to reduce administrative expenses by altogether 16.8 percent to 6.1 billion euros. Adjusted for consolidation and exchange rate effects, the cost reduction was 12.7 percent. We were thus able to surpass our cost cutting goals. In addition, we made significant progress in reducing loan loss provisions. The non-operating business was charged by 1.6 billion euros especially due to write-downs and restructuring expenses. Overall, our banking business reported a net loss for the year of 1,279 million euros.
The decline in the operating income resulted primarily from a lower net interest income which dropped 26.7 percent to 2.8 billion euros. This is mostly attributable to the de-consolidation of Deutsche Hyp in the third quarter 2002. Adjusted for consolidation and exchange rate effects, net interest income fell by 10.4 percent. This reduction is to be looked at with the following background: between year-end 2002 and year-end 2003, the risk weighted assets at Dresdner Bank were reduced by 30.8 billion euros – a cut of some 20 percent – to 111.7 billion euros. Given that the adjusted net interest income declined less sharply, our measures to improve portfolio quality are yielding
Net fee and commission income decreased by 7.8 percent to 2.5 billion euros as some of our customers were responding to the market development in a reserved manner. At the same time, the trading income showed an exceptionally encouraging development, improving by 37.4 percent to 1.5 billion euros. The main boost came from stock trading as well as currencies and interest products.
We reduced administrative expenses noticeably to 6.1 (7.3) billion euros thus succeeding in surpassing our cost reduction goals. The savings divide up almost equally between personnel and operating costs. The strong decline in personnel costs can be attributed on the one hand to the cutback in employees and on the other hand to the reduction in guaranteed boni. The reduction in operating costs is the result of tighter cost controls in all areas. The operating cost-income ratio, which shows the relation of administrative expenses to operating income, indicates the success of these measures: compared to 2002, the ratio improved by 6.4 percentage points to 90.3 percent.
(675) million euros. On the one hand, this item includes writeoffs, with 714 million euros relating to write-downs on financial assets. On the other hand, it encompasses restructuring expenses of 892 million euros, with the “Neue Dresdner” program accounting for 380 million euros of this amount.
Taxes generated income of more than 1 billion euros, which was predominantly due to deferred tax assets. In part, these were generated in the reporting year, in part they were due to the capitalization of tax losses carried forward from previous years already written off. As a result of a structured transaction, these are now considered to carry value.
Overall, the banking business reported a net loss for the year of 1,279 (net loss 1,358) million euros. This result reveals that –
(gross) until 2005; this includes reducing the number of employees by 4,700.
Below we report the two operating divisions of Allianz Group’s banking business for the last time in the old structure. The remaining activities not assigned to either one of these divisions essentially include Corporate Items (including Corporate Investments ) of Dresdner Bank, as well as Entenial, which was sold at the beginning of 2004. Together, the remaining activities contributed an after-tax result of – 466 (803) million euros.
One of the most important positions therein were restructuring expenses of 402 million euros.
The Corporates & Markets (C&M) segment being commented here encompasses Corporate Banking, the division Dresdner
Kleinwort Wasserstein and the business shares from C&M that were transferred to the Institutional Restructuring Unit (IRU).
Here, we are reporting for the last time according to the old structure.
The operating income in Corporates & Markets stabilized at 3.7 billion euros. Administrative expenses were pared by 25.8 percent to 2.6 billion euros. As a result, the cost-income ratio improved from 91.6 to 70.7 percent. Loan loss provisions were significantly reduced to 874 million euros compared to 1,592 million euros in 2002. Therefore, a positive operating result of 219 million euros was recorded. If other income and expenses
– the balance amounted to – 418 million euros – are taken into account, a loss after taxes was recorded of 273 (loss after taxes 1,642) million euros.
In a fiercely contested market, the Private & Business Clients division of Dresdner Bank recorded operating income of some 3 billion euros. This amount divides up almost equally between net interest income and net fee and commission income. However, developments differed: net fee and commission income improved due to a successful brokerage business and the successful cooperation between Allianz and Dresdner Bank. Both revenues and profit improved. In contrast, net interest income contracted because the market allowed only lower margins in the deposit business. Administrative expenses were significantly reduced thanks to rigorous cost management and further staff reductions, especially in the back office area. By continuously cleaning-up the loan portfolio, we lowered the loan loss provisions strongly to 247 million euros. Overall, the Private & Business Clients segment recorded an operating result of 248 million euros. After taking other income and expenses into account
(essentially restructuring expenses of 174 million euros), earnings after taxes were 53 million euros.
In the Institutional Restructuring Unit (IRU), the operating loss amounted to 728 million euros. This loss was mainly attributable to loan loss provisions of 884 million euros, more than four fifths of the loan loss provisions for the entire group. There were two main drivers behind net additions to loan loss provisions.
First, we had to record discounts on book value from the sale of loans which were carried out more quickly than planned; second, we made additions to the loan loss provisions for loans at risk. The share of these loans is far higher in the IRU than in the strategic business. The IRU recorded a loss after taxes of 933 million euros. This contains a balance of other income/expenses of – 527 million euros.
“powered by PIMCO”, recorded net inflows in 2003 of more than 1.7 billion euros. It was once again one of Germany’s best selling fixed-income funds.
Deutschland still ranks first. In special funds, the company’s institutional asset manager dbi recorded growth of 5.4 billion euros.
Co., the first fund manager with foreign participation to be granted a business license in China in 2002, commenced business operations very successfully with the launch of the Desheng Stable Balanced Fund and a sales volume of 3.7 billion
Assets under management current current current values values values 12/31/2003 12/31/2002 12/31/2001
The operating result amounted to 733 million euros, an increase on the previous year of 238 million euros or 48 percent. Adjusted for exchange rate effects, the result would have been 122 million euros higher. Thanks to an improved cost structure on the back of high net inflows and benign market conditions, the cost-income ratio improved from 78.5 to 67.2 percent. In 2004, we aim to complete the current restructuring program at our
Statements). The acquisition-related expenses include amortization of goodwill of 369 million euros as well as 137 million euros for the amortization of loyalty bonuses for the PIMCO
The current value of investments in affiliated enterprises, joint ventures and associated enterprises decreased by 7.9 billion euros to 7.1 billion euros. Most of these investments were in associated enterprises (i. e. companies in which we hold a share of between 20 and 50 percent) which are valued by the equity method. The decline on the prior-year period is essentially due to the de-consolidation of Münchener Rück AG and Beiersdorf
In addition, we held investments with a current value of 298.4 billion euros. Of these, 4.7 billion euros were in securities heldto -maturity and 277.9 billion euros in securities available-forsale. The latter included 17 (18) percent stocks and 83 (82) percent fixed-income securities. The difference with respect to the previous year can be explained first and foremost by our decision to lower the equity allocation in our portfolios. Unrealized gains and losses from dividend-bearing equities increased to 5.3
Current Weighting Weighting values in ¤ bn in % in %
Funds held by others under reinsurance contracts assumed 2.0 0.5 0.5
Statements on pages 179 and 180. The list also provides information on the percentage of our interest in each company and the market capitalization of our holdings. At the end of 2003, the market value of these holdings totaled 18.4 billion euros.
Write-downs totaled 5.4 (5.9) billion euros in fiscal 2003, with securities available-for-sale accounting for 4.8 (5.5) billion euros of this amount. The weak equity markets in the first quarter of the year in particular had made these write-downs necessary.
Expenses for the management of investments and for interest amounted to 1.3 (1.7) billion euros.
Statements). An additional 2.2 (2.7) billion euros of investment income came from the banking business.
In our business, successful management essentially means controlling risks in order to increase the value of the Allianz Group on a sustained basis. Therefore, the Board of Management of
Allianz AG formulates the business objectives and allocates the capital resources of the Allianz Group according to return-oninvestment and risk criteria. Our risk-control strategy assigns responsibility for risk management to the local entities, so that these can adjust to changing risk situations in a timely manner and in close proximity to their markets. At the same time, the operating units thereby meet the applicable legal requirements at their respective locations.
This decentralized approach is complemented by centralized responsibility. Thereby, we account for the fact that in addition to local risks, we must also control global risks. Their accumulation can result in a considerable increase of our potential risk exposure. They are therefore centrally controlled by Group Risk
Control. Our cumulated control covers all business segments of the Allianz Group.
In addition, Group Risk Controlling develops methods and processes for risk assessment and control on a group-wide basis.
On this basis, Group Controlling assesses the Allianz Group’s risk exposure on the basis of local and global risks. Risk management activities are supervised by both internal and external auditors.
Chief Risk Officer. The mission of this committee is to promote the development of a comprehensive risk culture in the Allianz
Risk capital is used as a hedge against unexpected losses. In fiscal 2003, a risk model based on the concept developed by the
Premium risks Premium risks are controlled primarily with the help of actuarial models used to calculate premiums and monitor claim patterns. In addition, we issue guidelines for concluding insurance contracts. In life insurance, we essentially concentrate on biometric risks – e. g., life expectancy, disability and illness. We also focus on risks that could arise from future policy cancellations.
Natural disasters such as earthquakes, storms and floods represent a special challenge for risk management. To control such risks, we use special modeling techniques. They involve the compilation of data about our portfolio, for instance the geographic distribution of insurance amounts, with natural disaster scenarios in order to estimate the potential damage. The use of these simulation techniques was further expanded in the reporting year.
Investment risks We monitor market risks by means of sensitivity analyses and stress testing. As protection against exchange rate fluctuations, we back our insurance commitments to a very large extent by funds in the same currency. If the average share prices of a stock portfolio carried as available for sale had dropped 10 percent by the end of fiscal 2003, the shareholders’
We limit credit risks by setting high requirements on the creditworthiness of our debtors and by spreading the risk.
Through our central credit risk management, we consolidate our exposure according to debtors and across all investment categories and business segments, and we use monthly limit lists to monitor exposure. Approximately 92 percent of the fixed-interest investments of the insurance companies of Allianz
Organizational controlling of investment risks In terms of organization, we limit our investment risks through a clear separation of management and controlling functions. Within the
Allianz Group, risk management is implemented in cooperation with the local units in a top-down bottom-up process. The
Credit and counterparty risks These risks are directly linked to granting credits in the banking business. The bank controls these risks through guidelines and credit risk committees. The central element in the approval, supervisory and control process is the rating of our customers. In this process, the various creditworthiness characteristics of the customers are presented in the form of rating classes. As quality control for these rating methods, validation benchmarks were introduced in the reporting year.
To categorize the default probability of a borrower, a system with 16 different rating classes is used. The first six classes correspond to “investment grade”, classes VII to XIV signify “non investment grade”. Rating classes XV and XVI are default classes according to the Basel II Definition. At the end of fiscal 2003, about 75 percent of all counterparty risks in the trading and banking portfolios of the Dresdner Bank Group fell into rating classes I to VI.
I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI
These counterparties account for approximately 93 percent of the bank’s trading business and 63 percent of its total portfolio.
Bank’s Risk Executive Committee (REC), which is headed by the Chief Risk Officer of Dresdner Bank. This body issues the appropriate guidelines and standards for the risk strategy and risk control. In addition, the Risk Executive Committee decides on essential projects involving a credit risk and has a decisive influence on the modalities of the bank’s risk management. The
REC is also responsible for the regular audit of the overall portfolio.
The Group Credit Committee was set up to decide on credits which do not fall under the responsibility of the risk management units in the divisions and for which no decision by the
In the past fiscal year, credits were transferred from the business segments to the Institutional Restructuring Unit (IRU).
