Content To Our Investors 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 20 Services for Allianz Investors
Your Allianz 58 Worlwide Presence and Business Divisions 59 Our Business 60 Our Strategy 61 Allianz Brand 62 Customer Focus 63 Our Employees 64 Sustainable Development
Management Discussion and Analysis 65 Business Environment 68 Executive Summary of 2010 Results 75 Property-Casualty Insurance Operations 84 Life/Health Insurance Operations 90 Asset Management 94 Corporate and Other 105 Balance Sheet Review 112 Liquidity and Funding Resources 117 Reconciliations
6 Proposal. 7 Based on average shareholders‘ equity. Average shareholders‘ equity has been calculated based upon the average of the current and the preceding year’s shareholders’ equity as of December 31. 8 Based on net income from continuing operations after non-controlling interests.
Robust performance in a difficult environment: – Gross premiums written grew by 3.2 % to
– Operating profit increased by 5.9 % to € 4.3 billion.
Gross premiums written by regions/countries as of December 31, 2010 (December 31, 2009) 1, 2 in %
Statutory premiums by regions/countries as of December 31, 2010 (December 31, 2009) 1 in %
France in 2010. Mondial’s share of gross premiums written accounted for 3.5 % in 2010 (2009: 3.2 %). 2009 figures have been retrospectively adjusted. 4 Based on the origination of assets. 5 Consists of third-party assets managed by other Allianz Group companies (approximately € 19 bn as of December 31, 2010 and € 24 bn as of December 31, 2009, respectively).
This demonstrates that our business model, which is based on sustainability, risk diversification and long-term focus, proved its value during the crisis and enabled profitable growth.
– In spite of low interest rates, life insurance sales exceeded our expectations. The very competitive return on our products led to a strong surge in sales as our customers know that even if interest rates continue to remain low, we can still be relied on to meet our commitments – because of the strength of our balance sheet. Incidentally, the margin from our life insurance business, which you as an investor will benefit from, has further improved compared to previous years.
– That’s why we strictly adhere to our risk and profit-oriented underwriting and investment policy. We do not accept technical losses. We invested conservatively in safe investments with attractive returns and investments that, from a reporting standpoint, react less sensitively to price trends in the capital markets. This was just one of the factors that enabled us, throughout the recent banking and global economic crisis, to be among the few global insurers to maintain a Standard and Poor’s AA rating (with stable outlook), one of the best ratings in the international insurance industry.
– That’s why we are continually improving our productivity and our distribution system. We are eliminating complexity – the enemy of efficiency and growth – and set up a management company to simplify, standardize and implement IT, services and operating processes worldwide. In the future, this will lead to economies of scale and will ensure that all the subsidiaries have the most appropriate technology.
Digitalization is rapidly altering our societies. New forms of mass media are sprouting up. It took 40 years for the number of radio users in the U.S. to reach 50 million. With television, it took 13 years; and with the Internet, just five years. Now it’s the turn of Web 2.0, the interactive services. The biggest provider reached 50 million users around the world in 3.5 years. As I write this letter, there are probably more than 600 million. Many people are completely captivated by the new communication options. Worldwide, there are now more people with an account on a social media platform than with an e-mail service provider. It is estimated that 40 % of the world’s population will be online by 2019.
The ongoing aging of society will continue to present us with excellent business opportunities. We aim to strongly expand our retirement, assistance and asset management businesses and will focus in particular on investments in the pension segment. This growth area offers us the opportunity to exploit our risk model as well as our renowned asset management and life insurance expertise even more profitably.
I am optimistic that the real economy, worldwide, is going to stabilize in 2011, not least on account of strong demand from a customer base that once again has greater confidence. However there will also still be significant uncertainties, e.g. volatile financial markets, high levels of public debt, inflationary worries. But whether you, as an investor, have an optimistic view of the future or not – one thing is certain: your Allianz is in a stronger position than ever. This year, Allianz will again be able to provide its customers with a cushion against the impact of unforeseen events and we should manage to achieve stable returns that are able to withstand normal market difficulties. I expect this year’s results to be as good as those we reported in 2010, even if for the time being the recovery in the insurance market appears somewhat tentative.
During the fiscal year 2010, 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 as regards the conduct of business. We were directly involved in all major decisions re­ garding the company.
With a view to our monitoring and advisory activities, the Board of Management informed us on a regular basis in a timely and comprehensive manner, both verbally and in writing, on the course of the business as well as the financial and economic development of the Allianz Group and Allianz SE. Further key areas of reporting were essential strategic considerations, compliance issues, the effect of the financial crisis and the high levels of debt in some E.U. countries, remu­ neration structures within the Allianz Group against the background of new legal requirements and the implementation status of the Solvency II Directive. Based on the reports provided by the Board of Man­ agement, we discussed the development of the busi­ ness as well as decisions and procedures of impor­ tance to the company. We were involved in the Board of Management’s planning for the 2011 fiscal year and the medium term as well as in areas in which actual business development deviated from the plan.
We also conferred in detail on Supervisory Board re­ muneration, and concluded that a transition towards a fixed remuneration system should be proposed at the ordinary General Meeting in 2011.
The Supervisory Board held five meetings in fiscal year 2010. The regular meetings were held in March, May, September and December. In February 2010, the Supervisory Board convened an extraordinary meet­ ing on the achievement of targets for variable Board of Management remuneration and the Board of Man­ agement’s dividend proposal. The Chairpersons of the Supervisory Board and Board of Management held regular discussions about major developments and decisions.
7 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 20 Services for Allianz Investors
ur In ve st or s one of its committees (as described in detail in this report), such approval was granted. The Supervisory Board did not establish any additional approval requirements beyond those set out in the Statutes or the Rules of Procedure.
In every Supervisory Board meeting in the fiscal year 2010 (except the extraordinary meeting in February 2010), the Board of Management reported on rev­ enues and results in the Group as well as the financial situation and gave further details on the develop­ ments in each individual business division. We were also regularly informed about the status of major legal disputes.
Within our work on the Supervisory Board, we focused on the effect of the financial and capital market crisis as well as the high levels of debt in some E.U. coun­ tries, particularly Greece. We paid particular attention to the possible effects on the risk situation and on liquidity. We also conferred with the Board of Manage­ ment about valuation issues and the further course of action required in the wake of these market disrup­ tions. We discussed in detail the issue of diversity at the level of Board of Management and the Super­ visory Board, particularly due consideration of women, and were also provided by the Board of Management with information on the status and steps taken at management levels below the Board of Management.
On May 5, 2010, just before the General Meeting, we were briefed by the Board of Management on busi­ ness in the first quarter and on the current situation of the Allianz Group. In addition to receiving an update on the effect of the crisis in Greece and on ongoing investment projects, we used the meeting to prepare for the upcoming General Meeting.
8 Allianz Group Annual Report 2010 To Our Investors possible changes to the current structure of remu­ neration. Upon completion of the Executive Session, the Board of Management reported in detail on the business performance and financial condition of the Allianz Group and the development of the individual segments. As in the previous year, we paid special attention to the strategy of the Allianz Group. The Supervisory Board welcomed the decision by the Board of Management 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 employee shares.
In the Executive Session of the meeting on December 15, 2010, we firstly resolved on the service contract for Mr. Bauer. The Supervisory Board then examined the appropriateness of Board of Management remu­ neration using a vertical and horizontal comparison. The Supervisory Board followed the recommendation of the Personnel Committee to adjust the fixed remu­ neration of individual Board of Management mem­ bers and to set pension contributions and the risk element of premiums for 2011. Taking these adjust­ ments into account, we concluded that the Board of Management remuneration was appropriate. We also dealt with issues relating to the retirement of Board of Management members and the general conditions for the exercise of mandates and for advisory roles by retired Board of Management members. Delibera­ tions continued on a change to Supervisory Board remuneration and we decided to propose transition towards a fixed remuneration system to the General Meeting in 2011. On the basis of the preparations by the Nomination Committee and the Personnel Committee, we adopted objectives regarding the Supervisory Board’s composition, as well as key points governing the selection procedure for appointing Board of Management members. We then used the meeting for our regular review of the efficiency of the Supervisory Board. All the Supervisory Board mem­ bers had previously received a written survey on im­ portant aspects of the Supervisory Board’s work. We discussed the key findings of the survey and the resulting recommendations for improvements. Lastly, the resignation of Mr. Grimm from the Supervisory Board of Allianz SE as of year­end 2010 necessitated by­elections in the committees. In the Standing Com­ mittee, Mr. Kossubek was elected on the proposal of the employee representatives. Mr. Franz Heiß, who had been proposed by the group works council as the successor to Mr. Grimm in the Supervisory Board of Allianz SE, was elected to the Risk Committee. Upon completion of the Executive Session, the Board of Management reported on the business performance and condition of the Allianz Group as well as on the legal requirements to be met by remuneration systems in the insurance sector and on remuneration struc­ tures within the Allianz Group. We then discussed planning for the fiscal year 2011 as well as medium­ term planning. In this context, the Super visory Board also adopted the targets for the variable remuneration of members of the Board of Management for 2011. Lastly, we issued the Declaration of Compliance with the German Corporate Governance Code.
The Personnel Committee met seven times. The meetings dealt with staffing matters as well as the structure and amount of Board of Management re­ muneration. The Personnel Committee prepared the review of the Board of Management’s remuneration system, including the main elements of the contract and setting the targets for variable remuneration. The committee also reviewed the achievement of targets by members of the Board of Management for the 2009 annual bonus, share­based remuneration and the mid­term bonus for the years 2007 to 2009. In several meetings, the committee discussed in detail the structure and level of Supervisory Board remu­ neration and finally submitted to the Supervisory Board plenary session its recommendation for transi­ tion towards a fixed remuneration system. The com­ mittee also dealt with implementing the recommen­ dation of the German Corporate Governance Code on diversity at Board level and prepared a proposal on key points governing the selection procedure for appointing Board of Management members.
Audit Committee Dr. Wulf H. Bernotat (Chairman) Igor Landau Dr. Henning SchulteNoelle Jean-Jacques Cette Jörg Reinbrecht
Nomination Committee Dr. Henning SchulteNoelle (Chairman) Dr. Gerhard Cromme Prof. Dr. Renate Köcher
Risk Committee Dr. Henning SchulteNoelle (Chairman) Prof. Dr. Renate Köcher Peter Denis Sutherland Godfrey Robert Hayward Franz Heiß (since January 1, 2011) Peter Kossubek (until December 31, 2010)
The Nomination Committee met once during the fiscal year. In September 2010, the committee dis­ cussed specifying objectives regarding the Supervi­ sory Board’s composition. These objectives were then resolved on using the circulation procedure and in December they were put forward to the Supervisory Board plenary session for adoption.
The Supervisory Board received regular comprehen­ sive reports on the activities of the committees.
The financial statements and the KPMG auditor’s report for the fiscal year 2010 were made available to all members of the Supervisory Board in a timely manner. The financial statements and the results of the KPMG audit were discussed on a provisional basis by the Audit Committee at their meeting held on February 23, 2011. Following the meeting, all Super­ visory Board members had the opportunity to partici­ pate by telephone in a discussion on the dividend proposal of the Board of Management. The final fi­ nancial statements and KPMG auditor’s reports were examined on March 16, 2011 by the Audit Committee and in the Supervisory Board plenary session. The auditors took part in these discussions. They gave an account of the main findings of the audit and were available for any questions or further information.
On the basis of our own review of the annual and consolidated financial statements, the management report and the Group Management Report and the recommendation for appropriation of earnings, we raised no objections and agreed with the findings of the KPMG audit. We approved the annual and con­ solidated financial statements drawn up by the Board of Management. The company financial statements are therefore adopted. We concur with the proposal of the Board of Management as to the appropriation of earnings.
Mr. Sutherland was appointed to the Supervisory Board initially by the court, effective as of January 1, 2010, as successor to Dr. Humer, who resigned from the Supervisory Board with effect from December 31, 2009. On May 5, 2010 the General Meeting elected Mr. Sutherland to the Supervisory Board.
Dr. Rupprecht retired effective as of December 31, 2010 and stepped down from the Board of Manage­ ment of Allianz SE. The Supervisory Board expressed its gratitude to Dr. Rupprecht for his successful work. Through his involvement with the Allianz Group for more than 30 years, Dr. Rupprecht has played a major role in shaping today’s Allianz. Dr. Zedelius will assume the responsibilities previously held by Dr. Rupprecht effective as of January 1, 2011, which include the insurance business in Germany, Switzerland and Aus­ tria as well as the employment and social welfare section.
The Supervisory Board would like to thank all Allianz Group employees for their great personal efforts over the past year.
Board of Management Michael Diekmann Chairman of the Board of Management
Dr. Gerhard Rupprecht until December 31, 2010 Insurance German Speaking Countries Director responsible for Work and Social Welfare
Dr. Werner Zedelius Insurance Growth Markets until December 31, 2010 Insurance German Speaking Countries Director responsible for Work and Social Welfare since January 1, 2011
1 Michael E. LaRocco, Fireman’s Fund Insurance Company, Novato 2 Wolfram Littich, Allianz Elementar, Vienna 3 Paul Achleitner, Allianz SE, Munich 4 Axel Theis, Allianz Global Corporate & Specialty, Munich 5 Severin Moser, Allianz Deutschland AG/ Allianz Versicherungs-AG
6 Christof Mascher, Allianz SE, Munich 7 Enrico Cucchiani, Allianz SE, Munich
8 Clemens von Weichs, Allianz Re, Munich 9 Manuel Bauer, Allianz Central and Eastern Europe,
Middle East and North Africa (CEEMA) 10 Karl-Hermann Lowe, Allianz Investment Management SE
11 Bruce Bowers, Allianz Asia Pacific 12 Oliver Bäte, Allianz SE, Munich 13 Joachim Faber, Allianz SE, Munich 14 Andrew Torrance, Allianz Insurance PLC
16 Clement B. Booth, Allianz SE, Munich 17 Jacques Richier, Allianz France, Paris 18 Manfred Knof, Allianz Suisse, Zurich 19 Michael Diekmann, Allianz SE, Munich 20 Kamesh Goyal, Bajaj Allianz Life, Pune 21 Marna Whittington, Allianz Global Investors, Munich 22 Vicente Tardío Barutel, Allianz Companía de Seguros y Reaseguros, Barcelona
15 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 20 Services for Allianz Investors
Supervisory Board Dr. Henning Schulte-Noelle Chairman Former Chairman of the Board of Management, Allianz AG
Jean-Jacques Cette Secretary of the Group Works Council, Allianz France S.A.
Franz Heiß since January 1, 2011 Employee, Allianz Beratungs- und Vertriebs-AG
With news both of a worsening debt crisis and signs of an economic recovery, these two polarizing trends have led to uneven European stock market movements in 2010. While cyclical stocks reacted to signals of economic recovery with a significant upturn, many financial stocks suffered considerable price losses. Caught between these trends, the EURO STOXX 50 closed the year with a negative return of 5.8 %, while the DAX recorded an annual gain of 16.1 % due to the particularly large number of cyclical stocks in this index. These stocks experienced a robust upswing, as the demand for goods and services returned, particularly in Asia. Within the eurozone, only the Finnish stock market outperformed the DAX.
Allianz (excl. dividends) 2.0 (7.0) (12.9) Allianz (incl. dividends) 7.4 (3.6) (10.7)
Total number of issued shares as of 12/31 454,500,000 453,900,000 453,050,000 Weighted number of shares outstanding 451,280,092 450,845,024 450,161,145 Share price as of 12/31 € 88.93 87.15 75.00 High of the year € 95.43 88.36 145.92 Low of the year € 76.67 48.68 46.64 Share price performance in the year % 2.0 16.2 (49.3) Market capitalization as of 12/31 € bn 40.4 39.6 34.0 Average number of shares traded per day (Xetra) mn 2.5 3.0 4.9
Basic earnings per share € 11.20 9.33 (5.25) Price-earnings ratio 7.9 9.3 —
2 Proposal. 3 Based on net income from continuing operations after non-controlling interests. 4 Based on average shareholders‘ equity. Average shareholders‘ equity has been calculated based upon the average of the current and the preceding year’s shareholders’ equity.
At the end of 2010, the market capitalization of Allianz SE amounted to € 40.4 billion. This makes our company one of the most highly valued financial services providers in the world, with our strength reflected in the weighting of Allianz shares in the major German, European and world indices. When calculating the STOXX Europe 600 Insurance, which includes 33 insurance stocks, our shares have the greatest weight. We are also among the top companies in the MSCI World Financials index.
Around 4,500 shareholders and shareholder representatives attended our 2010 Annual General Meeting at the Munich Olympiahalle on May 5. More than 37 % of subscribed capital was voted. In 2010, for the first time, we offered our shareholders the opportunity to exercise their voting rights by absentee vote by mail or online and 4.5 % of the authorized capital used this voting mechanism. This became possible after the law implementing the E.U. Shareholders’ Rights Directive came into effect in September 2009.
Allianz came third in a cross-sector study conducted by the German Investor Relations Association (DIRK) on the IR work of DAX-30 companies.
– Please view our Annual Report online at www.allianz.com/annualreport. Make the most of the Internet’s advantages by downloading single chapters and tables (in pdf and excel format) and by accessing selected data in the report by means of search functions and links.
Online Services for the Annual General Meeting Our online services at www.allianz.com/agm are designed to make it easier for our shareholders to participate in and exercise their voting rights at the Annual General Meeting. Investors can register online for Annual General Meeting documents to be sent by e-mail. Admission tickets can be ordered and printed online. We also offer an online absentee voting system to shareholders not attending the Annual General Meeting in person.
Allianz SE, Investor Relations Koeniginstrasse 28, 80802 Munich Phone: +49 1802 2554269 ( Allianz Investor Line, Mo-Fr, 8 a.m.-8 p.m. CET 6 cents per call from a German landline network, max. 42 cents per minute from German mobile networks) Fax: +49 89 3800 3899 E-mail: investor.relations@ allianz.com Internet: www.allianz.com/investor-relations 1 The German Securities Trading Act (“Wertpapierhandelsgesetz”) obliges issuers to announce immediately any information which may have a substantial price impact, irrespective of the communicated schedules. Therefore we cannot exclude that we have to announce key figures of quarterly and fiscal year results ahead of the dates mentioned above.
