I. T O O u R I n v E S T O R S 2 letter to the Investor 6 Supervisory Board Report 12 Members of the Board of Management 13 International Executive Committee 15 Members of the Supervisory Board 16 Allianz Share 22 Services for Allianz Investors
III. G R O u P M A n A G E M E n T R E P O R T 55 Content y O u R A l l I A n z 56 Business Operations and Markets 69 Our Strategy 73 Our Progress in Sustainable Development
R I S K R E P O R T A n D F I n A n C I A l C O n T R O l 149 Risk Report 178 Controls and Procedures
Iv. C O n S O l I D AT E D F I n A n C I A l S TAT E M E n T S 181 Content 182 Consolidated Balance Sheets 183 Consolidated Income Statements 184 Consolidated Statements of Comprehensive Income 185 Consolidated Statements of Changes in Equity 186 Consolidated Statements of Cash Flows 189 notes to the Consolidated Financial Statements v. F u R T H E R I n F O R M AT I O n 328 Joint Advisory Council and International Advisory Board 330 Mandates 333 Glossary 337 Index
Ever since it was established in 1890, Allianz has consistently geared its portfolio to meet the needs of its customers. We operate around the world and millions of people place their trust in us to this day. Our selected marketing motifs take up the spirit of the various epochs and form a bridge from the pioneering days at the beginning of the 20th century to the knowledge society of tomorrow.
◾ Operating profit of € 7,866 mn within expected range, mirroring fundamental strength of business.
S t A t u t O r y p r e m i u m S 1
B y r e G i O n / C O u n t r y as of D e cemb er 31, 2011 [D e cemb er 31, 2010] | in %
S H A R E I n F O R M A T I O n
Share price as of December 31, € 73.91 (16.9 %) 88.93 87.15 75.00 147.95 154.76 127.94 ▶ 17 Market capitalization as of December 31, € mn 33,651 (16,7%) 40,419 39,557 33,979 66,600 66,880 51,949 ▶ 19
O T H E R D A T A Total assets under management as of December 31, € mn 1,656,993 9.2 % 1,517,538 1,202,122 950,548 1,009,586 1,011,802 977,957 ▶ 115 thereof: Third-party assets under management as of December 31, € mn 1,281,256 10.1 % 1,163,982 925,699 703,478 764,621 763,855 742,937 ▶ 115
Allianz at a Glance 1 | Figures prior to 2008 have not been restated to reflect the change in the Allianz Group’s accounting policy, effective July 1, 2010. For further information please refer to note 4 of our consolidated financial statements.
2 | Total revenues comprise statutory gross premiums written in Property-Casualty and life/Health, operating revenues in Asset Management and total revenues in Corporate and Other (Banking). 3 | Figures do not reflect changes in the presentation implemented in 2009.
6 | Proposal. 7| Dividend sum based on total amount of shares. Actual dividend payment will be reduced by the dividend amount attributable to treasury shares.
2 Letter to the Investor 6 supervisory Board report 12 Members of the Board of Management 13 International executive Committee 15 Members of the supervisory Board 16 Allianz share 22 services for Allianz Investors 1958: The brilliant idea of advertising on matchboxes saw Allianz catapulted into the minds of one-in-two Germans overnight. 2011: From buildings and contents insurance to third-party liability insurance for oil tanks, today over 78 million Allianz policyholders can enjoy total peace of mind within their own four walls.
t o o u r i n v e s t o r s2 i. to our investors
M i c h A e l D i e k M A n n c h A i r M A n o f t h e B o A r D o f M A n A g e M e n t
in addition, macroeconomic factors had a negative effect on our results. the european sovereign debt crisis forced us to make substantial impairments on our greek sovereign bonds and our equity portfolio. our effective tax rate also increased significantly because of high non tax-effective losses on equities.
extreme market volatility now seems to be the “new normal” for the global economy. to be able to overcome the related risks we implemented additional safeguards and sharpened our approach to risk management. We also set up a special group charged with monitoring and analyzing our risk positions and implementing countermeasures.
the performance of some of our major subsidiaries did not meet our expectations. in last year’s letter to the investor, i wrote that the profit turnaround program in our german, french, italian and u.s. units should deliver noticeably better results. i am disappointed to report that we did not meet this objective everywhere, due to highly turbulent market conditions. in france and italy the operating results of the property-casualty business improved considerably. in the united states and germany however, operating profit fell further, mainly due to unusually high losses from natural catastrophes and large claims that had a negative effect on the combined ratio. Additional measures are needed as a result of these delays in the profit turnaround program. in germany, the property insurance management team has developed a plan to boost growth and earnings in 2012 and subsequent years. Although changes were also made in the united states, we do not expect a strong boost from the market there as early as 2012.
overall, the unusually severe natural catastrophes and grim financial market environment put a severe damper on our net income for the year, which fell by 46.2 % year-on-year to € 2.8 bn.
please extend a warm welcome to our new members of the Board of Management, Dr. helga Jung, Mr. gary Bhojwani, Dr. Dieter Wemmer and Dr. Maximilian zimmerer. they all have excellent track records. these appointments by the supervisory Board have created a strong team consisting of older and younger members with an impressive range of experience. i look forward to working together with them to move your Allianz further forward into the future.
in our property-casualty segment we expect solid growth, in particular supported by favorable price effects in several markets, as well as an improved operating result. in life/health we believe the revenue level will remain stable and our operating result will slightly increase – despite the ongoing difficult market conditions. We aim to maintain our excellent results in Asset Management.
the current fiscal year will be no less challenging than the year under review. however, i am optimistic that our robust business model, management team and employees will not only be able to meet the challenges, but also exploit opportunities that arise. it should continue to be worthwhile for you to be part of Allianz – one of the largest financial communities – and i hope that you will continue to place your trust in us.
During the fiscal year of 2011, the supervisory Board fulfilled its duties and obligations as provided for under the statutes and applicable law. We monitored the management of the company and advised the Board of Management regarding the conduct of business. We were directly involved in all major company decisions.
Within the framework of our monitoring and advisory activities, the Board of Management informed us on a regular basis, and in a timely and comprehensive manner, both verbally and in writing, on the course of business, as well as the economic and financial development of the Allianz group and Allianz se. Further key areas the Board of Management reported on were the company’s business strategy, the development of capital resources and special topics such as the effects of the sovereign debt crisis in europe and the status of implementation of the solvency ii Directive. in addition, we were involved in the Board of Management’s planning for both the 2012 fiscal year and the medium term as well as in areas in which actual business development had deviated from the plan.
the Board of Management’s reports on the business situation and other topics were supplemented by presentations and documents which members of the supervisory Board received in preparation for each meeting. likewise, the annual financial statements of Allianz se, the consolidated financial statements and the auditor’s reports were available to us in time for the meeting. the half-yearly and quarterly financial reports as well as the results of the auditor’s review were provided in advance to members of the Audit Committee. the supervisory Board or the standing Committee adopted resolutions on Board of Management activities that were subject to approval, such as business contracts or the issuance of shares to employees.
in the 2011 fiscal year, the supervisory Board held four meetings and one telephone conference. the regular meetings took place in March, May, september and December. Additionally, in February 2011, there was a discussion on the Board of Management’s dividend recommendation following the meeting of the Audit Committee in which all members of the supervisory Board could participate via telephone. the Board of Management informed us in writing of important events that occurred between meetings. the Chairs of the supervisory Board and Board of Management also held
i s s u e s D i s C u s s e D i n t h e s u p e r v i s o r y B o A r D p l e n A r y s e s s i o n s in all of the supervisory Board’s 2011 meetings, the Board of Management reported on group revenues and results, as well as the capital and financial situation. the Board also reported on developments in individual business divisions. We were regularly informed by the Board of Management about the impact of natural catastrophes, the status of major legal disputes and developments in Allianz se’s stock market price.
During the meeting on september 15, 2011 the Board of Management reported in detail on the business performance and financial condition of the Allianz group and the development of its individual segments. As in the previous year, we paid special attention to the strategy of the Allianz group. the supervisory Board welcomed the Board of Management’s decision to give employees of the Allianz group in 21 countries the opportunity to buy Allianz shares under favorable conditions. the standing Committee approved the use of Authorized Capital 2010/ii to issue these shares to employees. in the executive session, one of the issues we addressed was the reinsurance of pension entitlements. the meeting was followed by a separate session in which members of the Boards of Management within Allianz group gave presentations on strategic asset investment, global insurance activities, the current status of Allianz Deutschland and the characteristics of life insurance products.
the Board of Management informed us of the third quarter results, further business developments, the situation of the Allianz group, and the group’s remuneration structures during the meeting on December 14, 2011. We then discussed planning for the 2012 fiscal year, as well as medium-term perspectives. Afterwards, we issued the Declaration of Conformity with the german Corporate governance Code. in the executive session, we adopted a resolution to terminate the appointment and service contract of Dr. Achleitner with effect from May 31, 2012, and of Mr. Cucchiani with effect from December 21, 2011. the decision was taken to allow Mr. Cucchiani to accept the position of Ceo of italian bank, intesa sanpaolo spA, and Dr. Achleitner to comply with Deutsche Bank Ag’s request to stand for election as Chairman
t o o u r i n v e s t o r s8 of its supervisory Board in May 2012. Additionally, we bid farewell to Dr. Faber, who retired. then, we approved the appointments of Mr. Bhojwani, Dr. Jung, Dr. Wemmer, and Dr. zimmerer, and their contractual agreements. Dr. Jung and Dr. Wemmer were each appointed for a three-year term. the terms for Mr. Bhojwani and Dr. zimmerer were set at five years and four years and seven months, respectively, in light of their previous executive roles within the Allianz group. Based on documentation prepared by the personnel Committee, the supervisory Board reviewed the appropriateness of the remuneration of the Board of Management by means of vertical and horizontal comparison. the supervisory Board followed the recommendation of the personnel Committee to adjust the fixed remuneration of individual Board of Management members and to set the yearly premiums for their pension schemes for 2012. taking these changes into account, we concluded that the Board of Management remuneration was appropriate. the supervisory Board also adopted the targets for the variable remuneration of Board of Management members for 2012, as well as a change of the allocation of targets for the 2010 - 2012 Mid-term bonus, which arose from the changes in the Board of Management. We then used the meeting for our regular review of the efficiency of the supervisory Board. Based on information prepared by the standing Committee, we discussed possible improvement opportunities and recorded the appropriate measures for the future. subsequently, based on the proposal of the nomination Committee, the shareholder representatives resolved on the candidates to be proposed to the Annual general Meeting 2012 for election to the supervisory Board as representatives of the shareholders, bearing in mind the objectives defined in December 2010 in respect of the composition of the supervisory Board.
D e C l A r At i o n o F C o n F o r M i t y W i t h t h e g e r M A n C o r p o r At e g o v e r n A n C e C o D e on December 14, 2011, the Board of Management and the supervisory Board issued the Declaration of Conformity in accordance with § 161 of the german stock Corporation Act (“Aktiengesetz”). the Declaration was posted on the company website, where it is available to shareholders at all times. since its last Declaration of Conformity, Allianz se has complied with all but one of the recommendations made by the government Commission on the german Corporate governance Code in its May 26, 2010 version. it will also continue to comply with all but one of its recommendations in the future. Contrary to no. 5.4.6 paragraph 2 sentence 1 of the german Corporate governance Code, the remuneration for the supervisory Board as resolved on May 4, 2011 by the Annual general Meeting and specified in the statutes does not include a performance-based component.
C o M M i t t e e A C t i v i t i e s the supervisory Board has formed various committees in order to perform its duties efficiently: the Audit Committee, the standing Committee, the personnel Committee, the risk Committee and the nomination Committee. the committees prepare the discussion and adoption of resolutions in the plenary sessions. Furthermore, in appropriate cases, the authority to adopt resolutions has been delegated to the committees. there is no Conciliation Committee because the german Co-Determination Act (“Mitbestimmungsgesetz”), which provides for such a committee, does not apply to Allianz se. please find on page 10 the composition of the committees at the end of the reporting period.
the S t a n d i n g c o m m i t t e e held three regular meetings in 2011. these related primarily to corporate governance issues, preparations for the Annual general Meeting, the employee stock purchase plan and a review of the supervisory Board’s efficiency. the committee passed resolutions requiring approval on the use of Authorized Capital 2010/ii for the issue of shares to employees, the use of authorization granted by the Annual general Meeting 2010 to issue convertible bonds, and to approve loans to senior executives and board members. At the meeting in september, the committee conducted a review of efficiency, based on a list of topics sent in advance to members.
to o ur in ve st or s the p e r S o n n e l c o m m i t t e e met six times. the meetings dealt with personnel matters as well as the structure and amount of Board of Management remuneration. the committee prepared the review of the Board of Management’s remuneration system, including the main contractual elements, and set the targets for variable remuneration. in addition, it reviewed the achievement of targets by Board of Management members regarding their 2010 Annual bonuses, the allocation of share-based remuneration and the indicative attribution for the 2010 - 2012 Mid-term bonuses. the committee considered on the termination of the appointments and contracts of Dr. Achleitner and Mr. Cucchiani in several meetings. since Dr. Faber also retired for age reasons at the end of the year, we were very active in finding replacements for these positions on the Board of Management. the personnel Committee ultimately suggested appointing Mr. Bhojwani, Dr. Jung, Dr. Wemmer and Dr. zimmerer, and prepared their appropriate contractual agreements. the committee additionally dealt with the external mandates held by Board of Management members in the interests of the Allianz group.
the n o m i n a t i o n c o m m i t t e e met twice during the year. in both meetings, we discussed the candidates for election to the supervisory Board by the Annual general Meeting 2012. taking into account the objectives for the constitution of the supervisory Board (see page 28), the committee developed proposals for the shareholders’ representatives and introduced them to the plenary session.
s t A n D i n g C o M M i t t e e | Dr. henning schulte-noelle (Chairman), Dr. Wulf Bernotat , Dr. gerhard Cromme, peter Kossubek , rolf zimmermann
A u D i t o F A n n u A l A C C o u n t s A n D C o n s o l i D At e D F i n A n C i A l s tAt e M e n t s in compliance with the special legal provisions applying to insurance companies, the statutory auditor and the auditor of the review of the half-yearly financial report are appointed by the supervisory Board of Allianz se and not by the Annual general Meeting. the supervisory Board has appointed KpMg Ag Wirtschaftsprüfungsgesellschaft (KpMg), Munich, as statutory auditor for the annual accounts and the consolidated financial statements as well as for the review of the half-yearly financial report. KpMg audited the financial statements of Allianz se and Allianz group as well as the respective management reports. it issued an audit opinion without any reservations. the consolidated financial statements were prepared on the basis of the international financial reporting standards (iFrs), as applied in the european union. KpMg performed a review of the half-yearly and quarterly financial reports.
All supervisory Board members received the documentation relating to the annual financial statements and the auditor‘s reports from KpMg on schedule. the provisional financial statements and KpMg’s audit results were discussed in the Audit Committee on February 22, 2012. Afterwards, all supervisory Board members had the opportunity to participate in a telephone discussion on the Board of Management’s dividend recommendation. the final financial statements and KpMg’s audit reports were reviewed on March 22, 2012 by the Audit Committee and in the supervisory Board plenary session. the auditors participated in both of these discussions and presented the main results of their audit procedures. no material weaknesses in the internal financial reporting control process were discovered. there were no circumstances that might give cause for concern about the auditor’s independence.
M e M B e r s o F t h e s u p e r v i s o r y B o A r D A n D B o A r D o F M A n A g e M e n t
the supervisory Board was informed by the Board of Management of the responsibilities of the individual members of the Board of Management and offered its advice in this regard.
Also, in the supervisory Board, there was a personnel change: Mr. heiß was appointed to the supervisory Board initially by the court, effective January 1, 2011, as successor to Mr. grimm, who resigned from the supervisory Board with effect from December 31, 2010. on May 4, 2011, the Annual general Meeting elected Mr. heiß to the supervisory Board. the current term of the supervisory Board expires following the Annual general Meeting in 2012.
As i do not stand for reelection due to reaching the age limit of the supervisory Board, 37 years of service for the Allianz are coming to an end. it is my sincere desire to cordially thank you, dear shareholders, for your well received support and trust throughout many years.
MAnuel BAuer insurance growth Markets gAry BHoJWAni insurance usA since January 1, 2012
Dr. HelgA Jung insurance iberia & latin America , legal & Compliance, M&A since January 1, 2012
see inside page the international executive Committee includes all members of Allianz se’s Board of Management and heads of major Allianz subsidiaries. Chaired by Michael Diekmann, this body discusses overall strategic issues for the Allianz group.
D r . g e r H A r D C ro M M e vice Chairman Chairman of the supervisory Board, thyssenkrupp Ag ro l F zi M M e r M A n n vice Chairman employee, Allianz Deutschland Ag
go D F r e y ro B e rt H Ay WA r D employee, Allianz insurance plc
F r A nz H e is s employee, Allianz Beratungs- und vertriebs-Ag p ro F. D r . r e n At e kö C H e r Director, institut für Demoskopie Allensbach p e t e r ko s su B e k employee, Allianz Deutschland Ag i go r l A n DAu Member of the Administrative Board, sanofi-Aventis s.A.
Dividend Maintained 2011 was a challenging year. Although our net results were not immune from the ongoing crisis, our operating performance and capital position remained strong. For more information about our group performance, please refer to our executive summary starting on page 87. We also recognize that our shareholders value continuity in our dividends as they comprise a significant portion of total shareholder return. As such, we are proposing to the Annual general Meeting a dividend of € 4.50 per share, the same amount as in the previous year. this amounts to a dividend yield of 6.1 %. With respect to the net income 1 for the year 2011, the payout ratio is 81 % 2.
1 | Based on net income after non-controlling interests. 2 | Dividend sum based on total amount of shares. Actual dividend payment will be reduced by the dividend amount attributable to treasury shares.
Compounding these effects, worries about the european debt crisis intensified in 2011. As a result, volatility on global stock markets increased considerably and put additional pressure on share prices in general. until April 2011, solid company earnings appeared to compensate for concerns about the ongoing debt crisis, with some markets recording double-digit gains. however, the tide turned in the second half of the year and european equity markets dropped sharply as worries grew that the debt crisis could not be contained within the e.u.’s periphery. For the year, the euro stoXX 50 was down 17.1 % and the DAX fell by 14.7 %. Within the financial services sector, although all sectors were down for the year, insurance stocks performed relatively better than the banking index. the stoXX europe 600 insurance index decreased by 13.7 % in 2011 while the stoXX europe 600 Banks index dropped by 32.5 %, reflecting the worsening sentiment around bank stocks in particular.
s t o X X e u r o p e 6 0 0 i n s u r A n C e | inde xe d on the A l l ianz share pr ice in €
A l l i A n z s h A r e p e r F o r M A n C e i n C o M p A r i s o n | average annual p er for mance in %
source: thomson reuters Datastream h i g h s A n D l o W s | in €
source: thomson reuters Datastream total number of issued shares as of 12/31 455,300,000 454,500,000 453,900,000 453,050,000 450,150,000 Weighted number of shares outstanding 451,764,842 451,280,092 450,845,024 450,161,145 442,544,977 share price performance in the year % (16.9) 2.0 16.2 (49.3) (4.4)
Market capitalization as of 12/31 € bn 33.7 40.4 39.6 34.0 66.6 Average number of shares traded per day (Xetra) mn 3.1 2.5 3.0 4.9 4.1 return on equity after income tax 4, 6 % 5.7 11.9 12.5 9.9 15 1 | in comparison with euro stoXX 50; source: Bloomberg.
2 | Figures prior to 2008 have not been restated to reflect the change in the Allianz group’s accounting policy, effective July 1, 2010. For further information please refer to note 4 of our consolidated financial statements.
Allianz share trading volumes in 2011 around 71 % of total trades in Allianz shares were processed on german stock exchanges (including Xetra) with over the counter (otC) trading platforms continuing to gain share, but at a more subdued pace than in the past.
MsCi World Financials 1.1 19 323 source: Deutsche Börse, stoXX ltd., MsCi
t o o u r i n v e s t o r s2 0
Allianz share as a sustainable investment our holistic entrepreneurial approach has long been recognized and resulted in our stock’s inclusion in major sustainability indices, including the Dow Jones sustainability index and the Ftse4good. We regularly rank amongst the best in these and other sustainability ratings and are considered one of the most sustainable insurance groups worldwide. this strengthens the attractiveness of Allianz shares for investors particularly interested in sustainable investments.