Counterparty risk from trading activities: in the credit-sensitive trading business with OTC derivatives, the selection of counterparties plays a decisive role. The selection process is aimed at counterparties with top-quality credit ratings. In the rated derivatives portfolios of Dresdner Bank, 97 percent of the positive replacement values involve counterparties in risk classes I to VI
Country risks We control these risks by using internal country ratings. These ratings are based upon macroeconomic data and key qualitative indicators. The latter take into account the economic, social and political environment. At present, Dresdner
Year-end 2003 annual statistics Year-end 2003 Mean value Maximum Minimum 2002
Value-at-risk is only one of the instruments used to characterize and control the risk profile of the Dresdner Bank Group. In addition, the bank also uses operational risk indicators and limits, which are specifically adapted to the risk situation of the trading units. Trading is controlled by setting value-at-risk and operational market risk limits. Current limit utilization is determined and monitored by Risk Controlling on a daily basis.
Bank’s trading activities increased slightly compared to the previous year. This is mainly due to the fact that positions for interest -bearing instruments were built up moderately.
Market risks in the non-trading portfolio: this risk mainly comprises the risk of interest changes and is analyzed on the basis of sensitivity and value-at-risk indicators. As in the case of trading, the bank controls this risk by setting value-at-risk limits. At the end of 2003, the value-at-risk for interest rate risks in the banking portfolio of Dresdner Bank Group decreased slightly by 2 percent to 31.2 million euros.
<= 1 year 1 — 5 years > 5 years Total
Bank, before risk-reducing diversification effects, was composed as follows: 0.7 billion euros were allocated for market risks, 4.8 billion euros for credit and counterparty risks, 3 billion euros for risks from private equity and other investments, 1.4 million billion euros for operational risks and 0.7 billion euros for other business risks. After deduction of diversification effects, total risk capital amounted to 8.3 billion euros.
Risk control in asset management is an integral part of the processes of the local units or the investment platform. The Corporate Center ensures that Group-wide standards for asset management are applied at the local level. The individual asset management companies continually monitor the portfolio risks of the customer assets they manage by using analytical tools specifically adapted to the risk profile of the product concerned.
Supervisory authorities and rating agencies are additional risk monitoring bodies. Supervisory authorities specify the minimum precautions that must be taken in individual countries and at the international level. Rating agencies determine the relationship between the required risk capital of a company and the available safeguards. In their evaluation of capital resources, the rating agencies include equity shown in the balance sheet, minority interests and other items representing additional securities in times of crisis. At the end of the year, this total was at a level that corresponds to our current ratings. At the end of fiscal 2003, the financial strength of the Allianz Group was rated by Standard & Poor’s as “AA–” and by A. M. Best as “A+”. The
In addition, we will improve the process and organization of local risk management by introducing such enhancements as solvability stress tests and uniform procedures for the control and limitation of risks from natural events. For credit risks, a comprehensive limit system will be used, which limits counterparty risks both locally and at the Group level.
Accord (“Basel II”), which is currently being revised. In order to implement Basel II with respect to credit risks, Dresdner
Bank plans to use the advanced “internal rating method”. The operational risk capital, which, for regulatory purposes in accordance with Basel II, must for the first time be shown separately, will be calculated by means of the “advanced measurement method”.
On December 31, 2003 we had 173,750 (181,651) employees in over 70 countries. The reduction of staffing levels is primarily attributable to the measures taken in the course of the restructuring or reorientation of our activities at Dresdner Bank Group,
Germany. A detailed overview is provided by the table and the chart below.
Our exchanges with customers, managers and employees have again and again shown the enormous development potential of the Allianz Group. To capitalize on this opportunity in a better and more expeditious manner in the future, we have developed a set of Leadership Values in collaboration with top-level managers from our subsidiaries. They are intended to provide our managers world-wide with behavioral principles and they give our stakeholders a good idea of what they can expect from the management of Allianz Group in the future. In December 2003, the Leadership Values were introduced world-wide, in conjunction with a broad-based survey of our managers’ attitude towards the corporate and leadership culture of their respective companies. The results of this study are used by each Group company as a basis on which they can implement our Leadership Values at the local level and harmonize them with business objectives.
The human resources policy of the Allianz Group is based on two organizational principles: delegation of operating responsibility to the individual company units, and close coordination in core areas. In human resources, this coordination primarily covers leadership values, development and training of junior managers, succession planning and the transfer of know-how between business units.
We provide international training programs for our management trainees. One of them is, for example, the “Global Development Program” of Allianz Dresdner Asset Management, which combines a posting abroad with accompanying intercultural training. We like to assign young talents to projects abroad at the beginning of their career, or we encourage them to participate as knowledge managers in internationally staffed teams, to the extent that this supports their individual career development plan.
The Allianz Management Institute (AMI), our corporate university for management training, has a central role in the
Group’s learning and knowledge network. AMI disseminates current specialist and management know-how and facilitates access to the Group’s strategy. This is done in campus programs, for example. In these programs, top-level managers from Group companies meet with Board Members of the Holding to jointly examine strategies and refine them in a constructive dialogue.
Subjects in the reporting year were “Leadership Values”, “Turnaround Management”, “Asset Management and Old Age Provision ”, “Building an Entrepreneurial Organization”, “Human
In developing its curriculum, AMI works with leading universities, international business schools and research institutes, giving our management access to renowned experts and the latest research in the field. Specialists from the organization share their specific experiences, which enhances the practical relevance of the AMI offerings, promotes best practices and gives the entire teaching program an unmistakable Allianz feel.
Beyond its commitment to AMI, Allianz is one of the founders (and sponsors) of the European School of Management and Technology (ESMT) in Berlin. The courses offered by this school are also attended by our management trainees. The spectrum of available seminars ranges from “Finance”, “Risk Management ” and “Strategy” to “Change Management” and “Human
Our performance and result-based remuneration is based on management by agreed-upon individual objectives. In the reporting year, this tool was more closely integrated with our valueoriented management control and planning strategy. Remuneration of upper- and mid-level management is tied to meeting objectives and to the success with which our strategy for increasing the value of the company is implemented.
Incentive Plan. The new program is based on stock appreciation rights (SAR) and restricted stock units (RSU), which provide for a balanced incentive structure. The potential yield depends on the development of the Allianz AG share price. The calculation of grants takes into account the Economic Value Added (EVA®)
Group Equity Incentive Plan meets all requirements and recommendations of the German Corporate Government Code.
More detailed information on stock-based remuneration is provided on pages 14 and 16 of this Annual Report.
foster growth and lend it support. Fueled by a more propitious economic environment and an overall positive mood, long delayed investment decisions are put into practice, which lends even more substance to the economic upswing.
American private households. On the whole, the U.S. economy should grow by at least 3 percent in the current year. For Europe, we see an expansion rate of 2 percent, an average that even Germany – Europe’s weakest performer in recent years –
In Central and Eastern Europe, we expect economic growth to be almost twice that of the fifteen E.U. countries, i. e. about 4 percent. The enlargement of the E.U. to the east will enable the economies concerned to reduce the wealth gap with the west faster than before. In this adjustment phase, which will continue over many years, the demand for insurance protection, asset management and banking services will grow significantly, supported by the fact that the majority of these countries has introduced mandatory retirement savings plans.
The economic prospects for 2004 are significantly better than in recent years. Growth is likely to accelerate in all regions of the world. That will also give new impetus to financial services providers, even though sizeable risks persist.
A P P R O P R I AT I O N O F P R O F I T
The recommendation for appropriation of earnings takes into account own shares held directly or indirectly by the company, which in accordance with the German Stock Corporation Act
We operate in a business that lends support in all situations in life and creates the prerequisites for independent action.
_ Transparency and efficiency in corporate governance. More information on this topic is provided on pages 10 to 13 of our
_ Our corporate citizenship that goes beyond our business activities and extends to all countries in which we offer our services. One example is the promotion of financial and economic know-how in China, another the voluntary work our employees do in the slums of São Paulo. Many other projects are supported by the foundations of the Allianz companies.
Principle 2 make sure that they are not complicit in human rights abuses.
Association Trust in London, ADAM is developing the corresponding standards for investment decisions.
Bank now holds borrowers to thoroughly examine the environmental impact of their projects. They must avoid the use of dangerous substances and see to it that health, cultural property and endangered species remain protected.
Our “Leadership Values” state that we respect and promote diversity. In that, we place special emphasis on continuing education and training and a well-established feedback culture. We also launched a number of programs that make it possible to reconcile family life and working activities, for example through flexible working time models or by providing care for children or other family members.
Principle 7 Businesses should support a precautionary approach to environmental challenges; Principle 8 undertake initiatives to promote greater environmental responsibility; and
Group Climate Change, since 1992. In the meantime, it has supplemented its membership by an environmental program of its own, which calls for the further extension of the financing of environment-friendly products and services and commits the bank to a more efficient use of resources. Among others, the bank has set itself the target of lowering CO2 emissions by 28 percent by the year 2012.
The Allianz Environment Foundation supports projects aimed at helping to reconcile human activity with environmental concerns. In that, it primarily focuses on the protection of waterways and species, landscape conservation, gardening arts, environmental communication and the extension of green spaces in cities. Current examples of its work are the repair of flood damages in the biosphere reservation “middle-reaches of the
103 Consolidated Income Statement 104 Statement of Changes in Shareholders’ Equity 105 Cash Flow Statement 106 Segment Reporting 106 Consolidated balance sheet by business segments 108 Consolidated income statement by business segments 110 Property/Casualty insurance 110 Specialty lines 110 Life/Health insurance 110 Banking
Notes to the Consolidated Financial Statements 112 1 Issuance of the Declaration of compliance with the German
Supplementary Information on Group Liabilities and Equity 137 13 Shareholders’ equity 139 14 Minority interests in shareholders’ equity/earnings 139 15 Participation certificates and subordinated liabilities 141 16 Insurance reserves 143 17 Liabilities to banks 143 18 Liabilities to customers 144 19 Certificated liabilities 144 20 Trading liabilities 144 21 Other accrued liabilities 147 22 Other liabilities 147 23 Deferred income
Supplementary Information on Insurance and Banking Business 157 38 Supplementary information on insurance business 158 39 Supplementary information on banking business 159 40 Use, treatment and reporting of derivative financial instruments 162 41 Related party disclosures 163 42 Contingent liabilities and other commitments
Selected Participations and Equity Investments 175 Operating subsidiaries 178 Associated enterprises 179 Other selected holdings in listed companies 181 Independent Auditors’ Report 188 Glossary
A L L I A N Z G R O U P 101
B. Investments in affiliated enterprises, joint ventures, and associated enterprises 6 6,442 11,345
Consolidated Income Statement for the Period from January 1 to December 31
➤➤ Note ¤ mn ¤ mn ¤ mn 3. Income (net) from investments in affiliated enterprises, joint ventures, 6. Fee and commission income, and income from service activities 29 6,060 6,102 4,827 12. Acquisition costs and administrative expenses 35 – 22,117 – 24,502 – 19,383 15. Earnings from ordinary activities before taxes 2,528 – 1,309 1,768
The column “translation differences” shows the currency translation differences accrued since January 1, 1997 (conversion to IFRS accounting ), which are recorded in shareholders’ equity and not recognized in net income.
Change in loans and advances to banks and customers – 47,109 – 5,846 3,442
Change in liabilities to banks and customers 48,648 – 8,215 – 5,456
Change in other receivables and liabilities – 4,250 – 1,370 3,871
Net cash flow provided by (used in) operating activities 5,155 – 758 – 834
Change in cash and cash equivalents from the acquisition of consolidated affiliated companies – 1,450 – 10,787 12,114
Net cash flow provided by (used in) investing activities – 2,770 – 13,780 11,395
Change in participation certificates and post-ranking liabilities – 1,943 2,784 – 770
Cash and cash equivalents at end of period 25,528 21,008 21,240
(2002: ¤ 23 mn decrease; 2001: ¤ 24,564 mn increase). Outflow for taxes on income amounted to ¤ 2,665 mn (2002: ¤ 1,196 mn outflow; 2001: ¤ 306 mn inflow).