In view of the great importance of good Corporate Governance, in September 2010, Allianz SE established the new position of Corporate Governance Officer to coordinate the fundamental Corporate Governance issues at Allianz SE and within the Allianz Group.
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), as well as the principle of equal employee representation on the Supervisory Board, have been maintained in Allianz SE. For further details on the differences between a German stock corporation and a European Company with registered office in Germany, please refer to our website www.allianz.com/allianz-se.
The Board of Management manages Allianz SE and the Allianz Group. It currently comprises ten members from different countries, reflecting the international character of Allianz. Its responsibilities include setting business objectives and strategic direction, coordinating and supervising the operating entities, as well as implementing and supervising an efficient risk management system.
– The Group Capital Committee submits proposals to the Board of Management concerning risk strategy and strategic asset allocation and risk capital allocation within the Group.
The Allianz Group steers its operating entities and business segments via an integrated management and control process. The Holding and the operating entities first define the business strategies and goals. On this basis, joint plans are then prepared to be considered by the Supervisory Board when setting the targets for performance-based remuneration of individual Board members (for details please see the Remuneration Report on pages 35 ff.).
The Board of Management reports regularly and comprehensively to the Supervisory Board on business development, the financial position and earnings, budgeting and achievement of objectives, compliance issues, and on the strategy and existing risk exposure. In line with the recommendation by the German Corporate Governance Code, the Supervisory Board has issued a reporting order which more closely defines the information and reporting requirements of the Board of Management.
Committees of the Board of Management As of December 31, 2010 (and subsequent changes)
Group Risk Committee Dr. Paul Achleitner Oliver Bäte Clement B. Booth Jay Ralph
In accordance with the Agreement Concerning the Participation of Employees in Allianz SE, the seats for the six employee representatives are arranged in proportion to the number of Allianz employees in the E.U. member states. 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.
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 the remuneration of the individual members of the Board of Management and reviewing Allianz SE’s and the Allianz Group’s annual financial statements. The Supervisory Board’s activities in fiscal year 2010 are described in the Supervisory Board Report.
Supervisory Board Committees Part of the Supervisory Board’s activities is delegated to the committees of the Supervisory Board. The composition of the committees and the tasks assigned to these committees are regulated in the Supervisory Board’s rules of procedure. The Supervisory Board receives regular reports on the activities of the committees.
The Audit Committee has five members. Three members are nominated by the shareholders and two members are nominated by the employee representatives on the Supervisory Board. The chairman of the committee is also elected by the Supervisory Board. The Audit Committee is responsible for an initial review of the Company’s and the Group’s annual financial statements, management report (including the risk report) and the dividend proposal. In addition, it reviews the quarterly reports. The Audit Committee oversees the financial reporting process and the effectiveness of the internal control system, the risk management system and the internal audit system and deals with issues of compliance. Finally, the Audit Committee is an important contact for the external auditors, whose independence and additional services it also monitors.
The Personnel Committee includes the Chairman of the Supervisory Board and two members, one nominated by the employee representatives and one nominated by the shareholder representatives. The Chairman of the Supervisory Board also serves as chairman of this committee. The Personnel Committee is responsible for personnel matters concerning members of the Board of Management as well as preparation for the Supervisory Board’s plenary session in this area. It prepares the appointment of members of the Board of Management as well as the decision of the plenary session on the remuneration system and the overall remuneration of the individual members of the Board of Management. In this regard, it also submits proposals for resolutions to the plenary session. The committee is involved in the long-term succession planning for the Board of Management.
The Risk Committee has five members. Three members are nominated by the shareholder representatives and two members are nominated by the employee representatives on the Supervisory Board. The chairman of the committee is also elected by the Supervisory Board. The Risk Committee monitors the
overall risk situation and the specific risk developments in the Allianz Group. This committee is also responsible for prior verification of any particular risk-related statements within the annual financial statements and management report, and for reporting to the Audit Committee on the results of this preliminary review. The Risk Committee also has rules of procedure, which govern the responsibilities of the committee and its activities on the basis of the rules of procedure of the Supervisory Board.
The aim of Allianz SE’s Supervisory Board is to have members who are equipped with the necessary skills and competence to properly supervise and advise Allianz SE’s management. Supervisory Board candidates should possess the professional expertise and experience, integrity, motivation and commitment, independence and personality required to successfully carry out the responsibilities of a Supervisory Board member in a financial-services institution with international operations. To promote additional cooperation among the Supervisory Board members, care should be taken in selecting the candidates to ensure that adequate attention is paid to ensuring diversity in occupational backgrounds, professional expertise and experience.
Employee representation within Allianz SE, as provided by the SE Agreement concerning the Participation of Employees dated September 20, 2006, contributes to diversity of work experience and cultural background. Pursuant to § 6 (2) sentence 2 of the Act on the Participation of Employees in a European Company (SEBG), the number of women and men appointed as German employee representatives should be proportional to the number of women and men working in the German companies. However, the Supervisory Board does not have the right to select the employee representatives.
– Knowledge of the main features of accounting and risk management 1
– Compliance with the limitation of the number of memberships as recommended by the German Corporate Governance Code and required by § 7(4) of the German Insurance Supervision Act (Versicherungsaufsichtsgesetz - VAG).
2. Independence: 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 1 Cf. BaFin Guidance Notice on the Monitoring of Members of Administrative and Supervisory Bodies pursuant to the German Banking Act and the German Insurance Supervision Act, dated February 22, 2010.
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. Retirement age: According to the Supervisory Board’s Rules of Procedure, its members may not, in general, be older than 70 years of age.
II. Requirements relating to the composition of the Board as a whole 1. Specialist knowledge: – 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. International character: 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.
3. Diversity and appropriate representation of women: The members of the Supervisory Board shall appoint new members taking into account their background, professional experience and specialist knowledge, in order to provide the Board with the most diverse sources of experience and specialist knowledge possible.
In the next elections of the Supervisory Board in the spring of 2012, the Supervisory Board will strive to achieve a minimum female membership of 25 %. The representation of women is generally considered to be the joint responsibility of the shareholder and the employee representatives.
Future nominations of candidates for membership by the Supervisory Board will take account of these goals. This is particularly the case in respect of the elections in spring of 2012. The current composition of the Supervisory Board and its committees is described on pages 15 and 9.
Shareholders exercise their rights at the Annual General Meeting. When adopting resolutions, each share carries one vote. In order to facilitate the exercise of shareholders’ rights, Allianz allows shareholders to follow the meeting’s proceedings on the Internet and to be represented by proxies appointed by Allianz SE. These proxies exercise voting rights exclusively on the basis of the instructions given by the shareholder. Shareholders are also able to cast their votes by postal vote. This option is also available via the Internet in the form of online voting. Allianz constantly promotes the use of e-mail and Internet services.
Corporate Governance Statement pursuant to § 289 a of the German Commercial Code (Handelsgesetzbuch)
On December, 15, 2010, the Board of Management and the Supervisory Board issued the following Declaration of Compliance of Allianz SE with the German Corporate Governance Code: Annual General Meeting takes place at which the Board of Management and the Supervisory Board give an account of the preceding financial year. For special decisions, the German Stock Corporation Act provides for the calling of an extraordinary General Meeting.
The Allianz Group conducts its accounting according to § 315 a of the German Commercial Code (Handelsgesetzbuch ), on the basis of IFRS international accounting standards, as applied within the European Union. The financial statements of Allianz SE are prepared in accordance with German law, in particular the German Commercial Code (HGB).
In compliance with special legal provisions applying to insurance companies, the auditor of the annual financial statements and of the half year 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 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 regularly and timely about the Company ’s situation. 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 half year financial and quarterly financial reports. These financial reports are subjected to a review by the auditor. Information is also made available at the Annual General Meeting, at press conferences and analysts’ conferences, as well as on the website of the Allianz Group. The Allianz website also carries a financial calendar listing the dates of major publications and events, such as annual reports, quarterly reports and Annual General Meetings.
Shares held by Members of the Board of Management and the Supervisory Board
Furthermore, we have complied with all of the nonbinding suggestions contained in the German Corporate Governance Code. In future, we will diverge from No. 5.4.6 para. 2 sentence 2 in respect of performancebased remuneration of the Supervisory Board.
The Declaration of Compliance and further information on corporate governance at Allianz can be found on our website at www.allianz.com/corporate-governance.
Compliance and anti-money laundering program The sustained success of the Allianz Group is based on the responsible behavior of all Group employees embodying trust, respect and integrity. In 2008, the Ethisphere Institute named Allianz one of the world’s most ethical companies.
By means of its compliance and anti-money laundering program, Allianz supports and follows internationally and nationally recognized guidelines and standards for rules-compliant and value-based corporate governance. These include the UN Global Compact Program, the OECD Guidelines for Multinational Enterprises, the relevant applicable embargo regulations and the recommendations of the Financial Action Task Force on Money Laundering (FATF). Allianz manages the risk of infringements against statutory provisions and requirements (compliance risk) through its recognition and support of these international and national principles. At the same time, it thereby integrates sustainability and social responsibility into its corporate conduct. Group Compliance is responsible, in close cooperation with the local compliance departments, for ensuring the effective implementation and monitoring of the compliance and anti-money laundering program within
Description of the functions of the Board of Management and the Supervisory Board and of the composition and functions of their committees A description of the composition of the Supervisory Board and its committees can be found on pages 15 and 9 of the Annual Report. On page 12, reference is made to the composition of the Board of Management and a description of the composition of the Board of Management’s committees can be found on page 23 of the Corporate Governance Report. Furthermore, a description of the composition can be accessed on the Internet via the following link: www.allianz.com/corporate-governance.
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 on pages 22 ff. and on the Internet via the following link: www.allianz.com/corporate-governance.
Allianz. Compliance will examine any suspected infringement of the guidelines mentioned above or of the internal compliance guidelines in cooperation with other departments where appropriate.
There are legal provisions against corruption and bribery in almost all countries in which Allianz has a presence. For this reason, a global Anti-Corruption Program was established in summer of 2009, which provides for the continuous monitoring and improvement of the internal anti-corruption controls.
As of December 31, 2010, the share capital of Allianz SE was € 1,163,520,000. It was divided into 454,500,000 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.
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-ofattorney 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.
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.
Amendments to the Statutes must be adopted by the General Meeting. § 13 (4) sentence 2 of the Statutes of Allianz SE stipulates that, unless this conflicts with mandatory law, changes to the Statutes require a majority of two thirds of the votes cast, or, if at least one half of the share capital is represented, a simple majority of the votes cast. The Statutes thereby make use of the option set out in § 51 sentence 1 SE Implementation Act (SE-Ausführungsgesetz) which is based upon Article 59 (1) and (2) SE Regulation. A larger majority is, inter alia, required for a change in the corporate object or the relocation of the registered office to another Member State (§ 51 sentence 2 SE Implementation Act). The Supervisory Board may alter the wording of the Statutes (§ 179 (1) sentence 2 German Stock Corporation Act and § 10 of the Statutes).
– up to a total of € 13,464,000 (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 be in relation 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 takeover 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.
Bilateral credit agreements in some cases provide for termination rights in case of a change of control, mostly defined as the acquisition of at least 30 % of the voting rights within the meaning of § 29 (2) German Takeover Act (Wertpapiererwerbs- und Übernahmegesetz, WpÜG). In cases where such termination rights are exercised, the respective credit lines would have to be replaced by new credit lines under conditions then applicable.
significantly reduced through no fault of the Board Member, he or she shall receive his or her contractual remuneration for the remaining term of the service contract in the form of a one-off payment. The oneoff payment is based on the fixed remuneration plus 50 % of the variable remuneration, however, this basis being limited to the amount paid for the last fiscal year. To the extent that the remaining term of the service contract is less than three years, the one-off payment is generally increased in line with a term of three years. This applies accordingly if, within two years of a change of control, a mandate in the Board of Management is coming to an end and is not extended; the one-off payment will then be granted for the period between the end of the mandate and the end of the three year period after the change of control.
For further details please refer to the Remuneration Report on pages 35 to 55.
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. In providing for the non-application of the blocking period in the event of a change of control, account is taken of the fact that the conditions under which the share price moves are very different when there is a change in control.
Remuneration Report This report comprises three sections covering the remuneration arrangements for the following executive categories: – Board of Management – Executives below the Board of Management – Supervisory Board
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 required disclosures of the German Ministry of Finance’s Insurance Remuneration Regulation (VersicherungsVergütungsverordnung – VersVergV) that was effective from October 13, 2010.
Board of Management – Introduction of the new remuneration system – Base salaries remain unchanged – Annual bonuses for 2010 reflect above target performance – Total remuneration table on page 43 – Voluntary vote on remuneration at Annual General Meeting
Executives below the Board of Management – Introduction of the common remuneration structure in insurance companies – Improvements to reward governance and the management of risk – Proportion for key executives: 40 % fixed/60 % target variable remuneration on page 51
Supervisory Board – Fixed remuneration and attendance fees remain unchanged – Variable remuneration reflects strong group performance – Total remuneration table on page 54 – Change to 100 % fixed remuneration presented for implementation from 2011 onwards
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. Survey data was most recently provided by two external consultants with significant market expertise. The Personnel Committee and Supervisory Board consult with the Chairman of the Board of Management as appropriate in assessing the performance and remuneration of Management Board Members. The Chairman is not present when his own remuneration is discussed.
The Personnel Committee and the Supervisory Board met multiple times in 2010 and considered the Board of Management remuneration and contractual issues shown in the table below: Month Activity / Decision
March – Renewal of contracts: Clement Booth, Enrico Cucchiani, Dr. Joachim Faber – Confirmation of equity incentive grant 2010
– Variable remuneration bias to the longer term: a high proportion of incentive-based reward recognizes sustained performance over three or five years.
– Integration and balance: incentives complement each other and represent an appropriate balance of opportunity and managed risk that is effective over varying performance scenarios and is consistent with good governance.
Market positioning of the Board of Management remuneration: The structure, weightings and levels of remuneration components are discussed by the Supervisory Board with a view to attract, motivate and retain top talent. The peer group consists primarily of other DAX 30 companies. Other major diversified insurance/financial services companies in Europe are also points of reference. Allianz’s size (e. g. market value) and global scale is top quartile, but not top end of the market.
– Base salary levels are usually around the median of this group.
Purpose Recognize the responsibilities of the role and sustained performance in execution.
Operation Base salary is expressed as an annual cash sum, paid in twelve monthly installments. Currently, separate rates apply for the Chairman, the Board Member responsible for Finance and for all other regular Board Members. Most Board Members have similar base 1 All percentages shown reflect approximate values.
2. Three-year bonus (mid-term): a performancerelated cash payment which rewards multi-year (three years) achievement of targets.
As stated in the Key Principles, pay is closely aligned with the achievement of the Allianz Group’s strategic goals.
Performance link Annual performance drives the value of the Annual bonus and also influences the opportunity of the mid- and long-term components. However, the values delivered under the three-year and equity components ultimately depend on sustained performance over longer periods.
Operation All variable remuneration components are subject to a uniform cap of 165 % of the respective target values. The Supervisory Board therefore determines the level of award within a range of 0 to 165 % of target value. Additionally, the RSU payout is capped at 200 % above the grant price.
The remaining components of Management Board remuneration comprise pensions and similar benefits and perquisites. These are described below.
Purpose Provide competitive and cost effective retirement and disability benefits using risk appropriate vehicles.
Perquisites Members of the Board of Management also receive certain perquisites. These mainly consist of contributions to accident and liability insurances, the provision of a company car and in some cases security measures. Each member of the Board of Management is responsible for income tax on these perquisites. Where applicable, there is a travel allowance for Board Members who do not reside in Germany. Perquisites are not linked to performance. The Supervisory Board reviews the level of perquisites at regular intervals.
Maximum variable remuneration payout of 165 % would lead to an approximately 49 % increase of total target remuneration while a 0 % payout would reduce the total target remuneration by 75 %. 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.
Portfolio development Group level – 2010 - 2012 average growth – 2012 return on capital
– Actual growth versus expectations – Profitability development – Comparison with peers – Extraordinary events – Capital situation against internal risk capital model – Additional sustainability criteria (e. g. customer/employee satisfaction)
Each year, the Supervisory Board agrees on performance targets for the variable remuneration with the members of the Board of Management. These are documented in a “target letter” which sets out the quantitative and qualitative targets 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.
As the final assessment is not formulaic, the Supervisory Board then additionally considers qualitative factors as part of a sustainability assessment, and as a consequence 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.
Equity-related remuneration is granted after the end of the financial year with plan participants’ annual bonus performance 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 stock at that time. In this way the ultimate value is driven by Allianz SE stock performance, providing alignment with the shareholder. To avoid extreme payouts, the RSU payout is capped at 200 % above the grant price. Shares are forfeited where executives leave at their own request (or are terminated for cause) thus supporting retention.
Base salary: After reviewing appropriate data the Supervisory Board decided to maintain salaries for 2010 at their existing levels. Upon appointment to the Board of Management of the Allianz SE as of January 2010, the base salary for Mr. Ralph was set at € 700 thousand.
Annual bonus: The target achievement for the Group, the Business Division/Corporate Functions and the qualitative performance was on average assessed at 131 % and ranged between 120 % and 147 %. Consequently, total Annual bonus awards ranged between 120 % and 147 % of target with an average bonus award of 131 % of target bonus. This represents 79 % of maximum payout.
Details of equity grants and of total holdings under our equity incentive programs can be found on page 44.
Perquisites: For 2010 the total value of the perquisites amounted to € 0.5 million (2009: € 0.6 million). The individual value of perquisites received in 2010 is shown in the overall remuneration chart below.