For up-to-date information on our shareholder structure, please visit w w w . a l l i a n z . c o m / s H a r e H o l d e r s . 1
Annual general Meeting 2011 on m a y 4 , 2 0 1 1 , around 4,700 shareholders and shareholder representatives attended our Annual general Meeting at the Munich olympiahalle. 45.1 % of subscribed capital was voted, which is an increase of 8.0 percentage points compared to the previous year. Absentee voting (by mail or online) was used by 3.6 % of the subscribed capital. the general Meeting approved each of the proposed resolutions with a clear majority.
1 | As of December 31, 2011 [December 31, 2010] in % of subscribed capital .
Communication with investors is very important to us. At numerous roadshows in europe, the united states, Canada and Asia, members of the Board of Management and our investor relations (ir) team presented Allianz’s strategic direction and business development in 2011. overall, we held more than 400 meetings with institutional investors and analysts, including meetings at our headquarters in Munich. investors and analysts also showed a strong interest in our analysts’ conference covering the annual results and our telephone conferences on the quarterly figures. our annual Capital Markets Day, which we held at our new York offices in 2011, was also very well attended. During this event our u.s. top management presented Allianz’s u.s. life insurance and worldwide Asset Management activities. in addition to the meetings we hosted, board members and experts represented Allianz at nine international investor conferences. Dialogue with private shareholders is another key component of our ir work. As in the previous year, we processed around 8,500 private shareholder enquiries in 2011.
t o o u r i n v e s t o r s2 2 i. services for Allianz investors ipad photo: © manaemedia / fotolia.com
A l l i A n z A p p s since there is a clear trend towards the use of iphones and ipads among our shareholders, investors and analysts, our current investor relations information is now also available as Apps for the iphone and ipad. You can find both our iphone and ipad Apps in the App store. We look forward to receiving your feedback and suggestions!
You can also scan the Qr Code to get directly to the specific Allianz App you wish to download from the Apple App store.
◼ A l l i A n z F i n A n C i A l r e p o r t s our a l l i a n z f i n a n c i a l r e p o r t s ipad App allows you to read our Annual and interim reports in the convenient format of a digital magazine. With the user-friendly navigation including cross-referencing, hot spots, menus and a bookmark function, you can access the information you require within a few finger taps. Whether you need a high level overview or wish to drill down into the detailed analysis (graphs, tables, footnotes etc.) – all of these options are available, the choice is yours!
24 Corporate Governance report and Statement on Corporate Management 33 Takeover-related Statements and explanations 37 remuneration report
C o r p o r A t e g o v e r n A n C e2 4 ii. Corporate governance report and Statement on Corporate Management
As a european Company, Allianz Se is subject to special european Se regulations and the german law implementing the european Company in addition to german stock corporation law. the main features of the company’s existing corporate constitution – in particular the two-tier board system (Board of Management and Supervisory Board) and the principle of equal employee representation on the Supervisory Board – have been maintained by Allianz Se. for further details on the differences between a german stock corporation and a european Company with a registered office in germany, please refer to our website W W W . A L L I A N Z . C O M / A L L I A N Z - S E .
the Board meets regularly at Board of Management meetings convened by its Chairman who coordinates the Board’s activities. each member of the Board may request a meeting providing notification of the proposed resolution. According to its rules of procedure, the Board takes decisions by ordinary resolution of participating members. in the event of a tie, the Chairman casts the deciding vote. As a consequence of the transformation into Allianz Se, the Chairman can veto decisions, however, he cannot impose any decisions against the majority vote on the Board of Management.
◼ B o A r D o f M A n A g e M e n t A n D g r o u p C o M M i t t e e S
Members of the Board of Management’s committees – the group Capital Committee, the group finance Committee, the group it Committee and the group risk Committee – are elected from within the Board itself.
B o A r D C o M M i t t e e S r e S p o n S i B i l i t i e S
Decision on material investments, preparation and monitoring the group’s investment policy, financing and capital management.
g r o u p i t C o M M i t t e e Dr. Christof Mascher (Chair), oliver Bäte, gary Bhojwani | since January 1, 2012, Jay ralph | until December 31, 2011, Dr. Werner zedelius
Developing, implementing and monitoring the group-wide it strategy, approval of relevant it investments.
g r o u p r i S k C o M M i t t e e oliver Bäte (Chair), Dr. paul Achleitner, Clement Booth, Jay ralph establishing and overseeing a group-wide risk management and monitoring system.
g r o u p C o M M i t t e e S r e S p o n S i B i l i t i e S
g r o u p C o M p e n S A t i o n C o M M i t t e e Board members and executives reporting to the Allianz Se Board of Management
g r o u p u n D e r W r i t i n g C o M M i t t e e Members of the Board of Management, executives below the board level and the Chief underwriting officers of group companies
i n t e r n A t i o n A l e x e C u t i v e C o M M i t t e e All members of the Board of Management of Allianz Se and heads of major group companies
the responsibilities and composition of Board of Management and group committees are set out in the rules of procedure, which require the approval of the Board of Management.
Certain important decisions of the Board of Management require approval by the Supervisory Board. Some of these requirements are stipulated by law or by decisions of the Annual general Meeting. these include approval for the Board of Management to increase the share capital (Authorized Capital), acquire treasury shares or issue convertible bonds or bonds with warrants. in addition, also the Statutes provide approval requirements for certain transactions, such as intercompany agreements and the launch of new business segments or closure of existing ones, insofar as such actions are material to the group. Approval is also required for acquiring companies and holdings in companies as well as divestments of equity stakes that result in a company leaving the group. unless qualifying as a financial investment, such transactions are subject to approval provided that the market value or, in the absence of the market value, the book value of the acquired or divested investment amounts to at least 10 % of the equity in the most recent consolidated balance sheet. the agreement concerning the participation of employees in Allianz Se requires the approval of the Supervisory Board for the appointment of the member of the Board of Management responsible for employment and social welfare.
in accordance with the Agreement Concerning the participation of employees in Allianz Se, the seats for the six employee representatives are allocated in proportion to the number of Allianz employees in the different countries. the Supervisory Board currently in office comprises four employee representatives from germany and one each from france and the united kingdom. the last election of the Supervisory Board took place in 2007 for a term lasting until the end of the ordinary general Meeting in 2012. At the general Meeting in 2012, four employee representatives from germany and one each from france and italy will be up for election.
the Supervisory Board oversees and advises the Board of Management on managing the business. furthermore, the Supervisory Board is responsible for appointing the members of the Board of Management, determining their remuneration and reviewing Allianz Se’s and the Allianz group’s annual financial statements. the Supervisory Board’s activities in the 2011 fiscal year are described in the Supervisory Board report (starting on page 6).
the Supervisory Board holds regular meetings in March, April or May, September and December. extraordinary meetings may be convened as needed. the committees also hold regular meetings. the Supervisory Board takes all decisions based on a simple majority. the special requirements for appointing members to the Board of Management contained in the german Co-Determination Act and the requirement for a Conciliation Committee no longer apply to an Se. in the event of a tie, the casting vote lies with the Chairman of the Supervisory Board, who must be a shareholder representative. if the Chairman is not present in the event of a tie, the casting vote lies with the deputy chairperson from the shareholder side. A second deputy chairperson is elected on the proposal of employee representatives, but has no casting vote.
◼ S u p e r v i S o r y B o A r D C o M M i t t e e S
part of the Supervisory Board’s work is carried out by its committees. the composition of committees and the tasks assigned to them are regulated by the Supervisory Board’s rules of procedure. the Supervisory Board receives regular reports on the activities of the committees.
S u p e r v i S o r y B o A r D C o M M i t t e e S r e S p o n S i B i l i t i e S
◾ Approval of certain transactions which require approval of the Supervisory Board, e.g. capital increases, acquisitions and disposals of participations
A u D i t C o M M i t t e e | 5 members ◾ C h A i r : appointed by the Supervisory Board (Dr. Wulf Bernotat), independent and not a former Board of Management member, whose term of office ended less than two years ago
◾ t h r e e S h A r e h o l D e r r e p r e S e n tAt i v e S (Dr. Wulf Bernotat, igor landau, Dr. henning Schulte-noelle)
Dr. henning Schulte-noelle, peter Denis Sutherland) ◾ t W o e M p loy e e r e p r e S e n tAt i v e S (godfrey robert hayward, franz heiß)
◾ Monitoring the risk situation and special risk developments in the Allianz group
(Dr. gerhard Cromme) ◾ o n e e M p loy e e r e p r e S e n tAt i v e (rolf zimmermann)
◾ preparation of appointment of Board of Management members ◾ preparation of resolutions of the plenary on the compensation system and the total compensation of the board members ◾ Conclusion, amendment and termination of service contracts of board members, unless the plenary has to decide on this matter as part of setting the remuneration
◾ long-term succession planning for the Management Board taking diversity into account and particularly aiming for an adequate repre sentation of women n o M i n A t i o n C o M M i t t e e | 3 members ◾ C h A i r : Chair of the Supervisory Board (Dr. henning Schulte-noelle) ◾ t W o ot h e r S h A r e h o l D e r r e p r e S e n tAt i v e S
◾ establishing selection criteria for shareholder representatives for the Super visory Board in compliance with the Code’s recommendations on the composition of the Supervisory Board
◾ Search for suitable candidates for the election of shareholder representatives to the Supervisory Board
the following requirements and objectives apply to the composition of Allianz Se’s Supervisory Board: 1 i . r e q u i r e M e n t S r e l A t i n g t o t h e i n D i v i D u A l M e M B e r S o f t h e S u p e r v i S o r y B o A r D
◾ knowledge of the main features of accounting and risk management 1
2 . i n D e p e n D e n C e All of the members of the Supervisory Board should be independent within the meaning of no. 5.4.2 of the Corporate governance Code, i.e. they may not have any business or personal relations with Allianz Se or its Board of Management, which could cause a conflict of interests. Moreover, one member shall be independent within the meaning of § 100 (5) of the german Stock Corporation Act. it has to be considered that the possible emergence of conflicts of interests in individual cases cannot generally be excluded. potential conflicts of interests must be disclosed to the Chairman of the Supervisory Board and will be resolved by appropriate measures.
3 . r e t i r e M e n t Ag e According to the Supervisory Board’s rules of procedure, its members may not, in general, be older than 70 years of age.
1. S p e C i A l i S t k n o W l e D g e ◾ At least one member must have considerable experience in the insurance and financial services fields ◾ At least one member must have expert knowledge of accounting and auditing within the meaning of § 100 (5) of the german Stock Corporation Act
◾ Specialist knowledge of, or experience in, other economic sectors 2 . i n t e r n At i o n A l C h A r AC t e r At least four of the members must, on the basis of their origin or function, represent regions or cultural areas in which Allianz Se conducts significant business.
A n n u A l g e n e r A l M e e t i n g
in compliance with special legal provisions applying to insurance companies, the auditor of the annual financial statements and of the half-yearly financial report is appointed by the Supervisory Board and not by the Annual general Meeting. the Supervisory Board’s Audit Committee carries out the preparatory work for the appointments. the statutory
C o r p o r A t e g o v e r n A n C e3 0 audit of the financial statements covers the individual financial statements of Allianz Se and also the consolidated financial statements of the Allianz group.
to ensure maximum transparency, we inform our shareholders, financial analysts, the media and the general public of the company’s situation on a regular basis and in a timely fashion. the annual financial statements of Allianz Se, the Allianz group’s consolidated annual financial statements and the management reports are published within 90 days after the end of each financial year. Additional information for shareholders and third parties is provided in the Allianz group’s quarterly and half-yearly financial reports. these reports are reviewed by the auditor. information is also made available at the Annual general Meeting, at press conferences and analysts’ meetings, as well as on the Allianz group’s website. our website also carries a financial calendar listing the dates of major publications and events, such as annual reports, quarterly and half-yearly financial reports and Annual general Meetings.
Statement on Corporate Management pursuant to § 289 a of the german Commercial Code (“handelsgesetzbuch – hgB”)
D e C l A r At i o n o f C o n f o r M i t y W i t h t h e g e r M A n C o r p o r At e g o v e r n A n C e C o D e on December 14, 2011, the Board of Management and the Supervisory Board issued the following: ”Declaration of Conformity by the Management Board and the Supervisory Board of Allianz Se with the recommendations of the german Corporate governance Code Commission in accordance with § 161 of the german Stock Corporation Act (Aktg)
the listed group company oldenburgische landesbank Ag issued its own declaration of conformity in December 2011, which states that oldenburgische landesbank Ag complies with all of the recommendations of the Code except for no. 5.4.6 para. 2 sentence 1.
C o r p o r At e g o v e r n A n C e p r A C t i C e S
We view strong internal control systems over our internal and external financial reporting as critical to managing our company successfully and reinforcing trust with our stakeholders. for further information please refer to our Controls and procedures on page 178.
the quality of the internal control systems is assessed by a function performed by Allianz group staff who are independent of the activities which are audited. internal Audit is an independent, objective assurance and consulting activity designed to add value and improve our organization’s operations. it helps us to accomplish our objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. therefore, internal audit activities are geared towards helping the company to mitigate risks as well as further assist in strengthening the organization’s governance processes and structures.
the standards of conduct established by the Allianz group’s Code of Conduct for Business ethics and Compliance serve to implement these guidelines and principles and are obligatory for all employees worldwide. the Code of Conduct is available on our website at W W W . A L L I A N Z . C O M / C O r p O r A t E - g O v E r N A N C E .
A description of the composition of the Supervisory Board and its committees can be found on page 10 and 15 of the Annual report. on page 12, reference is made to the composition of the Board of Management and a description of the compo sition of the Board of Management’s committees can be found on page 25 of the Corporate governance report. the information can also be found on our website at W W W . A L L I A N Z . C O M / C O r p O r A t E - g O v E r N A N C E .
A general description of the functions of the Board of Management, the Supervisory Board and their committees can be found in the Corporate governance report starting on page 24 and on our website at W W W . A L L I A N Z . C O M / C O r p O r A t E - g O v E r N A N C E .
C o m p o S i t i o n o f S h a r e C a p i ta l as of december 31, 2011, the share capital of allianz Se was € 1,165,568,000. it was divided into 455,300,000 registered and fully paid-up shares with no-par value and a corresponding share capital amount of € 2.56 per share. all shares carry the same rights and obligations. each no-par-value share carries one vote.
r e S t r i C t i o n S o n v o t i n G r i G h t S a n d S h a r e t r a n S f e r S ; e x e r C i S e o f v o t i n G r i G h t S i n C a S e o f e m p l o y e e e q u i t y pa r t i C i pat i o n S
Shares may only be transferred with the consent of the Company. the Company may withhold a duly applied approval only if it deems this to be necessary in the interest of the Company on exceptional grounds. the applicant will be informed of the reasons.
Shares acquired by employees of the allianz Group as part of the employee Stock purchase plan are in principle subject to a one-year lock-up period. outside Germany, the lock-up period may in some cases be up to five years. in some countries, in order to ensure that the lock-up period is observed, the employee shares are held throughout that period by a bank, another natural person or a legal entity acting as trustee. nevertheless, employees may instruct the trustee to exercise voting rights, or have power-of-attorney granted to them to exercise such voting rights. lock-up periods contribute to the employee Stock purchase plan’s aims of committing employees to the Company and letting them participate in the performance of the stock price.
Statements pursuant to § 289 (4) and § 315 (4) of the German Commercial Code (“handelsgesetzbuch – hGB”) and explanatory report
C o r p o r a t e G o v e r n a n C e3 4 l e G a l a n d S tat u t o r y p r o v i S i o n S a p p l i C a B l e t o t h e a p p o i n t m e n t a n d r e m o va l o f m e m B e r S o f t h e B o a r d o f m a n a G e m e n t a n d t o a m e n d m e n t S o f t h e S tat u t e S
according to § 5 (1) of the Statutes, the Board of management shall consist of at least two persons. otherwise, the number of members is determined by the Supervisory Board. the Supervisory Board has appointed a Chairman of the Board of management pursuant to § 84 (2) of the German Stock Corporation act.
a u t h o r i z at i o n S o f t h e B o a r d o f m a n a G e m e n t t o i S S u e a n d r e p u r C h a S e S h a r e S
◾ up to a total of € 11,416,000 (authorized Capital 2010/ii). the shareholders’ subscription rights can be excluded in order to issue the new shares to employees of allianz Se and its Group companies as well as for fractional amounts.
the Board of management may buy back and use allianz shares for other purposes until may 4, 2015 on the basis of the authorization of the General meeting of may 5, 2010 (§ 71 (1) no. 8 German Stock Corporation act). together with other treasury shares that are in the possession of allianz Se or which are attributable to it under §§ 71 a et seq. German Stock Corporation act, such shares may not exceed 10 % of the share capital at any time. the shares acquired pursuant to this authorization may be used, under exclusion of the shareholders’ subscription rights, for any legally admissible purposes and in particular those specified in the authorization. furthermore, the acquisition of treasury shares under this authorization may also be carried out using derivatives such as put options, call options, forward purchases or a combination thereof, provided that such derivatives may not relate to more than 5 % of the share capital.
the following essential agreements of the Company are subject to a change of control condition following a take over bid: ◾ our reinsurance contracts in principle include a provision under which both parties to the contract have an extraordinary termination right in the case where the other party to the contract merges or its ownership or control situation changes materially. agreements with brokers regarding services in connection with the purchase of reinsurance cover also provide for termination rights in case of a change of control. Such clauses are standard market practice.
C o r p o r a t e G o v e r n a n C e3 6 under the allianz Sustained performance plan (aSpp), restricted Stock units (rSu), i.e. virtual allianz shares, are granted as a stock-based remuneration component to senior management of the allianz Group worldwide. in addition, until 2010 under the Group equity incentive (Gei) scheme, also Stock appreciation rights (Sar), i.e. virtual options on allianz shares, were granted, of which some are still outstanding. the conditions for these rSu and Sar contain change of control clauses which apply if a majority of the voting share capital in allianz Se is acquired, directly or indirectly, by one or more third parties who do not belong to the allianz Group and which provide for an exception from the usual exercise periods. the rSu will be exercised, in line with their general conditions, by the Company for the relevant plan participants on the day of the change of control without observing any vesting period that would otherwise apply. the cash amount payable per rSu must be at least the price offered per allianz share in a preceding tender offer. in case of a change of control as described above, Sar will be exercised, in line with their general conditions, by the Company for the relevant plan participants on the day of the change of control without observing any vesting period. By providing for the non-application of the blocking period in the event of a change of control, the terms take of the fact that the conditions under which the share price moves are very different when there is a change in control.
The report is prepared in accordance with the requirements of the German Commercial Code (“HGB”) and international Financial reporting Standards (iFrS). it also takes into account the recommendations of the German Corporate Governance Code and the requirements of the German ministry of Finance’s insurance remuneration regulation (“versicherungsvergütungsverordnung – versvergv”) that came into effect october 13, 2010.
The remuneration of the Board of management is set by the full Supervisory Board. meetings are prepared by the personnel Committee while Group Hr and other corporate functions provide internal support as requested or required. outside advice is sought from time-to-time from external consultants. The personnel Committee and Supervisory Board consult with the Chairman of the Board of management as appropriate in assessing the performance and remuneration of members of the Board of management. The Chairman of the Board of management is not present when his own remuneration is discussed. regarding the activities and decisions taken by the personnel Committee and the Supervisory Board, please refer to the Supervisory Board report starting on page 6. The remuneration system was presented and approved at the 2010 annual General meeting.
r e m u n e r aT i o n p r i n C i p l e S a n d m a r k e T p o S i T i o n i n G
remuneration is designed to be competitive given the Group’s scale of business activities, operating environment and performance compared to peers. While structured to attract and retain highly qualified executives, the overall goal is to support and encourage sustained value-oriented management.
◾ a l i G n m e n t o f p a y a n d p e r f o r m a n c e : a significant performance-based, variable component.
◾ V a r i a b l e r e m u n e r a t i o n m o r e f o c u S e d o n t h e l o n G e r t e r m : a high proportion of incentive-based reward recognizes sustained performance and payout occurs after three or five years.