B. Investments in affiliated enterprises, joint ventures, and associated enterprises 48,385 51,448 5,717 6,183
D. Investments held on account and at risk of life insurance policyholders – – 32,460 25,657
I. Amounts ceded to reinsurers from insurance reserves 14,400 17,188 16,875 17,623
C. Insurance reserves for life insurance where the investment risk is carried by policyholders – – 32,460 25,687
Total equity and liabilities 935,951 852,172 *) Shareholders’ equity and minority interests
Consolidated Income Statement by Business Segments for the Period from January 1 to December 31
L I F E / H E A LT H Premiums earned (net)
P R O P E R T Y / C A S U A LT Y 1) Premiums earned (net) Net claims ratio2)
C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S Segment Reporting 111
On December 17, 2003, the Board of Management and the Supervisory Board of Allianz AG issued the Declaration of Compliance according to § 161 AktG and made it available on a permanent basis to the shareholders on the company’s website. The text of the Declaration of Compliance is also reproduced in the section Corporate Governance beginning on page 11 of this Annual Report.
In the course of 2004, the IASB will publish a definitive standard based on the Exposure Draft (ED) 3 Business Combinations. When this standard is applied, goodwill will be written down only if it is impaired (impairment-only approach). When this standard is applied, scheduled amortization of goodwill will be discontinued, as is the case under U.S. GAAP. For existing goodwill, the standard is expected to be first applicable for the fiscal year beginning after March 31, 2004. However, the standard will also permit early application.
In 2003, the IASB published a draft standard for the evaluation and accounting of insurance contracts (ED5 insurance contracts). The
Accounting Principles Board Opinion (APB) 25 and Statement of Financial Accounting Standards (SFAS) 123 require that such expense be recognized ratably over the vesting period. The adjustment of the accounting was made in the 3rd quarter of 2003. For the past, the following effects have been recognized: revenue reserves and, accordingly, shareholders’ equity as of December 31, 2001 and December 31, 2002 were reduced by ¤51 mn and ¤99 mn respectively.
¤80 mn was recognized for the first 9 months of 2003.
Beginning in the 3rd quarter of 2003, we adopted SFAS 123 to account for all stock-based employee compensation plans. Compensation expense measured according to the fair value method of SFAS
123 for the PIMCO arrangements described above approximates that measured under APB 25. The present report otherwise follows the same accounting and valuation principles as the most recent annual financial statements. The Group’s stock-based remuneration plans are described in note 43.
In addition to Allianz AG, 193 (2002: 213; 2001: 163) German and 972 (2002: 1,045; 2001: 1,021) foreign enterprises have been consolidated in full. In addition, 61 (2002: 74; 2001: 73) German and 39
Of the entities that have been consolidated in full, 10 (2002: 12; 2001: 19) certain subsidiaries have been consolidated where Allianz
Allianz AG together with a third party not included in the consolidated financial statements.
170 (2002: 198; 2001: 146) associated enterprises have been accounted for using the equity method.
Certain enterprises have not been consolidated or accounted for using the equity method in cases where their value is not material to the presentation of the financial statements as a whole.
The principal first-time consolidated companies for the years 2003, 2002 and 2001 are listed in the following overview: New acquisitions 2003
_ On December 2, 2003, we increased our interest in Münchener und
Slovenská poist’ovna a. s., Bratislava 7/22/2002 125 – 8 138 – 7
Nicholas Applegate, San Diego 1/31/2001 – – 29 1,042 – 47 1) Consolidated in the business segments 2) On the date of first-time consolidation
The principal companies deconsolidated in the course of the year are presented in the following table: New acquisitions 2002
The following principal acquisitions were consolidated for the first time: The Slovak insurance company Slovenská poist’ovna a. s. (as of 2003: Allianz-Slovenská poist’ovna a.s.), Bratislava, operates in both the property /casualty and the life/health insurance business segments. On
July 22, 2002, Allianz Group acquired 66.8 % of the shares of Slovenská poist’ovna for a purchase price of ¤66.3 mn. An additional 25.8 %
on December 20, 2002. The total acquisition cost for our 99.1 %
We also acquired the following additional ownership interests in already consolidated subsidiaries: _ On January 15, 2002, we increased our interest in Allianz
Lebensversicherungs-AG, Stuttgart, by 40.5 % to 91.0 % (acquisition cost for additional shares ¤2,586.6 mn). This transaction produced additional goodwill amounting to ¤633 mn.
_ On January 15, 2002, June 28, 2002, July 2, 2002 and August 23, 2002, we successively increased our interest in Dresdner Bank AG,
Frankfurt/Main, by a total of 21.5 % to 100.0 % (acquisition cost for additional shares ¤6,338.2 mn). This transaction produced additional goodwill amounting to ¤2,002 mn.
In August 2002, Deutsche Hyp Deutsche Hypothekenbank AG was merged into Eurohypo AG, a company into which Commerzbank AG,
Deutsche Bank AG and Dresdner Bank AG merged their mortgage lending subsidiaries. Proceeds from the sale of Deutsche Hyp Deutsche
The following principal acquisitions were consolidated for the first time: _ Dresdner Bank AG, Franfurt/Main and its subsidiaries. With its purchase of 56.7 % on July 23, 2001, the Allianz Group acquired a majority stake at a price of ¤17,227 mn. A further 1.0 % of the stock was purchased in the period to December 31, 2001. Total acquisition costs for the majority holding of 78.5 % amounted to ¤19,561 mn. The goodwill reported in connection with the first-time consolidation of Dresdner Bank Group amounted to ¤3,977 mn. An additional ¤659 mn for the value of the brand name was recognized as intangible assets.
We have used interim financial statements for those entities whose fiscal year ends are other than December 31, 2003.
Equity consolidation is carried out on the basis of the benchmark method in conformity with IAS 22. The acquisition costs are offset against the Group’s proportion of the shareholders’ equity in the subsidiaries at the date of acquisition. Any net assets and liabilities attributable to the Allianz Group are carried at their fair value at the date of acquisition of subsidiary enterprises; for the proportion attributable to minority interests, the pre-acquisition carrying amounts are used. When foreign subsidiaries are consolidated for the first time, their net assets are translated at the exchange rates in force on the date of their acquisition.
Positive differences arising on first-time consolidation are capitalized as goodwill and amortized over their estimated useful life. In the case of acquisitions prior to January 1, 1995, such differences have been recorded directly in revenue reserves within shareholders ’ equity in accordance with the transitional provisions in force under IAS 22.
The proportion of net income or losses attributable to minority interests has been calculated on the basis of the consolidated net income or losses of the relevant enterprises for the year.
Allianz AG’s reporting currency is the euro (¤). Foreign currency is translated in accordance with IAS 21 by the method of functional currency. The functional currencies for Group companies are usually the local currencies of the relevant companies, e.g. the prevailing currency in the environment where the enterprise carries out its ordinary activities. In accordance with the functional currency method, assets and liabilities are translated at the closing rate on the balance sheet date, and expenses and income are translated at an annual average rate for financial statements of subsidiaries not reporting in ¤.
Assets and liabilities of the Group’s insurance companies which are subject to exchange rate fluctuations are normally safeguarded against such fluctuations by the fact that individual foreign subsidiaries have most of their assets and liabilities in the same currency.
The principal exchange rates are summarized in the following table: Recognition principles
Financial assets or financial liabilities are recognized in the balance sheet from the time at which the recognizing Group enterprise becomes a contractual partner to the contract governing the financial instrument. A financial asset is derecognized when the enterprise loses control of the contractual rights that characterize the financial asset.
Group to make estimates and assumptions that affect items reported in the consolidated balance sheet and income statement, and under contingent liabilities. The actual values may differ from those reported. The most important of such items are the reserve for loss and loss adjustment expenses, the aggregate policy reserves, deferred acquisition costs and the loan loss allowance. In addition, management makes certain assumptions in connection with the impairment reviews of goodwill, brand names and deferred tax assets.
Present value of future profits (PVFP) is the present value of net cash flows anticipated in the future from insurance policies written at the point in time of first-time consolidation after the life/health insurance portfolio was purchased. Expected future cash flows used in determining the PVFP of life/health insurance portfolios are based on actuarial determinations of future premium income, mortality, disease and surrender probabilities, in addition to underwriting costs and returns on assets that were invested in order to be able to meet the obligations arising under the respective insurance contracts. The discount rate used to determine the PVFP corresponds to the opportunity costs for the risk capital used. In determining the discount rate applied, the
Allianz Group considers the magnitude of the risks associated with the type of business being acquired, actuarial factors described above, cost of capital available to the Allianz Group to fund the acquisition and compatibility with other Allianz Group activities that may favorably affect future profits.
Software includes software purchased from third parties or developed internally, which is amortized over its useful life or on a straight-line basis over a maximum of 5 years.
and “dit” (Deutscher Investment-Trust), registered as trade names, was determined using a royalty savings approach.
Investments in unconsolidated affiliated enterprises, joint ventures, and associated enterprises are generally valued in accordance with the equity method and the Group’s valuation principles, at the
Associated enterprises are all those enterprises in which the Group has an interest of between 20 % and 50 %, for all of which significant influence is presumed.
Income from investments in affiliate enterprises, joint ventures and associated enterprises is included as a separate component of total income as the Allianz Group considers income earned from such investments to be consistent with revenues such as realized gains, interest, and dividends earned from other investments.
Securities held-to-maturity include fixed-income securities that the Group has the ability and intent to hold until maturity. They are valued at amortized cost. Premiums or discounts are amortized over the life of the instrument using the effective yield method. The amortization of premiums or discounts is booked as interest income. These securities are recognized at the trade date.
Securities available-for-sale are securities that are not classified as held-to-maturity or trading assets. Available-for-sale securities are valued at fair value at the balance sheet date. Unrealized gains and losses, which are the difference between fair value and cost (amortized cost in the case of fixed income securities), are included as a separate component of shareholders’ equity, net of deferred taxes, or, for amounts that would be due to participating policyholders if realized, taken to the latent reserve for premium refunds within other insurance reserves. Realized gains and losses on securities are generally determined by applying the average cost method. These securities are recognized at the trade date.
Securities held-to-maturity, securities available-for-sale, and equity method investments are subject to regular impairment reviews.
In the Allianz Group, an impairment charge is systematically recorded in the presence of one of the following impairment criteria (cited as examples): _ Significant financial difficulties of the issuer.
_ Bankruptcy or high probability of bankruptcy or another situation requiring financial rescue measures.
A L L I A N Z G R O U P 118
In the event that the justification for impairment write-downs in previous periods is no longer applicable, impairments are reversed through the income statement. The maximum amount up to which such reversals of impairment may occur is the acquisition cost or amortized cost, as applicable, or book value.
Real estate used by third parties (i.e. real property and equivalent rights and buildings, including buildings on leased land) is carried at cost less accumulated scheduled depreciation and impairment writedowns. Buildings used by third parties are depreciated using the straight-line method on the basis of their cost of acquisition over a maximum of 50 years. Real estate used by third parties is valued at the lower of cost or market. In order to determine the need for impairment write-downs on real estate used by third parties the discounted cash flow method is used. Expenditures to restore the future economic benefits of the assets are capitalized if they extend the useful life of the asset, otherwise they are recognized as an expense.