Board of Management Defined Benefit Pension Plan (frozen) 1 Current Pension Plan
SC 5 DBO 6 SC 5 DBO 6 SC 5 DBO 6 SC 5 DBO 6 SC 5 DBO 6 € thou € thou € thou € thou € thou € thou € thou € thou € thou € thou € thou
1 For Mr. 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.
3 For details on the transition payment see section “Termination of Service” on page 45. 4 Expected annual pension payment at assumed retirement age. 5 SC = Service Cost.
6 DBO = Defined Benefit Obligation; end of year. 7 For Mr. Cucchiani the German pension plans are only based on a portion of his fixed salary (€ 460 thou) and on an assumed retirement age of 62. The Italian plans are based on the remaining portion of his salary. In Italy he has in addition to the obligatory state pension system INPS (Istituto Nazionale della Previdenzia Sociale) the TFR and the Company Pension Fund as follows: TFR is a lump sum accrued each year and paid out when the person leaves (at any age). As Mr. Cucchiani changed employer in Italy the amount of € 18 thou for the TFR was paid out in 2010. From now on the TFR will accrue in the Pension Fund and no further TFR payment will occur. All Italian schemes are contributionbased systems with the contribution given in the table.
8 For the Italian pension a retirement age of 65 is assumed. 9 The expected accrual for the lump sum payment at retirement assuming Mr. Cucchiani will work until 2015 (retirement age 65). 10 Direct contribution to the Company Pension Fund € 5 thou and from TFR € 25 thou.
2 Differences tend to reflect travel allowances for non-German resident Board Members. 3 Actual bonus paid in 2011 for fiscal year 2010 and in 2010 for fiscal year 2009.
4 For accrual purposes the 2010 value for the Mid-term bonus 2010 to 2012 equals the Annual bonus payout for 2010. Since the performance assessment and the final payout occur after completion of the performance cycle this value is only a notional indication. 5 In the Annual Report 2009 the disclosure of the fair value of SAR / RSU was based on a best estimate. The figures shown here for 2009 now include the actual fair value as of the grant date (March 11, 2010). These values therefore differ from those disclosed last year.
6 The total remuneration and the percentage change between 2009 and 2010 reflects the remuneration of the full Board of Management in the respective year. The following members of the Board of Management departed during 2009: Dr. Helmut Perlet, Jean-Philippe Thierry, Dr. Herbert Walter.
Total remuneration: The following table shows the individual remuneration for 2009 and 2010 including fixed and variable remuneration. It also shows the pension service cost and further total. Of note, the table also shows the changed mix of variable remuneration resulting from the new remuneration system introduced in January 2010. This leads to a shift within the remuneration components in comparison to the previous year.
3 The relevant share price to determine the final number of RSU granted is only available after the sign-off by KPMG, thus numbers are based on a best estimate.
In 2010, remuneration and other benefits totaling € 7 million (2009: € 4 million) were paid to retired members of the Board of Management and dependents. Reserves for current pensions and accrued pension rights totaled € 58 million (2009: € 52 million).
Severance payments made to Board Members in case of an early termination comply with the German Corporate Governance Code. The standard Management Board service contract specifies that payments for early termination shall not exceed (i) the compensation for the remaining term of the contract, (ii) two years’ compensation, whereby the yearly compensation is calculated on the basis of the previous year annual base salary plus 50 % of target variable remuneration and may in no event exceed last year’s actual total compensation (severance payment cap).
In case of an early termination as a result of a change of control, severance payments made to Board Members shall not exceed 150 % of the severance payment cap. Service contracts do not contain any special rules for other cases of early termination of appointment to the Board of Management.
These principles stand on a solid foundation provided by corporate risk management policies and practices, the Allianz Leadership Values and the Code of Conduct.
Compensation Committees’ responsibilities below the GCC are similar with regards to compensation systems and oversight for their respective/relevant executives.
A group-wide framework governs Compensation Committee operations and ensures consistent application and adherence to both Allianz minimum standards and regulatory requirements. In compliance with the latest relevant regulations, it covers: – Important requirements regarding the constitution of Compensation Committees
The membership of the GCC reflects the nature of the principal Allianz businesses and the breadth and depth of expertise required for Group oversight/control. 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.
Local Compensation Committees are typically comprised of Regional Chief Executive Officers, Business Division Heads, Chief Financial Officers or Chief Operating Officers and the Head of Human Resources, who may act as adviser. A representative of the legal and/or compliance function shall be included as a voting member from 2011.
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 allows for continuous improvement in sustainable performance management and exemplary governance principles.
Positions which might have a material impact on the company’s overall risk profile were identified via a comprehensive, qualitative approach involving experts from various Group Centers, business representatives as well as advice from qualified external remuneration experts.
Broadly the analysis included: – A detailed review of the performance measures and associated weightings used in annual bonus plans as specifically set down in executives’ target letters.
– An evaluation of pay for performance links to Allianz strategy and appropriateness in relation to existing and draft regulations applicable to insurers in Germany.
The results of these analyses were incorporated in the internal Compensation Report to the Board of Management. Following due consideration, the Board of Management provided the Supervisory Board with a summary of the analyses, recommendations for improvements in the remuneration and governance
Co rp or at e Go ve rn an ce systems, and an overall assurance of compliance with the relevant regulations.
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.
– Align pay with both the performance of individuals and the achievement of Allianz Group’s financial and strategic goals consistent with shareholder interests.
– 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.
– Significant proportions of the offer are deferred providing additional time to confirm the sustainability of short-term performance results.
– Variable pay performance measures such as operating profit and net income are set based on risk adjusted margin. They are not purely revenue targets. Minimum capitalization requirements are supported through use of the internal risk capital model in setting targets. Mid-term targets measure return on risk-based capital.
The primary model is that of the Allianz insurance business. The model provides for a balance of fixed and variable remuneration components with a bias to the longer-term realization of results in determining the final value of total remuneration. 2010 was the first year of the new Allianz Sustained Performance Plan that covers most executives in insurance business.
For the majority of operations the following components set the remuneration structure for senior executives, 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 equityrelated remuneration
Base salary Purpose Recognizes the market value of the role and the sustained performance in execution. The proportion of the fixed component within total remuneration is designed to balance performance incentives so as to avoid excessive risk-taking.
Additionally, depending on the specific country or operating entity, Allianz operates a number of pension and flexible benefit plan solutions, in particular deferred compensation schemes which may provide participants with other opportunities or choices to accumulate retirement income.
For further information regarding the global Employee Stock Purchase Plan and the remuneration of our employees please refer to www.allianz.com/annualreport.
For senior executives who may assume positions of high risk in the sense of the VersVergV, we disclose aggregate details of the 2010 target remuneration. The number of those functions across the Group identified for the 2010 analysis was 161, as outlined above.
For further information on our employees’ remuneration please refer to www.allianz.com/ annualreport www.allianz.com/annualreport
Cash: 66 1 Figures excluding pensions and perquisites; including Members of the Board of Management of Allianz SE.
2 Analysis in 2009 Annual Report based on significantly different population due to previous regulatory interpretation.
Those who do not have sufficient proportions of deferred remuneration, and/or sufficient deferred remuneration subject to reduction based on subsequent performance review, will participate in an RSU based equity award with terms in accordance with the latest regulations applying to German Insurance Undertakings.
Remuneration of the Supervisory Board This Supervisory Board section describes the following topics: – Governance system – Remuneration principles – Remuneration structure and components – 2010 Remuneration – Outlook for 2011
The remuneration of the Supervisory Board is governed by the Statutes of Allianz SE and the German Stock Corporation Act.
The key principles of the 2010 Supervisory Board remuneration are: – Total remuneration is set at an appropriate level based on the scale and scope of the Supervisory Board Members’ duties and responsibilities as well as the Company’s activities, business and financial situation.
– An appropriate balance is maintained between fixed remuneration and short- and long-term performance -based components.
– Fixed remuneration: a set cash amount paid annually to a Supervisory Board Member for service.
– Short-term variable remuneration: focuses on annual performance. Performance is measured by the growth of consolidated earnings-per-share (EPS) compared to the previous fiscal year. 2 Zero payout occurs if no growth (0 %) is achieved, and a maximum payout occurs if 16 % EPS growth is achieved.
The Chairperson of the Supervisory Board receives double, and the Deputy Chairperson receives oneand -a-half times the basic remuneration of a regular member of the Supervisory Board.
1 I. e. the remuneration without taking into account additional remuneration for the Chairman, Deputy Chairman and/or Committee Chairpersons or members.
2 € 150 for each tenth percentage point by which the Group’s earnings-per-share increased in comparison to the previous year.
The table below illustrates the range of potential basic remuneration where zero and maximum variable payout is achieved for different Supervisory Board Member positions.
Range of total basic remuneration 100 – 196 75 – 147 50 – 98
Committee-related remuneration The Chairpersons and members of Supervisory Board committees receive additional committee-related remuneration. For the majority of committees, the committee-related fees are based on a percentage of the basic remuneration received by a regular member in the calendar year and reflect the performance outcome in the variable remuneration component.
The committee-related fees are determined as follows: Roles and committee membership
Chairpersons of the Personnel Committee, Standing Committee and Risk Committee 50 % of the basic remuneration max.: € thou 49
Members of the Personnel Committee, Standing Committee and Risk Committee 25 % of the basic remuneration max.: € thou 24.5
Members of the Audit Committee € thou 30 Members of the Nomination Committee € 0
Caps There is a cap on the total remuneration (basic remuneration and committee-related remuneration, excluding attendance fees) of each member of the Supervisory Board. The maximum for the Chairman of the Supervisory Board is 300 % of the basic remuneration of a regular member, i. e. € 294 thousand, and for the other members of the Supervisory Board the maximum is 200 % of the basic remuneration, i. e. € 196 thousand.
The relevant performance measure determing the Supervisory Board’s variable remuneration is growth in the Group’s earnings-per-share (EPS). EPS for 2010 amounted to € 11.20. The Group’s earnings-per-share growth in 2010 compared to 2009 and 2007 were 20.04 % and 0.00 % respectively. Taking into account the initial hurdle of € 5 for calculation purposes, the short-term variable award is 100 % of the maximum and the long-term variable award is 0 % of the maximum.
The total remuneration for the Supervisory Board Members, including attendance fees, amounted to € 1,463 thousand in 2010, compared to € 1,491 thousand in 2009. Accordingly, the average annual remuneration for the Supervisory Board Members decreased to € 122 thousand (2009: € 123 thousand). Also for 2009, no long-term variable remuneration was awarded.
The following table shows the individual remuneration for 2010 and 2009: Members of the Supervisory Board
AC 1 NC 2 PC 3 RC 4 SC 5 Fixed remuneration
6 Total remuneration (excluding attendance fees) is capped at € 222 thou (for the Chairperson, the limit is three times the 2010 actual basic remuneration). 7 Total remuneration (excluding attendance fees) was capped at € 222 thou (for the Chairperson, the limit was three times the 2009 actual basic remuneration). 8 The total remuneration reflects the remuneration of the full Supervisory Board in the respective year.
The Board of Management and Supervisory Board have decided to propose a new remuneration structure at the Annual General Meeting 2011 which will comprise fixed remuneration only. The variable components will be eliminated. In addition, committee remuneration shall be further aligned to the increased scope of responsibilities and actual workload. However, in general, the proposed remuneration level is not expected to exceed the current target levels.
Your Allianz 58 Worldwide Presence and Business Divisions 59 Our Business 60 Our Strategy 61 Allianz Brand 62 Customer Focus 63 Our Employees 64 Sustainable Development
Revenues for 2011 101 Financing and Liquidity Development 101 Expected Dividend Development 101 Management’s Assessment of Expected Earnings for 2012 102 Management’s Views on Future Challenges and Opportunities 103 Opportunity Management and Strategic Investments at Allianz 104 Management’s Overall Assessment of the Current Economic Situation of the Allianz Group 105 Balance Sheet Review 105 Shareholders’ Equity 105 Regulatory Capital Adequacy 106 Total Assets and Total Liabilities 111 Off-Balance Sheet Arrangements 112 Liquidity and Funding Resources 112 Organization 112 Liquidity Management of Our Operating Entities 113 Liquidity Management of Allianz SE 116 Allianz Group Consolidated Cash Flows 117 Reconciliations 117 Composition of Total Revenues 117 Composition of Total Revenue Growth
Property-Casualty Life/Health Banking Retail Asset Management Institutional Asset Management Insurance market position by gross premiums written: 1 I. Position 1 II. Position 2 to 5 III. Position 6 to 10 IV. not in the top 10
59 58 Your Allianz 65 Management Discussion and Analysis 118 Risk Report and Financial Control
For further information on our Business Operations and Markets please refer to www.allianz. com/annualreport
– Hedge fund of funds – Commodity funds – Certificate funds – Real estate – Structured products
Five Goals of our Group Strategy 1. Profitable and sustainable growth We seek profitable and sustainable growth in our three business segments: Property-Casualty insurance, Life/ Health insurance, and Asset Management.
3. Strong capitalization We strive to protect the capital of our investors and to support our businesses with sufficient capital to withstand shocks and to protect the wellbeing of our customers.
4. World-class investment management Qualitative growth and solid capitalization depend on a sound and sustainable investment strategy that can generate stable returns and compensate, if necessary, for low interest rates or looming inflation.
5. State-of-the-art risk framework Through our risk policies, guidelines and systems we ensure that our investment, underwriting and operational decisions are made within the limits of our carefully defined appetite and tolerance for foreseeable risks.
USD 3.8 billion in 2009 to USD 4.9 billion in 2010.
For further information on the Allianz brand please refer to www. allianz.com/annualreport 2010 Selected Awards
– The Chief Marketing Officer award 2010 has been assigned to Allianz Group by Booz & Co, acknowledging the outstanding and consistent implementation of a clear global Allianz Brand Architecture.
– In 2010, Allianz climbed 14 ranks within the Interbrand global TOP 100 brand ranking and positioned itself amongst the top risers of the year.
Customers by regions/countries as of December 31, 2010 (December 31, 2009) in %
– to systematically collect customer feedback on key customer interactions such as claims and sales. In 2010, we established NPS in 40 Allianz companies (representing about 90 % of our GPW) and collected feedback from over 1,000,000 customers.
Our use and development of NPS show that our efforts are successful: since the first NPS measurement in 2006 there has been an increase in the number of Allianz companies with customer loyalty significantly above the peer average.
Our Employees 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.
“50 Dream Employers for Graduates” in an award by the Russian newspaper Akzia. – Allianz China Life was listed as one of the “100 Best Human Resource Management Companies” and the “100 Best Training Companies” by the human resources magazine 51job.
We pursue long-term economic value in accordance with environmental stewardship, social responsibility and good corporate governance.
2. Increasing sustainable business through a growing range of products and services We constantly develop new products and services for our customers to help them mitigate the effects of climate change or manage their own environmental impact. We are also expanding our renewable energy portfolio by investing in solar power projects in Europe. In addition, AGI, our Asset Management organization, manages a number of Sustainable and Responsible Investments (SRI) across major asset classes.
an ag em en t R ep or t 58 Your Allianz 65 Management Discussion and Analysis 118 Risk Report and Financial Control
Whereas gross domestic product in the industrialized countries rose by around 2.5 % on average in 2010, emerging markets exhibited average growth of around 7 %, with growth in the Asian emerging markets topping 9 %.
The dominant topic on the financial markets was the sovereign debt crisis in a number of EMU countries. Despite the announcement of drastic consolidation measures, financial markets apparently lost confidence in the ability of Greece and Ireland, in particular, to get to grips with their government debt. The risk premiums for these countries’ government bonds remained extremely high at the end of the year, despite the rescue operation orchestrated by the E.U. and the IMF. By contrast, yields on German bonds – which the markets evidently viewed as a “safe haven” – recorded historical lows. In the U.S.A., too, government bond yields continued to linger at an extremely low level despite increasing government debt levels, aided by the decision to further step up the country’s unconventional monetary policy measures. The Euro, which, in the shadow of the debt crisis, fell sharply in the early part of the year, managed to regain considerable ground, particularly against the U.S. Dollar, in the second half of 2010.
Commodity prices rose sharply in the course of the year – partly due to the global economic recovery but also because of their appeal as an investment vehicle in a low-interest environment. The stock markets shrugged off the sovereign debt crisis. After a prolonged sideward trend, most share price indices rallied towards the end of the year, largely thanks to very positive corporate sector earnings.
Positive stock market development in the second half of 2010 in %
In the property-casualty sector, conditions slowly improved in many major markets along with rising economic activity. Significantly, premium income in most industrialized markets returned to positive growth as these recovered from recession, while emerging markets maintained their favorable growth trajectory based on stronger economic fundamentals. Premium growth was particularly strong in Asia, driven by the recovery of trade and large infrastructure projects as well as by further urbanization and increases in car ownership. Price increases gained traction and became more widespread in some markets, in particular in Western Europe and Australia where Allianz has a large market presence, but in others prices remained under pressure. As we would expect at this point in the underwriting cycle, prices increased mainly in motor and personal lines, contrasting favorably with many commercial lines markets. Here, prices were typically either stable or lower due to a combination of excess capacity and subdued demand, as exemplified by high rates of unemployment. Investment results remained quite weak. Although tighter
Net income from continuing operations increased by 12.0 % and amounted to € 5,209 million.
2 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.
3 Internal total revenue growth excludes the effects of foreign currency translation as well as acquisitions and disposals. Please refer to page 117 for a reconciliation of nominal total revenue growth to internal total revenue growth for each of our segments and the Allianz Group as a whole.
69 58 Your Allianz 65 Management Discussion and Analysis 118 Risk Report and Financial Control
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).
Despite natural catastrophe claims of € 1,264 million, € 817 million in excess of the 2009 level, PropertyCasualty operating profit grew by 5.9 % to € 4,304 million. The underwriting result improved by € 133 million, reflecting a 0.2 percentage points improvement in our combined ratio (to 97.2 %). The € 101 million increase in our operating net investment income was driven by higher dividend income and lower impairments.