◾ i n t e G r a t i o n a n d b a l a n c e : incentives complement each other and represent an appropriate balance of opportunity and managed risk that is effective over varying performance scenarios and consistent with good governance.
C o r p o r a T e G o v e r n a n C e3 8
The structure, weighting and level of remuneration components are discussed by the Supervisory Board. Survey data is regularly provided by external consultants with significant market expertise. The peer group consists primarily of other dax 30 companies. other major diversified insurance/financial services companies in europe are also points of reference. Base salary levels are usually around the median of this group, but may not be in any given year. The structure of allianz total remuneration is more strongly weighted to variable, longer-term components. allianz remuneration and benefits arrangements are also periodically compared with best practices. The Supervisory Board determines the need for any adjustments by taking into account relevant market information, the competitiveness of the total remuneration offer, the performance of the company, general economic conditions and the evolution of Board of management remuneration relative to remuneration levels within the Group.
Base salary is the fixed remuneration component. it recognizes the responsibilities of the role and sustained performance in meeting allianz’s goals. Base salary is expressed as an annual cash sum, paid in twelve monthly installments.
◼ v a r i a B l e r e m u n e r a T i o n variable remuneration aims for balance between short-term performance, longer-term success and sustained value creation. it is designed to balance risk and opportunity to achieve an appropriate level of remuneration in different performance scenarios and business circumstances. variable awards are made under the plan rules and conditions of the “allianz Sustained performance plan” (aSpp) which consists of the following equally-weighted components: 1. annual bonus (short-term): a performance-related cash payment which rewards annual achievement of targets.
3. equity-related remuneration (long-term): a performance-related virtual share award, known as restricted Stock units (rSu). annual achievement of targets is the basis for the initial grant value. The longer-term performance of the Group is reflected in the allianz stock price development over the four-year vesting period following the grant.
all variable remuneration components are subject to a cap of 165 % of the respective target values. The Supervisory Board determines the level of award within a range of 0 % to 165 % of target value. additionally, the rSu payout is capped at 200 % above grant price. Furthermore, variable remuneration components may not be paid, or payment may be restricted, if the state supervisory authority requires this in accordance with its statutory powers.
Co rp or at e Go ve rn an ce v a l u e o F a n n u a l o F F e r i n v a r i o u S p e r F o r m a n C e a C H i e v e m e n T S C e n a r i o S
◼ Base salary ◼ annual bonus (short-term) ◼ Three-year bonus (mid-term) ◼ equity-related remuneration (long-term)
payout range – variable remuneration maximum variable remuneration payout of 165 % would lead to an approximately 49 % increase compared to total target remuneration while a 0 % payout would reduce the total remuneration by 75 % of target. The annual accrual of the mid-term (Three-year bonus) amount only indicates the assumed progress based on annual performance. The final assessment and payout is determined by the Supervisory Board after the completed three-year performance period.
◼ p e n S i o n S a n d S i m i l a r B e n e F i T S
The purpose is to provide competitive and cost effective retirement and disability benefits using risk appropriate vehicles. Board members participate in a contribution-based system covering Board service from January 1, 2005. prior to 2005, Board members participated in a defined benefit plan that provided fixed benefits not linked to base salary increases. Benefits generated by each year of service under this plan were frozen at the end of 2004. additionally, all Board members participate in the allianz versorgungskasse vvaG (avk), a contribution-based pension plan and the allianz pensionsverein e.v. (apv), which provides pension benefits for salaries up to the German social security ceiling.
Ta r G e T S e T T i n G a n d p e r F o r m a n C e a S S e S S m e n T F o r va r i a B l e r e m u n e r aT i o n each year, the Supervisory Board agrees on performance targets for the variable remuneration with the members of the Board of management. These are documented for the upcoming financial year and, every three years, for the respective mid-term period. The nature of these targets is described in the table below.
T a r G e T C a T e G o r i e S F o r v a r i a B l e r e m u n e r a T i o n 1 a n n ua l B o n u S (short-term)
G ro u p Ta rG e T S 5 0 % eq ua l S p l i T B e T W e e n ◾ annual operating profit ◾ annual net income attributable to shareholders
Ta rG e T S o F T H e B u S i n e S S d i v i S i o n S/ C o r p o r aT e C e n T e r F u n C T i o n S 25 %
F i n a n C e ◾ investment performance ◾ Cash-Flow generation o p e r aT i o n S ◾ efficiency ◾ operating profit of Travel/assistance 1 q ua l i TaT i v e Ta rG e T S 25 %
S p eC i F i C i n d i v i d ua l p r i o r i T i e S F o r 2011 p e r m e m B e r o F T H e B oa r d o F m a n aG e m e n T F i v e C aT eG o r i e S T H aT a r e e S S e n T i a l To T H e 2010 - 2012 G ro u p S T r aT eG y ◾ “partner of Choice” for stakeholders (customers, employees, investors, general public) ◾ profitable growth ◾ Strengthening of competitiveness ◾ development of market management (e.g. sales channels, customer segments and profitable customer base growth) ◾ protection of shareholders’ equity
T H r e e-y e a r B o n u S (mid-term)
eq u i T yr e l aT e d r e m u n e r aT i o n (long-term)
S u S Ta i n e d i n C r e a S e i n S H a r e p r i C e 1 | additional operating profit targets were set for dr. Christof mascher for overseeing mondial assistance (now allianz Global assistance).
The a n n u a l b o n u S award depends on the achievement of quantitative and qualitative targets for the respective financial year and any discretionary adjustment the Supervisory Board applies to reflect overall business results and individual performance achievements. These targets are set in order to achieve an appropriate return on capital, as approved by the Supervisory Board.
The t h r e e - y e a r b o n u S recognizes both sustained target achievement over the performance period as well as a further sustainability assessment. quantitative three-year targets focus on portfolio development, as measured by revenue growth and profit which achieve both an appropriate return on capital and relative peer group performance. as a first step, the Supervisory Board assesses achievements versus targets based on a portfolio development matrix. This assessment, which considers both growth and return on capital, ensures that the final award not only depends on a high profit margin but also profitable growth. also, to avoid payouts due to general short-term variability not related to sustainable performance, growth is measured over a three-year period. as the final assessment is not formulaic, the Supervisory Board then considers as a second step qualitative factors as part of a sustainability assessment. This may modify the resulting award. if performance is determined to be below acceptable relative market performance or not sustainable, assessments may be significantly reduced – in extreme cases to zero.
Final payout e q u i t y - r e l a t e d remuneration is granted after the end of the financial year with the annual bonus performance of plan participants determining the value of the equity grant (the same value as the annual bonus). The number of rSu granted results from dividing this value by the calculated market value of an rSu at the time of grant. Following the end of the four year vesting period, the company makes a cash award based on the market price of allianz share at that time. in this way the ultimate value is driven by allianz share performance, providing alignment with shareholder interests. To avoid extreme payouts, the rSu payout is capped at 200 % above grant price. outstanding holdings are usually forfeited when executives leave at their own request (or are terminated for cause).
◾ e q u i t y - r e l a t e d r e m u n e r a t i o n : in accordance with the approach described earlier, a number of rSu were granted to each Board member in march 2012. at the time of grant, each award had the same “fair value” as the award for the 2011 annual bonus.
◾ t o t a l r e m u n e r a t i o n : The following table shows the individual remuneration for 2011 and 2010, including fixed and variable remuneration, as well as the pension service cost.
To provide comparable disclosure to previous years, the remuneration table includes the notional annual accrual of the Three-year bonus for 2010 to 2012. We also disclose below the actual total remuneration per member of the Board of management for each respective year. For this purpose, the “Total” for 2011 and the “Total” for 2010 (in parenthesis) excludes the notional annual accrual of the Three-year bonus for 2010 to 2012: michael diekmann € 3,355 (4,312) thousand dr. paul achleitner € 3,1658 (3,011) thousand oliver Bäte € 2,126 (2,643) thousand manuel Bauer € 1,735 (—) thousand Clement Booth € 1,892 (2,809) thousand enrico Cucchiani € 2,060 (2,596) thousand dr. Joachim Faber € 2,073 (2,778) thousand dr. Christof mascher € 1,919 (2,484) thousand Jay ralph € 1,804 (2,471) thousand dr. Werner zedelius € 1,884 (2,390) thousand
1 | actual bonus paid in 2012 for fiscal year 2011 and in 2011 for fiscal year 2010. 2 | For accrual purposes the value for the mid-term bonus 2010 to 2012 equals the annual bonus payout of the respective financial year. Since the performance assessment and the final payout occur after completion of the performance cycle this value is only a notional indication. 3 | dr. paul achleitner will leave the allianz Se Board of management effective may 31, 2012. Based on his contract the variable remuneration for the financial year 2011 and pro-rata for the financial year 2012 will be determined and paid out according to the normal process and timeline. He will receive a cash payment for the financial year 2011 and a pro-rated cash payment for the financial year 2012 instead of rSu (restricted Stock units). The amount will equal the respective 2011 annual bonus and pro-rated 2012 annual bonus. rSu and Sar (Stock appreciation rights) granted during his service are not forfeited and can be exercised according to the terms and conditions of the respective plans. The non-forfeitable pension entitlements continue.
7 | The total remuneration and the percentage change between 2010 and 2011 reflects the remuneration of the full Board of management in the respective year. dr. Gerhard rupprecht retired from the Board of management of allianz Se effective december 31, 2010.
8 | according to his contract dr. paul achleitner receives a transition payment after leaving the allianz Se Board of management in the amount of € 1,027.5 thousand. This amount is included in the Total for 2011.
p e n S i o n S : S e r v i C e C o S T a n d C o n T r i B u T i o n S F o r e a C H m e m B e r o F T H e B o a r d o F m a n a G e m e n T F o r defined Benefit pension plan (frozen) 1
1 | For enrico Cucchiani the Company pension Fund and TFr (“Trattamento di fine rapporto”). 2 | Following allianz’s founding of the apv in 1998 the plan participants contribute 3 % of their relevant salary to the avk. For the avk the minimum interest rate guaranteed is 2.75 % - 3.50 % depending on the date of joining allianz. in general, the company funds the balance (1:1 in general, and for entries prior to January 2005, 1:2.2) required via the apv. Before 1998 both allianz and the plan participants were contributing to the avk.
6 | dBo = defined Benefit obligation; end of year. 7 | dr. paul achleitner receives a transition payment after leaving the allianz Se Board of management in the amount of € 1,027.5 thousand. The payment is calculated based on the latest Base salary, which is paid starting december 1, 2012 for a six month period and a final lump-sum payment of 25 % of the 2012 target variable remuneration. The lump-sum will be paid in spring 2013. 8 | For enrico Cucchiani the German pension plans are only based on a portion of his fixed salary (2011: € 510 thousand; 2010: € 460 thousand) and on an assumed retirement age of 62. The italian plans are based on the the salary he receives from italy. in italy he had in addition to the obligatory state pension system inpS (istituto nazionale della previdenzia Sociale) the TFr and the Company pension Fund. TFr is a lump sum accrued each year and paid out by request when the person leaves (at any age). due to his departure from allianz effective december 21, 2011 he was entitled to receive a payment of € 451 thousand on december 31, 2011. (The amount disclosed in 2010 of € 635 thousand was under the assumption that he would be with allianz until his retirement age in italy of 65). all italian schemes are contribution-based systems. These contributions are included in the table.
9 | direct contribution to the Company pension fund € 5 thousand and from TFr € 28 thousand. 10 | as enrico Cucchiani left allianz on december 21, 2011, his dBo of € 1,045 thousand is covered under former board members. 11 | enrico Cucchiani does not receive a transition payment. 12 | The transition payment for dr. paul achleitner is included in the figure for 2011.
◼ l o a n S T o m e m B e r S o F T H e B o a r d o F m a n a G e m e n T
as of december 31, 2011, there were no outstanding loans granted by allianz Group companies to members of the Board of management. When granted, loans and overdrafts are provided according to standard market conditions or the conditions prevailing for allianz employees. They carry no more than normal risks of repayment and do not provide any other favorable features.
1 | The remuneration system valid until december 2009 is disclosed in the annual report 2009 (starting on page 17). 2 | as disclosed in the annual report 2010 the equity related grant in 2011 was granted to participants as part of their 2010 remuneration. The disclosure in the annual report 2010 was based on a best estimate of the rSu grants. The actual grants, as of march 10, 2011, deviate from the estimated values and have to be disclosed accordingly. The actual grants as of march 10, 2011 under the allianz equity program in the form of rSu are as follows: michael diekmann: 18,334, dr. paul achleitner: 12,767, oliver Bäte: 11,254, Clement Booth: 11,779, enrico Cucchiani: 10,988, dr. Joachim Faber: 12,222, dr. Christof mascher: 10,466, Jay ralph 10,037, dr. Gerhard rupprecht: 10,030, dr. Werner zedelius: 9,941.
5 | Grants of equity-related remuneration are accounted for as cash settled awards. The fair value of the granted rSu and Sar is remeasured at each reporting date and accrued as a compensation expense proportionately over the vesting period. upon vesting, any subsequent changes in the fair value of the unexercised Sar are also recognized as a compensation expense.
3. Special terms, also compliant with the German Corporate Governance Code, apply if service is terminated as a result of a “change of control”. a change of control requires that a shareholder of allianz Se, acting alone or together with other shareholders, holds more than 50 % of voting rights in allianz Se. Termination as a result of a change of control occurs where within twelve months of the change of control: a. the management Board appointment is unilaterally revoked by the Supervisory Board, or b. the Board member terminates service by resignation due to a substantial decrease in managerial responsibilities and without giving cause for termination, or c. a management Board appointment is terminated by mutual agreement or where it is not extended within two years of the change of control.
Contracts do not contain provisions for any other cases of early termination from the Board of management.
T e r m i n a T i o n o F S e r v i C e – d e T a i l S o F T H e p a y m e n T a r r a n G e m e n T S a n d i l l u S T r a T i v e e x a m p l e S
Board members receiving a transition payment are subject to a six months non-compete clause.
The payment is calculated based on the last base salary and 25 % of the target variable remuneration at the date when notice is given.
Base Salary for 6 months (350) + 25 % of the total variable remuneration at target (525) = 875 an allianz pension, where immediately payable, is taken into account in adjusting transition payment amounts.
Whereby the yearly compensation Two year’s compensation: a. is calculated on the basis of the previous year’s annual base salary plus 50 % of the target variable remuneration (annual bonus + annualized Three-year bonus + equity-related remuneration) and; Base Salary (1,400) + 50 % of the total variable remuneration at target (2,100) = 3,500 Severance payment cap of 3,500 b. shall not exceed the latest year’s actual total compensation. assumption: last year’s actual total compensation at 2,800
= 5,600 in case the remaining term of contract is less than two years the payment is prorated according to the remaining term of the contract.
C H a n G e o F C o n T ro l in case of an early termination as a result of a change of control, severance payments made to board members generally amount to a three years' compensation (yearly compensation as defined above) and shall not exceed
on december 14, 2011 the Supervisory Board: ◾ appointed the following new members to the allianz Se Board of management as of January 1, 2012: ◾ Gary Bhojwani, dr. Helga Jung and dr. dieter Wemmer. ◾ dr. maximilian zimmerer will be joining the allianz Se Board of management as of June 1, 2012.
◾ approved the target remuneration for the new Board members (Gary Bhojwani, dr. Helga Jung, dr. maximilian zimmerer and dr. dieter Wemmer) at base salary € 700 thousand and € 2,100 thousand target variable remuneration.
For the purpose of this report, senior executives are defined as allianz employees who may either have a material impact on the company’s financial or risk positions, or lead critical operations of the Group – 164 (2010: 161) individuals. in general, the same principles and governance standards described for the Board of management apply to the remuneration of senior executives. However, executives below the Board of management are more directly responsible for specific lines of business or product groups. likewise, their remuneration is more closely aligned with their specific business, country and/or regional operating environments. Consequently there is a higher degree of variation in remuneration practices and levels.
C o r p o r a T e G o v e r n a n C e4 8
G o v e r n a n C e S y S T e m allianz operates an effective system of Compensation Committees at the business, regional, country and operating entity levels. They periodically review and decide on remuneration guidelines and practices below the Board of management level. Based on the specific nature, scale and scope of each business the Board of management has defined the appropriate level of Compensation Committee oversight. a Group-wide framework governs Compensation Committee operations and ensures consistent adherence to both allianz minimum standards and regulatory requirements.
The membership of the GCC reflects the nature of the principal allianz businesses and the breadth and depth of expertise required for Group oversight to comply with German insurance remuneration regulation 1. membership is approved by the allianz Se Board of management. Cross-representation on different Committees (i.e. Compensation, risk, Finance and Capital Committees) supports effective information flow between these bodies.
The responsibilities of Compensation Committees below the GCC level are similar regarding compensation systems and oversight of their respective/relevant executives. local Compensation Committees are typically comprised of regional Chief executive officers, Business division Heads, Chief Financial officers or Chief operating officers, a representative of the legal and/or compliance function and the Head of Human resources.
allianz’s global governance frameworks and minimum standards are centrally managed. This ensures global consistency and allows for timely updates to reflect changing business needs and evolving regulatory requirements. it also supports continuous improvement in sustainable performance management and exemplary governance principles.
allianz conducted its annual remuneration risk assessment for senior executives in companies classified as significant according to versvergv to confirm that the remuneration structures for senior executives are appropriate to their role, transparent and aligned to the sustainable development of allianz. The objective of this review was to develop recommendations for improving risk mitigation and aligning pay with performance and, ultimately, to confirm compliance with regulation.
1 | in accordance with the German insurance remuneration regulation, Compensation Committee membership in allianz generally does not solely consist of board members and managing directors but also includes representatives of the business as well as representatives of Hr and control functions. in order to avoid potential conflicts of interest, each Compensation Committee comprises members whose own remuneration is not covered by its remit.
remuneration structures and incentives are designed to encourage sustainable value-creating activities for allianz. Hence allianz deploys a number of different remuneration structures and strategies across the Group which take into account the particular roles of executives, business activities and local remuneration and regulatory environments.
◾ vary the mix and weight of fixed versus variable remuneration to reflect the executive’s influence on the results of the Group/business division/operating entity.
◾ deliver total rewards that are competitive in the relevant markets.
For the majority of operations the following components set the remuneration structure for senior executives to comply with applicable regulations, although not everyone in this group receives all of them, or has the same mix of components: ◾ Base salary ◾ variable remuneration, including: ◾ Short- and, where applicable, mid-term incentives ◾ long-term incentives in the form of equity-related remuneration
◼ B a S e S a l a r y
Base salary recognizes the market value of the role. annual adjustments also take account of sustained performance in the role, the performance of the company, general economic conditions and the level of increases awarded elsewhere in the Group. The proportion of the fixed component within total remuneration is designed to balance performance incentives to avoid excessive risk-taking. Base salary is expressed as an annual cash sum paid in monthly installments.
◼ v a r i a B l e r e m u n e r a T i o n variable remuneration is designed to encourage and reward achievement of both annual performance goals and the sustainable success of the Group and local companies. it is structured to align with allianz’s risk positioning strategy and reward the personal contribution of the individual. annual targets and, where applicable, multi-year targets are set, communicated and documented in advance of the performance period and generally conform with SmarT (specific, measurable, attainable, relevant and time-bound) principles. in the case of breaches of the Code of Conduct, compliance or other relevant criteria, payout can be reduced partially or in full.
For operations that represent either asset management or alternative investment business for allianz or third-party assets, incentive programs and remuneration structures are consistent with the risk positions and competitive markets in which they operate. These may deviate from the general allianz variable remuneration program descriptions and allianz Sustained performance plan (aSpp)
For senior executives who assume positions of high risk in the sense of the versvergv, we disclose aggregate details of the 2011 target remuneration. The number of functions across the Group identified for analysis was 164 (2010: 161), as outlined above.
Cash: 63 1 | Figures excluding pensions and perquisites; including members of the Board of management of allianz Se.
r e m u n e r aT i o n p r i n C i p l e S
◾ Set total remuneration at a level aligned with the scale and scope of the Supervisory Board duties and appropriate to the Company’s activities, business and financial situation.
◾ Set a remuneration structure that takes into account the individual functions and responsibilities of Supervisory Board members, such as chair, vice-chair or committee mandates.