The Allianz Group discontinues hedge accounting when it is determined that the derivative is no longer highly effective, the derivative or the hedged item expires, or is sold, terminated or exercised, or when management determines that the designation of the derivative as a hedging instrument is no longer appropriate. When a fair value hedge is discontinued, the Allianz Group continues to carry the derivative on the balance sheet at its fair value, and no longer adjusts the hedged item for changes in fair value. The adjustment of the carrying amount of the hedged item is accounted for in the same manner as other components of the carrying amount of that item. When hedge accounting for a cash flow hedge is discontinued, the Allianz
Group continues to carry the derivative on the balance sheet at its fair value and any net unrealized gains and losses accumulated in shareholders ’ equity are recognized immediately in net income. When a hedge of a net investment in a foreign entity is discontinued, the Allianz Group continues to carry the derivative on the balance sheet at its fair value and any net unrealized gains or losses accumulated in shareholders’ equity remain in shareholders’ until the disposal of the foreign entity.
Pursuant to IAS 39, derivative financial instruments that do not meet the criteria for hedge accounting are reported at fair value as financial assets or liabilities held for trading. Gains or losses on these instruments arising from valuation at fair value are, on principle, included in the Allianz Group’s consolidated income statement under trading income. This treatment is applicable to derivatives used independently, not in connection with hedge transactions, and for separated embedded derivatives of a hybrid financial instrument. In contrast, derivatives used in hedge transactions are recognized and classified as follows: For fair value and cash flow hedges of investment securities or loans, the hedge instrument is classified in the same balance sheet category as the hedged item when the hedge instrument has a positive fair value, and in other liabilities when the hedge instrument has a negative fair value. For fair value and cash flow hedges of debt issued and for hedges of a net investment in a foreign entity, the hedge instrument is included in other assets or other liabilities.
Loans and advances to banks and customers originated by the Group are generally carried at their outstanding unpaid principal balance net of the allowance for loan losses, deferred fees and costs on origination, and unamortized premiums or discounts. Interest revenues are accrued on the unpaid principal balance. Net deferred fees and premiums or discounts computed by using the effective interest method are recognized as interest income/interest expense over the lives of the related loans.
Included in loans and advances to banks and customers are outstanding reverse repurchase (“repo”) transactions. A reverse repo transaction involves the purchase of securities with the simultaneous obligation to sell these securities at a future date at an agreed-upon price. If control of the securities remains with the Allianz Group over the entire lifetime of the transaction, the securities concerned are included in the Allianz Group’s consolidated balance sheet and are valued in accordance with the accounting principles for trading assets or investments. Interest income on reverse repo agreements is, as a rule, reported as trading income in the Allianz Group’s consolidated income statement.
Impaired loans are loans for which, based upon current information and events, it is probable that the Allianz Group will not be able to collect all interest and principal amounts due in accordance with the contractual terms of the loan agreements.
of probable losses that have occurred in the loan portfolio and other lending-related commitments as of the date of the consolidated financial statements. The allowance for loan losses is reported as a reduction of assets, the provisions for contingent liabilities, such as guarantees, loan commitments and other obligations are carried as liabilities.
To allow management to determine the appropriate level of the allowance for loan losses, all significant counterparty relationships are periodically reviewed. A specific allowance is established to provide for specifically identified counterparty risks. Specific allowances are established for impaired loans. The amount of the impairment is based on the present value of expected future cash flows or based on the fair value of the collateral if the loan is collateralized and foreclosure is probable. If the amount of the impairment subsequently increases or decreases due to an event occurring after the initial measurement of impairment, a change in the allowance is recognized in earnings by a charge or a credit to net loan loss provisions.
A lump-sum specific allowance is established to provide for incurred but unidentified losses that are inherent in the loan portfolio as of the balance sheet date. The amount of the allowance is based on historical loss experience and management’s evaluation of the loan portfolio under current events and economic conditions.
At the point of charge-off, the loan as well as any specific allowance associated with the loan must be removed from the balance sheet and a charge may be recorded to directly charge-off the loan. A
Loans and advances to banks and customers include the Group’s gross investment in leases, less unearned finance income relating to lease financing transactions for which the Group is the lessor. The gross investment in leases is the aggregate of the minimum lease payments and any unguaranteed residual value accruing to the
Group. Lease financing transactions include direct financing leases and leveraged leases. The unearned finance income is amortized over the period of the lease so as to produce a constant periodic rate of return on the net investment outstanding in respect of the finance lease.
These consist of debt and equity securities, derivatives with positive market values, promissory note loans and precious metal holdings that have been acquired solely for sale in the near term. They are classified as “Held for trading” on account of their purpose and are reported at fair value. Changes in fair value are recognized directly in the income statement. Exchange-traded financial instruments are valued at the exchange prices prevailing on the last exchange trading day of the year. To determine the market values of unlisted financial instruments, quotations of similar instruments or acknowledged valuation models (in particular present value models or option pricing models) are used. Creditworthiness, settlement costs and market liquidity are also taken into account as integral components of the valuation process. Realized gains and losses on securities are in all cases calculated on the basis of the average cost method.
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Expenditures to restore the future economic benefit are capitalized if they extend the useful, as are improvements. Costs for repairs and maintenance are expensed. An impairment loss is recognized when the recoverable amount of these assets is less than their carrying amount.
Receivables are recorded at face value less any payments made, net of appropriate valuation allowances.
All deferred policy acquisition costs are reviewed regularly to determine if they are recoverable from future operations, including anticipated investment income. Deferred policy acquisition costs which are not deemed to be recoverable based on the Allianz Group’s review, are charged to income.
Securities borrowing and lending The Allianz Group enters into securities borrowing and lending transactions on behalf of its customers and to fulfill its own obligations to deliver or take delivery of securities and to maximize returns on the investment portfolios of its insurance companies. Such transactions involve the transfer of securities from one market participant (lender) to another counter-party
(borrower), for a certain period of time. If the lender retains control, the lender continues to report the securities involved on its balance sheet, whereas borrowed securities are not reported. Securities borrowed and securities loaned are recorded at the amount of cash advanced and received, respectively, and are collateralized primarily by equity and fixed income securities. Securities borrowed transactions generally require the Allianz Group to deposit cash collateral with the securities lender. In a securities loaned transaction, the Allianz Group generally receives cash collateral in an amount equal to or in excess of the market value of the securities loaned. The Allianz Group monitors the fair value of securities borrowed and securities loaned and additional collateral is obtained if necessary. Income and expenses from securities borrowing and lending transactions are recognized on an accrual basis and reported under interest and similar income or interest and similar expenses in the Allianz Group’s consolidated income statement.
Group’s consolidated balance sheet. Payments made under operating leases to the lessor are charged to administrative expenses using the straight-line method over the period of the lease. When an operating lease is terminated before the lease period has expired, any penalty is recognized in full as an expense at the time when such termination takes place.
Unearned premiums for reinsurance business assumed are generally based on the calculations of the cedant.
Aggregate policy reserves, including the reserve for advancing age in health insurance, is calculated on actuarial principles using the present value of future benefits less the present value of premiums still to be received.
The calculation of aggregate policy reserves is in accordance with various U.S. GAAP Statements of Financial Accounting Standards
(SFAS), including SFAS 60, SFAS 97, and SFAS 120. The calculation of aggregate policy reserves depends on the extent to which policyholders benefit from any surpluses earned on insurance policies. The assumptions on which the calculation is based vary as a function of the year in which the contract was signed. This applies in particular with regard to mortality, morbidity, interest rates and the treatment of deferred policy acquisition costs. A distinction is drawn between the following situations: _ Policyholders participate in surpluses in the same proportion as their policies have contributed to these surpluses. Policyholders do not participate in losses. This is referred to as the contribution principle. In this case, assumptions for mortality, interest and costs are conservative and contractually agreed, so there is a strong probability that surpluses will arise, most of which have to be distributed to policyholders. Policy acquisition costs are deferred over the terms of the policies in the same proportion as the surpluses in individual years contribute to the surplus on the portfolio concerned
In health insurance, the insurer has the option of adjusting premiums when the assumptions change. Policy acquisition costs are also recognized over the terms of these policies, but in the same proportion as premiums written for the year concerned compared to the total premium income (SFAS 60).
_ Policyholders carry not only the investment risk and corresponding opportunities for benefit, but also losses (e. g. unit-linked insurance policies). The aggregate reserve for these policies is shown under insurance reserves for life insurance where the investment risk is carried by policyholders. In this case, the aggregate reserve is not calculated actuarially, but rather it moves in line with the value of the related investments (SFAS 97).
In this case, the aggregate reserve is not calculated actuarially, but rather it moves in line with the policyholders’ account balances
The interest rate assumptions were as follows: The Group’s life insurance subsidiaries offer a wide range of traditional life insurance, financial and investment products. Traditional life insurance products consist of both short and long-duration policies with participating and non-participating features. Short-duration traditional life insurance products include term, accident and health contracts. Long-duration traditional life insurance products include individual and group whole-life, endowment, guaranteed renewable term and accident and health, and annuity contracts. Financial and investment products consist, among others, of universal life, unit-linked products (variable annuities), single premium annuities, and guaranteed investment contracts.
Other insurance reserves also include the premium deficiency reserve, which is calculated individually for each insurance portfolio on the basis of estimates of future claims, costs, premiums earned and proportionate investment income. For short duration contracts, a premium deficiency is recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, unamortized acquisition costs, and maintenance expenses exceeds related unearned premiums while considering anticipated investment income. For long duration contracts, if actual experience regarding investment yields, mortality, morbidity, terminations or expense indicate that existing contract liabilities, along with the present value of future gross premiums, will not be sufficient to cover the present value of future benefits and to recover unamortized acquisition costs, then a premium deficiency is recognized.
A L L I A N Z G R O U P 124
Loss reserves of subsidiaries purchased (sold) are included (excluded ) as of the date of transaction (disposition).
The reserve for premium refunds includes the amounts allocated under the relevant local statutory or contractual regulations to the accounts of the policyholders and the amounts resulting from differences between these IFRS-based financial statements and the local financial statements (latent reserve for premium refunds), which will be reversed in the future and which affect future calculations of profit participation. These differences are recognized on a future accrual basis and reported in profit participation accounts.
Unrealized gains and losses in connection with the valuation of investments are recognized in the latent reserve for premium refunds to the extent that the policyholder will participate in such gains and losses on the basis of statutory or contractual minimum regulations when they are realized.
at the amount to be repaid. Where liabilities are subject to a discount, such discounts are reported as prepaid expenses and amortized over the life of the respective liabilities, using the effective yield method.
This item primarily includes derivatives with negative market values and obligations to deliver assets arising from short sales of securities, which are carried out in order to benefit from short-term price fluctuations. The securities required to close out short sales are obtained through securities borrowing or repurchase agreements. The valuation of trading liabilities is analogous to that of trading assets.
Pension and similar reserves are calculated taking local circumstances into account as well as current mortality, morbidity and employee turnover projections. Expected future trends in salaries and wages, retirement rates and pension increases are also taken into account. The notional interest rate used is based on the rate for longterm high-grade corporate or government bonds.
Accrued taxes are calculated in accordance with the relevant local tax regulations.
These include funds held under reinsurance business ceded, accounts payable on direct insurance business, accounts payable on reinsurance business, and miscellaneous liabilities. These are reported at the redemption value.
The calculation of deferred taxes is based on temporary differences between the carrying amounts of assets or liabilities in the published balance sheet and their tax basis, and on differences arising from the application of uniform valuation policies for consolidation purposes as well as consolidation in the income statement. The tax rates used for the calculation of deferred taxes are the local rates applicable in the countries concerned; changes to tax rates already adopted as of the balance sheet date are taken into account.
In the case of premiums for life insurance products where the policyholder carries the investment risk (e.g. variable annuities), only those parts of the premiums used to cover the risks insured and related costs are treated as premium income.