70 Allianz Group Annual Report 2010 Group Management Report under management as well as excellent business development. Our cost-income ratio improved by 3.3 percentage points to 58.7 %.
Capital market recovery led to lower impairments, down € 534 million to € 460 million.
Amortization of intangible assets and in particular goodwill increased by € 202 million to € 327 million.
Non-operating restructuring charges increased by € 80 million to € 263 million. In 2010 we incurred expenses for restructuring initiatives at a number of our operating entities including Euler Hermes Group, Allianz France, Allianz Beratungs- und Vertriebs AG and Allianz Managed Operations and Services SE.
The reclassification of tax benefits expense decreased by € 703 million. This was due to a € 730 million participation of our policyholders in 2009 tax refunds following a favorable court ruling which granted a one-off retrospective tax relief for the year 2001. There was a corresponding offsetting effect within operating income.
1 When PIMCO was acquired, B-units were created entitling senior management to profit participation. Under the B-unit plan, Allianz has the right to call, while PIMCO senior management has the right to put, those B-units over several years. Fair value changes due to changes in operating earnings are reflected in acquisitionrelated expenses. Distributions received by the senior management B-unit holders are also included.
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As of December 31, 2010, shareholders’ equity amounted to € 44,491 million, an increase of € 4,383 million compared to € 40,108 million as of December 31, 2009. Net income attributable to shareholders and positive foreign currency translation effects increased our equity by € 5,053 million and € 1,297 million, respectively. Unrealized gains declined by € 400 million. In the second quarter of 2010, Allianz SE paid dividends of € 1,850 million for the fiscal year 2009, which also reduced equity.
Interest and similar income 19,428 18,233 19,072 Operating income from financial assets and liabilities carried at fair value through income (net) 19 726 301 Operating realized gains/losses (net) 2,169 1,799 947 Interest expenses, excluding interest expenses from external debt (522) (579) (948) Operating impairments of investments (net) (384) (1,738) (6,199)
Claims and insurance benefits incurred (net) (46,096) (45,646) (45,659) Change in reserves for insurance and investment contracts (net) (13,871) (9,760) (5,378) Loan loss provisions (50) (141) (59) Acquisition and administrative expenses (net), excluding acquisition-related expenses (20,443) (19,712) (18,354) Fee and commission expenses (2,561) (2,212) (2,344) Operating restructuring charges (8) (15) 1
Non-operating investment result Non-operating income from financial assets and liabilities carried at fair value through income (net) (57) 148 72 Non-operating realized gains/losses (net) 1,539 1,617 2,656 Non-operating impairments of investments (net) (460) (994) (3,296)
Income from fully consolidated private equity investments (net) (102) (232) 79 Interest expenses from external debt (889) (905) (945) Acquisition-related expenses (440) (406) (245) Amortization of intangible assets (327) (125) (23) Non-operating restructuring charges (263) (183) (130) Reclassification of tax benefits (71) (774) (24) Non-operating items (1,070) (1,854) (1,856)
Net income (loss) from continuing operations 5,209 4,650 4,268 Net income (loss) from discontinued operations, net of income taxes — (395) (6,373) Net income (loss) 5,209 4,255 (2,105)
73 58 Your Allianz 65 Management Discussion and Analysis 118 Risk Report and Financial Control
Recommendation for Appropriation of Profit The Board of Management and the Supervisory Board propose that the available net earnings of Allianz SE of € 2,045,250,000 for the fiscal year 2010 be appropriated as follows: Distribution of a dividend of € 4.50 per no-par share entitled to a dividend: € 2,045,250,000.
Sale of Industrial and Commercial Bank of China (ICBC) shares In January 2011, the Allianz Group sold 0.2 billion ICBC shares with a capital gain of approximately € 0.1 billion.
Cyclone “Yasi” in Australia On February 2, 2011 cyclone “Yasi” caused great damage in eastern Australia. Based on current information net claims are expected to amount to approximately € 37 million before income taxes.
Earthquake in Christchurch, New Zealand On February 22, 2011 the City of Christchurch, New Zealand was hit by an earthquake. Currently a reliable forecast for net claims arising from this earthquake is not possible.
ECJ Decision on European Gender Directive On March 1, 2011 the Court of Justice of the European Union has ruled that the permission of the Member States under European law for gender-specific differentiation of insurance premiums justified by statistical data (Article 5 (2) of directive 2004/113/EC) will become invalid with effect from December 21, 2012. The judgment does not contain a statement that already existing contracts will be effected by the invalidity of the before mentioned provision.
Changes in Segment Structure, Presentation and Accounting Policies At the beginning of 2010, the Allianz Group reorganized the structure of its insurance activities to reflect the changes in the responsibilities of the Board of Management. European insurance operations are shown together while Global Insurance Lines & Anglo Markets are shown separately from NAFTA Markets, respectively for both Property-Casualty and Life/ Health insurance activities. Furthermore, Assistance (Mondial) now comprises a separate reportable segment within Property-Casualty insurance activities. Previously reported information has been restated to reflect this change in the composition of the Allianz Group’s reportable segments.
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– We are also a global leader for travel and assistance services and for credit insurance.
The combined ratio was 97.2 %, a slight decrease of 0.2 percentage points compared to the previous year. Unusually high losses from natural catastrophes and slightly higher expenses were more than compensated for by price increases outstripping claims inflation, a marked improvement in our credit business and a more favorable run-off result.
Gross premiums written by regions/countries as of December 31, 2010 (December 31, 2009) 2 in %
Gross premiums written by operating entity – Internal growth rates 4 in %
Central and Eastern Europe 4 Before elimination of transactions between Allianz Group companies in different geographic regions and different segments.
At AGCS, gross premiums were € 4,007 million. Taking into account several portfolio transfers within the Property-Casualty insurance segment to AGCS, gross premiums slightly increased by 0.3 %. Higher volume led to this development, in particular from our aviation business, despite soft market conditions, intense competition and a decline in our customers’ turnover. We saw a slightly negative price effect across all countries, estimated at 1.4 %.
In France, gross premiums were € 3,300 million, down by 2.0 %. Volume declined following price increases in motor fleets and small and large commercial lines. Price increases were applied overall in the portfolio; they were higher in our personal lines and our personal non-motor business, in particular, benefited from them and achieved a positive growth. The overall positive price effect was approximately 2.4 %.
At Allianz Sach, gross premiums fell by 2.4 % to € 9,013 million. The decline was mainly driven by our motor business, partly because of our portfolio cleaning activities in motor fleets but also due to lower renewals in the private motor segment. Overall, gross premiums were affected by continued soft market conditions in Germany in all lines of business. We estimate the positive price effect to be 0.1 %.
In Italy, where market conditions, though improving, remained very difficult, gross premiums declined by 4.6 %, reflecting strict portfolio cleaning and the negative impact of recession on commercial business. The pricing trend seems to have finally reverted. We maintained underwriting discipline, privileging profitability over growth. Particularly notable in this difficult environment was the growth of 22.4 % in direct (Genialloyd). Overall, gross premiums amounted to € 3,986 million. We estimate the positive price effect to be 4.1 %, driven by significant rate increases in the motor business.
In the United States, gross premiums fell by 9.2 %, driven by volume losses in all business lines. Gross premiums written amounted to € 3,350 million, including a positive foreign currency translation effect of € 190 million and the transfer of marine business to AGCS. About one third of volume losses was due to our crop insurance business. In both personal and commercial lines, the decline was mainly driven by slow economic recovery and our profitability initiatives. However, we were able to increase our average premium, in particular in personal lines. The positive price effect was estimated at 1.1 %.
In Central and Eastern Europe, gross premiums amounted to € 2,629 million. Adjusting for a positive foreign currency translation effect, internal growth was negative at 4.0 %. Our ongoing portfolio cleaning and selective underwriting in the highly competitive motor business led to a decline in volume. As a result of the current economic environment, we also recorded significantly lower average premium rates in particular in Hungary, the Czech Republic and Romania. We estimate the negative price effect to be 3.0 %.
Operating profit increased by 5.9 %, or € 240 million, to € 4,304 million. Both the underwriting result and the operating net investment income contributed positively to this growth.
Premiums earned (net) 39,303 37,828 38,213 Accident year claims (28,685) (27,387) (27,429) Run-off result 1,544 1,067 1,443 Acquisition and administrative expenses (net) (11,044) (10,540) (10,478)
The combined ratio was 97.2 % compared to 97.4 % in the prior year. This slight decline was achieved thanks to strengthening prices in our core markets, despite a significantly higher level of natural catastrophes and slightly higher expenses.
Our accident year loss ratio stood at 73.0 % in a difficult environment. The impact from natural catastrophes was unusually high, accounting for 3.2 percentage points of the accident year loss ratio. In comparison, in 2009, natural catastrophes represented 1.2 percentage points of the accident year loss ratio of 72.4 %. Excluding natural catastrophes, our accident year loss ratio improved by 1.4 percentage points mainly due to a higher average annual premium, a 1 Consists of changes in aggregate policy reserves and other insurance reserves.
– Italy with (0.3) percentage points mainly due to price increases and strict profitability management, compensating the severe negative impact of the so-called “Milan tables” (new settlement tables for bodily injury claims introduced in 2009).
The following operations contributed negatively to our accident year loss ratio: – Germany with 0.6 percentage points due to higher losses from natural catastrophes. The net losses from windstorm Xynthia, flood Viola, windstorm Olivia/Norina and hailstorm Petra amounted to approximately € 246 million which is more than double the net losses from natural catastrophes in 2009. Persisting soft market conditions in motor and commercial business also affected the negative development.
– AGCS with 0.4 percentage points as a result of higher losses from natural catastrophes. In addition, there was a higher negative impact from mid-sized losses, especially in Property and Aviation, partially offset by less large claims.
Operating impairments of investments (net) amounted to € (9) million, an improvement of € 66 million largely due to lower impairments on equity investments compared to the previous year.
Ceded premiums written (4,346) (4,574) (4,972) Change in unearned premiums (246) (121) (202) Premiums earned (net) 39,303 37,828 38,213 Interest and similar income 3,680 3,612 4,477 Operating income from financial assets and liabilities carried at fair value through income (net) 18 118 9 Operating realized gains/losses (net) 42 57 37 Fee and commission income 1,099 1,075 1,247
Claims and insurance benefits incurred (net) (27,141) (26,320) (25,986) Changes in reserves for insurance and investment contracts (net) (300) (355) 3
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83 58 Your Allianz 65 Management Discussion and Analysis 118 Risk Report and Financial Control
Global Insurance Lines & Anglo Markets 92.1 94.6 93.3 64.5 67.1 65.0 27.6 27.5 28.3
Middle East and North Africa 109.9 135.4 128.8 73.9 72.2 65.9 36.0 63.2 62.9
Consolidation 10 — — — — — — — — —
6 Contains € 15 mn and € 14 mn for 2010 and 2009, respectively from a management holding located in Luxembourg and also € (0.1) mn and € 8 mn for 2010 and 2009, respectively from AGF UK.
– Via our distribution channels, mainly tied agents, brokers and bank partnerships, we offer life and health products for both private and corporate clients.
Statutory premiums increased by 12.5 % or € 6,325 million on a nominal basis to € 57,098 million. On an internal basis, revenues were up by 9.6 %. Overall, approximately one third of growth was driven by our traditional life business and the remaining two thirds stem from higher premiums from investment-oriented contracts, primarily from unit-linked products.
Operating profit increased by 7.4 % and amounted to € 2,868 million. In 2010, we recorded higher interest and similar income driven by asset base growth following increased business volumes. Higher realized gains and fewer impairments supported the positive operating profit development. The 2010 fair value results 2 were lower after exceptional gains in 2009 from credit spreads and equity market movements.
2 Recorded in net gain from financial assets and liabilities carried at fair value through income.
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In the Asia-Pacific region, total premiums increased by 32.7 % on an internal basis. Premiums amounted to € 6,487 million. In 2010, we saw continued demand for unit-linked and investment-oriented products, following the trend in 2009, as capital markets recovered. In Japan, premiums increased by € 887 million to € 1,202 million from the sale of our variable annuity products and an increase in the number of bank distribution partners. Premiums in South Korea grew by 10.3 % on an internal basis. Growth was from our investment-oriented business with guarantees, mainly due to strong demand for our single premium equity index and other investment products sold via the bancassurance channel. In Taiwan, our growth was predominantly driven by pure unit-linked business without guarantees. Overall, internal growth in Taiwan amounted to 10.2 %.
1 In the following section we comment on the development of our statutory premiums written on an internal basis, i.e. adjusted for foreign currency translation and (de-)consolidation effects in order to provide more comparable information.
2 After elimination of transactions between Allianz Group companies in different geographic regions and different segments.
In the United States, total premiums increased by 19.9 % on an internal basis. Premiums amounted to € 8,155 million. Growth was driven by continued strong sales of our fixed-index annuity and variable annuity products. The increase in sales in our variable annuity business also reflects the relatively lower volumes in 2009 following the living benefit rider suspension at the end of the first quarter of 2009 and the subsequent product re-launch in the third quarter of 2009.
4 Starting from the first quarter 2010, Luxembourg Life was consolidated into Belgium for reporting purposes.
Premiums in our German life business increased by 6.1 % to € 15,961 million. This development was driven by significant growth in single premiums from traditional life products. The development of recurring premiums was flat at a high level. Sales in the investment -oriented business declined following a reduction in sales of short-term investment contracts. All sales channels contributed to overall growth. In particular, our broker channel and our distribution partner Commerzbank increased their sales of our life products in Germany. In the German health business we saw an increase in premiums of 1.0 %. This growth was driven by premium adjustments and lower terminations of comprehensive health insurance contracts.
Premiums in Switzerland were up by 3.2 % on an internal basis. Total premiums amounted to € 1,502 million. Growth was mainly driven by an increase in single premiums in our investment-oriented business, mostly from products with guarantees. This development was partially offset by a planned decrease in sales in the traditional life business.
In Italy, total premiums grew by 2.0 % to € 8,841 million. The significant premium increase in the first half of 2010, driven by strong sales in our bancassurance channel and financial advisors network, was partially offset by depressed growth in the second half of the year following an overall slowdown of the market.
Operating profit increased from € 2,670 million to € 2,868 million, driven by a solid investment result due to improved capital markets and reduced impairments.
Interest and similar income net of interest expenses amounted to € 14,982 million, up by € 1,138 million. In line with premium growth, our asset base grew and was invested primarily in debt securities. This growth-driven increase in our fixed income portfolio more than compensated for lower yields, resulting in higher investment income.
Investment expenses increased by € 82 million, mainly driven by a higher asset base, including new real estate investments.
87 58 Your Allianz 65 Management Discussion and Analysis 118 Risk Report and Financial Control
Net claims and insurance benefits incurred were down by 1.9 % to € 18,955 million.
Ceded premiums written (564) (549) (588) Change in unearned premiums (127) (51) (54) Statutory premiums (net) 56,407 50,173 44,973 Deposits from insurance and investment contracts (32,373) (28,209) (22,792) Premiums earned (net) 24,034 21,964 22,181 Interest and similar income 15,085 13,971 13,772 Operating income from financial assets and liabilities carried at fair value through income (net) 19 636 405 Operating realized gains/losses (net) 2,125 1,755 874 Fee and commission income 539 491 571
Acquisition and administrative expenses (net) (5,175) (5,591) (4,691) Fee and commission expenses (258) (246) (253) Operating restructuring charges (8) (15) 1 Other expenses (55) — (7)
3 Represents deposits from insurance and investment contracts, claims and insurance benefits incurred (net), changes in reserves for insurance and investment contracts (net) and acquisition and administrative expenses (net) divided by statutory premiums (net), interest and similar income, operating income from financial assets and liabilities carried at fair value through income (net), operating realized gains/losses (net), fee and commission income, other income, interest expenses, loan loss provisions, operating impairments of investments (net), investment expenses, fee and commission expenses, operating restructuring charges and other expenses.
Germany Life 15,961 15,049 13,487 15,961 15,049 11,651 10,137 10,313 Germany Health 4 3,209 3,176 3,120 3,209 3,176 3,209 3,176 3,120 Switzerland 1,502 1,364 1,205 1,407 1,364 582 577 478
Reinsurance LH 314 350 294 314 350 307 343 291 Anglo Broker Markets & Global Lines 314 350 294 314 350 307 343 291
Anglo Broker Markets & Global Lines 23 29 7 93.2 93.7 98.1
Middle East and North Africa 12 8 11 92.1 93.0 88.0 3 Statutory premiums adjusted for foreign currency translation and (de-)consolidation effects. 4 Loss ratios were 75.0 %, 73.5 % and 74.7 % for 2010, 2009 and 2008 respectively. 5 Represents elimination of transactions between Allianz Group companies in different geographic regions.
– We operate on a global basis with investment and distribution capacities in all major markets with particular strongholds in the United States, Europe and the Asia-Pacific region.
– Based on total asset under management we are one of the four largest active asset managers in the world.
As of December 31, 2010, total assets under management amounted to € 1,518 billion. Of this, third-party assets under management accounted for € 1,164 billion, while the remaining € 354 billion related to Allianz Group assets.
In 2010, net inflows were the largest component of the € 316 billion growth in total assets under management. Third-party net inflows reached a record high of € 113 billion. A further € 8 billion came from the Allianz Group’s net inflows. Substantially all net inflows of € 121 billion were derived from our fixed income business. Market-related appreciation accounted for an additional € 94 billion, of which fixed income and equity products contributed € 72 billion and € 21 billion respectively. Cumulative foreign currency translation effects added € 55 billion to the growth: mainly due to the higher appreciation of the U.S. Dollar versus the Euro compared to the previous year. Due to consolidation effects total assets under management increased by € 46 billion, which was mainly driven by the transfer of Allianz Group assets under management in the United States to Allianz Global Investors.
In the following section we focus on the development of third-party assets under management.