◾ Set a remuneration structure to allow for proper oversight of business as well as for adequate decisions on executive personnel and remuneration.
r e m u n e r aT i o n S T r u C T u r e a n d C o m p o n e n T S
The remuneration of a member of the Supervisory Board consists of a fixed cash amount paid after the end of each business year to a Supervisory Board member for service rendered over the period. a regular Supervisory Board member receives a fixed remuneration of € 100 thousand per year; a deputy Chairperson receives € 150 thousand and the Chairperson € 200 thousand.
◼ C o m m i T T e e - r e l a T e d r e m u n e r a T i o n
The Chairpersons and members of Supervisory Board committees receive additional committee-related remuneration The committee-related remuneration is as follows: Committee Chair member € thou € thou personnel Committee, Standing Committee risk Committee 40 20 audit Committee 80 40 nomination Committee 0 0
◼ a T T e n d a n C e F e e S a n d e x p e n S e S
The following table shows the individual remuneration for 2011 and 2010: 1 2 3 2314 members of the Supervisory Board
€ thou € thou € thou € thou € thou € thou 2010 — — — — — —
legend: C = Chairperson of the respective committee, m = member of the respective committee.
as remuneration for their membership in the Supervisory Board of allianz deutschland aG mr. Franz Heiß received € 40 thousand and mr. Jörg reinbrecht received € 30 thousand for the financial year 2011. mr. Jörg reinbrecht joined the Supervisory Board of allianz deutschland aG in april 2011.
an ag em en t R ep or t c o n t e n t iii. Group Management Report
◼ M A n A G e M e n t D i S c u S S i o n A n D A n A l Y S i S
Allianz offers a comprehensive range of insurance and asset management products and services to approximately 78 mn customers in about 70 countries.
S e l e C t e d p r o d u C t r A n g e p r o p e r t y - C A S u A l t y l i f e / H e A l t H
p r i v A t e C l i e n t S C o r p o r A t e C l i e n t S
◾ motor (liability/ own damage) ◾ liability ◾ property ◾ Accident ◾ travel and assistance
◾ property ◾ liability ◾ motor fleets ◾ directors’ and officers’ liability ◾ Credit ◾ marine, aviation and transport p r i v A t e C l i e n t S C o r p o r A t e C l i e n t S
◾ endowment ◾ Annuity ◾ term ◾ disability ◾ investment-oriented products ◾ private health insurance
◾ money market ◾ low duration ◾ real return ◾ global ◾ investment grade ◾ diversified income ◾ High yield ◾ emerging markets ◾ Convertible bonds
◾ Structured products ◾ Commodity funds ◾ Certificate funds ◾ Currency funds ◾ equity long/short ◾ relative value
Corporate and other the Corporate and other segment’s activities include the management and support of the Allianz group’s businesses through its central holding functions, as well as Banking and Alternative investments.
◼ iii. united Kingdom ◼ ii. ◼ iv. Australia ◼ ii. ireland ◼ ii. Allianz global Corporate and
Insurance Growth Markets middle eASt And nortH AfriCA ◼ iv. ◼ iii. Bahrain ◼ ii. ◼ ii. egypt ◼ ii. ◼ ii. lebanon
SoutH AmeriCA ◼ iv. Argentina ◼ ii. ◼ iv. Brazil ◼ ii. ◼ iii. Colombia
AfriCA ◼ ii. Benin ◼ ii. ◼ ii. Burkina faso ◼ ii. ◼ i. Cameroon ◼ ii. Central Africa ◼ — ◼ — Congo Brazzaville ◼ — ghana ◼ ii. ◼ ii. ivory Coast ◼ ii. ◼ — madagascar ◼ ii. mali ◼ i. ◼ ii. Senegal ◼ ii. togo
◼ iv. ◼ iii. united States ◼ iv. ◼ iv. mexico
through Allianz global automotive we act as a global counterpart to car manufacturers and aim to further enhance our collaborations within the automotive industry by developing global strategic partnerships. We are the market leaders in terms of gross written premiums and have collaborations with 44 car brands across 28 countries.
gr ou p m an ag em en t r ep or t our insurance markets 1234 the following sections give an overview of our business operations in our insurance markets by business divisions.
i n S u r A n C e g e r m A n S p e A K i n g C o u n t r i e S
We serve our customers in germany a full range of insurance and financial services through Allianz deutschland Ag. products are mainly provided by Allianz versicherungs-Ag (Allianz Sach), Allianz lebensversicherungs-Ag (Allianz leben) and Allianz private Krankenversicherungs-Ag (Allianz private Kranken). our products are distributed mainly through a network of full-time tied agents. Since September 2010 all Commerzbank branches have been selling Allianz products, which has helped increase the volume of products delivered via the banking distribution channel. the Allianz Beratungs- und vertriebs-Ag (Allianz ABv) serves as our distribution company.
through Allianz private Kranken, we provide a wide range of h E A L T h I N S u r A N C E products, including full private health care coverage, supplementary health and long term care insurance as well as foreign travel medical insurance. for supplementary insurance, we expect growing demand in the future and are well positioned with newly introduced products that have earned strong market ratings (e.g. dental care and long term care insurance).
Although we expect the property-casualty market to remain challenging, our strategic program “zukunftsprogramm Sachversicherung” aims to foster growth as well as profitability. our focus is on strengthening sales, improving our claims management and reducing the expense ratio. furthermore, we will continue to extend our cooperation with the automobile industry and increase our position in the direct market under the brand of AllSecur. We also anticipate growth opportunities for our life business as we see an increasing demand for private retirement products.
g r o u p m A n A g e m e n t r e p o r t6 0 the Austrian p r o p E r T y - C A S u A L T y market continues to be competitive, especially in the motor segment. in 2011 Allianz Austria grew roughly in line with the market and further improved its healthy level of profitability thanks to strict underwriting and a favorable development in natural catastrophe claims.
We serve the Swiss property-casualty market through Allianz Suisse versicherungs-gesellschaft Ag, CAp rechtsschutz Ag and quality1.
the biggest and most important line of business in p r o p E r T y - C A S u A L T y is motor, with a 16 % market share. Besides motor, our broad product range for private and commercial customers includes property, liability, accident and health solutions. in 2011, strong price pressure – especially in motor – and a competitive environment had an impact on the property-casualty market.
We achieved growth in the area of corporate insurance. With the implementation of the “fit for the future” program in 2009 – our cost reduction, re-organization and customer focus initiative in Switzerland – we have improved our customer focus and introduced a new cost-efficient structure which follows the Allianz group’s target operating model. As a result, we have now achieved one of the best cost ratios in the Swiss market.
We offer a wide range of L I F E / h E A L T h products including retirement, death and disability products through Allianz Suisse lebensversicherungs-gesellschaft Ag. in 2011 we did achieve growth in both the group and individual life businesses. given the increased need for financial protection and the high levels of disposable income and per capita wealth in Switzerland, we believe that the Swiss market offers further potential for growth in our retirement and investment products.
◼ property-Casualty ◼ life/Health market position by gross premiums written: i. position 1 ii. position 2 to 5 iii. position 6 to 10 iv. not in the top 10
gr ou p m an ag em en t r ep or t
new business premiums in L I F E in the italian market shrank by 25 % in 2011 as savings rates reached historically low levels. At Allianz, our volume declined by 22 % during the same period, roughly in line with the market. our resilience to adverse trends was thanks, in particular, to the financial Advisors network of Allianz Bank.
looking ahead, we aim to consolidate our strong competitive position in p r o p E r T y - C A S u A L T y by leveraging our technical know-how, strong brand and innovation capabilities. in L I F E , we are prepared to face sustained market volatility resulting from continued low savings rates and increasing competition from banks.
◼ S p A i n A n d p o r t u g A l
Allianz serves the french market through Allianz france S.A., a major market participant in insurance and financial services. We offer a broad range of p r o p E r T y - C A S u A L T y and L I F E / h E A L T h products for individuals and corporate customers, including property, injury and liability insurance, short-term investment and savings products. our sales
g r o u p m A n A g e m e n t r e p o r t6 2 force of over 1,950 agents, 2,441 life consultants, 372 health consultants, 2,400 brokers, 2,300 independent financial advisors and many partnerships serve over 5 mn customers. in addition to the traditional sales channels, we distribute our products via the direct sales channel AllSecur.
Allianz france also has a strong position in the dynamic health market, often combining elements of life, health and accident insurance as comprehensive solutions for individual and institutional clients. the very successful launch of our modular health product “Composio” has put us ahead of many competitors and confirms our strong commitment to significant growth in this market.
our insurance activities are complemented by Allianz Banque, which permits us to offer one-stop solutions – such as combining our life offering with deposits on mortgage loans.
motor and fire continue to be the most important p r o p E r T y - C A S u A L T y business lines. Besides brokers, Allianz nederland group n.v. distributes its property-casualty products through a strongly growing direct sales channel. We also offer a range of L I F E insurance products in the netherlands.
the dutch unit-linked life insurance market suffered from discussions in the media about the transparency of cost loadings. As one of the first players in the market to react, we have risen to this challenge by introducing a new set of products, with a transparent cost structure enabled by state-of-the-art technology. in general, we expect competition to remain intense in 2012.
After strong growth in 2010, Allianz Belgium grew above the market average again in 2011. this was driven by our strong product portfolio in personal and commercial lines.
After adjusting for a portfolio transfer to Allianz global Corporate & Specialty (AgCS), Allianz Belgium managed to grow in p r o p E r T y - C A S u A L T y insurance despite strong competition and upheld our focus on profitability. our combined ratio improved and remained below the peer average. in 2012 the competition for insurance products will remain strong, especially in commercial lines.
in p r o p E r T y - C A S u A L T y , trading conditions continued to be difficult in 2011, with many insurers suffering significant losses. Allianz turkey, however, achieved profitability significantly above the market average by focusing on growth in profitable lines. Beginning in mid-2011, we witnessed increasing price levels, mainly in third-party liability motor insurance. We expect this trend to continue. As we already operate on a solid capital base, we expect to profit from this development.
◼ S o u t H A m e r i C A
in South America, three companies form the basis of our local presence: Allianz Brazil Seguros S.A., Aseguradora Colseguros S.A. (Colombia) and Allianz Argentina Compañía de Seguros S.A. We are also setting up local reinsurance companies in Brazil and Argentina to strengthen local operations.
looking to the future, we believe that the South American markets in which we are present offer significant potential for further growth. We will continue to strengthen our presence in this region, particularly in retail lines.
◼ u n i t e d S t A t e S
A N N u I T y business is managed through Allianz life insurance Company of north America (Allianz life u.S.).
our L I F E and A N N u I T y business primarily underwrites fixed, fixed-indexed and variable annuities, which are sold through independent distribution channels, as well as large financial institutions such as banks and wirehouses. the industry as a whole reacted to the economic crisis by re-designing their offerings, in particular the variable annuity products. these changes, including flexible fee structures and management levers, allowed us to respond to the challenging market conditions which developed in the third quarter of 2011. Allianz life u.S. continues to create and offer valueadded products to help our customers address their financial needs, particularly in the retirement market. our life and annuity insurance performed well and was able to expand both product portfolio and distribution partnerships.
on the L I F E side, we foresee continued economic uncertainty, equity market volatility and a low interest rate environment. on the upside, regulatory uncertainty has decreased, especially regarding distribution. We continue to believe that the u.S. demographic trends present us with an excellent opportunity in the retirement market. in order to reap these benefits, we aim to strengthen our distribution network and value proposition to our policyholders.
g l o B A l i n S u r A n C e l i n e S A n d A n g l o m A r K e t S
Allianz Australia insurance ltd. serves the Australian and new zealand p r o p E r T y - C A S u A L T y markets. Since 2006, Allianz sells L I F E insurance products in Australia under the company name of Allianz Australia life insurance ltd.
in 2011 queensland suffered from catastrophic floods. due to strict underwriting controls our company nevertheless managed to deliver results as planned. market conditions in Australia remain competitive while offering growth opportunities that Allianz Australia is well positioned to exploit.
Allianz holds third position in the irish insurance market, based on revenues. We offer a full range of p r o p E r T y -
in 2011 we further expanded our retail business – especially in the affinity business with large corporate partners. furthermore, our pricing expertise and fraud detection tools delivered the expected results. We outperformed competi tors in respect of growth as well as profitability, further evidence of the company’s underwriting quality and successful niche businesses, like pet plan, engineering and legal protection.
Since spring 2011 a new direct offer “your cover” has enabled customers to customize home and motor cover through the internet and via aggregators. the commercial business again won awards for being the best in its class in the united Kingdom. for 2012 we expect the company to deliver good results in a highly competitive market.
Allianz global Corporate & Specialty (AgCS) is the dedicated Allianz insurer for corporate and specialty clients in numerous industries around the world. in addition to its own teams and offices in nearly 30 countries, AgCS is able to support its clients’ businesses in 150 countries around the world through the Allianz network and selected local partners. AgCS offers property, liability, financial lines and engineering insurance solutions to corporate clients. it focuses on larger corporations or those with multinational risk exposures. it also offers specialty coverage, for example in the marine, aviation and energy sectors. Additionally, its subsidiary Allianz risk transfer develops and delivers customized nontraditional risk transfer solutions for complex risks.
◼ C r e d i t i n S u r A n C e
We underwrite credit insurance in major markets around the world through our subsidiary euler Hermes, the global leader in this sector. euler Hermes provides businesses with protection against the risk of non-payment of accounts receivables and buyer insolvency. Additionally, it holds a strong position in bonding and guarantees, debt collection and fidelity insurance. As a result, euler Hermes offers a comprehensive range of services for the management of trade receivables to help companies of all sizes and in every industry sector develop their business safely in their home and export markets.
Since its launch in 2010, euler Hermes’s transformation project “excellence” is well on track to delivering marketleading levels of service and improving euler Hermes’ long-term competitive edge. for 2012 the overall goal remains to consolidate and extend euler Hermes’ market leadership in credit insurance by increasing customer satisfaction, and maintaining its positions in bonding, guarantees and debt collections. regarding euler Hermes’ core business of credit insurance, a growth strategy has been defined and will include emerging markets such as latin America and Asia.
i n S u r A n C e g r o W t H m A r K e t S
Allianz is one of the leading international players in the Asia-pacific region, where we offer our core businesses of L I F E /
h E A L T h , p r o p E r T y - C A S u A L T y insurance and A S S E T M A N A G E M E N T . With over 33,000 employees (all Allianz entities), we serve more than 21 mn customers in this diversified region. We provide a full suite of products through our distribution network of approximately 200,000 tied agents.
Allianz has a broad presence in the Chinese market. in addition to our life insurance and general insurance entities, we have been represented in the Joint venture of guotai Junan fund management in Shanghai since 2003. Allianz global Assistance also offers business solutions such as roadside assistance, travel insurance and medical insurance. euler Hermes, the credit insurer of the Allianz group, is making progress with trade Credit insurance in China. Also, Allianz Se owns a 2.8 % outstanding share of the China pacific insurance group ltd. (CpiC).
� S o u t H K o r e A
indonesia is one of the fastest growing markets for us and we expect this to continue due to the expanding middle class. our L I F E business is developing particularly strongly through our tied agency channel. Allianz indonesia today serves more than 355,000 microinsurance clients. Cooperating with 33 partners, we offer microinsurance products including credit life insurance, savings insurance, business interruption insurance and micro-education endowments.
� J A p A n in 2011, premiums of our life insurance products suffered a severe drop due to challenging local economic conditions such as low interest rates and a customer demand shift. for optimizing our business operations, we decided to focus on continuing existing policies and suspend distribution of all new life insurance products beginning in 2012.
Allianz is one of the market leaders in malaysia. Both our L I F E / h E A L T h and p r o p E r T y - C A S u A L T y insurance lines have enjoyed strong and steady growth over the past years.
After a period of strong growth in the past five years, we achieved good results in 2011 and strengthened our business for further sustainable results in future. We are moving towards a customized approach to product distribution and customer service. We expect total pension assets to grow in the Asian emerging markets. further growth is also possible in light of the increasing wealth in Asian countries and low insurance penetration rates. We aim to take advantage of these opportunities by strengthening our product offerings and distribution in the region.
g r o u p m A n A g e m e n t r e p o r t6 8
in p r o p E r T y - C A S u A L T y , Allianz is among the leading companies in the Cee region. our main products are motor third-party liability, motor own damage, property and liability insurance for retail, commercial and industrial clients. Sales of new cars showed some recovery in some countries but the overall volume remained far below the pre-crisis levels which impacted top-line growth in motor. to secure the profitability of the motor portfolio, companies in Cee continued measures initiated in 2010 for underwriting and re-pricing while updating their product offerings. in russia we began consolidating of our Allianz property-Casualty entities into one company, with the aim of creating an effective platform for further growth and a single point of entry under one brand for our customers.
Across the region, we aim to take advantage of the market for more pension products brought about by new government regulations. product innovation and brand positioning remain key levers for attracting new customers. We believe Allianz will keep well on course for growth in the Cee region despite the challenging economic environment.
h E A L T h products. We sell these via tied agents and bancassurance. in property-Casualty we also distribute via brokers and dealers, who are a vital part of our distribution network. Allianz egypt is the leader in bancassurance. through its partnerships with top banks we offer a wide range of life assurance. our strategy to develop the corporate channel has brought positive results in 2011.
in 2011 we focused our attention in the region on Saudi-Arabia, lebanon and egypt. in egypt, our business performed in line with expectations despite the economic and political situation. in lebanon, selective underwriting and portfolio cleansing impacted results of p r o p E r T y - C A S u A L T y business, while the L I F E / h E A L T h business performed in line with expectations. Based on intensified support, business developments continued, leading to an increased client base with over 400,000 customers.
We seek to be the best-in-class and most trusted partner for our clients and other stakeholders in managing risks and investments. the allianz Group therefore cherishes four fundamental values – i n t e g r i t y , c o m p e t e n c e , c o m m i t m e n t and c o m p e t i t i v e n e s s . these are the values that underpin our strong brand and are put to life through our strategy and our business model.
in 2011 our total revenues remained above the mark of € 100 bn, and despite the tough business environment we achieved operating profit within our targeted range. We saw our revenues decline in the life/Health segment, especially in investment-oriented products, since we were cautiously guarding the profitability of our new business. in our core seg ments, we thus demonstrated that we are willing to balance the trade-offs between profitability and growth. unfortunately, our net income was heavily burdened by the consequences of the financial crisis. although the outlook going forward is somewhat constrained, we remain committed to a c h i e v e a n d s u s t a i n p r o f i t a b l e g r o w t h ; however, in lieu of the financial crisis we want to grow carefully and not at the cost of taking inappropriate risks.
w o r l d - c l a s s i n v e s t m e n t m a n a g e m e n t is the foundation of our insurance and asset Management segments. its strategic importance has become even more obvious as low interest rates in combination with higher market volatility and constantly changing credit spreads have become the “new normal”. in this market environment our sustainable and conservative investment strategy has proven very resilient. For the near future, allianz is continuing to pursue opportunities in real estate, direct lending and alternative investments, with focus on infrastructure and renewable energies.
s t R a t e G i C G o a l t a R G e t s 1 profitable and sustainable growth Group operating profit of € 8.2 bn, plus or minus € 0.5 bn. We remain committed to our property-Casualty combined ratio target of 96 % over the cycle and to maintain an excellent asset Management cost-income ratio well below 65 %. Margin on reserves in life/Health between 50 and 70 bps.
Balanced business portfolio exploit attractive growth opportunities in selected geographic and product markets.
strong capitalization Maintain strong equity and a conglomerate solvency in principle of between 150 and 170 %.
an ag em en t R ep or t our steering
each member of allianz se’s Board of Management is responsible for a particular division within the allianz Group. in 2011, six of our business divisions and their board members managed our global lines and regional business and entities. the two insurance business segments property-Casualty and life/Health are subdivided into five of these business divisions while asset Management is a stand alone segment. the other four board members, including the Chairman of the Board of Management, are in charge of Group functions such as Finance, Controlling and operations. since January 1, 2012, we have an additional business division – insurance iberia & latin america, legal & Compliance, M&a – under the responsibility of dr. Helga Jung, a new board member. Further changes to the Board of Management and responsibilities are summarized below.