Revenues for financial and investment policies, such as universal life and variable annuity contracts, represent charges assessed against the policyholders’ account balances for the cost of insurance, surrenders and policy administration and are included within premiums earned on the Allianz Group’s consolidated income statement. Benefits charged to expense include benefit claims incurred during the period in excess of policy account balances and interest credited to policy account balances.
Interest income and interest expenses are recognized on an accrual basis. Interest income from lending business is recognized using the effective yield method. This item also includes dividends from available -for-sale equity securities and interest recognized on finance leases. Dividends are recognized in income when declared. Interest on finance leases is recognized in interest income over the term of the respective lease so that a constant yield based on the net investment is attained.
Trading income comprises all realized and unrealized gains and losses from trading assets and trading liabilities. In addition, commissions and all interest and all dividend income attributable to trading operations and related refinancing costs are included in trading income.
Such fees are primarily based on percentages of the market value of assets under management.
(such as securities available-for-sale or held-to-maturity). Financing activities include all cash flows from transactions involving the issuing of own shares, participation certificates and subordinated liabilities.
Cash flows from operating activities contain all other activities, which belong to the principal revenue-generating activities.
The Allianz Group accounts for its stock-related remuneration plans under the fair value recognition provisions of SFAS 123, whereby stock-based compensation cost is measured at the grant date based on the fair value of the awards granted and is recognized as expense over the vesting period. For rights redeemed by the issue of shares, the fair value is determined at the date of grant. The corresponding compensation cost is accrued over the vesting period and increases revenue reserves in shareholders’ equity. At each subsequent valuation date, the new valuation is determined on the basis of the share price at the valuation date. Compensation expense for these rights is accrued over the vesting period and reported under the heading
Segment reporting has been prepared on the basis of the accounting regulations used to prepare the consolidated financial statements as a whole. In determining the segments of the Allianz Group, management evaluates the organization of the Allianz Group, its revenue generating activities of internal management reporting process and the level of financial information available and utilized by the Management Board in reviewing performance.
As a result of the Allianz Group’s worldwide organization, the business activities of the Allianz Group are first segregated by product and type service: insurance activities, banking activities and asset management activities. Due to differences in the nature of products, risks and capital allocation, insurance activities are further divided between property/casualty and life/health categories. Thus, the operating segments are structured as Property/Casualty, Life/Health, Banking, and Asset Management.
A L L I A N Z G R O U P 126
Banking The Allianz Group’s banking segment provides traditional commercial banking products and services such as deposit-taking, lending (including mortgage lending), cash management and transaction banking, as well as corporate finance advisory services, mergers and acquisitions advisory services, capital and money market services, securities underwriting and securities trading and derivatives business on its own account and for its customers.
German Commercial Code (HGB). By its reference to the creation of future commercial benefit for the company without the prerequisite of an acquisition against payment, items such as brand names and software developed in-house also must be reported in the accounts under IFRS as assets.
HGB: Claims equalization reserves Claims equalization reserves and major risk reserves are not allowed under IFRS because they do not represent a present obligation toward third parties. The net result for the year is not affected by transfers to or from such reserves.
IFRS because they are not calculated in accordance with the prudence concept but at the best estimate of the ultimate cost.
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 127
Valuation at equity All participations of between 20 % and 50 %
Goodwill Goodwill is amortized against income over its useful life under IFRS as follows: _ Over 10 years for property and casualty insurance companies,
_ AFORE Allianz Dresdner S.A. de C.V. from 95.0 % to 0.0 %,
In addition, the disposals include an adjustment of the goodwill of
The impairment charge of ¤ 224 mn concerns Allianz Life Insuance Company Ltd., Seoul. In the course of the annual goodwill impairment review the amount of the required impairment write-downs was determined on the basis of an evaluation of future cash flows from the existing contract portfolio and new business. This amount reflects the effects of persistently lower interest rates in the capital markets and the overall unsatisfactory earnings performance of the company.
tive expenses. Unscheduled amortizations of or additions to the capitalized value of life/health insurance portfolios are recognized as other expenses/income. The amount of interest accrued on unamortized
PVFP as of December 31, 2003 that is expected to be amortized in 2004 is 8.65 % (7.68 % in 2005, 6.94 % in 2006, 5.74 % in 2007 and
The balance sheet value amounting to ¤1,064 (2002: 1,281) mn includes ¤598 (2002: 630) mn for internally developed software ¤466
Other intangible assets also include capitalized loyalty bonuses for senior management of the PIMCO Group, Delaware, amounting to
¤158 (2002: 329) mn that were recognized as assets in the annual statement 2000 in the amount of ¤713 mn and are amortized on a straight-line basis over 5 years. During 2001, assets of ¤659 mn were recognized for the value of the brand names “Dresdner Bank” and
The market value is based on stock exchange quotations and internal valuations.
The balance sheet value of investments in banks amounts to 7 Investments
Accumulated amortization as of 12/31 prior year – 1,411 – 1,003
Changes in the group of consolidated companies – 69 – 68
Investments in affiliated enterprises 900 939 in joint ventures 144 22 in associated enterprises 5,398 10,384
Contractual term to maturity due in 1 year or less 363 1,505 365 1,558 due after 1 year and in less than 5 years 1,963 1,341 2,015 1,409 due after 5 years and in less than 10 years 1,874 2,626 1,944 2,662
Amortized cost Unrealized gains Unrealized losses Market values 12/31/2003 12/31/2002 12/31/2003 12/31/2002 12/31/2003 12/31/2002 12/31/2003 12/31/2002
Impairments on securities available-for-sale totaled ¤4,823 (2002: 5,523; 2001: 1,507) mn and are included in other expenses for investments. The first-time application of the rule requiring the immediate write down of an equity if its market value at the balance sheet date has remained permanently below group-wide amortized cost for more than 12 months resulted in an impairment charge of ¤409 mn.
¤2,030 (2002: 679; 2001: 184) mn and are included in other income from investments.
Certain entities within the Group participate in securities lending arrangements whereby specific securities are loaned to other institutions for short periods of time. On December 31, 2003, the volume of securities loaned out by the Group was ¤ 34,941 (2002: 20,396)
The gross capitalized values totaled ¤13,621 mn at the beginning of the year and ¤13,672 mn at the end of the year. Accumulated depreciation amounted to ¤2,874 mn at the beginning of the year and
¤3,171 mn at the end of the year. Assets pledged as security and other restrictions on title amount to ¤60 (2002: 61) mn.
Depreciation includes impairment write-downs of ¤30 (2002: 104; 2001: 86) mn.
Changes in the group of consolidated companies – 228 – 712
Loans and advances due within 1 year total ¤131,471 (2002: 106,603)
¤450 (2002: 714) mn due within 1 to 5 years, and ¤466 (2002: 388)
The overall volume of risk provisions includes allowances for loan losses deducted from loans and advances to banks and customers in the amount of ¤5,725 (2002: 6,967) mn and provisions for contingent liabilities included in other accrued liabilities in the amount of
Loans and advances to customers, net of loan loss allowance 203,259 188,084 12/31/2003 12/31/2002
The amount of interest collected and recorded on non-accrual loans was approximately ¤49 (2002: 66; 2001: 45) mn.
At December 31, 2003 the Group had ¤9,498 (2002: 12,221) mn of impaired loans of which ¤8,722 (2002: 10,742) mn had a related valuation allowance. For the year ended December 31, 2003 the average balance in impaired loans was ¤11,780 (2002: 12,773) mn and the interest income recognized on impaired loans was ¤117 9 Trading assets
Compulsory deposits on accounts with the national central banks under restrictions due to required reserves from the European Central
Deutsche Bundesbank of ¤3,321 (2002: 1,205) mn, which also have the function of meeting minimum reserve requirements.
The Group reinsures a portion of the risks it underwrites in an effort to control its exposure to losses, and protect capital resources.
Reinsurance involves credit risk and is subject to aggregate loss limits. Reinsurance does not legally discharge the Group from primary liability under the reinsured policies. Although the reinsurer is liable to the Group to the extent of the reinsurance ceded, the Group remains primarily liable as the direct insurer on all risks reinsured, including the amounts ceded. The Group monitors the financial condition of its reinsurers on an ongoing basis and reviews its reinsurance arrangements periodically in order to evaluate the reinsurer’s ability to fulfill its obligations to the Group under respective existing and future reinsurance contracts.
The accounts receivable on direct insurance business stated under other assets and accounts receivable on reinsurance business are due within 1 year. Other receivables stated under other assets due within 1 year amount to ¤7,299 (2002: 4,881) mn, those due after more than 1 year total ¤9,297 (2002: 6,211) mn.
425,684, received a ceding commission of USD 310,000, and transferred net assets of USD 129,283. The resulting gain of USD 264,095 was deferred and will be amortized into operations over the revenue -producing period of the related reinsured policies. During 2003,
At the balance sheet date, commitments outstanding to purchase real estate amounted to ¤39 (2002: 28) mn.
The gross capitalized values totaled ¤6,658 mn at the beginning of the year and ¤6,919 mn at the end of the year. Accumulated depreciation amounted to ¤4,706 mn at the beginning of the year and
At the balance sheet date, commitments outstanding to purchase items of equipment and inventories amounted to ¤111 (2002: 22) mn.
Changes in the total carrying value of real estate owned by Allianz Group and used for its own activities
Real estate used by Allianz for its own activities 5,020 5,432
S U P P L E M E N TA R Y I N F O R M AT I O N O N G R O U P
The new shares were offered to shareholders at a ratio of 15:7 and a price of ¤38.00. Expenses from the capital increase amounting to
In November 2003, 965,625 shares were issued at a price of
¤58.07 to ¤70.51. The remaining 21,000 shares were sold on the stock exchange at an average price of ¤92.07. The difference between the issue price and the sale price was recorded in revenue reserves.
The issued capital at December 31, 2003 amounted to ¤984,880,000 divided into 384,718,750 registered shares. The shares have no par value but a mathematical value of ¤2.56 each as a proportion of the issued capital.
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 137 12/31/2003 12/31/2002
This authorized capital serves as protection against dilution for the holders of conversion or subscription rights. At the end of the year under review, there was a further ¤5,369,188 (2,097,339 shares) of
The company had conditionally authorized capital 2001 amounting to ¤50,000,000 (19,531,250 shares) on which bonds with subscription or conversion rights, with pre-emptive rights for company shares, can be issued up to July 10, 2006.
Allianz AG to acquire own shares for miscellaneous purposes pursuant to clause § 71 (1) no. 8 of the Corporation Law (Aktiengesetz).
In order to enable Dresdner Bank AG to trade in shares of Allianz
The gains from these transactions in the amount of ¤7 mn were allocated to revenue reserves.
(of which Dresdner Bank Group) (4,495) (17,814,376) 4.63 (4,448) (17,302,311) (6.49)
required by law, revenue reserves include the retained earnings of consolidated subsidiaries and amounts resulting from consolidated net income for the year. Revenue reserves also include foreign currency translation adjustments in the equity section. In the case of acquisitions prior to January 1, 1995, differences arising on first-time consolidation have been taken to revenue reserves.
The interests of minority shareholders are made up as follows: 15 Participation certificates and subordinated liabilities
Participation certificates include ¤ 85 (2002: 450) mn in respect of those issued by Allianz AG. The balance of “Participation certificates ” represents the guaranteed total redemption price that Allianz
“profit participation certificates” issued by the company, which are still outstanding. The distributions payable on the profit participation certificates for the last fiscal year are included in “Other liabilities”. A
total of 4,923,111 own participation certificates, which are not recalled, are deducted from participating capital.