Strong retail flows in 2010 contributed to an increase in the proportion of third-party assets under management from retail clients to 34 % (December 31, 2009: 32 %). The share of third-party assets from institutional clients decreased respectively to 66 % (Decem1 Based on the origination of assets.
2 This consists of third-party assets managed by other Allianz Group companies
The overall investment performance of Allianz Global Investors’ assets under management was excellent with 87 % of our assets outperforming their respective benchmarks (December 31, 2009: 81 %). Fixed income assets recorded an excellent outperformance of 90 % versus their respective benchmarks. The investment performance of equity assets remained stable with 63 % of equity assets outperforming their respective benchmarks.
1 AllianzGI account-based, asset-weighted 3-year investment performance of third party assets vs. benchmark including all accounts managed by equity and fixed income managers of AllianzGI. For some retail equity funds the net of fee performance is compared to the median performance of an appropriate peer group (Morningstar or Lipper; 1st and 2nd quartile mean out-performance). For all other retail funds and for all institutional accounts performance is calculated gross of fees using closing prices (revaluated) where appropriate and compared to the benchmark of each individual fund or account. Other than under GIPS (Global Investment Performance Standards), the performance of closed funds/accounts is not included in the analysis. Fund-of-funds at AllianzGI Solutions, accounts at AllianzGI Investments Europe, Zurich Branch and Joint-Venture GTJA China and in parts WRAP accounts are not considered. Not included until 3Q 2009: AllianzGI Taiwan, AllianzGI Singapore, AllianzGI Korea, AllianzGI Investments Europe Paris, AllianzGI Investments Europe Milan and Allianz Netherlands Asset Management.
Operating revenues increased by € 1,297 million to € 4,986 million, driven mainly by a strong growth in assets under management. We also profited from a shift to higher margin products. Excluding positive foreign currency translation effects of € 211 million and (de-)consolidation effects, operating revenues increased by 29.7 %.
Net fee and commission income amounted to € 4,927 million, an increase of € 1,337 million. Of this, management and loading fees accounted for € 1,471 million, partially offset by higher commission expenses.
In 2010 we also recorded a high level of performance fees of € 514 million (2009: € 432 million), supporting the outstanding development of net fee and commission income.
Administrative expenses increased by € 638 million to € 2,926 million, of which € 117 million resulted mainly from the stronger U.S. Dollar. The strong business development also led to an increase in performancerelated personnel expenses. Non-personnel expenses also increased in line with the growth in assets under management.
Fee and commission expenses (1,127) (850) (1,158) Net fee and commission income 4,927 3,590 2,874
– Corporate and Other encompasses operations of Holding & Treasury, Banking and Alternative Investments business.
– We provide global alternative investment management services in the private equity, real estate, renewable energy and infrastructure sectors mainly on behalf of the Allianz Group.
1 Consolidation included; for further information about our Corporate and Other segment please refer to note 6 to the consolidated financial statements.
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Earnings Summary Holding & Treasury The Holding & Treasury’s operating loss was almost unchanged at € 863 million compared to € 849 million in 2009. A better hedged foreign currency result (2010: € (34) million, 2009: € (138) million) compensated for the lower net fee and commission result and higher expenses.
Interest and similar income declined by € 66 million to € 293 million mainly because of continuing low yields on debt securities. Dividend income partly offset this effect following the recovery of equity markets. Interest expenses, excluding interest expenses from external debt decreased by € 62 million to € 383 million, also affected by low interest rates.
Operating loss from financial assets and liabilities carried at fair value through income improved by € 81 million to € 41 million due to a higher foreign currency result.
Administrative expenses totaled € 591 million, € 43 million lower compared to 2009. Last year’s operating expenses were burdened by non-recurring set-up costs for the Allianz Bank in Germany.
Our loan loss provision increased by € 8 million, which was mainly driven by our banking operations in Central and Eastern Europe.
Earnings Summary Alternative Investments Alternative Investments’ operating loss of € 15 million remained at the previous year’s level.
Outlook 2011 and 2012 – Economic upswing to continue at a more moderate pace. – Allianz Group operating profit for 2011 expected to be in the range of € 8.0 billion, plus or minus € 0.5 billion, and is expected to improve in 2012.
Allianz Group Operating profit of € 7.2 billion, plus or minus € 0.5 billion. Operating profit of € 8.2 billion, € 0.5 billion above our target range: the result benefited from favorable foreign exchange rate movements and the change in accounting policy at Allianz Life U.S.
U.S. Dollar exchange rate of 1.45. U.S. Dollar exchange rate of 1.33.
Protect capital and solvency position. Solvency ratio of 173 %. AA Standard & Poor’s rating since 2007 with stable outlook.
Our investment strategy remains focused on generating attractive returns despite a low interest rate environment and on minimizing vulnerability to price fluctuations.
Net investment income of € 20.9 billion, € 2.4 billion above prior year, driven by higher income from debt securities and lower impairments. Low interest rates were offset by higher asset base.
We believe that over the cycle, a combined ratio of 96 % is possible, and we forecast that our combined ratio for 2010 will improve towards that mark.
We expect large claims stemming from natural catastrophes to be around € 900 million.
A slight decline in investment income. Operating investment income increased by 3.2 % to € 3,218 million.
We anticipate that the aggregate effect of improvements in pricing, claims management and productivity gains will more than compensate for underlying claims inflation and a slight decline of investment income.
Life/Health Statutory premiums of around € 47 billion. Statutory premiums of € 57 billion, compared to € 51 billion in 2009: due to an increase in demand for investment and traditional insurance products combined with positive foreign currency effects of € 1.3 billion.
Operating profit of € 2.9 billion (includes a positive impact from an accounting policy change at Allianz Life U.S.).
There is room for improvement on the 2009 result of € 0.1 billion gross realized gains net of impairments, which was below the level seen in a calmer capital market environment.
Although tackling the sovereign debt crisis will remain a major challenge in Europe, we believe that the associated turmoil on the financial markets will slowly but surely begin to die down. This should help to coax risk premiums back down. Yields on German and U.S. bonds, on the other hand, are likely to continue to 1 These financial statements were prepared and audited before the severe earthquake in Japan on March 11, 2011 and the resulting severe damage to various Japanese nuclear power plants; a reliable estimation of the financial impacts is not yet available at this point in time.
creep up. As far as the stock market is concerned, further increases in corporate earnings should mean that the overall environment in 2011, and presumably also in 2012, will remain benign.
In the life sector, we anticipate modest growth in the high single digit range, with the majority of growth derived from investment returns as they gradually improve from their low levels. And, while low interest rates and inflation will probably be worries for the industry through 2011 and 2012, we would still anticipate margins to improve over this period. At the product level, margins on fee business can be expected to rise as they benefit from increased assets under management and a semi-fixed cost base. They should also improve for spread business as a result of gradually improving investment returns, although these will probably remain on the low side compared to historical levels. If the prevailing return environment remains low and uncertainties associated with Solvency II persist, we could foresee a further shift away from spread business to higher margin risk products. Reported margins for 2011 and 2012 should also benefit from less reserve strengthening, as well as savings from recently implemented cost improvement programs.
As discussed earlier in this section, the economic upswing will continue but at a more measured pace, and we look set to enter a period of moderate global economic growth. Despite the fairly strong global recovery, there are of course risks for 2011 and beyond.
The outlook provided here assumes that there is only a limited likelihood of severe shocks such as major geopolitical tensions, sovereign debt crises in large industrial countries or currency and trade wars. We show the operating profit outlook for 2011 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, multi-segment portfolio.
Our outlook is based on the following assumptions: – Moderate global economic growth – Slightly increasing interest rates – No dramatic interest rate movements – No disruptive fiscal or regulatory interference – No adverse development in the level of claims from natural catastrophes – No severe disruptions of the capital markets
We expect our business mix and profitability contributions to remain unchanged: our Property-Casualty business will continue to contribute the majority of our operating profit. However, we anticipate that some positive and negative effects observed in 2010 will not recur in 2011 and beyond. Although the global economy has made a strong recovery over the last year, investment results are likely to remain under pressure due to only moderately increasing interest rates. This will be partially offset by better operational performance in the business segments and a growthdriven increase in our asset base. Given the magnitude of mark-to-market valuations in our profit and loss account, a precise prediction of net income for the year 2011 and beyond is not possible at this point.
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Given the current interest rate environment our investment strategy remains focused on generating attractive returns and on minimizing vulnerability to price fluctuations.
Life/Health We expect to reach another strong but stable revenue level in 2011.
We expect operating profit in our Life/Health business to be within the range of € 2.2 billion to € 2.8 billion.
Operating profit in 2010 benefited from a high level of realized gains, which cannot be expected to continue at the same level in 2011.
For further information on our Business Operations and Markets please refer to www. allianz. com/annual report
Management’s Assessment of Expected Earnings and Revenues for 2011 In 2010, our total revenues increased to € 106.5 billion, a 6.2 % rise on an internal basis compared to 2009. The growth in 2010 benefited from the return of customers’ confidence after the financial crisis and revenues have reached the highest value we have ever achieved. We expect total revenues to be stable in 2011 as this catch-up effect fades. The level of total revenues depends on market cycles and our ability to exploit new business opportunities, as described in the opportunities section.
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.
Overall, we expect operating profit to be in the range of € 4.2 billion to € 4.8 billion in 2011.
Revenues grew strongly in 2010 by more than € 6.3 billion to the highest level ever achieved of € 57.1 billion, driven in particular by Asia-Pacific, the United States and Germany. Growth in 2010 partially benefited from the return of customers’ confidence after the financial crisis. Therefore, we expect to reach another strong but stable revenue level in 2011.
Operating profit exceeded the upper level of the operating profit target of € 2.8 billion by € 0.1 billion and reached € 2.9 billion in 2010, benefiting from a high level of realized gains, which cannot be expected to continue at the same level in 2011, and the accounting policy change at Allianz Life U.S. in 2010. We expect operating profit in our Life/Health business to be within the range of € 2.2 billion to € 2.8 billion in 2011. It must be noted that market volatility and the level of net harvesting can significantly affect the Life/ Health segment results and make a precise prediction difficult.
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The Allianz Group maintains a healthy liquidity position combined with a capitalization, well above what supervisory authorities currently require, and superior financial strength and stability. We expect to have steady access to the financial markets at reasonable costs in order to maintain our strong financial flexibility. This will be supported by prudent steering of our liquidity resources and a maturity profile focusing on long-dated average remaining term. Based on our current expectations of interest rates our average capital market financing costs in 2011 should be broadly in line with the previous year.
Management’s Assessment of Expected Earnings for 2012 Based on current estimates we expect our 2012 operating profit to improve and to be driven again by positive contributions from all segments.
However, due to the volatile economic environment, it is difficult to make concrete predictions beyond 2011 concerning our net income development.
As always, natural catastrophes and adverse developments in the capital markets, as well as factors stated in our cautionary note regarding forward-looking statements, may severely affect the results of our operations.
Demographic change: Our strong market position in continental Europe and the U.S., as well as our strong brand and rating and well diversified product portfolio, puts us in an excellent position to further benefit from old-age and healthcare provisioning opportunities as well as the provision of assistance products.
Access to finance: Around 40 % of the world’s population live on less than 2 U.S. Dollars a day. People in developing countries are more severely affected by natural disasters, accidents and diseases. They also lack the opportunity to save or to take out insurance to hedge against these threats. Allianz offers a variety of microfinance products to more than four million customers. Microfinance can be profitable, although at a lower margin rate than traditional business. Making low-income customers familiar with the concept of insurance should pay off over the years as these customers move up the economic ladder.
As the world becomes more aware of climate change, the increasing popularity of renewable energy and other “green” investment products is likely to gain more momentum. Our asset management products already include funds that invest in renewable energies, green technology and companies that are sustainably managed and environmentally friendly.
Propagation of innovative distribution channels: Much of our franchise in our traditional markets has been developed over many years in an intense partnership with our tied agents. Nevertheless, we are confronted with limited top line growth potential and depressed margins in mature markets. As we expand our positions in key growth markets, we put high emphasis on the development of and transition to innovative and economically attractive distribution channels.
Expense management: As we develop our franchise globally and face intensified challenges to maintain and improve our performance in traditional, but unfortunately stagnating, 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. For example, we actively promote the Group-wide utilization of Allianz U.K.’s center in South India for IT development and business processing.
Opportunity Management and Strategic Investments at Allianz Our Target Operating Model has laid the foundation for a structured and harmonized approach to capture opportunities globally and in the different local markets.
Clear roles and responsibilities as well as processes involving all stakeholders ensure that identifying opportunities, evaluating their potential and driving promising ideas to implementation becomes an institutionalized part of our business.
2. Understanding what impact these insights have on the current business model and the local strategy.
In addition to strategic approaches and knowledge sharing, major sources of opportunities stem from customer interaction and employees’ ideas. Processes and tools are in place to systematically leverage these two important areas of insight. For example, Allianz conducts well over one million calls every year to collect feedback from customers at critical points of interaction. The feedback is systematically analyzed to improve business processes and make the customer ’s voice heard throughout the organization.
In 2011 and 2012, the Allianz Group will spend more than € 2 billion in IT initiatives in order to change and run the business.
Cautionary note regarding forward-looking statements The statements contained herein may include prospects, future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed in such forward-looking statements. Such deviations may arise, without limitation, because of changes in the general economic condition and competitive situation, particularly in the Allianz Group’s core business and core markets or the impact of acquisitions, related integration issues and reorganization measures. Deviations may also arise from the frequency and severity of insured loss events, including from natural catastrophes, and from the development of loss expenses, mortality and morbidity levels and trends, persistency levels, and particularly in our banking business, the extent of credit defaults. In addition, the performance of the financial markets (particularly market volatility, liquidity and credit defaults) as well as changes in interest rate levels, currency exchange rates and changes in national and international laws and regulations, particularly tax regulation, may have a relevant impact. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The company assumes no obligation to update any forwardlooking statement.
As of December 31, 2010, shareholders’ equity amounted to € 44,491 million, an increase of € 4,383 million compared to December 31, 2009. Net income attributable to shareholders and favorable foreign currency translation effects increased our equity by € 5,053 million and € 1,297 million, respectively. Unrealized gains declined by € 400 million driven by higher realizations to participate in positive market developments. Allianz SE paid dividends of € 1,850 million for the fiscal year 2009 in the second quarter of 2010, which also reduced equity.
3 2009 figures 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.
As of December 31, 2010, the Group’s eligible capital for solvency purposes, required for insurance segments, Banking and Asset Management business, was € 39.6 billion, including an off-balance sheet reserve of € 2.1 billion and a deduction for expected dividends for 2010 of € 2.0 billion. In line with the development of shareholder’s equity, eligible capital increased. Required funds were up by € 1.7 billion, primarily driven by business growth in Life/Health. Overall, eligible capital exceeded the minimum legally stipulated level by € 16.7 billion. This margin resulted in a cover ratio of 173 % as of December 31, 2010, an improvement of 9 percentage points, increasing our already strong solvency position.
Equity markets were volatile during 2010. The first half of 2010 was characterized by a sideways development. With positive earnings forecast during the second half of 2010 and the global economic recovery almost all major equity markets picked up and closed at year-end with an overall positive performance.
In 2010 credit spreads continued to narrow albeit more moderately than in 2009.
Debt instruments: The Group’s investment portfolio grew by € 36.2 billion compared to the end of 2009. This increase was mainly driven by inflows provided by our underlying operating businesses, primarily from the Life/Health entities and supported by market returns.
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The vast majority of our investment portfolio comprises debt instruments. Our investments in this asset class rose from € 364.8 billion to € 395.6 billion in 2010, mainly driven by net inflows, especially from our Life business.
Some European governments, like Portugal, Ireland, Greece and Spain, experienced rising credit spreads due to market concerns about sovereign solvency. Combined support efforts by other E.U. member states and the International Monetary Fund helped to ensure financial stability. As of December 31, 2010 our gross sovereign bond exposure in Portugal, Ireland, Greece and Spain amounted to € 8.1 billion. The current unrealized losses of the four countries sovereign bonds were € 1.1 billion as of December 31, 2010.
Nearly 60 % of covered bonds are German Pfandbriefe backed by either public sector loans or mortgage loans. On these and all other covered bond exposures, a cushion against house price deterioration and payment defaults is provided by minimum required security buffers and over-collateralization.
Our portfolio includes ABS securities of € 20.2 billion. Around 25 % or € 5.1 billion of our ABS securities are U.S. agency MBS which are backed by the U.S. government.
In 2010 our net investment income amounted to € 20,905 million, an increase of 13.3 % compared to last year. A higher asset base, especially in Life/Health and lower impairments from equities mainly accounted for this development. These effects were partially offset by lower fair value option and trading income recorded in 2010.
Interest and similar income (net)1 rose by € 1,252 million to € 18,906 million, due to higher income from debt securities. A higher level of debt investments, especially in the Life/Health segment more than compensated for lower yields on debt securities.
Property-Casualty assets In 2010 our Property-Casualty asset base increased by € 5.1 billion to € 97.3 billion. This was primarily driven by the development of our debt securities which rose by € 2.4 billion in total due to favorable foreign currency translation effects and net inflows. Equity investments increased by € 0.4 billion to € 5.4 billion benefiting from positive market developments. Our cash and cash pool assets rose slightly and amounted to € 5.3 billion.
Debt securities 60.4 58.0 Cash and cash pool assets 4 5.3 4.4
Loans and advances to banks and customers 17.7 16.3 Property-Casualty asset base 97.3 92.2 1 Loans and advances to banks and customers, held-to-maturity investments, and real estate held for investment are stated at amortized cost. Investments in associates and joint ventures are stated at either amortized cost or equity, depending upon, among other factors, our ownership percentage.
2 This comprises assets of € 0.2 bn and € 0.2 bn and liabilities of € (0.1) bn and € (0.1) bn as of December 31, 2010 and December 31, 2009 respectively.
