Participation certificates, subordinated liabilities ¤bn 12 – 13.7 14 12 1 1 1 139
Market capitalization at year-end4) ¤bn 36.7 66.8 22.0 64.2 98.0 81.8 77.6 27
Premium income from property and casualty insurance was up 0.3 percent to 43.4 billion euros. Before currency and consolidation effects, growth came to 4.0 percent. This represented 50.2 percent of total revenues. The combined ratio decreased 8.7 percentage points to 97.0 percent. Net income of the segment came to 4.5 billion euros.
In life and health insurance, total revenues increased 5.3 percent to 42.3 billion euros. Before currency and consolidation effects, growth even came to 10.9 percent. The share of premium income from investment-oriented products amounted to 51.1 percent. The success of our cost-cutting efforts is also reflected in the expense ratio, which – in relation to total net premiums earned – once again improved considerably to 7.9 (10.0)
percent. Investment income rose from 7.4 to 9.8 billion euros. We posted a net loss of 48 million euros for the year, compared to net income of 19 million euros in the previous year.
In 2003, we focused our efforts on the following activities: we strengthened our capital base, improved our operating profitability and reduced the complexity of our business portfolio. The progress we made is considerable.
Allianz is one of the five leading asset managers in the world. Net inflows to assets under management for third-party investors reached 25 billion euros. The gradual depreciation of the U.S. dollar in the course of the year diminished the true dimension of these inflows, which grew by only 1 percent in euro accounts to 565 billion euros. The operating result amounted to 733 million euros. After deduction of acquisition-related expenses as well as taxes and minority interests, the segment posted a loss of 270 million euros, which was less than we had expected.
My colleagues on the Board of Management and I know that there is no task more important for the management team, our employees and myself than to restore the stability of the company and to bring it back into the league of the most respected international financial services providers. That is why we promised you at that time that we would not shy away from making hard, unpleasant changes. As
After the loss in 2002, which was one of the worst years in our proud history, we generated a profit of 1.6 billion euros. At the end of the year, our market capitalization stood at 36.7 billion euros. In view of this turnaround, we propose to distribute a dividend on each ordinary share in the same amount as last year. Due to the higher number of Allianz shares, the dividend payout will increase 47 percent to 551 million euros.
There are two additional aspects that are important for understanding the results of 2003. First of all, in life and health insurance we had to absorb retroactive changes in the German tax law. At the same time, we cleaned up the balance sheet by taking an unscheduled write-down on our South Korean life insurer. And secondly we succeeded, along with improving profitability and the risk profile of our business portfolio, in once again increasing our market share in a number of important markets.
The uncompromising implementation of the “Three Plus One” program by 2005 is the most important task for our management team, for every individual employee of Allianz, and for me. This “Three Plus
One” program includes four initiatives designed to promote our business model and to achieve sustainable, profitable growth. Three of these initiatives are primarily aimed at restoring our financial strength by protecting and strengthening our capital base, by substantially improving operating profitability and by reducing complexity. The fourth point of the program has farther-reaching implications. With this point, we are focusing on the fundamental strengthening of our competitiveness and increasing value with the aim of regaining our position as one of the world’s leading financial services providers. In the
“Strategy” chapter on pages 22 and 23 of this Annual Report, we outline the progress we have made in this endeavor during the reporting year.
I would like for us to concentrate on the right businesses and markets and to work efficiently in every respect. To this end, we have built up our team noticeably in many key positions of the Allianz Group because only that will enable us to be really at the top of the international financial services market. That is why we introduced binding “Leadership Values” worldwide in the reporting year. As benchmarks for orientation and evaluation, they are designed to promote a corporate culture that is based on commitment to implementation, team work and customer orientation.
The path to further strengthen our financials is outlined in the first three points of the “Three Plus One”
First of all, demographic and economic data show without a doubt that the era in which everyone could count on an adequate state pension is coming to an end. Reflecting the paradigm shift, the public debate about the future of our social security systems started very late, but it has now moved to the top of the agenda all across Europe. Our broad-based study “Life Goals” reveals that people are very much interested in long-term financial planning and want a financial services provider whose advice they can trust over a long period of time. If we analyze the business environment of financial services providers, one thing becomes clear: almost everything indicates that this industry stands at the beginning of a growth cycle rather than at the peak of its maturity. When it comes to your company, Allianz, I am absolutely certain that this is so. Our local companies are trusted partners of their customers because they stand for strength and solidity in their markets.