In November 2002, Allianz AG made a voluntary public offer to holders of the then outstanding 5,723,154 participation certificates to exchange their certificates for Allianz shares. The exchange ratio was 10 shares for 8 participation certificates; by the end of the exchange period on January 16, 2003, a total of 4,918,488 participation certificates had been exchanged for 6,148,110 shares. The shares for the exchange offer came from Allianz treasury stock.
In connection with the increase of the share capital with participation rights in April 2003, the participation capital was increased in accordance with the participation certificate conditions from nominally ¤29,302,548.48 by ¤13,674,521.60 to ¤42,977,070.08 by issuing to the holders of profit participation certificates 2,670,805 new participation certificates with profit participation rights. The new participation certificates were offered to the holders of participation certificates at a price of ¤59.20 per participation certificate. The 2,295,294 new participation certificates with a nominal value of
holdings of Allianz AG, were subsequently recalled. Since then, the participation capital amounts to ¤31,225,164.80, subdivided into 6,098,665 participation certificates.
Profit participation certificates can be redeemed by holders upon 12 months’ prior notice, beginning December 31, 2001, and every 5th year thereafter. Upon redemption by holders, the terms of the profit participation certificates provide for a redemption price equal to the weighted average of the issue prices of all profit participation certificates. Since the last issue of April 2003, the price has been uniformly
The non-voting interests were issued for the first time in May 1999, in the amount of approximately ¤1.5 bn by Dresdner Bank.
The average interest rate comes to 4.1 %. Interest paid on these subordinated liabilities amounted to ¤222 (2002: 463; 2001: 473) mn in the reporting year.
Aggregate policy reserves at the balance sheet date – split by the various profit participation systems – were as follows: N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 141
Contribution Variable annuities and Other principle unit-linked life insurance (SFAS 60)
The gross reserves for loss and loss adjustment expenses of the
have changed in Property/Casualty insurance during the year under review as follows: In 2003, there were no extraordinary insured events that had a material effect on the Group’s shareholders’ equity, investments or earnings. The settlement of the special events of the previous year, in particular the examination and subsequent increase of the reserves for asbestos-related claims in 2002 as well the claims stemming from the terrorist attack of September 11, 2001, did not show any unusual development in 2003.
No retrospective back-payments of premiums have been demanded. No exceptional events have occurred since the balance sheet date which would have material affects on the net worth, financial position or results of the Group. The balance sheet amount includes ¤2,650 (2002: 2,664) mn in annuity reserves for existing annuity agreements. The discount rate for such cases varies between
The reserve for premium refunds includes the amounts to which policyholders are entitled under the relevant local statutory or contractual regulations in the form of experience-rated or other participation in profits. In addition, the reserve for premium refunds includes amounts arising from the valuation of certain assets and liabilities of the Group’s life and health insurance enterprises at market value (the
The reserve for premium refunds has changed as follows: In addition to the amounts allocated under a), amounts totaling
¤3,514 (2002: 3,680; 2001: 3,670) mn were directly credited to policyholders of the Allianz Group from the surplus.
¤ mn ¤ mn a) Amounts already allocated under local regulations
mn and to foreign banks amounted to ¤96,681 (2002: 84,227) mn.
Liabilities to customers are classified according to the following customer groups: 12/31/2003 12/31/2002
Allianz Finance II B. V. in an amount of ¤3,849 (2002: 4,915) mn.
The following table provides an overview of the Group’s certificated liabilities according to maturity: 20 Trading liabilities
Of the accrued taxes, ¤1,488 mn is attributable to taxes on income.
The pension fund assets are invested mainly in equity securities, investment fund units, fixed income securities and registered bonds.
Reductions of the notional interest rate resulted in an increase of the actuarial present value of accrued pension rights by ¤325 mn. This increase is only partially compensated by an increase of the independent pension fund assets, which increases unrecognized losses by ¤235 mn.
The reserve for defined benefit pension plans changed in the year under review as follows: The net periodic benefit cost (expenses minus income) include the following components: Most of the amounts expensed are charged to the income statement of insurance companies as acquisition and administrative expenses, and loss and loss adjustment expenses (claims settlement expenses).
The actual income from the pension funds amounted to ¤379 mn (2002: loss of ¤256 mn). The reserve for other post-retirement obligations was ¤366 mn as of December 31, 2003 (2002: ¤403 mn).
The reserve for other post-retirement obligations is primarily composed of obligations for health care benefits in the U.S.A. amounting to ¤122 (2002: 148) mn and termination indemnities (e.g. severance pay) in Austria and Italy amounting to ¤64 (2002: 65) mn and ¤102
Funded status of the main defined benefit pension plans 12/31/2003 12/31/2002
Actuarially calculated present value of pension rights accrued direct commitments of Group enterprises 5,880 5,749 commitments through pension funds 5,442 4,930 in total 11,322 10,679
Defined contribution pension plans are funded through independent pension funds or similar organizations. Contributions fixed in advance, based e. g. on salary, are paid to these institutions and the beneficiary’s right to benefits exists against the pension fund. The employer has no obligation beyond payment of the contributions
Bankgewerbes a. G., Berlin, which insures most of the banking employees in Germany.
Reserves for restructuring essentially concern Dresdner Bank and mainly cover future liabilities from the personnel area and from leasing contracts, which will arise in connection with the implementation of the respective initiatives. For the “New Dresdner” program announced in August 2003, reserves of ¤345 mn were set up. In addition, the reserves were increased by ¤44 mn for “further measures 2003”. For the program started in 2002, for which restructuring reserves of ¤299 mn are recorded as of December 31, 2003, all measures have now been determined. Additionally, there still are reserves from past restructuring programs which are used to cover liabilities from early retirement and phased retirement provisions. These were agreed upon in connection with the implementation of the restructuring measures. Existing liabilities from leasing arrangements are also taken into account in the reserves.
mn, and unprocessed sales totaling ¤577 (2002: 616) mn. Of the tax liabilities, ¤979 (2002: 310) mn are attributable to taxes on income.
S U P P L E M E N TA R Y I N F O R M AT I O N T O T H E
In the case of life insurance products where the policyholder carries the investment risk (e. g. variable annuities), only those parts of the premiums used to cover the risks insured and costs involved are treated as premium income.
Income from revaluations includes income from the reversal of impairment charges.
¤25 mn; 2001: losses ¤461 mn) arising from the use of other derivative financial instruments by insurance companies.
This is comprised as follows: ¤ mn ¤ mn ¤ mn
Realized gains on securities held-to-maturity – 2 2 securities available-for-sale 7,373 7,972 7,738 real estate used by third parties 494 670 303
Realized losses on investments in affiliated enterprises, joint ventures, and associated enterprises – 727 – 708 – 119
Of the total fee and commission income, and income from service activities, ¤2,705 (2002: 2,784; 2001: 1,383) mn are attributable to banking business*) and ¤2,815 (2002: 2,816; 2001: 2,429) mn are attributable to asset management.*)
Net fee and commission income from banking business comprises income from: 30 Other income
mn and Allianz Finance II B. V. ¤171(2002: 80; 2001: 0) mn.
Change in reserves for loss and loss adjustment expenses 429 – 2,659 – 5,871 – 1,405 – 332 2,857 – 976 – 2,991 – 3,014
Depreciation and write-downs on real estate used by third parties include ¤30 (2002: 104; 2001: 86) mn of unscheduled write-downs.
Additions to allowances including direct write-offs – 2,200 – 3,128 – 1,204
Depreciation and write-downs on investments: securities held-to-maturity (impairment write-downs) – 10 – 31 – 35 securities available-for-sale (impairment write-downs) – 4,823 – 5,523 – 1,507 real estate used by third parties – 297 – 333 – 378
Other personnel and operating costs are reported under insurance benefits (claims settlement expenses) and other expenses.
All personnel and operating costs in the banking business are reported under Acquisition costs and administrative expenses.
An overview of personnel expenses is provided in a table in note 43.
Acquisition costs and administrative expenses – 6,513 – 7,562 – 3,405 – 2,055 – 2,277 – 1,780 *) After eliminating intra-Group transactions between segments
Consolidated Group income before taxes and minority interests is composed as follows: Group taxes are comprised of the following: The actual tax charge for the reporting year includes a charge of ¤531 mn (2002: gain of ¤175 mn) relating to prior periods.
The tax rates used in the calculation of deferred taxes are the applicable national rates, which in 2003, as in 2002, ranged from 12.5 %
Tax deferrals are recognized if a future reversal of the difference is expected. Deferred taxes on losses carried forward are recognized as an asset if sufficient future taxable profits are available for realization. Safety margins are used where appropriate.
Due to the use of tax losses carried forward for which no deferred tax was recognized as an asset, the actual tax charge on earnings diminished by ¤33 (2002: 31) mn. The recognition of deferred tax claims on losses carried over from earlier periods, for which no deferred taxes had yet been recognized or which had been devalued, resulted in deferred tax income of ¤443 (2002: 55) mn.
Amortization and impairments of other intangible assets – 261 – 308 – 413
Direct credit to aggregate policy reserves – 171 – 256 – 257
Amortization of capitalized loyalty bonuses to senior management of the PIMCO Group – 137 – 155 – 173
Interest on accumulated policyholder dividends – 108 – 110 – 108
Expenses for assistance to victims under joint and several liability and road casualties – 97 – 117 – 127
Unused tax losses carried forward at the balance sheet date of
The Group reconciliation statement is a summary of the individual company-related reconciliation statements which are based on the respective country-specific tax rate after consolidation effects are taken into account.
The changes in German tax law passed in December 2003 have abolished the tax-exempt status of dividends and gains from the sale of interests in corporations for life and health insurance companies.
Deferred tax assets and liabilities comprise the following balance sheet headings: A deferred tax charge recognized in equity in fiscal 2003 amounts to
The Allianz management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize its deferred tax assets.
*) Presentation of investments and investment income is made in conformity with the European Union insurance accounting guideline and after eliminating Allianz Group transactions between segments
I N S U R A N C E A N D B A N K I N G B U S I N E S S
¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn
The amounts reported constitute aggregate euro equivalents of a wide variety of currencies outside the European Monetary Union. Any differences between the amounts of assets and liabilities result from differing valuation principles. Loans and advances and liabilities are reported at amortized cost, while all derivative transactions are accounted for at fair value.
The table below presents a breakdown of trustee business in banking business not reported in the balance sheet: Other banking information
mn. Liabilities to banks and customers include repo transactions amounting to ¤92,876 (2002: 63,573) mn.
_ At the balance-sheet date there were commitments to repurchase assets sold under repurchase agreements with a net book value of
Derivatives derive their market values from one or more underlying assets or specified reference values.
Examples of derivatives include contracts for future delivery in the form of futures or forwards, options on shares or indices, interest rate options such as caps and floors, and swaps relating to both interest rates and non-interest rate markets. The latter include agreements to exchange previously defined assets or payment series.
Other term liabilities to customers 91,762 73,921 6,762 3,740 7,339 12/31/2003 12/31/2002
Liabilities incurred as a trustee 6,573 9,471 1) Loans and advances to customers with residual terms of up to 3 months include ¤7,706 (2002: 8,510) mn of undated claims. These claims include credit lines available until further notice, overdraft facilities, loans called or overdue, unauthorized overdrafts, call money and internal account balances 2) Excluding balances payable on demand 3) Including ¤5,101 (2002: 8,847) mn of trustee loans
Insurance companies in the Allianz Group use derivatives to manage their investments efficiently on the basis of general investment targets. The most important aspect of these instruments is hedging against adverse market movements for selected securities or for parts of a portfolio. In our banking business, derivatives are used particularly for trading purposes and to hedge interest-rate, currency and other price risks of the banking book.