Of our Property-Casualty asset base, asset-backed secu - rities (ABS) made up € 4.3 billion as of December 31, 2010, which is approximately 4.4 % of our asset base. CDOs accounted for only € 47 million of this amount.
Life/Health assets In 2010 the Life/Health asset base increased by 9.5 % to € 417.6 billion. Of this total, € 64.8 billion are financial assets for unit-linked contracts, which contributed € 7.8 billion to the overall increase. Without unitlinked contracts we recorded a significant increase in 5 After group consolidation. For further information about changes in the reserves for loss and loss adjustment expenses for the Property-Casualty segment please refer to note 19 to the consolidated financial statements.
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Within our Life/Health asset base, ABS amounted to € 15.2 billion as of December 31, 2010, which is less than 4 % of total Life/Health assets. Of these, € 1.0 billion are CDOs.
debt investments from € 182.5 billion to € 212.8 billion. This development was driven by strong net inflows from our Life insurance business. Our equity investments increased by € 3.5 billion to € 24.4 billion under favorable market conditions. Cash and cash pool assets increased by € 1.4 billion to € 7.4 billion.
In conjunction with a change in accounting policy, the Allianz Group also sold a portfolio of financial assets which were designated at fair value through income which was previously held to mitigate interest rate volatility of an embedded derivative. As of December 31, 2009, the portfolio had a fair value of approximately € 3.5 billion. The portfolio was completely liquidated during the year ended December 31, 2010 and reinvested in available for sale bonds.
Debt securities 212.8 182.5 Cash and cash pool assets 4 7.4 6.0
2 Comprises assets of € 1.0 bn and € 1.2 bn and liabilities of € (4.9) bn and € (4.7) bn as of December 31, 2010 and December 31, 2009 respectively.
3 These do not include affiliates of € 1.6 bn and € 1.8 bn as of December 31, 2010 and December 31, 2009, respectively.
4 Including cash and cash equivalents as stated in our segment balance sheet of € 4.4 bn and € 2.5 bn and receivables from cash pooling amounting to € 3.3 bn and € 3.5 bn net of liabilities from securities lending and derivatives of € (0.3) bn and € 0.04 bn as of December 31, 2010 and December 31, 2009, respectively.
5 Financial assets for unit-linked contracts represent assets owned by, and managed on the behalf of, policyholders of the Allianz Group, with all appreciation and depreciation in these assets accruing to the benefit of policyholders. As a result, the value of financial assets for unit-linked contracts in our balance sheet corresponds to the value of financial liabilities for unit-linked contracts.
Life/Health liabilities Development of reserves for insurance and investment contracts in € bn
1 2009 figures have been restated to reflect a change in the Allianz Group’s accounting policy. For further information please refer to note 4 of our consolidated financial statements.
Corporate and Other assets Our asset base for Corporate and Other was down by 3.2 % in 2010 to € 39.1 billion. The biggest movement was within loans and advances to banks and customers, down by € 4.3 billion to € 16.4 billion due to repayments of loans and a decrease in reverse repos. In addition, our equity investments declined by € 1.5 billion mainly due to disposals of ICBC shares. Investments in debt securities increased by € 4.0 billion after a shift within our portfolio.
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Debt securities 17.3 13.3 Cash and cash pool assets 3 1.6 1.3
Other liabilities were down by € 0.8 billion to € 15.3 billion.
Liabilities of disposal groups classified as held for sale derived from our Polish Banking business totaled € 0.2 billion.
The development of certificated liabilities from € 14.1 billion to € 14.4 billion was mainly driven by an increase of Allianz SE’s outstanding issued debt 4 of € 0.3 billion.
1 This comprises assets of € 0.5 bn and € 0.5 bn and liabilities of € (0.5) bn and € (0.5) bn as of December 31, 2010 and December 31, 2009 respectively.
In the normal course of business, the Allianz Group may enter into arrangements that do not lead to the recognition of assets and liabilities in the consolidated financial statements under IFRS. Since the Allianz Group does not rely on off-balance sheet arrangements as a significant source of revenue or financing, our off-balance sheet exposure to loss is very small relative to our financial position.
In addition, please refer to the Risk Report for a description of the main concentrations of risk and other relevant risk positions.
The principal sources of liquidity for our operational activities include primary and reinsurance premiums earned, reinsurance receivables collected, as well as investment income and proceeds generated from the sale of investments. The major uses of funds include paying property-casualty claims and related claims expenses, providing life policy benefits, paying surrenders and cancellations, acquisition costs as well as other operating costs.
We generate substantial cash flow 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 to generate investment income and realized gains.
Within our Asset Management operations, our primary sources of liquidity include fees generated from asset management activities. These funds are primarily used for covering operating expenses.
The primary sources of liquidity in our banking operations include customer deposits, interbank loans and interest and similar income from our lending transactions. The major uses of funds are investments in fixed income securities and the issuance of new loans.
The liquidity of our banking operations is largely dependent on the ability of private and corporate customers to meet their payment obligations to us arising from credit lines and other outstanding commitments. Equally important is also our ability to retain the deposits provided by these customers.
Allianz SE ensures adequate access to liquidity and capital for our operating subsidiaries. The main sources of liquidity available are dividends received from subsidiaries and funding provided by capital markets. We define liquidity resources as assets that are readily available, namely cash, money-market investments as well as government bonds that can be used to meet our funding obligations as they arise.
The major uses of funds include paying interest expenses on our debt funding, operating costs, internal and external growth investments as well as dividend payments to our shareholders.
Allianz Group’s access to funds depends on various factors such as capital market conditions, our access to credit facilities as well as credit ratings and credit capacity.
Equity funding As of December 31, 2010, the issued capital registered at the Commercial Register was € 1,163,520,000, divided into 454,500,000 registered shares with restricted transferability. As of December 31, 2010, Allianz SE held 2,832,789 (2009: 2,584,367) own shares.
Maturity structure of Allianz SE’s senior and subordinated bonds as of December 31, 2010 nominal value in € bn
Short-term debt funding Short-term funding sources available are the MediumTerm Note Programme and the Commercial Paper Programme.
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 well below Euribor and under the USD Commercial Paper Programme at an average rate below U S.-Libor.
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Interest expense in 1. Senior bonds 2 5.625 % bond issued by Allianz Finance II B.V., Amsterdam Volume € 0.9 bn Year of issue 2002 Maturity date 11/29/2012
Interest expense € 117.1 mn 6.5 % bond issued by Allianz Finance II B. V., Amsterdam Volume € 1.0 bn Year of issue 2002 Maturity date 1/13/2025
Interest expense € 63.2 mn 5.375 % bond 4 issued by Allianz Finance II B. V., Amsterdam Volume € 0.8 bn Year of issue 2006 Maturity date Perpetual Bond ISIN DE 000 A0G NPZ 3 Interest expense € 46.5 mn 8.375 % bond 4 issued by Allianz SE Volume USD 2.0 bn Year of issue 2008 Maturity date Perpetual Bond
Interest expense € 138.2mn Total interest expense for subordinated bonds € 543.8 mn 3. Issues matured in 2010
2 Senior bonds and commercial papers provide for early termination rights in case of non-payment of amounts due under the bond (interest and principal) as well as in case of insolvency of the relevant issuer or, if applicable, the relevant guarantor ( Allianz SE). The same applies to two subordinated bonds issued in 2002.
Net cash flow provided by operating activities amounted to € 15.4 billion, up by € 1.8 billion compared to the prior year. Net cash flow provided by operating activities is comprised of net income (loss) plus adjustments for non-cash charges, credits and other items included in net earnings and cash flows related to the net change in operating assets and liabilities. Net income after adding back non-cash charges and similar items increased by € 809 million from € 7,692 million in 2009 to € 8,501million in 2010, primarily due to the respective increase in net income. The € 995 million increase in operating cash flows from the net change in operating assets and liabilities to € 6,913 million is primarily due to higher reserves for insurance and investment contracts as a result of the growth in our Life/Health business, especially in Germany and France. Net cash outflows from 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 € 265 mn, € 21 mn and € 102 mn in 2010, 2009 and 2008, respectively.
In addition, we recorded higher net cash inflows from loans and advances to banks and customers in 2010, particularly from the Holding company and our German life operations.
Net cash inflow provided by financing activities amounted to € 4.5 billion in 2010, compared to € 3.6 billion in 2009. This was largely driven by lower net cash outflows from our refinancing activities. 3 In addition, net cash outflows from the redemption of external liabilities to banks and customers declined. Higher dividend payments to shareholders, as well as slightly lower net cash inflows from policyholders’ account deposits/withdrawals in 2010, partially offset these effects.
Balances with banks payable on demand 5,813 5,243 Balances with central banks 279 198 Cash on hand 169 159 Treasury bills, discounted treasury notes, similar treasury securities, bills of exchange and checks 4 2,486 489 Total cash and cash equivalents 8,747 6,089 3 Refers to repayments and proceeds from issuance of certificated liabilities, participation certificates and subordinated liabilities.
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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), 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.
Composition of Total Revenue Growth We believe that an understanding of our total revenue performance is enhanced when the effects of foreign currency translation as well as acquisitions and disposals (or “changes in scope of consolidation ”) are separately analyzed. Accordingly, in addition to presenting “nominal growth”, we also present “internal growth”, which excludes these effects.
The Allianz Group’s management feels comfortable with the Group’s overall risk profile and has confidence in the effectiveness of the Group’s risk management framework to meet the challenges of a rapidly changing environment as well as day-to-day business needs. This confidence is based on several factors which are outlined in more detail in the sections below. They can be summarized as follows: The Allianz Group is well capitalized and is comfortably meeting its internal and regulatory solvency targets as of December 31, 2010. Measured by solvency ratio and ratings, Allianz is one of the strongest insurance groups in the industry. Even during the 2008 and 2009 financial crisis, external rating agencies confirmed their ratings for Allianz SE. In particular, as of December 31, 2010, Allianz SE had one of the best Standard & Poor’s ratings among the internationally active primary insurance groups in Europe.
Although details of the future regulatory requirements (“Solvency II”) are becoming clearer, the final rules are still evolving. This creates some uncertainties in terms of ultimate capital requirements and business implications. Due to the “market consistent” valuation of both assets and liabilities, the Solvency II regime is expected to lead to a higher volatility of capital requirements especially with regard to longterm asset accumulation and savings products in the life insurance segment. Therefore, product designs, investment strategies and hedging programs may be further changed throughout the industry to mitigate this volatility.
Finally, the Group has the additional advantage of being internationally diversified, key for competing in the insurance industry, with a conservative investment profile and disciplined business practices in the Property-Casualty and Life/Health insurance and Asset Management segments.
There are also some uncertainties regarding a potential escalation of the European sovereign debt crisis.
In addition, insurance companies are faced with the continued trend towards consumer protection, especially in the realms of transparency, sales practices and suitability for life insurance products.
In the following sections, we provide an overview of the Allianz capital and risk management frameworks, which allow the Allianz Group to effectively manage its risks.
Our objective is to maintain available capital at the Group level in excess of the minimum requirements that are determined by our internal risk capital model according to a solvency probability of 99.97 % over a holding period of one year.2 In support of this objective, we require each of our local operating entities to hold available capital resources allowing them to remain solvent at a lower confidence level of 99.93 % over the same one-year holding period. This approach is designed to ensure a consistent capital standard across the Group. In addition, we take into account the benefits of a single operating entity being part of a larger, diversified Group.
We enhanced our internal risk capital model in 2010 with the objective to align with the evolving Solvency II internal model standards. In the following sections, all 2009 internal risk capital results are presented based 1 For detailed information regarding liquidity management, please refer to “Other Risks – Liquidity risks”.
on the new model. More details regarding the changes and their impact on internal risk capital are provided under “Introduction of new internal risk capital framework”.
This risk report provides pre-diversified and Group diversified internal risk capital results. Pre-diversified internal risk capital reflects the diversification effect within each risk category (i. e. market, credit, underwriting and business risk) and does not include the diversification effect across categories. Group diversified internal risk capital, in contrast, captures the total diversification effect across all risk categories and regions. Pre-diversified internal risk capital is used to measure concentration risks. As risks are primarily managed at the operating entity level, pre-diversified internal risk capital is based on a confidence level of 99.93 % consistent with our internal capital standards for operating entities. Group diversified internal risk capital determines the internal capital requirements for the Group and is accordingly based on a confidence level of 99.97 %.
1 Internal risk capital is recalculated based on the new internal risk capital framework. Available capital is also adjusted to reflect our new methodology used to determine the yield curves for valuation purposes in line with the current proposal of the European Insurance and Occupational Pensions Authority (EIOPA).
Allocated internal risk capital by business segment (total portfolio before non-controlling interests) as of December 31, 2010 (December 31, 2009 1) Pre-diversified before tax, in € mn
Total Group diversified internal risk capital increased, particularly because we have a higher exposure to underwriting and business risks compared to the previous year. This increase, however, is partly compensated by lower market risks. More detailed discussions of movements are provided in the sections specifically related to the risk categories.
As of December 31, 2010, the Allianz Group’s eligible capital for the solvency margin, required for the insurance segments and the Asset Management and Banking business, was € 39.6 billion including offbalance sheet reserves2 of € 2.1 billion, surpassing the minimum legally stipulated level by € 16.7 billion. This margin resulted in a cover ratio of 173 % as of December 31, 2010.
2 Off-balance sheet reserves are accepted by the authorities as eligible capital only upon request; Allianz SE has not yet submitted an application. The solvency ratio excluding off-balance sheet reserves would be 164 % (2009: 155 %).
Rating agencies apply their own models to evaluate the relationship between the required risk capital of a company and its available capital resources. The assessment of capital adequacy is usually an integral part of the rating process. Meeting rating agencies’ capital requirements and maintaining strong credit ratings are strategic business objectives of the Allianz Group. The following table provides evidence of the sustainable financial strength of Allianz SE and its ability to meet ongoing obligations. Notably, the ra tings were confirmed and remained stable during the 2008 and 2009 financial crisis: Insurer financial strength ratings of Allianz SE
In addition to its long-term financial strength rating, Standard & Poor’s determines a separate rating for “Enterprise Risk Management” (ERM). As of September 2010, Standard & Poor’s assigned Allianz a “strong” rating for the ERM capabilities of our insurance operations. This rating indicates that Standard & Poor’s regards it as “unlikely that Allianz Group will experience major losses outside its risk tolerance”. Standard & Poor’s stated that the assessment is based on the Allianz Group’s strong risk management culture, strong controls for the majority of key risks and strong strategic risk management.
The Allianz risk management framework adds value through four primary components
As a key element of the risk management framework, the Allianz approach to risk governance is designed to enable integrated management of our local and global risks and to ensure that the Allianz Group’s risk profile remains consistent with our risk strategy and our capacity to bear risks.
This comprehensive framework ensures that risks are properly identified, analyzed and assessed, in the course of a regular process which is consistently implemented across the Group (“Top Risk Assessment”). The Group’s risk appetite is defined by a clear risk strategy and limit structure. Close risk monitoring and reporting allows us to detect potential deviations from our risk tolerance at an early stage both on the Group and operating entity level.
Risk underwriting and identification A sound risk underwriting and identification framework forms the foundation for adequate risk taking and management decisions such as individual transaction approval, new product approval, strategic or tactical asset allocation. The framework includes risk assessments, risk standards, valuation methods and clear targets.
Risk assessment, reporting and monitoring Our comprehensive qualitative and quantitative risk reporting and monitoring framework provides transparency and risk indicators to senior management for our overall risk profile and whether it falls within delegated limits and authorities. For example, risk dashboards, internal risk capital allocation and limit consumption reports are regularly prepared, communicated and monitored.
Risk strategy and risk appetite Our risk strategy clearly defines our risk appetite. It ensures that rewards are appropriate for the risks taken and that the delegated authorities are in line with our overall risk bearing capacity. The risk-return profile is improved through the integration of risk considerations and capital needs into management and decision-making processes. This also keeps risk strategy and business objectives consistent with each other and allows us to take opportunities within our risk tolerance.1 1 For additional information regarding opportunities, please refer to section “Outlook 2011 and 2012”.
Please refer to the “Corporate Governance Report and Statement on Corporate Management” for a detailed description of the Committees of the Board of Management.
worldwide. Group Risk is also operationally responsible for setting limits and monitoring the accumulation of specific types of risks across business lines, for example with respect to natural disasters and exposures to financial markets and counterparties. In addition, Group Risk strengthens and maintains the Group’s risk network through regular and close interaction with the operating entities’ management and key areas such as the local finance, risk, actuarial and investment areas. A strong risk network across the Group allows us to identify risks early and bring them to management’s attention.
As a general principle, the “first line of defense” rests with business managers in the local operating entities and Allianz Investment Management units. They are responsible in the first instance for both the risks and returns of their decisions. Our “second line of defense” is made up of our independent, global risk management function headed by the Group Risk department (“Group Risk”). Group Audit forms the “third line of defense”. On a periodic basis, it independently reviews risk governance implementation, performs quality reviews of risk processes and tests adherence to business standards.
The Allianz Group’s risk landscape is continually evolving due to changes in our environment. In order to adapt, the Global Issues Forum is responsible for early recognition of large-scale developing risks and opportunities as well as for the assessment of longterm trends that may have a significant impact on the Allianz Group’s risk profile. Group Risk maintains a risk network that focuses on emerging risks relevant for underwriting and that is closely linked to the Global Issues Forum. For example, our internal climate experts specifically examine the possible effects of climate change on our business, develop risk management strategies and identify potential opportunities resulting from climate change. Furthermore, Allianz actively participates in the Emerging Risk Initiative of the Chief Risk Officer Forum, which is comprised of the Chief Risk Officers of the major European insurance companies and financial conglomerates. This initiative continuously monitors the industry-wide risk landscape and raises awareness of major risks that are relevant for the insurance industry.
We define internal risk capital as the capital required to protect against unexpected, extreme economic losses. On a quarterly basis, we calculate and aggregate internal risk capital consistently across all business segments (Property-Casualty, Life/Health, Asset Management as well as Corporate and Other), providing a common standard for measuring and comparing risks across the wide range of different activities that we undertake as an integrated financial services provider.