My optimism also stems from the fact that, in one Group, we have everything that is needed for a successful insurance, private pension and asset management business, including the strategic asset of
We must earn trust, customer by customer, project by project, and day after day.
We know that the preoccupation with sheer size can become the enemy of excellence.
That is an ambitious goal, particularly in view of declining guaranteed interest rates and profit participation, and the positioning of Allianz to create more value for you, the owners of this company. And yet, this goal can be reached if we continue to strive relentlessly for efficiency and to motivate our outstanding employees, agents and intermediaries.
We want to be the leading international financial services provider for insurance, private pensions and asset management; we want to be the company that people really trust. Please stay with us on this path and keep your faith in Allianz. I am confident that our business model will stand the test of time and that our actions will increase the value of your investment in this company.
The Board of Management regularly provided us with timely, comprehensive information on the economic and financial development of the Allianz Group, including the risk situation, important business transactions and corporate strategy. We discussed in detail the company planning for the year 2004 and asked for explanations of the deviations in the course of business from the stated plans and objectives.
Improvement of the operating result and strengthening of the capital base Our deliberations were centered on the measures taken by the Board of Management to improve operating profitability.
In all meetings, the Board of Management informed us about the development of the Group’s revenues and earnings, developments in the individual business segments and the financial situation. We were able to ascertain that operations were improved in all business areas, in some cases significantly.
and Beiersdorf AG. The Supervisory Board considers these measures to be appropriate.
Successful restructuring efforts In two special reports, we were given detailed information about the progress in the implementation of the turnaround program at Dresdner Bank. We noted that important intermediary objectives towards restoring the profitability of the bank had already been achieved. We were also able to ascertain that the integration of the bank into the Allianz Group has made good progress. In this context, we were informed of the merger of the IT
The previously launched program to improve the business performance of the French AGF Group was also pursued with increasing intensity. We will closely monitor its further progress.
One of the essential criteria for allocating capital is a company’s ability to make a lasting contribution to the Group’s economic value added.
We followed and approved the restructuring of the relations between Allianz and Münchener Rückversicherungs-
Gesellschaft (Munich Re). We acknowledged the dismantling of the cross-holdings and the fact that the principles of cooperation, which had applied for decades, were rescinded.
Corporate Governance and Declaration of Compliance We discussed in depth the implementation of the recommendations of the German Corporate Governance Codex and the effects of the
Allianz Group complies with the recommendations of the code, with two exceptions.
In the December meeting, we examined the efficacy of our work in the absence of the Board of Management. The subjects of our examinations were, in particular, the timely transmission of comprehensive information to the Supervisory Board, its composition and organization, and the flow of information between the committees and the plenary meeting.
At its four meetings held in the course of the year, the Standing Committee primarily addressed the capital increase with shareholder subscription rights as well as questions of corporate governance. The Personnel Committee also convened four times.
The Audit Committee held five meetings in the course of 2003. In the presence of the auditors, it discussed the annual financial statements of Allianz AG and of the Group, the audit reports and the 20-F filing required in the U.S.A.
ities for the Audit. Other subjects of the deliberations of the Audit Committee were ascertaining the independence of the Auditor and the implementation of further dispositions of the Sarbanes-Oxley Act. The Supervisory Committee appointed the chairman of the Audit Committee, Dr. Manfred Schneider, as Audit Committee Financial Expert in accordance with the purpose of this law.
Annual accounts and consolidated financial statements KPMG Deutsche Treuhand-Gesellschaft AG Wirtschaftsprüfungsgesellschaft, Munich, audited the financial statements of Allianz AG and the Allianz Group as well as the respective management reports and issued their certification without any reservations. The consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS). The independent auditors have confirmed that the consolidated financial statements and the management report meet the conditions required to exempt the company from its obligation to prepare consolidated financial statements in accordance with German law.