R e s p o n s i B i l i t y / d i v i s i o n s B o a R d M e M B e R
Chairman of the Board of Management Michael diekmann Controlling, Reporting, Risk (and investor Relations as of June 1, 2012) oliver Bäte Finance dr. paul achleitner | until May 31, 2012 dr. Maximilian zimmerer | as of June 1, 2012 operations dr. Christof Mascher
B u s i n e s s d i v i s i o n s insurance Western & southern europe insurance europe (& south america)
dr. dieter Wemmer | since January 1, 2012 enrico Cucchiani | until december 21, 2011 insurance usa insurance naFta Markets
Gary Bhojwani | since January 1, 2012 Jay Ralph | until december 31, 2011 insurance German speaking Countries, Human Resources dr. Werner zedelius 2 insurance Growth Markets Manuel Bauer asset Management (Worldwide) Jay Ralph | since January 1, 2012 dr. Joachim Faber | until december 31, 2011 Global insurance lines & anglo Markets Clement Booth insurance iberia & latin america, legal & Compliance, M&a dr. Helga Jung | since January 1, 2012 1 | For further information about the remuneration structure, including target setting and performance assessment, please refer to the Remuneration Report starting on page 37. 2 | since January 1, 2011, dr. Werner zedelius oversees the international HR strategy and all central HR functions.
G R o u p M a n a G e M e n t R e p o R t7 2 ta R G e t s e t t i n G a n d M o n i t o R i n G
an ag em en t R ep or t y o u R a l l i a n z iii. our Progress in sustainable Development sustainable business a strong market and customer orientation drive our business strategy. While uncertainty in the current economic climate has shaken people’s trust in the financial industry as a whole, allianz continues to build long-lasting, mutually beneficial customer relationships. strengthening our already solid brand positioning helps to convey the stability and security of our global organization. together, strong customer focus as well as our brand positioning are key drivers for sustainable, profitable growth.
allianz strives to be the best-in-class and most trusted partner for our customers and has been recognized as the loyalty leader in a number of markets. our employees’ commitment and ambition to provide excellent service to our customers are crucial to our success. as such, both customer and employee satisfaction are key steering metrics for allianz and the board members and top management are incentivized to ensure focus and continual improvement in these areas. We place great importance on fostering outstanding leadership, continuous talent and personal development. to support this, allianz offers employee engagement opportunities through a variety of volunteering programs, leveraging our core competencies in sharing knowledge.
What is more, allianz is committed to supporting the development of a low-carbon economy. Climate protection, however, is not an end in itself. at allianz, it is also a viable business and investment case. allianz is one of the world’s largest investors in renewables and is building up a long-term portfolio in wind energy and solar power. We also offer a growing range of products and services to help individual and institutional customers mitigate the effects of climate change or manage their own environmental impact. at the end of 2012 allianz’s remaining carbon-footprint will be neutralized through its direct investments in carbon projects.
G R o u P M a n a G e M e n t R e P o R t7 4 economic
P R o F i ta b l e G R o W t h t h R o u G h a s t R o n G b R a n D a n D l o n G - l a s t i n G C u s t o M e R R e l at i o n s h i P s a l l i a n z b R a n D
◼ s o M e K e y F a C t s a b o u t t h e a l l i a n z b R a n D 1
◾ the allianz Group is active in about 70 countries, with currently 80 % of total revenues branded as allianz. With the planned rebranding of Mondial and Rosno in 2012, branded revenues will increase to approximately 82 % of total revenues.
◾ innovation is an integral part of allianz and serves as a key component to differentiate ourselves from our competitors. the Global innovation awards in 2011 were restructured to reflect the current strategic focus areas of digitalization, global and local collaboration, as well as employee engagement. a record number of submissions were received, demonstrating the ongoing importance of innovation at allianz.
Globalization led to our one-brand vision, supported by brand architecture and our successful and long-term global brand strategy. being a trusted partner, helping customers to move on and up in life and business, serves as a point of orientation for our employees and distribution partners. We pursue the philosophy of “the brand starts from within” and, in a business with intangible products, we are dependent upon the superior delivery of our services via our more than 600,000 brand ambassadors. but “trusted Partner” is also conveyed in our external communication and it is brought to life by our brand campaigns and communication activities.
1 | our allianz trademark is registered and protected worldwide, as are our web domains. Furthermore, we registered our rejuvenated corporate design and brand claim “allianz. With you from a-z.” in all relevant countries worldwide. With our rebranding activities we extend the scope of our business activities under our brand “allianz” beyond the core area of insurance and finance services. in order to maintain the distinctiveness and strength of our brand “allianz” we continuously monitor possibly infringing third-party trade mark applications and registrations.
top-down nPs results indicate the company's efforts have been successful. the proportion of allianz businesses with more loyal and satisfied customers than their local competitors rose from 46 % in 2010 to 52 % in 2011. the number of allianz companies that have attained loyalty leadership in their market also increased from 21 % in 2010 to 28 % in 2011.
e x a M P l e s o F o u R G R e e n s o l u t i o n s
◾ Renewable energy insurance: allianz provides tailor made and innovative insurance solutions for renewable energy projects such as wind and solar panels, fuel cells and ground source heat pumps for the construction and operation phase.
◼ M i C R o i n s u R a n C e
Despite the decline in our customer base and revenues in 2011, driven by the fall-out from the so-called microfinance crisis in india2, allianz is further expanding and developing its microinsurance business. it entered three new markets in 2011, namely burkina Faso, Malaysia and Mali. allianz is also exploring the potential for further innovations in its microinsurance portfolio and generally enhancing access to microinsurance.
s u s t a i n a b l e a n D R e s P o n s i b l e i n v e s t M e n t s , a s s e t s u n D e R M a n a G e M e n t assets under management in sRi funds in € bn 3.4 3.1 4.8 s u s ta i n a b i l i t y i n P R o P R i e ta R y i n v e s t M e n t s in 2011 the allianz Group signed the united nations Principles for Responsible investment, joining several of our thirdparty asset managers as a signatory. We have chosen to take an evolutionary learning path where we leverage our existing practices and enhance consistency over asset classes and regions to further mature our systematic approach. this commitment applies to our proprietary assets, which totaled € 461 bn in 2011.
i n v e s t M e n t s i n R e n e W a b l e e n e R G y P R o J e C t s investments in renewable energy projects in € bn 1.3 1.0 0.8
◾ C - Q u E S T C A p I T A L L L C ( C Q C ) : allianz is financing an energy efficiency program implemented by CQC in india. the program replaces incandescent light bulbs in private households with more energy efficient compact fluorescent lamps (CFls). approximately 8.5 mn light bulbs will be replaced, reducing residential energy consumption and avoiding the emission of 3.7 mn tons of carbon dioxide over a 10-year period.
environment ta K i n G e n v i R o n M e n ta l R e s P o n s i b i l i t y s e R i o u s ly
Despite the fact that the financial services sector is a comparatively low-carbon industry, allianz is nevertheless committed to reducing its environmental impact. our target of reducing our carbon footprint by 20 % by 2012 – compared to 2006 figures – was achieved two years ahead of schedule. by the end of 2010, greenhouse gas emissions had been reduced by 27 % per employee. in response to this, in 2011 allianz defined a new target for 2015: a further 10 % reduction, with a focus on energy consumption as our key reduction lever. additionally, allianz will compensate for all remaining emissions stemming from our business operations through direct investments in carbon projects and will be carbon neutral from 2012.
as the main drivers of our carbon footprint are energy, travel and paper, our reduction efforts focus on these areas. energy consumption, as our key Co2 driver, saw a further significant reduction and, combined with the effects of more renewable energy 3 sourced and a reduction of fossil fuels in the energy mix, made the most significant contribution to reducing allianz’s carbon footprint in 2011. Despite increased requirements for travelling (e.g. rebranding activities), business travel remained largely at 2010 levels. our global travel policy, introduced in 2010, ensures we avoid unnecessary travel and use lower-carbon modes as far as possible. What is more, in 2011 we continued to reduce paper consumption, taking overall paper reduction to 44 % since 2006. our global print policy as well as greater use of digital communication in our internal operations and in communications with clients contributed to this achievement.
Travel: 38.0 in 2012 we will further improve the quality of our environmental data; specifically focusing on improving our carbon accounting methodology, the granularity of our environmental data collection as well as formalization and automation of our reporting systems. better data quality will also be the basis for future decision making on environmental activities and targets.
2 | the allianz Group’s total reported carbon footprint already considers the compensation activities of some of our subsidiaries. in 2011 these compensation activities totaled 2,157 metric tons. 3 | energy from renewable sources now accounts for 43.6 % of our total energy consumption.
our employees’ exceptional commitment and ambition to provide excellent service to our customers are crucial to our success. We place great emphasis on fostering outstanding leadership, continuous talent and personal development. only by unlocking our employees’ potential can we achieve our primary goal of being a reliable partner to our customers.
D i v e R s i t y allianz recognizes the importance of having a diverse, inclusive workforce that is made up of employees from different backgrounds. We understand that promoting diversity is necessary for any global company to be successful and have implemented a number of initiatives to support this. Consistent with our Code of Conduct, allianz has a zero-tolerance policy towards discrimination and harassment in the workplace.
Developing the skills and competencies of our employees across such a diverse global organization requires a common approach across the Group. allianz strives to retain skilled employees, recruit and develop top talent, and promote high performers. our global talent management system enables us to identify internal candidates and, importantly, supports systematic succession planning. in 2011 we evaluated more than 3,900 candidates from 70 allianz companies in 58 countries on the basis of clearly defined competencies. We also use strategic workforce planning to help secure the future workforce as well as the talent pipeline for up to 10 years. in 2011 allianz Group invested € 88 mn (2010: € 80 mn) in training measures. this is equivalent to an average of € 667 per employee worldwide (2010: € 606).
1 | Figures based on the number of employees in allianz’s core business; all companies in and related to the insurance and asset Management business including our banking activities in Germany, France, italy and Central and eastern europe. excluded are fully consolidated companies which are considered as pure financial investments and companies classified as held for sale.
2 | including women at all executive positions below the board of Management. 3 | including women functionally responsible for other staff, regardless of level, e.g. division, department, and team managers.
an ag em en t R ep or t total expenses in training 2 in € mn 88 80 81 training expenses per employee 2 in € 667 606 606 average training days per employee, staff 2.7 2.9 2.7 average training days per employee, managers 2.5 3.7 3.5 employees undergoing at least one training session, staff in % 60.6 55.5 60.7 employees undergoing at least one training session, managers in % 68.0 81.8 81.1
R e M u n e R at i o n the allianz Group paid a total of € 8.4 bn (2010: € 8.3 bn) to its employees worldwide in 2011. of this, approximately 25 % was for performance related (variable) remuneration elements. € 2.2 bn (2010: € 2.2 bn) was spent on social security contributions, pension and other social benefits.
F u R t h e R e M P l o y e e F i G u R e s e M P l o y e e s b y C o u n t R y 3 as of December 31, 2011 2010 united states 9,746 9,808 united Kingdom 7,426 7,253
China (incl. hong Kong) 1,865 2,143 the decrease in employees compared to 2010 is mainly due to deconsolidation of subsidiaries.
3 | total number of employees with an employment contract of all consolidated companies (core and non-core business).
Full-time employees, in % 88.7 88.3 89.4 Part-time employees, in % 11.3 11.7 10.6 e M P l o y e e Q u a l i F i C a t i o n 2 e M P l o y e e t u R n o v e R 2 a C o M M i t t e D C o R P o R at e C i t i z e n as a global company with a business presence in about 70 countries worldwide, we take our responsibility to society seriously. by offering skills, time, money and other resources, we strive to advance social well-being and give financial and practical support to our local communities. in addition to being a major tax payer, we also donated € 22.2 mn to address social, environmental and cultural issues of relevance to allianz and the societies in which it operates. What is more, our international network of 16 allianz-affiliated corporate foundations – for example the allianz Cultural and environmental Foundations – supports us in living out our role as a responsible corporate citizen.
1 | tenure represents the period of employment in allianz companies starting from the date of the first entry in an allianz company. 2 | Figures based on the number of employees in allianz’s core business; all companies in and related to the insurance and asset Management business including our banking activities in Germany, France, italy and Central and eastern europe. excluded are fully consolidated companies which are considered as pure financial investments and companies classified as held for sale. 3 | trainees are employees at the beginning of their career participating in a trainee program, i.e. are undergoing practical training designed to facilitate their development of knowledge and skills, e.g. apprentices, trainees, interns and working students, and with a formal arrangement (e.g. employment contract or third-party party agreement with a school or university). 4 | number of employees who left the allianz Group during the reporting period.
◼ e M P l o y e e v o l u n t e e R i n G
Governance i n t e G R i t y our integrity calls upon us to make only promises we can keep and take only risks we can manage. Good corporate governance and transparency are key to gaining and keeping the trust of our shareholders, clients and employees.
allianz’s compliance management system aims to ensure compliance with internationally recognized laws, rules and regulations to promote a culture of integrity and safeguard the company’s reputation. in 2011 we undertook numerous measures to further strengthen the effectiveness of compliance management. implementation of the allianz antiCorruption Program continued with further trainings. the aim of these compulsory trainings is to inform employees about the main anti-corruption and anti-fraud rules and principles, the essentials of the anti-Corruption and Gifts and entertainment Policies. the training courses were carried out worldwide in local languages as classroom and e-learning events.
◼ P o l i t i C a l D o n a t i o n s as a large corporate citizen headquartered in Germany, allianz se is committed to the country’s vibrant democracy. it therefore contributes to political parties in the German Parliament that support the social market economy and acknowledge the important role labor and industry have played in the creation of the modern German state.
G l o b a l e c o n o M y l o s e s s t e a M
as financial markets became increasingly unsettled by the escalating sovereign debt crisis in the eurozone, volatility on global stock markets rose considerably with most major equity markets ending the year at a loss. Rising doubts about the political feasibility of an economic solution to the financial crisis led to higher risk premiums on sovereign bonds in so-called peripheral countries as well as some core eurozone member states. by contrast, yields on German government bonds, which the markets increasingly viewed as a “safe haven”, recorded new historical lows of less than 2 %. the euro, which appreciated considerably against the u.s. Dollar in the first half of the year, came under intense pressure in the second half and surrendered more than its first half gains.
For further information on what allianz has done to mitigate possible impacts from the european sovereign debt crisis as well as our direct exposure to some of the potentially affected countries, please refer to the Risk Report starting on page 149.
business environment 2011: insurance industry besides the economic slowdown, the insurance industry faced two main challenges in 2011. Firstly, the european sovereign debt crisis entrenched a low interest rate environment and secondly, catastrophe-related losses rose to over usD 100 bn. However, even in the face of these formidable challenges the insurance industry maintained its strong capital position.
interest rates and bond yields remained stubbornly low as financial policy makers grappled with burgeoning levels of sovereign debt, tight bank credit and fragile economic growth. in December, the european central bank lowered its interest rate for the second time in the year – back down to just 1 %. after rising in the first half of the year, yields on 10-year German government bonds fell back even further to end 2011 at around 2 %; well below their 20-year average of 5.5 %.
G R o u P M a n a G e M e n t R e P o R t8 6 2011 was another year heavily burdened by natural catastrophes, with the second highest level of insured losses since 1980. aggregate losses were estimated to be above u.s. Dollar 100 bn, which was more or less twice the 2010 level. Major events included flooding in australia and thailand, the Japanese earthquake and tsunami, earthquakes in new zealand and u.s. windstorms. 2011 was even more remarkable considering the comparatively low losses related to u.s. hurricanes – only one, Hurricane irene, incurred losses of more than u.s. Dollar 1 bn.
uncertainties surrounding the implementation of solvency ii once again weighed on the sector’s attractiveness. the legislation’s conservative capital requirements and risk approach remain, in our view, overly burdensome and in some cases inconsistent with proven business models.
in the P r o P e r t y - C a s u a l t y sector, market conditions continued to slowly improve in several of our major markets. Premium growth was still modest but slightly higher in most mature markets – for example, in Germany and France – while the united states returned to growth for the first time since the financial crisis. on the other hand, growth reached double digits in emerging markets. While asia remained the most dynamic region, eastern europe and in particular latin america also showed strong and accelerating growth.
in the l i f e sector, global premiums fell in 2011. Whereas healthy growth continued in most emerging markets – with latin american markets setting the pace – premium growth in china came to a halt and actually dropped significantly in 2011 due to new bancassurance regulation. Furthermore, premium growth stalled in some more mature markets, including Germany, France and italy. Here, business fell sharply as life product sales were hit by weaker investor confidence due to a difficult economic environment. these markets also faced stiff competition from savings products issued by banks.
on a more positive note, there was a turn-around in the u.s. market with a percentage growth in sales of new annuities reaching double-digits for the first time in several years. individual life sales grew by mid-single-digits. earnings for traditional life insurers declined because of lower interest rates. this led to narrower spreads and increases in the reserves required for guarantees. Fee-earning businesses held up fairly well in comparison.
M a n a G e M e n t D i s c u s s i o n a n D a n a l y s i s iii. executive summary of 2011 Results
◾ operating profit of € 7,866 mn within expected range, mirroring fundamental strength of business.
Judging by the severity of natural catastrophes, it was one of the worst years the insurance industry has ever experienced. the earthquake and tsunami in Japan and the resulting failure of the nuclear power plant in fukushima not only cost human lives, but turned into the second worst single disaster that ever hit insurers. we were also impacted by the earthquake in new Zealand and the severe floods in australia and thailand. the latter flood in particular had ramifications, among others, for electronic companies worldwide. Germany, our largest market, was hit by a number of heavy storms.
T o T a l r e v e n u e s slid moderately by 2.1 % on an internal basis 1, but at € 103,560 mn stood again above the mark of € 100 bn. our Property-casualty segment showed modest growth while asset Management recorded strong revenue growth. within life/Health, the premium volume from our traditional life products was quite stable but the segment overall faced a decline in revenues, mainly because of the reduced demand for investment-oriented products and our intent not to compromise profitability of new business by pushing top-line results.
o p e r a T i n g p r o f i T decreased by 4.6 % to € 7,866 mn, largely influenced by the lower investment result in our life/ Health business and the highest ever natural catastrophe claims in Property-casualty. on the positive side, however, asset Management increased again its operating profit, and the operating result from our corporate and other segment improved. as a result, our total operating profit was in line with our expectations of being between € 7.5 bn and € 8.5 bn.
n e T i n c o m e fell sharply by 46.2 % to € 2,804 mn, primarily driven by a profound decline of our non-operating investment result. the european sovereign debt crisis was the direct and indirect cause of that decline. the crisis affected our net income directly, because the impairments in Greek sovereign bonds impacted heavily not only our operating, but also our non-operating investment result. and indirectly we were hit, since the european sovereign debt crisis deflated the market capitalizations predominantly of financial institutions in europe and beyond, which consequently had a negative impact on selective large exposures, for example in commerzbank and the Hartford.
Internal growth p r o p e r T y - c a s u a l T y gross premiums written grew moderately by 2.3 % on an internal basis, fueled mainly by a volume effect of 1.5 %, while the price effect contributed 0.8 %. our crop business in the united states accounted for about half the growth. we also saw our business grow in most of our markets, especially in south america, aGcs, the united kingdom and australia. our Reinsurance business, though, was lower, mainly due to the discontinuation of a single large agreement.
a s s e T m a n a g e m e n T generated internal growth of 14.6 %. this impressive development was mainly fueled by an increase in average assets under management and a shift to higher margin products. Despite the challenging market conditions, we recorded third-party net inflows of € 38 bn.
Corporate and Other 1 | total revenues comprise statutory gross premiums written in Property-casualty and in life/Health, operating revenues in asset Management and total revenues in corporate and other (Banking). 2 | total revenues include € (144) mn, € (115) mn and € (117) mn from consolidation for 2011, 2010 and 2009 respectively. 3 | includes € (109) mn, € (47) mn and € (63) mn from consolidation in 2011, 2010 and 2009 respectively.