The settlement risk is virtually excluded in the case of exchangetraded products, which are standardized products. By contrast, overthe -counter products, which are individually traded contracts, carry a theoretical credit risk amounting to the positive market values. The
The following table shows the distribution of derivative positions on the balance sheet date: Maturity as of 12/31/2003 2003 2002
Notional principal amounts and market values of open derivative positions as of December 31*)
In addition, exchange rate fluctuations are hedged by synthetically transforming financial assets and liabilities in foreign currencies into euro-denominated financial instruments through foreign exchange deals and currency swaps.
Options – – – – – – – – – Forwards – – – – 6 – – – –
to related enterprises. Those relations are based on ordinary market terms. In particular, the business relations with associated companies which are active in the insurance business take on various forms and may also include special service, computing, reinsurance, cost-sharing and asset management agreements whose terms are deemed appropriate by management. Similar relationships may exist with pension funds, foundations, joint ventures and companies which provide services to Allianz Group companies.
Allianz AG and transactions with associated natural persons which require disclosure.
At the beginning of fiscal year 2003 the ownership interest of Allianz
Group in Munich Re’s share capital was above 20 %. The ownership interest was reduced in the course of the first quarter 2003 to below 20 %. As a result, Munich Re was as of that time no longer an associated company of the Allianz Group. During the course of fiscal 2003
Allianz Group further reduced its ownership interest in Munich Re and as of December 31, 2003 held only approximately 12.4 % of Munich Re’s share capital. On March 2, 2004 a further reduction of ownership interest will occur as a result of the exchange of the MILESbond in Munich Re shares so that Allianz Group’s ownership interest in Munich Re’s share capital will be reduced to 9.4 %. Pursuant to
Munich Re has also reduced its ownership interest in Allianz AG
during 2003 and as of December 31, 2003 Munich Re held 12.2 % of
Loans to Members of the Management Board and the Supervisory Board
§ 15 a WpHG were notified during fiscal 2003 by 2 members of the
Allianz Group companies are involved in legal, regulatory and arbitration proceedings in Germany and a number of foreign jurisdictions, including the United States, involving claims by and against them, which arise in the ordinary course of their businesses, including in connection with their activities as insurance- banking and asset management companies, employers, investors and taxpayers. It is not feasible to predict or determine the ultimate outcome of the pending or threatened proceedings. Management does not believe that the outcome of these proceedings, including those discussed below, will have material adverse effects on the financial position or results of operations of Allianz Group, after consideration of any applicable reserves.
In May 2001, a consolidated class action complaint seeking class action status, In re Deutsche Telekom Securities Litigation, was brought against Dresdner Bank and other defendants in the United
States District Court for the Southern District of New York by purported purchasers of Deutsche Telekom American Depositary Shares
(ADS). The securities were issued pursuant to a registration statement filed with the Securities and Exchange Commission on May 22, 2000 and pursuant to a prospectus dated June 17, 2000. Dresdner
In July 2002, the German Federal Cartel Office (Bundeskartellamt ) commenced an investigation against several property-casualty insurance companies in Germany, in connection with alleged coordinated behavior to achieve premium increases for the commercial and industrial property and liability insurance business and submitted official complaints to several insurance companies, among them
In December 2001 the European Commission commenced a preliminary investigation against several insurance companies operating in London, including a subsidiary of Allianz AG, in connection with alleged anticompetitive behavior related to aviation war risk insurance in the London market. It is currently not possible to predict the outcome of this proceeding.
District Court for the Southern District of New York against certain insurers and reinsurers, including a subsidiary of Allianz AG which is now named Allianz Global Risks U.S. Insurance Co. The complaint seeks a determination that the terrorist attack of September 11, 2001 on the World Trade Center constituted two separate occurrences under the alleged terms of various coverages. Allianz Global Risks U.S.
Insurance Co. has also filed a suit against Silverstein on January 2, 2002, in connection with the coverage issues arising from the September 11, 2001 attack on the World Trade Center.This suit and other related suits have been consolidated for discovery and other purposes. On January 30, 2003, the court rejected a motion for assessment by Allianz Global Risks U.S. Insurance Co. and referred this issue to the jury. Based on the policy wording of the respective insurance contract, management believes that Silverstein’s claims will not succeed as far as they are based on the theory of 2 occurrences. In connection with the terrorist attack of September 11, 2001 Allianz
estimates that the Allianz Group may have an additional net exposure of approximately ¤200 mn.
Media GmbH & Co. KGaA (“KirchMedia”) made a formal demand on
Dresdner Bank to return a pledged shareholding to the insolvency assets (Insolvenzmasse) or to make payments to the insolvency assets to compensate for the loss of the shareholding. The shareholding, a 25 % stake in the Spanish television group Telecinco, had been pledged by subsidiaries of KirchMedia to Dresdner Bank as collateral for a loan of ¤500 mn from Dresdner Bank to KirchMedia’s holding company, TaurusHolding GmbH & Co. KG (or TaurusHolding). Following TaurusHolding’s default on the loan in April 2002 and insolvency in June 2002, Dresdner Bank enforced its security interest and acquired through a subsidiary the Telecinco shareholding in a forced auction sale. The insolvency administrator contends that the pledge was created under circumstances that cause it to be invalid or void and may initiate legal action against Dresdner Bank. The management of Dresdner Bank believes that there is no valid basis for the insolvency administrator’s demand.
AG on the basis of an expert opinio, and its adequacy was confirmed by a court-appointed auditor. Some of the former minority shareholders applied for a court review of the appropriate amount of the cash settlement in a mediation procedure (Spruchverfahren), which is pending with the district court (Landgericht) of Frankfurt. Allianz AG
believes that a claim to increase the cash settlement does not exist.
In the event that the court were to determine a higher amount as an appropriate cash settlement, this would affect all approximately 16 mn shares which were transferred to Allianz AG.
Management of America L.P. and some of its subsidiaries (the “ADAM
of America companies”) in relation to purported tolerance of market timing. Market timing is the repeated buying and selling of participations in funds to benefit from movements and as such it is not illegal, unless it violates the boundaries laid down in the respective fund prospectus. The State of New Jersey has filed a complaint with the Superior Court of New Jersey on February 17, 2004 relating thereto. With similar reproaches in relation to market timing, certain private investors have initiated claims for damages against ADAM of
Another investor has filed a claim in the United States District Court,
District of Connecticut, against various ADAM of America companies, among others in relation to the utilization of securities commissions for the distribution of funds and has requested compensation for damages. He has also filed a motion for certification as class action.
The shares in LIKO are owned 30 % by Deutsche Bundesbank, with the rest of the shares being held by other German banks and banking associations. The shareholders have provided capital of ¤200 mn to fund LIKO; Dresdner Bank’s participation is ¤12.1 mn (6.05 %).
Reuschel & Co. is unlimited due to the legal form in which this enterprise is organized. The financial status of the other partners involved is sound.
Fund, which is itself a shareholder in LIKO, Dresdner Bank is severally liable with the other members of the Fund for additional capital contributions, with the maximum being the amount of Dresdner
Bank’s annual contribution. In the year 2003, the Joint Fund did not levy a contribution (2002 and 2001: no contribution). Under clause
§ 5 (10) of the Statutes of the Joint Fund for Securing Customer Deposits we have undertaken to indemnify the Federal Association of
German Banks (Bundesverband deutscher Banken e.V.) for any losses it may incur by reason of measures taken on behalf of any banks in which we own a majority interest.
In addition to the amounts stated in the table, there are guarantees of our credit insurance companies with a volume of ¤9,582 (2002: 9,621) mn.
_ If average income growth is between 10 % and 25 % payments will be scaled down.
_ If average income growth is below 10 %, no payments will be made.
The Group occupies leased space in many locations under various long-term operating leases and has entered into various operating leases covering the long-term use of real estate, motor vehicles, data processing equipment and other office items. Rental expense for 2003 was ¤ 296 (2002: 185; 2001: 180) mn.
As of December 31, 2003, the future minimum lease payments under non-cancelable operating leases were as follows: ¤ mn
Besides serving as holding company for the Group, Allianz AG also acts as reinsurance carrier for the Group.
through which part of total remuneration is directly tied to the development of the Allianz share price. In 2003, Restricted Stock Units
(RSU) with a 5-year vesting period were issued for the first time. The relative volume of SAR issued in 2003 was reduced accordingly.
applicable for the award is calculated on the basis of the average daily closing price of the Allianz share in Xetra trading on the 10 trading days following the Annual General Meeting of Allianz AG. The grant price for fiscal 2003 was ¤65.91.
The number of SAR and RSU offered is set individually for each participant and is determined on the basis of the grant price, the economic development of the value of Allianz AG and the respective responsible company in accordance with the Economic Value Added
The volume of the rights granted, and thus the potential gain for the participant depends essentially on the economic performance.
Of the Group equity incentives, half of the value determined at the grant date is allocated to SAR and RSU, respectively. Depending on the different values calculated per SAR and RSU at the grant date, participants in the plan receive a different number of SAR and RSU.
_ during their contractual term, the price of Allianz AG shares has outperformed the Dow Jones Europe STOXX Price Index (600) at least once for a period of 5 consecutive stock exchange days, and
Under the conditions of the SAR plans, Group companies are obligated to pay, in cash, the difference between the stock market price of Allianz shares on the day the rights are exercised and the reference price as specified in the respective plan. The maximum difference is capped at 150 % of the reference price. Upon exercise of the appreciation rights, payment is made in the relevant local currency by the company granting the stock appreciation rights. Stock appreciation rights not exercised by the last day of a plan will be exercised automatically where the necessary conditions have been met. Where these conditions have not been met or a plan participant ceases to by employed, the plan participant’s appreciation rights are forfeited.
SAR plan awards have been granted as follows: The fair value as of the grant date of the SARs granted in 2003 was
No rights were exercised for any SAR plan grant as of December 31, 2003. As of year end 2003, none of the awards currently exercisable have met the second condition defined above (20 % increase of the share price). As of December 31, 2003, a total of 3,061,673
(2002: 1,507,414; 2001: 825,979) appreciation rights were outstanding under SAR award grants.
Allianz AG’s share price. As of December 31, 2003, there was one RSU
December 31, 2003. The Group will exercise these rights uniformly for all plan participants on the first stock exchange day that succeeds the 5-year vesting period. At the date of exercise, the Group can choose to settle the plan by: _ Cash payment to the grantees in the amount of the average closing price of Allianz AG’s share in the 10 trading days preceding the end of the vesting period, or by
_ issuing 1 Allianz AG share, or other equivalent equity instrument(s), per RSU to the beneficiaries.
The fair value as of the grant date of the 542,141 RSUs granted in 2003 was ¤ 36 mn based on standard option valuation methods
AG share price and is accrued over the 5-year vesting period. As of
LP) in 2000, Allianz caused ADAM LP to enter into a Class B Purchase
AGF Group has awarded stock purchase options on AGF shares to eligible AGF Group executives and managers of subsidiaries, as well as to certain employees, whose performance justified grants. The primary objective of the stock option plan is to encourage the retention of key personnel of AGF Group and link their compensation to the performance of AGF Group. These options are independent of the remuneration plans of the Allianz Group.
Stock options have been offered as follows: All of the options granted have an exercise price of at least 85 % of the market price on the day of grant. The maximum term for these options is 8 years. The following table provides the weighted average fair value of options granted as of the grant date and the assumptions used in calculating their fair value by application of the Black-
Weighted average fair value of options granted ¤ 12.04 4.93 13.90
Weighted average assumptions: Risk free interest rate % 4.0 4.4 4.8
The following table summarizes information about AGF Group stock options outstanding and exercisable as of December 31: AGF Group recorded compensation expense of ¤15 mn in 2003 related to these stock option awards.