The Allianz Group has used an internal risk capital model for several years for the management of its risk and solvency position. In 2008, we launched an internal multi-year Solvency II Umbrella Project to meet Solvency II internal model requirements starting in 2013. The high-level objectives of this project are to (i) improve data quality, (ii) enhance analysis capabilities, (iii) strengthen model robustness and process governance and (iv) ensure that all future qualitative Solvency II requirements will be met.
Many of these objectives have now been met. We have strengthened our risk analysis infrastructure by implementing a best practice technical platform with an improved methodology, increased coverage of modeled sources of risk and extended functionality and user benefits within our internal risk capital framework. After successful implementation and runs in parallel with the framework formerly in place, the Board of Management of Allianz SE approved the use of this new framework for 2010 risk management and reporting purposes.
We explain below the major changes compared to the old internal risk capital framework and their impact on results.
The main changes to our internal risk capital framework relate to the market and credit risk modules which are described below in detail. The underwriting risk modules used for our Property-Casualty and Life/ Health segments were not materially changed. We also harmonized the treatment of economic tax liabilities across the Property-Casualty and Life/Health segments, leading to a more accurate reflection of the decreased tax liability under adverse conditions as modeled in the risk capital framework.
Changes related to market risk modeling The new internal risk capital framework captures additional sources of risk such as credit spread risk related to bonds and implied volatility risk. We make use of replicating portfolio techniques to efficiently integrate life insurance liabilities within our Monte Carlo simulation based framework. Due to the inclusion of additional sources of risk and the consideration of individual portfolio specific market risk scenarios such as non-parallel yield curve shifts, internal market risk capital increased overall with a particular impact on the Life/Health segment. This impact is partly offset, because we also changed the methodology used to determine the yield curves for valuation purposes. In line with the current proposal of the European Insurance and Occupational Pensions Authority (EIOPA), we use macroeconomic techniques to derive long-term rates for maturities, where sufficiently deep and liquid markets do not exist, and we adjust the risk-free yield curves for the Life/Health segment to make allowance for a liquidity premium.
In addition, our framework allows us to specify internal risk capital for selected risk drivers (e.g. market events) by varying only these drivers while keeping all others stable. We are also able to calculate internal risk capital at different levels of our portfolio hierarchy up to the Group level (e.g. at local operating entity or segment level).
An efficient re-valuation of the liabilities of our insurance business under many scenarios is a prerequisite for advanced and timely analysis capabilities, which are important for effective risk management. Therefore, we apply replicating portfolio techniques, a widely known concept in the industry; Because standard financial market instruments are typically easy to evaluate, the liabilities and changes in their economic value due to market movements are replicated by portfolios of these instruments particularly taking into account the guarantees related to our life portfolios. We apply dedicated statistical quality and sensitivity tests for each single replicating portfolio to ensure minimum quality criteria are met as defined by the Group Parameters and Assumptions Approval Committee.
To calculate internal risk capital using the VaR approach at the Allianz Group level, we assume a confidence level of 99.97 % and a holding period of one year, which is assumed to be equivalent to an “AA” rating of Standard & Poor’s. We apply a holding period of one year because it is generally assumed that it may take up to one year to identify a counterparty to whom we can transfer the assets and liabilities in our portfolio. This capital requirement is sufficient to cover losses in any one year equivalent to a 3-in10, 000 year event. Although our internal risk capital is based on extreme events, it can also be applied towards managing the risks resulting from reasonably possible, smaller adverse events that could occur in the near term, because the results allow us to analyze our exposure to each source of risk both separately and in aggregate.
Our internal risk capital model makes use of various techniques which require a significant number of estimates and assumptions applied to risk and financial data, both internally and externally derived. Internal controls exist within our internal risk capital and financial reporting frameworks which cover the use of estimates and assumptions.1 Three specific sets of assumptions include the following.
1 For additional information regarding our internal controls over financial reporting, please refer to the section “Controls and Procedures – Internal Controls over Financial Reporting”.
When calculating the fair values of assets and liabilities, the assumptions regarding the underlying riskfree yield curve are crucial to determine future cash flows and to discount them. We now apply the same methodology as provided by the European Insurance and Occupational Pensions Authority (EIOPA) for the fifth quantitative impact study (QIS 5), which is a major step for testing the final implementation measures of the evolving Solvency II model standards. Assuming a long-term equilibrium interest rate per currency, macroeconomic techniques are used to derive long-term rates for maturities without sufficiently deep and liquid markets. The overall aim is to construct a stable and robust valuation framework that reflects current market conditions and at the same time represents the economic view regarding the expected behavior of unobservable long-term interest rates. This is of particular relevance for the Allianz Group due to its long-term life insurance business.
Consistent with the methodology as currently proposed by EIOPA, we also adjust the risk-free yield curves for the Life/Health segment to make allowance for a liquidity premium. While the liquidity premium has been significant in the distressed markets of recent times, it is expected to be negligible under normal market conditions. Because the degree of liquidity of a financial instrument has an impact on the value of an investment portfolio value, it is considered to be appropriate to reflect liquidity in the valuation of insurance liabilities as well.
The degree to which diversification can be realized depends in part on the level of relative concentration of those risks. For example, the greatest diversification is in general obtained in a balanced portfolio without any disproportionately large exposures to any one or more risks. In addition, the diversification effect depends upon the relationship between sources of risks. One measure of the degree of relationship between two sources of risk is linear correlation, characterized by a value between “–1” and “+1”.
To the extent available, we use non-market assumptions approved by supervisory authorities and actuarial associations to enhance our models. In addition, the internal risk capital model is based on assumptions regarding claims trend and inflation, mortality, morbidity, future lapse rates, etc.
Overall, we consider the assumptions made for our internal risk capital calculations and for reserving to be appropriate and adequate.
an ag em en t R ep or t 1 The premium risk which our credit insurance entity Euler Hermes is exposed to due to its business model is also covered here, as this type of risk is a special form of credit risk. 2 Although the internal risk capital requirements for the Asset Management segment only reflect business risk (please see below for further information), the evaluation of market risk and credit risk on the account of third parties is an integral part of the risk management process of our local operating entities. 3 Please see note 44 to our consolidated financial statements for additional risk disclosure regarding derivative financial instruments.
Possible losses caused by changes in interest rates, equity prices and real estate values or their volatilities as well as by changes in credit spreads and foreign exchange rates.
Possible losses resulting from inadequate or failed internal processes, from personnel and systems, or from external events, as well as unexpected changes in business assump tions and unanticipated earnings fluctuations due to a decline in income without corresponding decrease in expenses.
– Substantially all of our assets (including bonds, mortgages, investment funds, loans, floating rate notes, equities and real estate) and liabilities (including the cash flow profile of all technical reserves as well as deposits and issued securities). If applicable for the Life/Health segment, the model reflects the interaction between assets and liabilities driven by local management decisions such as investment strategies and policyholder participation rules.
Our internal risk capital model expresses the potential “worst case” amount in economic value that we might lose at a certain level of confidence. However, there is a statistically low probability of 0.03 % that actual losses could exceed this threshold.
We assume that model and scenario parameters derived from historical data are a useful approximation to characterize future possible risk events; if future market conditions differ substantially from the past, as in the unprecedented financial crisis of 2008 and 2009, then our VaR approach may be too conservative or too liberal in ways that are too difficult to predict. Our ability to back-test the model’s accuracy is limited because of the high confidence level of 99.97 % and the one-year holding period as well as limited data for some insurance risk events such as natural catastrophes. Furthermore, as historical data is used where possible to calibrate the model, it cannot be used for validation. Instead, we validate the model and parameters through sensitivity analyses and external reviews by independent consulting firms focusing on methods for selecting parameters and control processes. Overall, we believe that our validation efforts are effective to the extent validation is possible, and that our model adequately assesses the risks to which we are exposed.
In particular for life portfolios with embedded guarantees, the available replicating instruments may be too simple or too restrictive to capture all factors affecting the change in value of insurance liabilities. Therefore, the replicating portfolio, which is used to calculate internal risk capital, can only be regarded as optimal, subject to the set of available replicating instruments, and it may deviate from the true liabilities in terms of value and behavior under market movements. However, we believe that overall the liabilities are adequately represented by the replicating portfolios due to our stringent data quality steering.
As our internal risk capital model takes into account the change in economic “fair value” of our assets and liabilities, it is crucial to accurately estimate the “fair market value” of each item. For some assets and liabilities, it may be difficult if not impossible, in turbulent financial markets, to obtain either a current market price or to apply a meaningful mark-to-market approach. For certain assets and liabilities, where a current market price for that instrument or similar instruments is not available, we apply a mark-tomodel approach. For some of our liabilities, the accuracy of fair values depends on the quality of the actuarial cash flow estimates. Despite these limitations, we believe the estimated fair values are appropriately assessed.
We apply customized derivative valuation tools which are suitable to our business to reflect substantially all of our derivatives in internal risk capital. The internal risk capital model used for largely all of our major insurance operations currently only allows for the
As we are an integrated financial services provider offering a variety of products across different business segments and geographic regions, diversification is key to our business model. Diversification helps us manage our risks efficiently by limiting the economic impact of any single event and by contributing to relatively stable results and risk profile in general. As discussed above, the degree to which the diversification effect can be realized depends not only on the correlation between risks but also on the level of relative concentration of those risks. Therefore, our aim is to maintain a balanced risk profile without any disproportionately large risks.
Clearly defined processes ensure that exposure concentrations and utilization of limits are appropriately monitored and managed. The limit framework covers counterparty concentration risk related to credit and equity exposures.
It is the ultimate responsibility of the Board of Management of Allianz SE to decide upon maximum country and obligor exposure limits from the Group’s perspective (i. e. the maximum concentration limit). This limit takes into account the Allianz Group’s portfolio size and structure as well as its overall risk strategy. The Board of Management of Allianz SE delegates authorities for limit setting and modification to the Group Risk Committee and Group Chief Risk Officer by clearly defining maximum limit amounts. All limits are subject to annual review and approval according to the delegated authorities.
As the fair values of our investment portfolios depend on financial markets, which may change over time, we are exposed to market risks. For example, an unexpected overall increase in interest rates or an unanticipated drop in equity markets may generally result in a devaluation of the portfolios. In order to limit the impact of any of these financial market changes, we have a limit system in place, which is based on a variety of different risk measures including financial VaR, equity sensitivities, asset durations and duration mismatch as well as investment leeways around the benchmark portfolio approved by the Board of Management of Allianz SE.
In addition to any local regulatory requirements, the Group’s policy is to generally require each operating entity to match the currency of their material assets and liabilities or to hedge foreign currency risk. From the perspective of the operating entity’s balance sheet, this leaves only an immaterial amount of currency risk exposure related to the respective local currency. However, for the Group’s reporting in Euro, foreign currency risk results from the fair net asset value of our non-Euro operating entities. If non-Euro foreign exchange rates decline against the Euro, from a Group perspective, the Euro equivalent net asset values also decline. This risk is allocated to the respective business segments.
Beginning in 2010, we have been able to use our new risk analysis infrastructure to improve the risk disclosure related to market risk, which is our major source of risk. The following table presents anticipated changes of the net fair value of our assets and liabilities under certain standard financial scenarios, which are defined by reasonably possible individual movements in key market parameters while keeping all other parameters constant. The correlations of these scenarios have a significant impact on the ultimate overall market risk as measured by our internal risk capital model. Related results are presented in the following diagram, which replaces the average, high and low internal market risk capital disclosure provided in prior years.
Pre-diversified Property-Casualty 717 903 482 456 2,084 2,207 1,305 1,297 542 937 5,130 5,800 Life/Health 2,944 3,148 2,445 2,110 3,584 3,507 1,069 1,201 788 631 10,830 10,598 Asset Management — — — — — — — — — — — — Corporate and Other 421 288 732 487 1,660 2,121 166 143 56 283 3,036 3,322 Total Group 4,082 4,340 3,660 3,053 7,328 7,835 2,541 2,641 1,386 1,851 18,997 19,720 Share of total Group internal risk capital in % 42 45 Group diversified
Due to our insurance business model, interest rate risk is highly relevant for the Property-Casualty and Life/Health segments, bearing in mind that our life insurance entities typically offer long-term asset accumulation and savings products. Some local asset markets are not sufficiently deep and liquid to adequately match our long-term life insurance obligations, exposing us to structural mismatch positions. Interest rate risk arises from the net position between the insurance liabilities and the investments in fixed income instruments, in particular bonds, loans and mortgages, which are different in terms of maturity and size. The internal risk capital model provides management with information regarding the cash flow profiles of the segments’ liabilities, which allows 1 For 2009, this scenario is defined by a parallel yield curve shift. For 2010, we apply a scenario which is considered to be more likely in line with the evolving Solvency II standards. It assumes that the long-term rates for maturities with no sufficiently deep and liquid markets converge towards a long-term equilibrium interest rate derived by macroeconomic techniques. This approach results in a non-parallel shift of yield curves.
The Allianz Group also strives to leverage the diversification effect: while the potential payments related to our liabilities in the Property-Casualty segment are typically shorter in maturity than the financial assets backing them, the opposite usually holds true for our Life/Health segment due to the long-term life insurance contracts. This provides us with a natural hedge on an economic basis at the Group level.
2 Please see note 20 to our consolidated financial statements for an overview regarding weighted average guaranteed minimum interest rates of the Allianz Group’s largest operating entities in the Life/Health segment.
3 Please see note 20 to our consolidated financial statements for additional information regarding concentration of life business.
Our operating entity Allianz Life Insurance Company of North America mainly offers equity-indexed and fixed annuities as well as variable annuities. These products typically provide some guarantees to the policyholders. Depending on their specific type, these guarantees gain in value for the policyholder when interest rates decrease, equity markets drop or volatilities rise. We have hedges in place to mitigate these risks. While we bear most of the risk related to the guarantees of variable annuities, we are able to share losses with policyholders of equity-indexed and fixed annuity contracts, subject to minimum guaranteed crediting rates and index caps. As the valuation of these guarantees is reflected in our internal risk capital model, they are also managed by the limit framework, based on the internal model.
The primary market risks in the Corporate and Other segment are equity risks. The Corporate and Other segment manages the equity investments of Allianz SE including strategic participations and its finance subsidiary holding companies, as well as securities issued to fund the capital requirements of the Allianz Group. Some of the securities issued qualify as eligible capital for existing regulatory solvency requirements to the extent they constitute subordinated debt or are perpetual in nature.
Due to the fact that we manage our net interest rate risk exposure from a Group perspective, the assets and liabilities of the Corporate and Other segment are not necessarily matched in terms of interest rate duration. However, the internal interest rate risk capital, that is allocated to the Corporate and Other segment, adequately reflects the duration mismatch.
We do not consider market risk relating to our Banking operations to be significant at the Group level.
We classify credit risk into counterparty risk and country risk. Both types of risk are covered by our internal credit risk capital model.
The Allianz Group’s internal credit risk capital model is an integral part of the overall internal risk capital framework. It is centrally developed, parameterized and controlled. Group-wide credit data is collected following a centralized process and using standard obligor and obligor group mappings.
Allocated internal credit risk capital by business segment (total portfolio before tax and non-controlling interests) as of December 31, 2010 (December 31, 20091) Pre-diversified, in € mn
Total Group diversified internal credit risk capital rose for the Property-Casualty and Life/Health segments, because the exposure increased due to new reinsurance agreements and investments as well as changes in foreign exchange rates.
The following table presents the average internal risk capital for credit risk calculated over four quarters of 2010 and 2009, as well as the high and low quarterly internal risk capital amounts calculated in both years.
Credit risk – reinsurance We take steps to limit our liability from insurance business by ceding part of the risk exposure we assume to the international reinsurance market. This exposes us to credit risk related to external reinsurers. We may experience losses over a certain time horizon due to insufficient recoverability of reinsurance receivables on the balance sheet or due to defaulting benefits related to reinsurance treaties in force.
A dedicated team selects our reinsurance partners and considers only companies with strong credit profiles. We may also require letters of credit, cash deposits or 2 Numbers before tax based on new internal risk capital framework and consistent with presentation of internal credit risk capital in this section.
Reinsurance recoverables by rating class 1 as of December 31, 2010 in € bn
Fixed income investments by rating class as of December 31, 2010 fair values in € bn
In addition to these fixed income investments, the Allianz Group also has non-tradable self-originated mortgage loan portfolios mainly in Germany and the U.S.A. As of December 31, 2010, 96 % of the German mortgage portfolio is considered to be equivalent to a Standard & Poor’s investment grade rating based on an internal scoring. The U.S. commercial mortgage loan investments are subject to thorough credit assessment and conservative underwriting by the responsible credit manager. In 2010, there were two cases of delinquent or foreclosed commercial mortgage loans due to the financial crisis. Taking into account that there have been only five delinquent or foreclosed loans since 1994 and based on additional stress test analysis, we still regard the portfolio as investment grade. The North American Allianz insurance companies have a residential mortgage portfolio exposure of less than € 1.0 million.
As of December 31, 2010, 14 % of our total Group pre-diversified internal credit risk capital is allocated to credit insurance exposures of Euler Hermes.
Premium catastrophe Premium non-catastrophe 12/31/2009 12/31/2010 1 As risks are measured by an integrated approach on an economic basis, internal risk capital takes reinsurance effects into account.
Total Group-diversified internal underwriting risk capital increased mainly due to higher premium catastrophe risks, which are primarily driven by two effects. First, following a decision by the Group Risk Committee, we changed the reinsurance program and reduced our external reinsurance protection against extreme large losses, in order to enhance the protection against multiple higher frequency and mid-sized losses and mitigate earnings volatility. Secondly, our natural catastrophe exposure grew due to larger business volume and adverse developments in foreign exchange rates particularly related to the U.S. Dollar, Australian Dollar and Japanese Yen.