G R o u P M a n a G e M e n t R e P o R t9 0 p r o p e r T y - c a s u a l T y earned an operating profit of € 4,196 mn, € 108 mn below the previous year’s level. this decline can be attributed to a € 298 mn drop in our underwriting result primarily due to significantly higher losses from natural catastrophes. as a result, our combined ratio increased to 97.8 %. on the positive side, we grew our investment result by € 176 mn.
a s s e T m a n a g e m e n T kept up the momentum and generated yet another excellent operating result. More precisely, the operating profit grew by 9.5 % to € 2,256 mn (13.7 % on an internal basis), mostly as a result of higher assets under management. the cost-income ratio stabilized at an impressive 59.0 %.
r e a l i z e d g a i n s a n d l o s s e s ( n e T ) decreased from € 1,539 mn to € 1,215 mn. Realized gains from equities of € 607 mn (2010: € 1,342 mn) were considerably lower than in the previous year. this was largely due to lower realized gains from the sale of shares in the industrial and commercial Bank of china (icBc) amounting to € 315 mn (2010: € 864 mn). Realized gains from debt securities increased from € 87 mn to € 416 mn.
amounted to a net loss of € 443 mn, a deterioration of € 386 mn (2010: € (57) mn) mainly stemming from the revaluation losses on the Hartford warrants.
a c q u i s i T i o n - r e l a T e d e x p e n s e s decreased by € 231 mn to € 209 mn largely due to lower PiMco B-unit expenses 2. we purchased in total 13,586 B-units in the first and third quarter of 2011 and have now acquired 89.0 % of all outstanding B-units. in total, 16,515 B-units are still outstanding. the decline in expenses compared to 2010 was mainly driven by the following components: ◾ the value of the outstanding B-units increased due to higher operating profit. the increase in acquisition-related expenses per outstanding B-unit was more than offset by the 45 % decline in the total number of outstanding B-units compared to December 31, 2010. this resulted in an overall decrease of € 204 mn in distribution expenses and expenses for the fair value adjustments to the provision for future repurchases of B-units.
income taxes the i n c o m e T a x increased by € 78 mn to € 2,042 mn. the effective tax rate amounted to 42.1 % (2010: 27.4 %). this increase of around 15 percentage points was primarily due to high non tax-effective losses on equities and natural catastrophe related losses in jurisdictions with below average tax rates.
G R o u P M a n a G e M e n t R e P o R t9 2 shareholders’ equity 12/31/201012/31/2009 12/31/2011
Please refer to the Balance sheet Review chapter on page 131 for further information on the development of shareholders ’ equity.
c o n G l o M e R a t e s o l v e n c y 3 | in € bn 12/31/2011 12/31/2009
Please refer to the Balance sheet Review chapter on page 131 for further information on the development of conglomerate solvency.
Reclassification of tax benefits 28 71 774 operating profit (loss) 7,866 8,243 7,044 non-operating investment result non-operating income from financial assets and liabilities carried at fair value through income (net) (443) (57) 148 non-operating realized gains/losses (net) 1,215 1,539 1,617 non-operating impairments of investments (net) (1,931) (460) (994)
income (loss) from continuing operations before income taxes 4,846 7,173 5,190 net income (loss) from continuing operations 2,804 5,209 4,650 net income (loss) from discontinued operations, net of income taxes — — (395) net income (loss) 2,804 5,209 4,255 net income (loss) attributable to: non-controlling interests 259 156 48 1 | total revenues comprise statutory gross premiums written in Property-casualty and in life/Health, operating revenues in asset Management and total revenues in corporate and other (Banking). 2| includes expenses for premium refunds (net) in Property-casualty of € (110) mn (2010: € (181) mn; 2009: € (253) mn).
G R o u P M a n a G e M e n t R e P o R t9 4
Proposal for appropriation of Profit the Board of Management and the supervisory Board propose that the available net earnings (“Bilanzgewinn”) of allianz se of € 2,048,850,000 for the 2011 fiscal year shall be appropriated as follows: ◾ Distribution of a dividend of € 4.50 per no-par share entitled to a dividend: € 2,036,533,689 ◾ unappropriated earnings carried forward: € 12,316,311 the proposal for appropriation of net earnings reflects the 2,736,958 treasury shares held directly and indirectly by the company at the time of the publication of the convocation of the annual General Meeting in the electronic federal Gazette. such treasury shares are not entitled to the dividend pursuant to § 71b of the German stock corporation act (aktG) 1. should there be any change in the number of shares entitled to the dividend until the date of the annual General Meeting, the above proposal will be amended accordingly and presented for resolution on the appropriation of net earnings at the annual General Meeting, with an unchanged dividend of € 4.50 on each share entitled to dividend.
Munich, february 20, 2012 allianz se events after the Balance sheet Date in february 2012 the allianz Group issued a senior bond in the nominal amount of € 1.5 bn with a coupon of 3.5 % p.a. and a term of 10 years.
the key terms of a voluntary Greek sovereign bonds exchange offer were launched on february 21, 2012. if a sufficient percentage of investors relative to the aggregate nominal amount of outstanding Greek sovereign bonds vote for the exchange offer, it could become mandatory for all bondholders. in this case, outstanding Greek sovereign bonds will be exchanged for new low-interest Greek sovereign bonds having a nominal amount equal to 31.5 % of the nominal amount of the exchanged bonds and short-term notes issued by the european financial stability facility (efsf) maturing within 24 months having a nominal amount equal to 15 % of the nominal amount of the debt exchanged. the Greek sovereign bonds exchange is not expected to have a significant impact on the financial position and financial results of the allianz Group because Greek government bonds have been written down to the current market value of 24.7 % of the nominal amount as of December 31, 2011.
◼ c o M P l e t i o n o f s a l e o f l l c a l l i a n Z l i f e , M o s c o w in January 2012, the allianz Group completed the sale of llc allianz life, Moscow, which had been classified as disposal group held for sale in the fourth quarter of 2011.
as of January 1, 2012, we are running the asset management business out of two distinct investment management businesses, PiMco and aGi. Both units will operate under allianz asset Management (aaM), focusing on financial and overarching governance matters. this change is driven by the significant growth in our asset Management business in recent years. we intend to tailor products, solutions and distribution that best meet our clients’ needs, and further strengthen both brands.
there have been no material changes in our presentation and accounting policies in 2011. for further details please refer to note 4 of our consolidated financial statements.
other Parts of the Group Management Report the following information also forms part of the group management report: ◾ statement on corporate Management pursuant to § 289 a of the German commercial code (HGB) starting on page 30.
◼ s e g m e n t o v e r v i e w our property-casualty business offers a broad range of products and services for both private and corporate clients. our offerings cover many insurance classes such as accident/disability, property, general liability, and motor. we conduct business worldwide in more than 55 countries. we are also a global leader for travel and assistance services and for credit insurance. we distribute our products via a broad network of agents, brokers, banks and direct channels.
◼ k e y f i g u r e s year gross premiums written operating profit loss ratio expense ratio combined ratio
our o p e r a t i n G p r o f i t amounted to € 4,196 mn – a decrease of € 108 mn or 2.5 %. the underwriting result declined by € 298 mn, mainly due to significantly higher losses from natural catastrophes. our operating investment income improved by € 176 mn, benefiting from higher dividend income.
the c o m b i n e d r a t i o was 97.8 % compared to 97.2 % in 2010. significantly higher losses from natural catastrophes were partly compensated for by a positive price development, more favorable run-off and a decline in expenses.
cluster 4 is not shown in our 2011 results as none of our operating entities represented here recorded both negative price and volume effects.
1 | we comment on the development of our gross premiums written on an internal basis; meaning adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information.
Cluster c l u s t e r 1 in s o u t h a m e r i c a we recorded gross premiums of € 1,846 mn. internal growth was 19.8 %, with all countries in the region contributing positively. brazil added the most to the positive development, benefiting from marine, aviation and transportation as well as motor and health lines of business. winning new large commercial customers had a further positive effect on growth.
in the u n i t e d K i n G d o m gross premiums grew to € 2,111 mn, including € 25 mn of unfavorable foreign currency translation effects. we achieved significant growth of 10.1 % thanks to an upswing in both the retail and commercial lines of our motor business. tariff increases in a hardening market, mainly in our motor business, continued to support the overall growth. this resulted in a positive price effect of approximately 4.1 %.
At a G c s gross premiums increased to € 4,918 mn. excluding several business transfers to Agcs, our internal growth was 6.2 %. some of the growth stemmed from higher production in financial lines, marine and liability. further growth resulted from our business operations in brazil. we estimate an overall negative price effect of 0.5 %.
in f r a n c e gross premiums amounted to € 3,313 mn, up by 0.4 %. in line with market hardening, tariff increases were executed across the portfolio, in particular in our personal lines. this led to an overall positive price effect of approximately 3.4 %. our commercial lines, however, continued to decline due to portfolio adjustments, particularly in motor fleets.
in G e r m a n y we recorded gross premiums of € 8,979 mn. Adjusting for the transfer of our china branch to Asia-pacific, gross premiums increased by 0.1 %. we benefited from a positive price effect of about 1.5 %, in particular from our non-motor business. this was almost offset by volume losses from both our motor and non-motor businesses.
c l u s t e r 3 in c e n t r a l a n d e a s t e r n e u r o p e gross premiums decreased to € 2,563 mn, including unfavorable foreign currency translation effects of € 34 mn. the overall decline in our motor business in hungary and romania could only be partially compensated for by a recovery in russia, poland and the czech republic. this resulted in a negative internal growth of 1.2 %, of which the adverse price effect accounted for approximately 3.6 % due to lower renewal tariffs, in particular in our motor businesses in hungary and romania.
€ mn € mn € mn operating investment income 3,394 3,218 3,117 o p e r a t i n G p r o f i t amounted to € 4,196 mn, down by € 108 mn.
our o p e r a t i n G i n v e s t m e n t i n c o m e improved by € 176 mn to € 3,394 mn, benefiting from higher dividend income.
the c o m b i n e d r a t i o stood at 97.8 %, compared to 97.2 % in 2010. significantly higher losses from natural catastrophes were partly outweighed by a positive price development, a more favorable run-off and a decline in expenses.
excluding natural catastrophes, our accident year loss ratio slightly improved. the overall higher average annual premium, lower volume of large losses and favorable changes in claims frequency and severity were partly offset by the strong growth in our u.s. crop business – having a structurally higher loss ratio – as well as some worsening in our credit business, even though it was still at an extraordinary level of profitability.
the following operations contributed positively to the development of the accident year loss ratio: ◾ i t a l y : 0.6 percentage points. this was thanks to price increases, particularly in third-party motor liability, as well as strict profitability management. the overall strong positive trend in claims frequency more than offset the increase in claims severity, particularly in third-party motor liability.
◾ c e n t r a l a n d e a s t e r n e u r o p e : 0.4 percentage points. this was largely attributable to the 2010 floodings that caused substantial losses in the czech republic, hungary, poland and slovakia. in 2011 we recorded no material losses from natural catastrophes in the region. in addition, we improved the attritional loss ratio in most of our entities, especially in the non-motor business.
the following operations contributed negatively to the development of the accident year loss ratio: ◾ r e i n s u r a n c e : 1.1 percentage points. this was entirely due to the extraordinary high level of losses from natural catastrophes in 2011.
◾ u n i t e d s t a t e s : 0.6 percentage points. this was mainly due to the higher volume of losses from hurricane “irene” and other severe weather events. in addition, we experienced higher losses in our workers compensation business, although this was in line with the market. further deterioration came from the higher proportion of gross premiums from our crop business, which has structurally higher loss ratios but at the same time carries lower expense ratios.
◾ G e r m a n y : 0.2 percentage points. this was primarily driven by a series of thunderstorms in August and september, which were higher in volume and claims costs than natural catastrophes in 2010. in addition, average claims costs increased, mainly due to claims inflation. we continued to improve our claims handling process. price increases partly offset above named effects.
1 | consists of the underwriting-related part (aggregate policy reserves and other insurance reserves) of “change in reserves for insurance and investment contracts (net)”. for further information please refer to note 34 of our consolidated financial statements.
gr ou p m an ag em en t r ep or t our r u n - o f f r e s u l t in 2011 benefited from favorable developments related to our non-us asbestos reserves of € 130 mn and a positive development from a prior year large claim of € 163 mn. necessary reserve strengthening for workers compensation claims in the united states was compensated for by favorable developments due to reserve releases following reviews in some of our operating entities such as italy and spain, which also contributed to a better run-off result.
expenses for premium refunds (net) 2 (110) (181) (253) operating investment income 3,394 3,218 3,117 o p e r a t i n G i n v e s t m e n t i n c o m e amounted to € 3,394 mn, up by € 176 mn mainly due to higher interest and similar income (net of interest expenses).
i n t e r e s t a n d s i m i l a r i n c o m e ( n e t o f i n t e r e s t e x p e n s e s ) increased by € 129 mn to € 3,717 mn, benefiting from higher dividend income. the increase in dividends included higher special distributions from private equity funds of € 59 mn compared to the previous year. the total average asset base grew by 3.7 %, from € 92.9 bn as of December 31, 2010 to € 96.3 bn.
o p e r a t i n G i m p a i r m e n t s o f i n v e s t m e n t s ( n e t ) increased by € 37 mn to € 46 mn reflecting the equity market downturn.
o t h e r r e s u l t € mn € mn € mn fee and commission income 1,154 1,099 1,075 fee and commission expenses (1,070) (1,024) (995) other expenses (14) (10) — loan loss provisions — — (18)
2| refers to policyholder participation, mainly from ubr (accident insurance with premium refunds) business, and consists of the investment-related part of “change in reserves for insurance and investment contracts (net)”. for further information please refer to note 34 of our consolidated financial statements.
€ mn € mn € mn ceded premiums written (4,552) (4,346) (4,574) change in unearned premiums (322) (246) (121) premiums earned (net) 39,898 39,303 37,828 interest and similar income 3,771 3,680 3,612 operating income from financial assets and liabilities carried at fair value through income (net) 48 18 118 operating realized gains/losses (net) 21 42 57 fee and commission income 1,154 1,099 1,075 claims and insurance benefits incurred (net) (27,920) (27,141) (26,320) change in reserves for insurance and investment contracts (net) (272) (300) (355)
Allianz global Corporate & Specialty (AgCS) 4, 5, 7 4,918 4,530 4,256 4,885 4,598 3,088 3,086 2,663 549 517 640
Consolidation and other 7, 9 — — — — — — — — —
6 | Contains € 12 mn, € 15 mn and € 14 mn for 2011, 2010 and 2009, respectively, from a management holding located in luxembourg and also € 5 mn, € (0.1) mn and € 8 mn for 2011, 2010 and 2009, respectively, from AgF uK.
7 | Allianz risk transfer (Art) business shown since 2011 within AgCS. prior year figures have been adjusted accordingly. 8 | Contains income and expense items from a management holding and consolidations between countries in this region. 9 | represents elimination of transactions between Allianz group companies in different geographic regions. 10 | the 2011 analysis of the Allianz group’s asbestos risks resulted in a reduction of reserves and a positive run-off result of € 130 mn.
m A n A g e m e n t D i s c u s s i o n A n D A n A l y s i s iii. life/Health insurance operations
◾ statutory premiums down to € 52,863 mn but traditional business held firm.
◾ operating profit of € 2,420 mn impacted by lower investment result due to the financial crisis.
◼ k e y f i g u r e s 1 year statutory premiums operating profit margin on reserves 1 € mn € mn ∆ | D i f f e r e n c e f r o m y e A r to y e A r bps
O P e R A T i n g P R O f i T decreased from last year’s high level by € 448 mn to € 2,420 mn. the primary driver behind the decrease was our substantially lower investment result. the operating profit also resulted in a lower m A R g i n O n
R e S e R v e S of 58 basis points, after relatively high levels in 2009 and 2010.
we were not immune to the ongoing crisis and our sales were negatively impacted by the competitive pressure, especially in our banking channel with lower margin products, and the low interest rate environment, reflected in the premium drop from our investment-oriented products. we actively work on mitigating the impacts from the low interest rate environment through renewed products and profit optimization programs. the higher proportion of recurring premium over single premium business compared to 2010 also underpins the focus on higher margin products. As a measure to protect our margin we also decided to reduce or to let go of low margin or unprofitable business, as in Japan.
2 | After elimination of transactions between Allianz group companies in different geographic regions and different segments. 3 | Before elimination of transactions between Allianz group companies in different geographic regions and different segments. 4 | starting from the first quarter of 2010, luxembourg life was consolidated into Belgium for reporting purposes.
premiums in c e n T R A l A n d e A S T e R n e U R O P e increased from € 1,057 mn to € 1,113 mn, with an internal growth of 6.1 % largely driven by russia (€ 36 mn) and poland (€ 17 mn). our traditional business contributed most to the growth but investment-oriented products also increased, mainly related to a stronger demand for unit-linked products in poland.
in S P A i n premiums increased by € 39 mn, or 4.2 %, to € 965 mn, both on a nominal and internal basis. economic recession, high unemployment and fierce competition from banks offering high interest rates on short-term accounts have been a tough challenge. considering this difficult market environment in spain, our strong growth has been remarkable. the premium growth was mainly in our investment-oriented products (€ 30 mn) but even traditional business increased. products for short-term investments, annuities and individual business contributed the most.
Allianz had stable internal growth in premiums in the U n i T e d S T A T e S of € 41 mn, or 0.5 %, and total premiums stood at € 7,786 mn. the stable result reflected the offsetting effects of growing variable annuity business and decreasing fixed index annuity business. the variable annuity business continued its growth momentum from the product relaunch in late 2009, up 19.9 % in 2011. the extraordinary high sales of fixed index annuities in 2010 decreased to a more normal level during the first half of 2011 but declined sharply in the second half following product and pricing changes.
i T A l Y was severely hit by several negative factors in 2011. As a result, premiums decreased by 22.6 % on an internal basis, and total premiums stood at € 6,915 mn. most important were the negative impacts of the stagnating economic environment and the market decline driven by the low margin bancassurance business – with banks collecting liquidity through their own product offerings or higher interest rates on deposits. in addition to this, italy had benefited from exceptionally high premiums last year due to tax incentives on foreign investments which did not recur in 2011. this translated into a significant drop in premiums from our investment-related products, whereas traditional business saw a relatively minor decrease.
O P e R A T i n g i m P A i R m e n T S O n i n v e S T m e n T S ( n e T ) increased by € 1,250 mn to € 1,684 mn. Deteriorating equity markets led to significant equity impairments of € 1,228 mn, largely in germany, france and italy. these equity impairments included losses on our corporate investments in financial sector assets of approximately € 245 mn. Debt impairments also increased and amounted to € 479 mn – of which € 450 mn were from greek government bonds.
c h A n g e S i n R e S e R v e S f O R i n S U R A n c e A n d i n v e S T m e n T c O n T R A c T S ( n e T ) decreased by € 2,711 mn to € 10,618 mn. this decrease was driven by higher reserve releases for matured products as well as lower allocation of premiums to aggregate policy reserves. the lower expenses for premium refunds of € 611 mn related primarily to the lower investment result.
i n v e S T m e n T e x P e n S e S increased by € 41 mn to € 745 mn due to higher depreciation of real estate as well as higher investment management expenses.
€ mn € mn € mn ceded premiums written (669) (564) (549) change in unearned premiums (172) (127) (51) statutory premiums (net) 52,022 56,407 50,173 Deposits from insurance and investment contracts (28,252) (32,373) (28,209) Premiums earned (net) 23,770 24,034 21,964 interest and similar income 16,107 15,085 13,971 operating income from financial assets and liabilities carried at fair value through income (net) (866) 19 636 operating realized gains/losses (net) 2,188 2,125 1,755 fee and commission income 538 539 491 claims and insurance benefits incurred (net) (20,947) (18,955) (19,326) changes in reserves for insurance and investment contracts (net) (10,618) (13,329) (8,499)
loan loss provisions — 6 (75) operating impairments of investments (net) (1,684) (434) (1,663)
German Speaking Countries 21,004 21,070 20,036 20,816 21,041 15,399 15,731 14,186 German Speaking Countries 1,118 1,256 897 57 68 52
Anglo Broker Markets & Global Lines 374 314 350 374 314 343 307 343 Anglo Broker Markets & Global Lines 28 23 29 126 102 127
Central and eastern europe 1,113 1,057 1,032 1,122 1,057 549 517 581 Central and eastern europe 77 63 76 245 202 262 middle east and north Africa 163 137 101 183 136 122 126 95 middle east and north Africa 9 12 8 223 399 384 1 | Statutory premiums are gross premiums written from sales of life and health insurance policies, as well as gross receipts from sales of unit-linked and other investment-oriented products, in accordance with the statutory accounting practices applicable in the insurer’s home jurisdiction.