RAS Group, Milan has awarded eligible members of senior management with stock purchase options on RAS ordinary shares. Under these plans, options have been granted on January 31 of each of the years 2001 through 2003. Each of these award grants is subject to a vesting period of 18 months to 2 years and the options expire after a period of 6.5 to 7 years after the grant date.
_ the performance of the RAS share in the year of grant beats the
The earnings per share figure is calculated by dividing the consolidated net income by the weighted average number of common shares outstanding.
The weighted average number of shares does not include 18,766,949 (2002: 23,658,308) shares held by the company.
The bond attracted a great deal of interest among domestic and foreign investors. To meet this demand, the volume was increased from the original ¤1 bn to ¤1.5 bn.
The bond has an unlimited maturity and will pay a fixed coupon of 5.5 % for the first 10 years. Allianz has the right to redeem the bond after 10 years. If it does not exercise the right, the interest rate will convert to a floating rate with a step-up of 100 basis points over the initial credit spread.
The high demand meant that the interest rate was set at the lower end of the price range after a short bookbuilding phase. Overall demand for the bond amounted to nearly ¤6 bn. Standard & Poor’s has assigned a rating of “A–” and Moody´s of “A2”.
_ In a contract signed October 21, 2003, AGF sold its 72.05 % interest in the bank Entenial to Crédit Foncier.
The required authorization by the French supervising authority was granted on February 4, 2004. As of this date, the Group deconsolidated Entenial.
_On January 29, 2004, the full Management Board of Dresdner Bank
GRUNDWERT-FONDS managed by DEGI GmbH (of which Dresdner Bank AG holds 94% of the nominal capital). In the course of this reorientation, Dresdner Bank AG and its subsidiaries acquire a real estate portfolio from the fund with a total volume of ¤1.8 bn.
_ In Dresdner Bank’s DrKW unit, the existing deferred cash compensation plan, under the terms of which performance-oriented bonus payments awarded to an employee were, in the past, paid over a period of 3 years, is being replaced by a stock-based plan.
The annual payment in stock or cash is contingent upon the employee ’s continued employment with the company. If the employee leaves the company during the 3-year vesting period, the shares not transferred, or any cash amounts not paid, to him at that time will be forfeited without substitute benefits.
The expenses incurred in connection with the plan will be accrued on a pro-rated basis over the 3-year vesting period, beginning in 2004.
_ In December 2003, the minority shareholders of PIMCO exercised their option of offering for sale a further tranche with a volume of
USD 250 mn. The settlement of this transaction in January 2004 has further increased the Allianz Group’s interest in PIMCO.
Number of shares (not including shares held by the company) units 366,472,698 242,977,214 241,189,535
Diluted earnings per share ¤ 4.772) – 4.44 5.71 1) Adjusted for the capital increase in April, 2003 and the PIMCO accounting change 2) Incl. outstanding participation certificates
A detailed description of the compensation of the Board of Management is provided in the Remuneration Report on pages 14 to 16 of the present annual report. Information on equity-based compensation components is provided on pages 167 and 168 of the present annual report.
In the reporting year, no payments for the medium-term 3-year bonus were made.
Group equity incentives are granted by the Allianz Group in the form of stock appreciation rights (SAR) and in the form of restricted stock units (RSU).
The granting price of the Group equity incentive programs for 2003 was ¤65.91 (average of the the daily closing rate of the Allianz share in Xetra trading on the 10 trading days following the Annual
In 2003, pensions and other benefit payments for former members of the Board of Management amounted to ¤8.2 (2002: 13) mn. ¤4.2
(2002: 7) mn were set aside in 2003 for compensating the claims of former members of the Board of Management. Reserves for current and future pension benefits of former members of the Board of Management and their beneficiaries amount to ¤39.8 (2002: 29.0) mn.
A L L I A N Z G R O U P 174
AGF Allianz Chile Compañia de Seguros Generales S. A., Santiago de Chile 14 99.9
Allianz Compañía de Seguros y Reaseguros S. A., Barcelona 387 99.0
Allianz-Slovenská poist’ovna a. s., Bratislava 165 84.6 1) Percentage includes equity participations held by dependent enterprises in full, even if the Group’s share in this dependent enterprise is under 100 % 2) 99.78% of the voting share capital 3) Controlled by Allianz
Dresdner Kleinwort Wasserstein Securities SIM S. p. A., Milan 23 100.0
AMB Generali Holding AG, Munich 183 5.8 2,934 – 231 12/31/2002
Banco Popular Espanol S. A., Madrid 1,014 9.4 3,258 778 12/31/2003
Banco Portuguès de Investimento (BPI – SGPS) S. A., Porto 189 8.9 1,227 164 12/31/2003
Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München, Munich 2,767 12.4 14,480 1,150 12/31/2002
Information is filed separately with the Commercial Register in Munich (HRB 7158) and published on our website together with the documentation for the Annual General Meeting.
We have audited the consolidated financial statements, comprising the balance sheet, the income statement and the statements of changes in shareholders’ equity and cash flows as well as the notes to the financial statements prepared by Allianz Aktiengesellschaft, Munich, for the business year from January 1 to December 31, 2003. The preparation and the content of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS)
GAAS). Those standards require that we plan and perform the audit such that it can be assessed with reasonable assurance whether the consolidated financial statements are free of material misstatements.
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 181
D R . J Ü R G E N H A M B R E C H T
D R . D I E T E R H U N D T
D R . H A R T M U T M E H D O R N
P R O F. D R . K L A U S P O H L E
D R . R O N S O M M E R
H O L G E R S T R A I T since January 1, 2004
B E R N D W R E D E until December 31, 2003
Honorary Chairman of the Board of Directors Koç Holding A. S.
P E T E R S U T H E R L A N D
P R O F. D R . R U D O L F H I C K E L
Assurances Générales de France, Banco Popular Español, BPI Banco Português de Investimento, Crédit Lyonnais, EULER HERMES
B E R T R A N D C O L L O M B
Axel Springer Verlag AG, Deutsche Lufthansa AG, E.ON AG, Ruhrgas AG,
*) We regard foreign memberships as ”comparable“, if the foreign company is listed on a stock exchange or has more than 500 employees.
H E R B E R T P F E N N I G since April 29, 2003
D R . J O A C H I M F A B E R
Deutsche Gesellschaft für Immobilienfonds mbH (Chairman), Deutscher Investment -Trust Gesellschaft für Wertpapieranlagen mbH (Chairman)
(Chairman), Bayerische Versicherungsbank AG (Chairman), Euler Hermes Kreditversicherungs -AG (Chairman), Frankfurter Versicherungs-AG (Chairman)
A L L I A N Z G R O U P 186
Membership in Group bodies Allianz Dresdner Asset Management AG (Chairman ), Allianz Lebensversicherungs-AG (Chairman), Allianz Versicherungs-AG
Membership in Group bodies Allianz Compañia de Seguros y Reaseguros S. A.
(Chairman), Allianz General Insurance Company S. A. Griechenland, Allianz Global Risks US Insurance Company (since March 1, 2004), Allianz Life Insurance
D R . H E R B E R T W A LT E R
Rt. (Chairman), Allianz Life Insurance Co. Ltd. Seoul (Chairman), Allianz pojistovna a. s. (Chairman), Allianz-Slovenska poistovna a. s. (Chairman),
D R . B E R N D F A H R H O L Z as of March 25, 2003
BASF AG (until May 6, 2003), E.ON AG, Linde AG (Deputy Chairman) (until
As of December 31, 2003 or (with members who resigned) day of resignation
Subsidiaries are enterprises where the parent company can exercise a dominant influence over their corporate strategy in accordance with the control concept. This is possible, for example, where the parent Group holds, directly or indirectly, a majority of the voting rights, has the power to appoint or remove a majority of the members of the Board of Management or equivalent governing body, or where there are contractual rights of control.
The overall volume of provisions includes allowance for credit loss –
deducted from the asset side of the balance sheet – and provisions for risks associated with hedge derivatives and other contingencies, such as guarantees, loan commitments or other obligations, which are stated as liabilities.
The total of all investments, valued at current market value, which the Group has under management with responsibility for maintaining and improving their performance. In addition to the Group’s own investments, they include investments held for variable annuity policyholders, bank loans and advances, and investments held under management for third parties.
The participating certificates of Allianz AG carry distribution rights based on the dividends paid, and subscription rights when the capital stock is increased; but they carry no voting rights, no rights to participate in any proceeds of liquidation, and no rights to be converted into shares.
Financial obligations not shown as liabilities on the balance sheet because the probability of a liability actually being incurred is low.
The current value of an investment is normally the same as the market value. If the market value cannot be calculated directly, fair market value is used.
The central feature of these post-employment benefit plans is the contribution which an enterprise pays into an independent pension fund. The enterprise has no further obligations beyond the amount that it agrees to contribute to the fund and has no interest in the financial results of the independent pension fund. Benefits have to be claimed from the independent pension fund.
The relevant proportion of cost for the investment in a subsidiary is set off against the relevant proportion of the shareholders’ equity of the subsidiary.
Mainly investments funding variable annuities plus investments to cover obligations under policies where the benefits are index-linked.
Group and one or more enterprises not included in the consolidation. The extent of joint management control is more than the significant influence exercised over associated enterprises and less than the control exercised over affiliated enterprises.
Number of losses in relation to the number of insured risks.
Loss and loss adjustment expenses as a percentage of premiums earned.
Historical cost adjusted by depreciation to reflect permanent diminution in value.
Derivative financial instruments where the holder is entitled – but not obliged – to buy (call option) or sell (put option) the underlying asset at a predetermined price sometime in the future. The grantor
Derivative financial instruments which are not standardized and not traded on an exchange but are traded directly between two counterparties via over-the-counter (OTC) transactions.
Current and future post-employment benefits payable to current and former employees under company pension schemes, accrued as a liability.
Premiums written represent all premium revenues in the year under review. Premiums earned represent that part of the premiums written used to provide insurance coverage in that year. In the case of life insurance products where the policyholder carries the investment risk (e.g. variable annuities), only that part of the premiums used to cover the risk insured and costs involved is treated as premium income.
A repurchase (“repo”) transaction involves the sale of securities by the Group to a counterparty, subject to the simultaneous agreement to repurchase these securities at a certain later date, at an agreed price. The securities concerned are retained in the Group’s balance sheet for the entire lifetime of the transaction, and are valued in accordance with the accounting principles for trading assets or investment securities, respectively. The proceeds of the sale are reported in liabilities to banks or to customers, as appropriate.
Interest income from reverse repos and interest expenses from repos are accrued evenly over the lifetime of the transactions and reported under interest income/interest expenses and similar income /expenses.
That part of the operating surplus which will be distributed to policyholders in the future. This refund of premiums is made on the basis of statutory, contractual, or company by-law obligations, or voluntary undertaking.
Trading assets are debt issues and stocks as other financing instruments (essentially derivatives, note loans und precious metals holding ) which have been acquired solely for sale in the near term. They are shown in the balance sheet at fair value.
Minority interest in earnings ¤mn – 782 13.7 – 688 – 1,044 – 1,277 – 974 – 814 139
Return on equity after taxes % 6.4 – – 4.6 4.7 10.6 8.5 9.8 45
Return on equity before amortization of goodwill % 12.1 – – 0.3 7.1 12.1 10.2 10.9 45
Aided by rising stock prices and the gradual recovery of the economy, we significantly improved the operating result by 1.6 billion euros. Loan loss provisions fell to half the prior-year figure. We also made substantial progress in cost management: administrative expenses dropped by 1.2 billion euros, and the operating cost-income ratio declined from 96.7 to 90.3 percent. However, restructuring measures had a substantial impact on the non-operating result, so that the segment posted an overall loss of 1.3 billion euros for the year.