The table below presents the average internal risk capital calculated for underwriting risks over the four quarters of 2010 and 2009, as well as the high and low quarterly internal risk capital amounts calculated in both years.
Average, high and low allocated internal underwriting risk capital by source of risk (total portfolio before non-controlling interests and after Group diversification)
Reserve Biometric Total Group € mn € mn € mn € mn € mn € mn € mn € mn € mn € mn
Property-Casualty loss ratios 2 for the past seven years in %
Premium risk is classified as catastrophe risk (“premium CAT risk”) and non-catastrophe risk (“premium non-CAT risk”). We primarily quantify premium risk based on actuarial models that are used to derive loss distributions.
Natural disasters such as earthquakes, storms and floods represent a significant challenge for risk management due to their accumulation potential and occurrence volatility. In order to measure such risks and better estimate the potential effects of natural disasters, we use special modeling techniques in which we combine data about our portfolio (such as the geographic distribution and characteristics of insured objects and their values), with simulated natural disaster scenarios to estimate the magnitude and frequency of potential losses. Where such stochastic models do not exist (e.g. flood risk in Italy), we use deterministic scenario-based approaches to estimate probable losses.
In 2010, we further increased the coverage of our model inventory and included additional regions and perils related to smaller business activities in Eastern Europe and Asia in our integrated natural catastrophe risk model.
About 35 % of the pre-diversified internal premium risk capital allocated to natural catastrophe risk was borne by our entities operating locally in the U.S.A. and Germany as of December 31, 2010. Our largest exposures to natural catastrophes are provided in the following table.
Europe Windstorm (Extratropical Cyclone) 860 U.S.A. Hurricane (Tropical Cyclone) 820 Australia Earthquake 780 Germany Hail 730 U.S.A. California Earthquake 670
Reserve risk We estimate and hold reserves for past claims that have not yet been settled. If the reserves are not sufficient to cover the claims to be settled in future due to unexpected changes, we will experience losses (“reserve risk”). An indicator for this coverage is the amount of net surplus2 compared to the initial reserves, which is provided on a calendar year basis over the past five years in note 19 to our consolidated financial statements.
The future uncertainty regarding potential loss developments is significantly driven by the risks underwritten.
Under our Life product management framework, product development and approval are local processes at the operating entities. However, there are clear Group requirements for new high-risk products or product features to ensure that the operating entities are aware of the associated risks, alternative risk mitigating product features are considered in the design phase and material real world assumptions are explicitly acknowledged as a core component of the business model. The framework also defines profitability standards, while at the same time allowing for individual exceptions approved for competitive reasons in light of local market characteristics. Profitability of new and existing business is closely monitored and regularly reported to the Board of Management of Allianz SE.
Business risks consist of operational risks and cost risks. Operational risks represent the loss resulting from inadequate or failed internal processes, from personnel and systems, or from external events such as interruption of business operations due to a breakdown of electricity or a flood, damage caused by employee fraud or the losses caused by court cases. Operational risks also include legal risk, whereas strategic risk and reputational risks are excluded in accordance with the requirements of Solvency II and Basel II. Cost risks consist of unexpected changes in business assumptions and unanticipated fluctuations in earnings arising from a decline in income without a corresponding decrease in expenses. They also include the risk of budget deficits resulting from lower revenues or higher costs than budgeted.
1 Please see note 20 to our consolidated financial statements for additional information regarding concentration of insurance risk in the Life/Health segment.
Allocated internal business risk capital by business segment (total portfolio before tax and non-controlling interests) as of December 31, 2010 (December 31, 20092)
The internal risk capital requirements for the Asset Management segment only reflect business risk, because substantially all of the investments managed by the Asset Management operating entities are held for the benefit of either third parties or Allianz insurance entities.3 2 Recalculated based on new internal risk capital framework.
Allianz has developed a Group-wide operational risk management framework that focuses on early recognition and proactive management of operational risks. The framework defines roles and responsibilities, risk processes and methods and has been implemented at the major Group companies. Local risk managers ensure this framework is implemented in the respective operating entities. The operating entities identify and evaluate relevant operational risks and control weaknesses via a structured self assessment. Furthermore, operational losses are collected in a central loss database by all our operating entities. An analysis of the causes of significant losses is used to enable the operating entities to implement measures to avoid or reduce future losses. The measures adopted may include revising processes, improving failed or inappropriate controls, installing comprehensive security systems and strengthening emergency plans. This structured reporting is designed to provide comprehensive and timely information to senior management of the Allianz Group and the relevant local operating entities.
Major failures and disasters which could cause a severe disruption to working environments, facilities and personnel, may represent significant operational risks for the Allianz Group and its operating entities. Our Business Continuity Management (BCM) framework strives to protect critical business functions from these effects to enable them to carry out their core tasks in time and at the quality required. Regularly enhanced, BCM activities and knowledge are embedded within the organization’s culture.
Liquidity risk has two aspects: the risk that short-term current or future payment obligations cannot be met or can only be met on the basis of altered conditions, and the risk that in the event of a company liquidity crisis, refinancing is only possible at higher interest rates or by liquidating assets at a discount. Liquidity risk can arise primarily if there are mismatches in the timing of cash payments and funding obligations. Liquidity risk does not include the risk of a change in market prices due to a worsening of the market liquidity of assets, as this is a component of market risk analyzed through our internal risk capital model (e.g. the assumed volatility of real estate investments takes historical observations into account). Funding risk, a particular form of liquidity risk, arises when the necessary liquidity to fund illiquid asset positions cannot be obtained at the expected terms and when required.
We employ actuarial methods for estimating our liabilities arising from insurance contracts. In the course of standard liquidity planning we reconcile the cash flows from our investment portfolio with the estimated liability cash flows. These analyses are per
Asset Management segment With respect to our Asset Management business, forecasting and managing liquidity is a regular process, designed to meet both regulatory requirements and Group standards. This process is supported by liquidity guidelines for new products, implemented at our Allianz Global Investors entities.
Reputational risk is the risk of direct loss or loss in future business caused by a decline in the reputation of the Allianz Group or one or more of its specific operating entities among its stakeholders (i. e. shareholders, customers, staff, business partners or the general public). First, every action, existing or new transaction or product can lead to losses in the value of our reputation, either directly or indirectly, and can also result in losses in other risk categories. Second, every loss in other risk categories, irrespective of its size, can pose reputational risk to the Allianz Group. Therefore, reputational risk can both cause and result from losses in all risk categories such as market or credit risks.
These risks are evaluated and analyzed quarterly in the same way as reputational risk. The Board of Management of Allianz SE formulates the business objectives.
Disclosures Relating to Financial Instruments The risk disclosure requirements of IFRS 7 are reflected in the consolidated financial statements and the preceding risk report in the group management report.
This risk report, with the exception of the “Risk Management Priorities for 2011” section, is an integral part of the audited consolidated financial statements.
We are also focusing on the development and implementation of an internal model for operational risk which will be fully integrated into the existing risk analysis infrastructure.
Based on the various initiatives underway, we are confident, that we will achieve full compliance with the final Solvency II requirements once they become binding in 2013.
We have set consistent documentation requirements across the Allianz Group on elements such as process flows, key controls and their execution. Maintaining the quality of control design and control execution plays a major role, and we conduct an annual assessment of our system by testing the effectiveness of the design and execution of process level, entity level and IT controls.
Governance Responsibility for ensuring the completeness, accuracy and reliability of our consolidated financial statements rests with the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of Allianz SE, supported by Group Center functions, the Group Disclosure Committee and operating entities.
Internal Controls over Financial Reporting In line both with a prudent risk governance structure and with regulatory requirements, we use an internal control system over financial reporting (ICOFR) to
At the local level, entities identify processes and risk scenarios that could lead to material financial misstatements based on the likelihood of the risk scenario materializing and on the potential magnitude of any resulting error. In addition, qualitative considerations such as account composition are part of the risk identification process.
For each significant risk identified within each process, key controls are required to mitigate the likelihood and potential magnitude of a financial misstatement resulting from the risk materializing (process level controls).
An additional control category – entity level controls – includes those affecting an entity’s entire internal control structure and therefore does not correspond to specific accounts or processes. In accordance with the COSO framework, such controls include those relating to the control environment of an organization, the effectiveness of information and communication flows, the risk assessment process and the ongoing monitoring of the internal control system.
For information on the Use of Estimates and Assumptions please refer to note 3 of our consolidated financial statements.
149 58 Your Allianz 65 Management Discussion and Analysis 118 Risk Report and Financial Control
These controls include the validation of models and assumptions by independent external reviews and continuous benchmarking to market and/or peer assumptions and practices. To the extent available, we also require the use of non-market assumptions approved by supervisory authorities and actuarial associations to enhance our models.
Diekmann Dr. Achleitner Bäte Bauer Booth Cucchiani Dr. Faber Dr. Mascher Ralph Dr. Zedelius
The Group Disclosure Committee ensures that the CEO and CFO of Allianz SE are aware of all material information that could affect our disclosures and to ascertain the completeness and accuracy of the information provided in the quarterly and annual financial reports. The committee meets on a quarterly basis before the issuance of financial reports.
Subsidiaries within the scope of our control system are individually responsible for adhering to the Group’s internal control policy and creating local Disclosure Committees that are similar to the Group level committee. The entities’ CEOs and CFOs provide periodic sign-offs to the management of Allianz SE, certifying the effectiveness of their local system of internal controls as well as the completeness, accuracy and reliability of financial data reported to the Group.
Further control mechanisms We view a strong internal control environment as key to developing the business successfully and building trust with external parties. We have therefore implemented an enhanced internal control environment which is similar to the internal control system we currently run over financial reporting in our Market Consistent Embedded Value (MCEV) computation and reporting process across our largest Life operating entities.
Supplementary Information to the Consolidated Balance Sheets 208 7 Cash and cash equivalents 208 8 Financial assets carried at fair value through income 212 10 Loans and advances to banks and customers 214 11 Reinsurance assets 215 12 Deferred acquisition costs 216 13 Other assets 218 14 Non-current assets and assets and liabilities of disposal groups classified as held for sale 219 15 Intangible assets 223 16 Financial liabilities carried at fair value through income 223 17 Liabilities to banks and customers 224 18 Unearned premiums 224 19 Reserves for loss and loss adjustment expenses 232 20 Reserves for insurance and investment contracts 236 21 Financial liabilities for unit-linked contracts 236 22 Other liabilities 237 23 Certificated liabilities 238 24 Participation certificates and subordinated liabilities
ASSETS Cash and cash equivalents 7 8,747 6,089 8,958 Financial assets carried at fair value through income 1 8 9,843 14,321 14,240
Non-current assets and assets of disposal groups classified as held for sale 14 299 — 419,513
Reserves for loss and loss adjustment expenses 19 66,474 64,441 63,924 Reserves for insurance and investment contracts 20 349,793 323,801 298,057 Financial liabilities for unit-linked contracts 21 64,847 56,963 50,450
Liabilities of disposal groups classified as held for sale 14 188 — 411,816
Ceded premiums written (4,873) (5,061) (5,474) Change in unearned premiums (372) (172) (253)
Diluted earnings per share 51 11.12 9.30 (5.29) from continuing operations 11.12 10.17 8.77 from discontinued operations — (0.87) (14.06)
Available-for-sale investments Reclassifications to net income (1,353) (753) 560 Changes arising during the year 925 4,242 (9,116)
Share of other comprehensive income of associates Reclassifications to net income (2) 6 — Changes arising during the year 41 26 (107)
Balance as of January 1, 2008, as previously reported 28,321 12,618 (3,656) 10,470 47,753 3,628 51,381
Paid-in capital 50 — — — 50 — 50 1 The adjustments relate to the change in accounting policy for fixed-indexed annuities as described in note 4. 2 Includes € (1,738) mn changes in non-controlling interests from the derecognition of Dresdner Bank and € 337 mn related to capital movements of subsidiaries in whom the
Share of earnings from investments in associates and joint ventures (183) (80) (12) Impairment loss recognized on remeasurement of assets of disposal group to fair value less costs to sell as of September 30, 2008 — — 1,409 Realized gains/losses (net) and impairments of investments (net) of
Financial assets designated at fair value through income 14,161 4,193 4,105 Available-for-sale investments 125,134 94,459 106,665 Held-to-maturity investments 242 419 319 Investments in associates and joint ventures 1,042 1,957 1,285 Non-current assets and assets of disposal groups classified as held for sale — — 2,199 Real estate held for investment 682 391 491 Loans and advances to banks and customers (purchased loans) 9,248 11,537 8,735 Property and equipment 380 210 431 1 Includes reclassifications from loans and advances to banks and customers to cash and cash equivalents at the U.S. subsidiaries.
Net cash flows arising during the fourth quarter of 2008 from assets and liabilities of disposal groups classified as held for sale — — 9,327 Change in other loans and advances to banks and customers (originated loans) 3,696 1,384 (8,673)
Net cash flow provided by (used in) financing activities 4,465 3,649 (11,320)
The net cash flows provided by (used in) discontinued operations for the first nine months of 2008 contribute to the net cash flows of the operating, investing, and financing activities. Only the net cash flows of discontinued operations of the fourth quarter of 2008 are shown on a net basis in one single line within the investing activities.
Net cash flow provided by operating activities from discontinued operations — — 24,367 Net cash flow provided by (used in) investing activities from discontinued operations — — (1,888) Net cash flow provided by (used in) financing activities from discontinued operations — — (8,520) Net cash flow provided by discontinued operations — — 13,959
Supplementary information on the consolidated statement of cash flows Income taxes paid (1,347) (831) (2,890)
Novation of quota share reinsurance agreement Reinsurance assets — — (29) Deferred acquisition costs — — 1 Payables from reinsurance contracts — — (28)
Cominvest Available-for-sale investments — 179 — Loans and advances to banks and customers — 7 — Deferred tax assets — 14 — Intangible assets — 691 — Property and equipment — 3 — Other assets — 39 — Assets of disposal groups classified as held for sale — (933) — Liabilities to banks and customers — 1 — Deferred tax liabilities — (72) — Certificated liabilities, participation certificates and subordinated liabilities — (57) — Other liabilities — (148) — Non-controlling interests — (5) — Liabilities of disposal groups classified as held for sale — 281 —
Nature of operations Allianz SE and its subsidiaries (the Allianz Group) have global Property-Casualty insurance, Life/Health insurance and Asset Management operations in around 70 countries, with the largest of its operations in Europe. The Allianz Group’s headquarter and Allianz SE as its parent company are located in Munich, Germany. Allianz SE is recorded in the Commercial Register of the municipal court Munich under its registered address at Koeniginstraße 28, 80802 Munich.
Allianz SE is a stock corporation in the form of a European Company (Societas Europaea). Allianz SE shares are listed on all German stock exchanges and Allianz SE American Depositary Receipts (ADRs) are traded in the U.S.A. over the counter on OTCQX.
The consolidated financial statements of the Allianz Group for the year ended December 31, 2010 were authorized for issue by the Board of Management on February 21, 2011.
Business combinations from January 1, 2010 are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. Acquisition-related costs are generally recognized as expenses. For each business combination, the Allianz Group has an option to measure any noncontrolling interests in the acquiree either at the acquisition date fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or a liability, will be recognized in accordance with the applicable IFRS. If the contingent consideration is classified as equity, it will not be remeasured and its subsequent settlement will be accounted for within equity.
When the Allianz Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. In the event that Allianz Group acquires an insurance business, the Allianz Group reclassifies insurance contracts to be consistent with its policy.
For business combinations with an agreement date before March 31, 2004, non-controlling interests are recorded at their proportion of the pre-acquisition carrying amounts of the identifiable assets and liabilities.
Fi na nc ia l S ta te m en ts financial and operating policies of an enterprise. Significant influence is presumed to exist where the Allianz Group has at least 20 % but not more than 50 % of the voting rights unless it can be clearly demonstrated that this is not the case. If the Allianz Group holds less than 20 % of the voting power of the investee, it is presumed that the Allianz Group does not have significant influence unless such influence can be clearly demonstrated. Joint ventures are entities over which the Allianz Group and one or more other parties have joint control.
The Allianz Group accounts for all material investments in associates on a time lag of no more than three months. The positive difference between the cost of the investment and the Allianz Group’s share of the net fair value of the associate’s or joint ventures identifiable assets and liabilities is accounted for as goodwill and included in the carrying amount of the investment. Income from investments in associated enterprises and joint ventures, which reflects the earnings and not distributions of the associate or jointly-controlled entity, is included in interest and similar income. Profits or losses resulting from transactions between the Allianz Group and the associated enterprise or joint venture are eliminated to the extent of the interest in the associate or joint venture. Accounting policies of associated enterprises and joint ventures have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Allianz Group.
– financial liabilities carried at fair value through income, – liabilities to banks and customers, – investment contracts with policyholders, – derivative financial instruments used for hedging, – financial liabilities for puttable equity instruments, – certificated liabilities or – participation certificates and subordinated liabilities.
Subsequent measurement of financial instruments The subsequent measurement of financial instruments depends on their classification as follows: Financial assets and liabilities carried at fair value through income Financial assets and liabilities carried at fair value through income include financial assets and liabilities held for trading and financial assets and liabilities designated at fair value through income.
Available-for-sale equity securities are measured at fair value where the ownership interest is less than 20 % and the fair value is reliably measurable. Available-for-sale equity securities include investments in limited partnerships. The Allianz Group records its investments in limited partnerships at cost, where the ownership interest is less than 20 %, and when the limited partnerships do not 152 Consolidated Financial Statements 159 Notes to the Consolidated Financial Statements 208 Supplementary Information to the Consolidated Balance Sheets 242 Supplementary Information to the Consolidated Income Statements 257 Other Information
Held-to-maturity investments Held-to-maturity investments are debt securities with fixed or determinable payments and fixed maturities for which the Allianz Group has the positive intent and ability to hold to maturity. These securities are recorded at amortized cost using the effective interest method over the life of the security, less any impairment losses. Amortization of premium or discount is included in interest and similar income.