2 | represents operating profit divided by the average of the current and prior year net reserves, whereby net reserves equals reserves for loss and loss adjustment expenses, reserves for insurance and investment contracts and financial liabilities for unit-linked contracts less reinsurance assets.
3 | Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects.
gr ou p m an ag em en t r ep or t life/Health operations by Business Divisions Statutory premiums 1 premiums earned (net) operating profit (loss) margin on reserves 2 internal 3 € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn bps bps bps
Central and eastern europe 1,113 1,057 1,032 1,122 1,057 549 517 581 Central and eastern europe 77 63 76 245 202 262 middle east and north Africa 163 137 101 183 136 122 126 95 middle east and north Africa 9 12 8 223 399 384 4 | From the first quarter of 2011 on, the variable annuity business of Allianz global life is shown within germany, France and italy, respectively. prior year figures have not been adjusted. 5 | loss ratios were 76.2 %, 75.0 % and 73.5 % for 2011, 2010 and 2009, respectively. 6 | presentation not meaningful.
7 | represents elimination of transactions between Allianz group companies in different geographic regions.
◾ total assets under management at record level of € 1,657 bn.
◼ k e y f i g u r e s year total assets under management operating revenues operating profit cost-income ratio € bn € mn € mn ∆ | D i f f e r e n c e f r o m y e A r to y e A r %
Despite the turbulent market situation, our O p e r a t i n g r e v e n u e s increased in 2011 by € 516 mn to € 5,502 mn and internal growth amounted to a still impressive 14.6 %.
our strong O p e r a t i n g p r O f i t of € 2,256 mn – up by € 196 mn – reflects the continuing growth in assets under management that we have experienced. we recorded third-party assets under management net inflows of € 38 bn. the internal growth of 13.7 % also reflects the effectiveness of our operational business.
D e v e l o p m e n t o f t o t A l A s s e t s u n D e r m A n A g e m e n t | in € bn
+ 34 net inflows of total assets under management amounted to € 35 bn. while our group assets saw net outflows of € 3 bn, it is really remarkable that we recorded strong third-party net inflows of € 38 bn in this environment; our third-party fixed income business contributed with € 45 bn while the equity business saw net outflows of € 5 bn. we experienced net inflows through the first three quarters of 2011 but saw net outflows in the fourth, related to fixed income redemptions mainly by retail customers. equity investments have been burdened by the market turmoil with high volatility and uncertainty created by the european sovereign debt crisis.
strong net inflows from fixed income investments and a positive market impact on fixed income versus equity increased the proportion of third-party assets from fixed income to 89 % (December 31, 2010: 86 %). the share of equity assets therefore decreased to 11 % (December 31, 2010: 14 %).
1 | Based on the closing rate on the respective balance sheet dates. 2 | Based on the origination of assets by the asset management company. 3 | this consists of third-party assets managed by other Allianz group companies (approximately € 26 bn as of December 31, 2011 and € 19 bn as of December 31, 2010, respectively).
the split of third-party assets under management between retail and institutional clients remained unchanged at 34 % and 66 %, respectively.
Allianz global investors’ assets under management continued the outstanding three-year rolling investment performance with 90 % outperforming their respective benchmark (December 31, 2010: 87 %). fixed income assets recorded an exceptional performance of 93 % versus their respective benchmarks. our equity assets also improved with 65 % outperforming their respective benchmarks.
O p e r a t i n g r e v e n u e s increased by € 516 mn to € 5,502 mn. Accounting for unfavorable foreign currency effects of € 214 mn as well as consolidation effects, our internal growth was 14.6 %. this reflects both the increase in average assets under management and a shift to higher margin products.
n e t f e e a n d c O m m i s s i O n i n c O m e improved by € 543 mn to € 5,470 mn. the increase was mainly attributable to the higher m a n a g e m e n t a n d l O a d i n g f e e s as a result of the higher asset base. we also earned p e r f O r m a n c e f e e s of € 455 mn, at a slightly lower level compared to the previous year (2010: € 514 mn).
gr ou p m an ag em en t r ep or t operating profit we recorded an outstanding O p e r a t i n g p r O f i t of € 2,256 mn which is an increase of € 196 mn compared to the previous year. this impressive growth relates to our higher assets under management and the resulting increase in fee and commission income. we were negatively impacted by foreign currency effects of € 92 mn. however, even accounting for this and consolidation effects, the internal growth was 13.7 %.
a d m i n i s t r a t i v e e x p e n s e s rose in line with our favorable business development and amounted to € 3,246 mn. the increase of € 320 mn related almost entirely to our fixed income business reflecting the strong growth of our asset under management and related administrative expenses as well as the ongoing investments in infrastructure and new business. we also had a higher profit sharing due to our positive results.
1 | represents interest and similar income less interest expenses. 2 | represents operating expenses divided by operating revenue.
◼ s e g m e n t o v e r v i e w corporate and other encompasses the operations of Holding & treasury, Banking and Alternative investments. Hol ding & treasury includes the management and support of the Allianz group’s businesses through its strategy, risk management, corporate finance, treasury, financial control, communication, legal, human resources and technology functions. our banking products offered in germany, italy, France and Bulgaria complement our insurance product portfolio.
◼ k e y F i g u r e s year operating revenues operating expenses operating result € mn € mn € mn ∆ | D i F F e r e n c e F r o m y e A r to y e A r
� c o r p o r A t e A n D o t H e r – i n D e t A i l 2
A l t e r n A t i v e i n v e s t m e n t s 1 | consolidation included. For further information about our corporate and other segment please refer to note 6 of the consolidated financial statements. 2 | including loan loss provisions in operating expenses.
O p e r a t i n g r e s u l t improved by € 45 mn to € (897) mn. Holding & treasury contributed € 39 mn and Alternative investments € 10 mn to this improvement. the operating loss of our Banking business was almost unchanged.
a d m i n i s t r a t i v e e x p e n s e s decreased by € 25 mn to € 509 mn.
Alternative investments’ O p e r a t i n g l O s s more than halved to € 5 mn due to an increase in interest and similar income. this was partially offset by higher acquisition and administrative expenses.
m A n A g e m e n t D i s c u s s i o n A n D A n A l y s i s iii. outlook 2012 and 2013
gross premiums written increased by 2.0 % on a nominal basis and by 2.3 % on an internal basis. Half of this growth is attributable to our crop business.
overcompensation of the underlying claims inflation by the aggregate effect of improvements in pricing, claims management and productivity gains.
l i f e /H e A lt H strong but stable revenue level in 2011. statutory premiums of € 52.9 bn, compared to € 57.1 bn in 2010: due to a decrease in demand for investment-oriented products while demand for our traditional insurance products remained stable. total revenues exceeded the 2009 level.
operating profit in the range of € 2.2 bn to € 2.8 bn. operating profit of € 2.4 bn, negatively affected by a lower investment result driven by significantly higher impairments.
lower level of realized gains in 2011 compared to 2010. realized gains increased by 3.0 %.
net inflows of € 35 bn, compared to € 121 bn in 2010.
maintenance of a cost-income ratio well below 65 %. cost-income ratio of 59.0 %.
the u.s. economy will probably stabilize in 2012 and record higher growth than in 2011. We forecast growth rates of between 2.0 % and 2.3 % this year and next (2011: 1.7 %). in the eurozone, economic activity is likely to rise only marginally in 2012. While fiscal austerity will act as a headwind, the global upswing, a weaker currency and supportive monetary policy should foster economic growth. economies with high consolidation needs may stagnate or shrink. However, gDp in the eurozone as a whole is expected to rise by 0.3 % in 2012 and 1.3 % in 2013. growth in the german economy will be above the eurozone average thanks to robust domestic demand, a stable labor market and relatively low public sector consolidation needs. following real gDp growth of 1.0 % this year, we expect an increase of 1.8 % next year.
other risks that could severely dampen the economic outlook include a possible disruption to global oil supplies due to geopolitical tensions, a renewed flare-up of the banking crisis, and social unrest.
Although financial market jitters regarding the european sovereign debt crisis have eased somewhat, german government bonds are still considered a “safe haven”, with yields on 10-year bonds below 2.0 %. in 2012, with the “safe haven” effect starting to fade somewhat, yields on german government bonds are likely to creep up towards 2.5 % to 3.0 %, which is more in line with macroeconomic fundamentals. As far as the stock market is concerned, solid corporate earnings, low interest rates and relatively attractive price/earning-ratios provide a sound foundation for a significant recovery of equities. However, a renewed pickup in risk aversion cannot be ruled out, which would send stock markets south again.
We anticipate the financial turbulence of the last few years to continue until markets are confident the sovereign debt crisis has been resolved by policymakers. As this may take some time we expect continued pressure on insurers’ balance sheets and further investment de-risking, continuing the trend established several years ago. the pace of this de-risking could intensify further if the solvency ii legislation is implemented in its current form. following a phase-in period, full implementation of solvency ii is now expected to be further delayed until at least 2014, although many important technical issues are still under discussion.
Due to the significant level of uncertainty regarding the further development of the global economy as well as the surrounding political conditions, financial markets are expected to remain highly volatile throughout 2012 and beyond. this uncertain outlook weighs on investors’ sentiment, leading to muted flow expectations for the entire a s s e t m a n a g e m e n t industry. Assuming that economic growth rates in the main oecD markets will continue to lag behind the long term trends for the time being, due to high national debt levels and the growing propensity of private households to save, the short-term growth prospects of the Asset management industry would appear to be limited to some extent by the conditions in the market environment, both in the fixed income and the equity space. further, it is hard to tell whether and which potential repercussions will impact the Asset management industry as a result of the ongoing uncertainty about the development of the global regulatory environment (e.g. due to potentially increased administrative and equity requirements). A lot will depend on staying focused on clients’ needs and manage their portfolios to achieve above-benchmark investments results. We have positioned ourselves to deal with the current market ambiguity, although we will certainly depend on the overall trends in investors’ behavior. However, we are confident that the broad range of investment solutions we offer will enable us to capture flows even in an environment of fickle and highly diverse investors’ preferences and expectations.
We show the operating profit outlook for 2012 and 2013 for the group and each segment, together with the main sensitivity factors and their possible impacts. in addition, we illustrate our expectation about the revenues and claims development and the anticipated development of key ratios and income statement positions. the outlook for the group, especially the operating profit outlook, reflects a stabilizing diversification effect that is inherent in our global, multisegment portfolio.
gr ou p m an ag em en t r ep or t overview: outlook and Assumptions 2012
given the current interest rate environment our investment strategy remains focused on generating attractive returns and on minimizing vulnerability to price fluctuations.
l i f e /H e A lt H We expect to reach another strong but stable revenue level in 2012. We expect an operating profit in our life/Health business in the range of € 2.2 bn to € 2.8 bn, with a margin on reserves between 50 and 70 bps. the investment result for 2012 is expected to improve compared with 2011.
A s s e t m A n Ag e m e n t We expect inflows to continue, especially into fixed income products. We expect operating profit to be in the range of € 2.0 bn to € 2.4 bn. We expect to maintain a cost-income ratio well below 65 %.
A s s u m p t i o n s our outlook is based on the following assumptions: ◾ moderate global economic growth ◾ interest rates remain low ◾ no dramatic interest rate movements ◾ no disruptive fiscal or regulatory interference ◾ A more average level of claims from natural catastrophes ◾ no severe disruptions of the capital markets
our product mix varies from country to country, therefore information about the development of sales markets and the introduction of new products also varies. We expect our product and sales market mix to remain relatively unchanged.
in 2011 we were within the range of our operating profit target and reached € 7.9 bn. the result was impacted by higher than expected natural catastrophes and a lower investment result due to the european sovereign debt crisis.
◾ A 10 % weakening (strengthening) of the average u.s. Dollar versus our planned rate of 1.36 to the euro would have a negative (positive) impact of approximately € 0.3 bn.
the 2012 anticipated growth will be mainly driven by our global insurance lines, the Anglo markets, as well as by improvements in some of our core markets such as italy and france. We anticipate the overall slowly improving price increases observed in 2011 to continue building momentum. in countries with ongoing soft market conditions, we will continue relying on our risk selection and pricing tools. However, we will not generate growth at any price. instead, we will remain focussed on the production of outstanding underwriting results by adhering to our strict underwriting discipline: we will be prepared to let top line go if target margins are insufficient.
property-casualty operating profit amounted to € 4.2 bn in 2011, with a combined ratio of 97.8 %. the result suffered from exceptionally high losses from natural catastrophes of € 1.8 bn which was a record and € 0.5 bn higher than in the already unusually high previous year. Despite two consecutive years with extraordinary high losses from natural catastrophes and the high volatility of incurrence and loss volume of those events, we are sticking to our long-term average expected levels for such claims in 2012 and 2013.
Although we do not anticipate the exceptionally strong operating profit growth we recorded in 2010 and 2011 to continue, we expect the 2012 operating profit to be in the range of € 2.0 bn to € 2.4 bn. Depending on the development in 2012, we consider a further moderate operating profit growth in 2013 to be possible.
overall, the operating profit development is strongly dependent on financial markets, the development of the u.s. Dollar, investment performance and investor sentiment. especially, net fee and commission income, including performance fees, is highly dependent on market valuations, investment performance and business mix.
c o r p o r At e A n D o t H e r our corporate and other segment recorded an operating loss of € 0.9 bn in 2011. Due to the ongoing low interest rate environment but improving results in banking and alternative investments we expect for corporate and other (including consolidation) an operating loss in the range of € 0.9 bn to € 1.1 bn for 2012. the result is expected to improve in 2013.
All external financing activities of the Allianz group are centralized at Allianz se. the potential sources of financing include the issuance of commercial paper, medium- and long-term notes and ordinary shares. in addition, Allianz se has access to bank loans and long-term credit lines, which provide flexibility and allow Allianz to fine tune its funding structure.
m A c r o e c o n o m i c e n v i r o n m e n t A n D s tA B i l i t y o f f i n A n c i A l m A r k e t s
in times of high uncertainty, insurance plays an especially important role in society: Allianz can safeguard business activities, provide protection for individuals and families and contribute to stability in capital markets by pursuing longterm investment strategies and stringently managing and transferring risks. moreover, we will continue to engage in educational initiatives to improve financial understanding and risk awareness and support the development of financially independent individuals.
e n v i r o n m e n tA l c H A n g e s in the past twenty years, we have registered an increase in frequency, severity and economic impact of catastrophic natural events. this is expected to continue due to changes in the climate, together with increasing urbanization and value concentration in areas that are more exposed to natural catastrophes. By updating and developing our risk models constantly and active accumulation management we are in a good position to manage these developments and remain a trusted and reliable partner to our customer in times when they need us most.
We have chosen to be carbon-neutral from 2012 and directly invest in carbon projects rather than simply purchasing carbon certificates. only some of the certificates obtained from a project will be required to neutralize Allianz’s own emissions, whereas the rest will be sold and thus generate a financial return to the project’s shareholders. moreover, by continuing to reduce carbon emissions in the future, fewer certificates will be needed for neutralization purposes and can be sold instead. this creates a direct incentive for Allianz to intensify its emission reduction efforts.
C u s t o m e r b e h a v i o r s / e x p e C t a t i o n s : the past two decades saw the proliferation of mobile phones, laptop computers, broadband connections and email traffic, mainly driven by younger, affluent, highly-educated members of so-called “developed societies”. social networks and other online channels play an increasingly important role in both research and advice. We have entered an age where the mastery and use of information technologies and devices is effectively part of all our stakeholders’ DnA, no matter where they live, work and interact with Allianz. today, our customers, investors and partners want to make their own decisions and expect easy, user-friendly access to information – whenever they want, wherever they are. We will continue to invest in electronic solutions in the front- and back-office in order to improve automation and efficiency.
a g i n g s o C i e t i e s : Demographic change is not only creating new challenges for financial services providers like Allianz, but also opportunities. As societies age, demand patterns change. However, our strong market position in continental europe and the united states, as well as our strong brand and ratings and well diversified product portfolio, puts us in an excellent position to further benefit from old-age and health care provisioning opportunities as well as the provision of assistance products.
r i s e o f t h e m i d d l e C l a s s : A growing middle class population in emerging markets such as china, india, Brazil and indonesia, also provides growth opportunities in all business segments. With a strong presence and experience in these markets, and supported by our globally esteemed brand, the Allianz group stands to benefit from this growing pool of potential future customers.
l e g A l A n D r e g u l At o r y c H A n g e s the insurance industry is faced with increased regulation in developed markets which leads to greater control and less entrepreneurial freedom. stricter risk-management requirements will change capital needs and increase administrative costs. Additionally, new accounting rules will make investments in higher yielding asset classes, such as equity, less attractive; this will undermine insurers’ role as capital providers and could lead to lower investment returns. However, these regulatory and legal trends could open up major opportunities as greater capital needs and regulation will lead to sector consolidation, where only financially sound insurance companies will survive.
r i s k m a n a g e m e n t a n d C o n t r o l : since these legal and regulatory trends are material to Allianz’s business, the group is committed to engaging in important economic, environmental, social and governance issues. growing liability will emphasize the even greater importance of risk management, which will prove advantageous to companies with a diversified approach to risk management. After all, anticipating, monitoring and evaluating global issues is an essential aspect of our comprehensive risk management which makes us well prepared for these issues.
e x p e n s e m a n a g e m e n t : As we develop our franchise globally and face intensified challenges to maintain and improve our performance in traditional, but mature markets we recognize the increased need to manage our operational expenses in an intelligent and sustainable way that will acknowledge the contribution and value of our employees around the globe.
opportunity management and strategic investments o p p o r t u n i t y m A n A g e m e n t our Allianz operating model has laid the foundation for a structured and harmonized approach to capture opportunities globally and in the different local markets.
t h e s t r a t e g y d e v e l o p m e n t p r o C e s s C o m p r i s e s t h r e e s t e p s : 1. Analysis of markets and customers to gain insights, e. g. on trends, customer needs and behavior.
2. understanding what impact these insights have on the current business model and the local strategy.
3. translation of these findings into necessary adjustments to the market strategy.
As a global company with operating entities in about 70 countries, Allianz has a huge base of local expertise and examples of good practice. one key task of the Holding functions is to make use of this valuable knowledge by sharing it across the group and supporting its transfer to other group companies. this also contributes to constantly identifying and exploiting opportunities.
in addition, Allianz group will invest approximately € 50 mn in its platforms for finance and Human resources in 2012. for our employees we aim to extend the reach of our high quality, standardized “virtual desktop client” across the group. in 2012, Allianz group will continue to bring this innovative digital work environment to many organizational entities globally. An initiative for one global identity and Access management will also allow Allianz to raise the existing security standards within the group.
While overall infrastructure costs are declining, a key strategic initiative for the next years is the roll-out of the “ Allianz global network”. this investment of approximately € 160 mn over three years will harmonize the local networks into one global, group-wide network. the initiative will realize significant efficiencies while enabling advanced services such as collaboration and communication.
management’s overall Assessment of the current economic situation of the Allianz group overall, at the date of issuance of this Annual report, given current information regarding natural catastrophe and capital market development, in particular foreign currency, interest rates and equities, the Board of management does not have any indication that the Allianz group is facing any major adverse developments.
M a n a G e M e n t D i s c u s s i o n a n D a n a l y s i s
M a n a G e M e n t D i s c u s s i o n a n D a n a l y s i s iii. Balance sheet Review
Regulatory capital adequacy the allianz Group is a financial conglomerate within the scope of the e.u. Financial conglomerates Directive and the related German law in force since January 1, 2005. the law requires that a financial conglomerate calculate the capital available to meet its solvency requirements on a consolidated basis, which we refer to as “eligible capital”.
2 | this does not include non-controlling interests of € 2,338 mn, € 2,071 mn and € 2,121 mn as of December 31, 2011, December 31, 2010 and December 31, 2009, respectively. For further information please refer to note 25 of the consolidated financial statements.
c o n G l o M e R a t e s o l v e n c y 1 | in € bn 12/31/2011 12/31/2009
total assets and total liabilities in the following sections, we show the asset allocation for our insurance portfolio and analyze important developments within the balance sheets of our property-casualty, life/health, asset Management and corporate and other segments.
M a R k e t e n v i R o n M e n t o F D i F F e R e n t a s s e t c l a s s e s as highlighted in the executive summary starting on page 87, market-related conditions deteriorated during 2011. the european sovereign debt crisis worsened and major equity markets fell significantly. like the rest of the industry, we were not immune to these developments.
1 | off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. allianz se has not submitted an application so far. excluding off-balance sheet reserves, the solvency ratio would be 170 % (2010: 164 %; 2009: 155 %).
M a n a G e M e n t D i s c u s s i o n a n D a n a l y s i s i n t e R e s t R a t e s a n D c R e D i t s p R e a D s D e v e l o p M e n t | in %
F i x e D i n c o M e p o R t F o l i o | in %
carrying value unrealized loss (gross) 1 unrealized loss (net) 2 as of December 31, 2011 € mn € mn € mn 55 % of the c o v e r e d b o n d s were German pfandbriefe backed by either public sector loans or mortgage loans. covered bonds provide a cushion against real estate price deterioration and payment defaults through minimum required security buffers and over-collateralization.
our exposure to subordinated securities in banks decreased by € 2.2 bn to € 8.4 bn, driven by market values as well as realizations. the tier 1 portion also decreased to € 1.3 bn and accounted for only 0.3 % of our fixed income portfolio.
our exposure to r e a l e s t a t e held for investment remained stable at € 8.7 bn.
i n v e s t M e n t R e s u lt n e t i n v e s t M e n t i n c o M e 4
Group as of December 31, 2011 2010 Delta € mn € mn € mn interest and similar income (net) 4 19,984 18,906 1,078 income from financial assets and liabilities carried at fair value through income (net) (1,287) (38) (1,249) Realized gains/losses (net) 3,435 3,708 (273) impairments of investments (net) (3,661) (844) (2,817)
our n e t i n v e s t m e n t i n c o m e amounted to € 17,619 mn, a decrease of 15.7 %. higher interest and similar income (net) was more than offset by impairments on investments (net) and lower income from financial assets and liabilities carried at fair value through income (net).
M a n a G e M e n t D i s c u s s i o n a n D a n a l y s i s declined by € 1,249 mn to a loss of € 1,287 mn. the downward trend in equity markets and relatively wider credit spreads resulted in significantly lower fair values. the negative impact was mainly felt in the united states – and to a lesser extent in France. in the united states during 2010 we sold assets which had been designated a t F a i r v a l u e t h r o u g h i n c o m e and reinvested them in assets classified as available for sale (fair value income amounted to € 419 mn in 2010). Furthermore, the hartford warrants contributed to the decrease by € 384 mn (2011: € (316) mn, 2010: € 68 mn) driven by a decline in the price of the underlying shares.
r e a l i z e d g a i n s a n d l o s s e s ( n e t ) decreased by € 273 mn to € 3,435 mn. a moderate increase in gains from debt securities was more than offset by lower realized gains on equities. these reduced equity gains mainly resulted from € 616 mn lower gains on sales of shares in the industrial and commercial Bank of china (icBc) (2011: € 356 mn, 2010: € 972 mn).
our net investment income was mostly hit by i m p a i r m e n t s ( n e t ) on equities and debt securities. Following the downturn in equity markets, we recorded an increase in impairments on equity investments of € 1,907 mn, in particular related to our investments in the financial sector. these included losses from corporate investments, like our participation in commerzbank, unicredit, china pacific insurance Group and Banco popular, and a loss related to our offer to acquire certain participation rights from allianz customers. in total, these listed losses in equity holdings amounted to € 1,128 mn in 2011. the vast majority of the increase in debt impairments of € 965 mn related to impairments on Greek sovereign bonds (2011: € 1,023 mn).
c o M p o s i t i o n o F a s s e t B a s e | fa ir values1 2 3 4 as of December 31, 2011 2010 € bn € bn
1 | loans and advances to banks and customers, held-to-maturity investments and real estate held for investment are stated at amortized cost. investments in associates and joint ventures are stated at either amortized cost or equity, depending on – among other factors – our ownership percentage.
2 | this comprises assets of € 0.1 bn and € 0.2 bn and liabilities of € (0.1) bn and € (0.1) bn as of December 31, 2011 and December 31, 2010, respectively. 3 | these do not include affiliates of € 9.1 bn and € 10.3 bn as of December 31, 2011 and December 31, 2010, respectively. 4 | including cash and cash equivalents, as stated in our segment balance sheet of € 2.4 bn and € 2.5 bn and receivables from cash pooling amounting to € 2.1 bn and € 3.0 bn net of liabilities from securities lending and derivatives of € (0.3) bn and € (0.2) bn as of December 31, 2011 and December 31, 2010, respectively.
Loss and loss adjustment expenses paid in current year relating to prior years
Changes as of December 31, 2011, the segment’s gross reserves for loss and loss adjustment expenses increased by € 2.0 bn to € 59.5 bn. on a net basis, reserves increased to € 52.8 bn. Foreign currency translation effects accounted for positive € 0.6 bn.
a s s e t s a n D l i a B i l i t i e s o F t h e l i F e / h e a lt h s e G M e n t
Debt securities 229.6 212.8 cash and cash pool assets 4 6.0 7.4 loans and advances to banks and customers 98.0 97.4 Financial assets for unit-linked contracts 5 63.5 64.8 life/health asset base 428.4 417.6 1 | after group consolidation. For further information about changes in the reserves for loss and loss adjustment expenses for the property-casualty segment please refer to note 19 of the consolidated financial statements.
Changes life/health reserves for insurance and investment contracts increased by € 12.1 bn – or 3.6 % – in 2011. the € 11.9 bn increase in aggregate policy reserves was mainly driven by our operations in Germany (€ 5.9 bn), the united states (€ 3.1 bn excluding currency effects), italy (€ 1.1 bn) and Belgium (€ 0.6 bn). Reserves for premium refunds decreased by € 1.9 bn, primarily due to the development of unrealized losses on bonds caused by higher credit spreads (shared with the policyholders). currency gains resulted from the stronger u.s. Dollar (€ 1.7 bn), swiss Franc (€ 0.3 bn) and asian currencies (€ 0.2 bn). 1 1 | Based on the closing rate on the respective balance sheet dates.
a s s e t s a n D l i a B i l i t i e s o F t h e a s s e t M a n a G e M e n t s e G M e n t
◼ a s s e t M a n a G e M e n t a s s e t s our asset Management segment’s results are derived primarily from third-party asset management. 1 in this section we refer only to the segment’s own assets.
Driven by higher loans and advances as well as cash and cash pool assets, the asset Management segment’s asset base increased by € 1.5 bn to € 4.8 bn. these two main components of the segment’s asset base amounted to € 1.5 bn and € 1.6 bn, respectively. Debt securities totaled € 1.0 bn.
◼ c o R p o R a t e a n D o t h e R a s s e t s our asset base for corporate and other grew slightly by € 0.9 bn to € 40.0 bn. loans and advances to banks and customers increased by € 1.3 bn to € 17.7 bn, while investments remained stable at € 22.5 bn.
c o M p o s i t i o n o F a s s e t B a s e | fa ir values 2 3 4 as of December 31, 2011 2010 € bn € bn
◼ c o R p o R a t e a n D o t h e R l i a B i l i t i e s other liabilities increased by € 0.5 bn to € 15.8 bn. the decrease in certificated liabilities from € 14.4 bn to € 13.8 bn was primarily driven by a drop in allianz se’s money market borrowings of € 0.7 bn. the increase in participation certificates and subordinated liabilities by € 2.5 bn to € 11.3 bn was mainly due to net issuances of subordinated bonds by allianz Finance ii B.v. . 5 1 | For further information on the development of these third-party assets, please refer to the asset Management chapter.
the allianz Group enters into various commitments including loan and leasing commitments, purchase obligations and other commitments. please refer to note 47 of our consolidated financial statements for more details.
an ag em en t R ep or t 1980: With the personalized Allianz insurance package extending from their first motor insurance policy to disability coverage, more than 3 million young Germans, from 18 to 21 years old, were able to head off into their futures with confidence. 2011: More than 500,000 students and young professionals took the free Allianz Perspectives Test, thereby taking a major step on the path to their own future careers.
m A n A g e m e n t D i s c u s s i o n A n D A n A l y s i s iii. liquidity and Funding resources organization the Allianz group bases its liquidity management on policies and guidelines approved by the Board of management of Allianz se. While it is the primary responsibility of Allianz se and each of our major operating subsidiaries to manage their respective cash flows, Allianz se steers the liquidity planning, capital allocation process and central liquidity pooling for the entire group. this process enables the efficient employment of liquidity and capital resources and allows Allianz se to ensure that the group and its operating entities achieve the desired liquidity and capitalization levels.
We generate strong cash flows from our insurance operations as most premiums are received before payments of claims or policy benefits are required, allowing us to invest these funds in the interim. this allows us to generate substantial investment income.
our insurance operations also carry a high proportion of liquid investments which can be turned into cash to pay for claims. generally our investment in fixed income securities are sequenced to mature based on when funds are expected to be needed.
the overall liquidity of our insurance operations depends on the capital market developments, interest rate levels and our ability to realize the carrying value of our investment portfolio in order to meet insurance claims and policyholder benefits. Additional factors affecting the liquidity of our property-casualty insurance operations include the timing, frequency and severity of losses underlying our policies as well as policy renewal rates. in our life operations, liquidity needs are generally affected by trends in actual mortality rates compared to the related assumptions underlying our life insurance reserves. Also relevant is the extent to which minimum returns or crediting rates are provided in connection with our life insurance products, and the level of surrenders and withdrawals.
A s s e t m A n A g e m e n t o p e r At i o n s
Within our Asset management operations, our primary sources of liquidity include fees generated from asset management activities. these funds are primarily used to cover operating expenses.
◼ e q u i t y F u n D i n g
conditional capital 2010 € 250,000,000 (97,656,250 shares) no expiry date for conditional capital 2010 (issuance in case option or conversion rights are exercised)
in July 2011, subordinated notes convertible into Allianz shares with a principal amount of € 500,000,000 were issued against cash by Allianz Finance ii B.V., a wholly owned subsidiary of Allianz se, and guaranteed by Allianz se on a subordinated basis. the convertible notes were acquired by nippon life insurance company, thereby increasing regulatory capital and further strengthening our capital base. in light of the volatility of financial markets at the time of the issuance a comparable offering to Allianz shareholders would have resulted in a significantly increased execution risk. therefore, the subscription rights of the shareholders for these convertible notes were excluded with the consent of the supervisory Board under the authorization of the general meeting of may 5, 2010 which allows to exclude the shareholders’ subscription rights if the notes are issued against payment in cash and the issue price is not significantly lower than the theoretical market value of the bonds as calculated using recognized finance-mathematical methods, and as long as the shares to be issued correspond, together with any other shares issued or placed under exclusion of the shareholders’ subscription rights pursuant to § 186 (3) sentence 4 of the german stock corporation Act, to a proportionate amount of the share capital of no more than 10 % in the aggregate. shares that may be issued out of the conditional capital 2010 upon conversion of the notes will not exceed this threshold. the issue price for the notes was 100 % of the principal amount and equal to the theoretical value of the notes – taking into consideration the Allianz stock price at the time of the issuance, the conversion period, the volatility of the stock price as well as the then-current interest rates and Allianz credit spreads – as determined using recognized finance-mathematical methods. Within 10 years after the issuance a mandatory conversion of the notes into Allianz shares at the then prevailing share price may apply at the occurrence of certain events. however, a floor price of at least € 75.39 per share is foreseen. Within the same period, the investors have the right to convert the notes into Allianz shares at a price of € 188.47 per share. Both conversion prices are subject to anti-dilution provisions. in order to secure delivery of shares upon conversion an initial tranche of up to 8,000,000 shares – corresponding to 1.76 % of the share capital as of December 31, 2011 – has been pre-admitted to trading.
in november 2011, 800,000 new shares were issued for cash out of the Authorized capital 2010/ii at a price of € 65.21 per share, enabling Allianz employees to purchase 651,613 shares at prices ranging from € 45.65 to € 54.34 per share. the Authorized capital 2010/ii was created to enable Allianz se to issue new shares for such employee offerings. to be able to offer the new shares to employees, the shareholders’ subscription rights to these new shares also had to be excluded as provided in the authorization granted by the general meeting on may 5, 2010. the issue price of € 65.21 per share corresponds to the xetra closing price of the Allianz shares on september 7, 2011 and is also the reference price on which the discounted offering prices were determined.
Average interest rate 2 € mn € mn € mn % € mn € mn € mn %
Funding in other currencies than the euro enables us to diversify our investor base or to take advantage of favorable funding costs. Funds raised in non-euro currencies are incorporated in our general hedging strategy. As of December 31, 2011, approximately 9.5 % (2010: 13.3 %) of long-term debt was issued or guaranteed by Allianz se in currencies other than the euro.
As of December 31, 2011 2010 euro nominal value non-euro nominal value total nominal value euro nominal value non-euro nominal value total nominal value € mn € mn € mn € mn € mn € mn
Average interest rate the group maintained its A-1+ / prime-1 ratings for short-term issues. thus we can continue funding our liquidity under the euro commercial paper programme at an average rate below euribor and under the usD commercial paper programme at an average rate below u.s.-libor.
Further potential sources of short-term funding allowing the Allianz group to fine tune its capital structure are bank credit lines and letter of credit facilities.
1 | this does not include, among others, the € 0.5 bn 30-year convertible subordinated note issued in July 2011. For further information on Allianz se debt (issued or guaranteed) as of December 31, 2011, please refer to notes 23 and 24 of our consolidated financial statements.
1 | Figures prior to 2010 have been restated to reflect a change in Allianz group’s accounting policy. For further information please refer to note 4 of our consolidated financial statements 2 | includes effect of exchange rate changes on cash and cash equivalents of € 111 mn, € 265 mn and € 21 mn in 2011, 2010 and 2009, respectively. 3 | refers to repayments of certificated liabilities, participation certificates and subordinated liabilities.
c a s h a N d c a s h e q u i v a l e N T s increased by € 1.7 bn to € 10.5 bn as of December 31, 2011, mainly stemming from our u.s. operations.
c A s h A n D c A s h e q u i V A l e n t s 1
Balances with banks payable on demand 7,498 5,813 Balances with central banks 389 279 cash on hand 263 169 treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks 1 2,342 2,486 Total cash and cash equivalents 10,492 8,747 1 | includes reclassificiation of € 2,050 mn from loans and advances to banks and customers at our u.s. subsidiaries in 2010.
M a n a G e M e n t D i s c u s s i o n a n D a n a l y s i s iii. Reconciliations the previous analysis is based on our consolidated financial statements and should be read in conjunction with them. in addition to our stated figures according to the international Financial Reporting standards (iFRs), the allianz Group uses operating profit and internal growth to enhance the understanding of our results. these additional measures should be viewed as complementary to, and not a substitute for, our figures determined according to iFRs.
For further information, please refer to note 6 of the consolidated financial statements.
c o M P o s i t i o n o F t o t a l R e v e n u e s € mn € mn € mn
Asset Management consisting of: net fee and commission income 5,470 4,927 3,590 net interest income 22 21 30 income from financial assets and liabilities carried at fair value through income (net) (11) 19 40
Fee and commission expenses (221) (210) (200) consolidation effects (Banking within corporate and other) — 1 (2)
R e c o n c i l i a t i o n o F n o M i n a l t o t a l R e v e n u e G R o W t H t o i n t e R n a l t o t a l R e v e n u e G R o W t H
◾ the allianz Group is well capitalized and its solvency ratio is resilient.
M a R k e t a n D B u s i n e s s c o n t e x t
◼ e u R o p e a n s o v e R e i G n D e B t c R i s i s
such adverse scenarios might include, for example, a disorderly restructuring of Greek government bonds and an inability to contain the effects, possibly leading to contagion. if this or another adverse event were to materialize, one might anticipate higher levels of financial market volatility, especially in the equity and foreign exchange markets, lower interest rates due to monetary policy response, increased challenges in the banking sector, bond impairments and increased bond spreads due to a flight to quality and other difficult to predict spill-over effects. in addition, the real economy in the eurozone and beyond would also be likely to be affected including potential social unrest.
there is currently no consensus in the political and economic debate on the probabilities associated with such scenarios, being the subject of much controversy and personal conjecture. as one of the largest insurers operating in europe, we have to be prepared for different scenarios. the table below shows our direct exposure, using different metrics, to some of the potentially affected markets.
a l l i a n z e x p o s u R e t o s e l e c t e D e u R o p e a n M a R k e t s
Recognizing the potential risks, we have taken several steps to mitigate the possible impact. these steps include the creation of a task force charged with monitoring and analyzing the situation and recommending concrete contingency plans under different scenarios. in addition, we have also selectively reduced our exposure to potentially affected sovereign borrowers. our remaining exposure is concentrated within domestic balance sheets. similarly, we have also reduced limits for potentially affected corporate bond issuers and deposit banks. Finally, we are continuously monitoring our new business pricing in potentially affected countries.
For the benefit of shareholders and policyholders alike, our aim is to ensure that the allianz Group is adequately capitalized at all times and that all operating entities meet their respective capital requirements. Furthermore, risk capital and cost of capital are important aspects for making business decisions.
our internal risk capital model plays a significant role in the management of internal capital. in addition, we consider external requirements of regulators and rating agencies. While capital requirements imposed by regulators constitute a binding constraint, meeting rating agencies’ capital requirements and maintaining strong credit ratings are strategic business objectives of the allianz Group. those minimum capital rules are imposed at the level of both the allianz Group’s operating entities and the Group as a whole.
c o n G l o M e R a t e s o l v e n c y 2 | in € bn 12/31/2010 12/31/2011
Requirement eligible capital increased mainly due to issuance of new subordinated bonds. Due to an increase in aggregate policy reserves in the l i f e / H e a l t H segment our solvency requirement is higher as well.
1 | For detailed information regarding liquidity management, please refer to other Risks – liquidity risks. 2 | off-balance sheet reserves are accepted by the authorities as eligible capital only upon request. allianz se has not submitted an application so far. excluding off-balance sheet reserves, the solvency ratio liquidity and Funding Resources
counterparty credit rating aa negative outlook (outlook changed Jan 27, 2012)
not rated aa – under review with negative implications (changed Dec 14, 2011)
subordinated debt rating a+/a 2 negative outlook (outlook changed Jan 27, 2012)
not rated 1 | includes ratings for securities issued by allianz Finance ii B.v. and allianz Finance corporation. 2 | Final ratings vary on the basis of the terms.
an ag em en t R ep or t i n t e R n a l c a p i ta l a D e q u a c y the allianz Group’s available capital is based on the Group shareholders’ equity as adjusted to reflect the full economic capital base available to absorb any unexpected economic losses.1 For example, hybrid capital and the present value of future profits of in-force business in the l i f e / H e a l t H segment are added to shareholders’ equity, whereas goodwill and other intangible assets are subtracted.
our objective is to maintain available capital at the Group level in excess of the minimum requirements that are determined by our internal risk capital model according to a 99.97 % confidence interval over a holding period of one year. as we take into account the benefits of single operating entities being part of a larger, diversified Group we allow them to be capitalized at a lower confidence level of 99.93 % over the same one-year holding period. these confidence levels are more conservative than the anticipated confidence level of 99.5 % to be used under solvency ii.
a v a i l a B l e c a p i t a l a n D i n t e R n a l R i s k c a p i t a l | in € bn 12/31/2010 12/31/2011
as of December 31, 2011, the Group-diversified internal risk capital before non-controlling interests of € 34.5 bn reflects a benefit of approximately 30.8 % due to the diversification effect across risk categories and regions. pre-diversified and Group-diversified internal risk capital are broken down as follows: 1 | available capital is calculated under consideration of liquidity premium and yield curve extension for life/Health segment only according to the fifth quantitative impact study (qis5) standards by european insurance and occupational pensions authority (eiopa).
B y R i s k c a t e G o R y B y B u s i n e s s s e G M e n t
◼ p R e - D i v e R s i F i e D B e F o R e t a x
an ag em en t R ep or t internal Risk assessment i n t e R n a l R i s k c a p i ta l F R a M e W o R k
◼ G e n e R a l a p p R o a c H
the implementation of this framework incorporates our internal approach of managing risks while reflecting our current interpretation of the evolving solvency ii standards. the model framework is being assessed by european regulators in the course of the internal model pre-application process. it will be adjusted in accordance with the final regulatory solvency ii rules.