On the basis of our own review of the financial statements of Allianz AG and the Allianz Group, the corresponding management reports and the recommendation for appropriation of profit, we concurred with the findings of the audit by KPMG and approved the financial statements of Allianz AG and the Allianz Group prepared by the Board of
Management. The Supervisory Board hereby adopts the individual accounts. We consent to the appropriation of earnings as proposed by the Board of Management.
Mr. Jürgen Dormann resigned his mandate as member of the Supervisory Board with effect from the end of the Annual General Meeting on May 5, 2004. Mr. Dormann’s seat on the Board will be filled by Dr. Albrecht Schäfer as elected substitute member.
H I N R I C H F E D D E R S E N
K A R L N E U M E I E R since April 29, 2003
S U LT A N S A L A M since April 29, 2003
M E M B E R S W H O R E S I G N E D D U R I N G T H E P E R I O D
M E M B E R S W H O R E S I G N E D
Management, _ an upper limit for stock options, _ publication of the value of stock options, _ publication of the system of remuneration on the Internet and _ information to the Annual General Meeting concerning the basic structure of the system of remuneration.
May 21, 2003, with two exceptions. These concern the individualized reporting of remuneration for members of the Board of Management and the Supervisory Board. We are of the opinion that reporting remuneration on an individual basis would not provide any more information relevant to the capital markets than a detailed collective reporting. In addition, past experience indicates that individual reporting tends to level out individual board members’ remuneration, which is not in the interests of the company and the shareholders. We declared that
b) The compensation of the members of the Supervisory Board is published in the Notes to the Consolidated Financial Statements subdivided according to components; however, it is not published individualized (section 5.4.5, paragraph 3, sentence 1). The structure of the Supervisory Board’s compensation is disclosed in Allianz’s Articles of Association and the
Annual Report. An individualized statement on the compensation would not provide additional information with relevance for the capital markets.
In addition, we applied most of the non-binding recommendations of the German Corporate Governance Code. For example, in relation to the work of the Supervisory Board this applies to the composition and competences of the Audit Committee or the tasks of the Personnel Committee. An exception exists to the extent that the shareholders’ representatives on the Supervisory Board of Allianz AG are on principle not elected for different periods of time (Code section 5.4.4), but are all elected every five years in a regular election. Substitute members are elected at the same time and, should they succeed a departing member, they remain in office only until the end of the current election period. Another exception concerns the suggestion that the performance-based remuneration of the Supervisory Board should contain components based on the long-term performance of the company (Code section 5.4.5, paragraph 2, sentence 2). We do not follow this recommendation. However, the Supervisory Board’s remuneration contains a component based on the dividend policy of Allianz. Further details on our position with respect to the recommendations of the Code can also be found on our website at the address given above.
Supervisory Board as well as deviations from the recommendation of a performance-oriented remuneration component for the
Supervisory Board. Oldenburgische Landesbank AG also states a deviation from the recommendation concerning the individual publication of remuneration for the Board of Management and the Supervisory Board and explains why it does not follow the recommendation for a retention in Directors & Officers Liability Insurance.
As a German company listed on the New York Stock Exchange,
On July 30, 2002, President Bush signed into law the Sarbanes -Oxley Act of 2002, which is aimed at restoring the trust of investors in the capital markets. For this purpose, the law expands the disclosure obligations of corporations and formalizes the processes that precede corporate reporting. Companies are obliged to establish internal control systems that must be maintained and reexamined on a regular basis. By way of certification, certain corporate officers must personally attest to the exactitude and completeness of reporting. Management must also certify that certain requirements concerning the internal control systems have been met. In addition, the law raises the requirements for the independence of auditors and contains detailed rules concerning the Audit Committee.
for Allianz AG. The new disclosure rules require some amendments of our reporting. The Audit Committee is given comprehensive rights and duties. We have adapted the procedural rules of the Audit Committee accordingly.
Last year, the Supervisory Board was newly elected for a period of five years. A total of eight new members were appointed to the Supervisory Board. Among other departing members, the previous chairman of the Supervisory Board, Dr. Klaus Liesen, was no longer available for reasons of age. In the constitutive meeting of the newly elected Supervisory Board on April 29, 2003, Dr. Henning Schulte-Noelle was elected as its chairman.
Committee is the preliminary examination of the Group’s Annual Financial Statements and Consolidated Financial Statements as well as the Management Report and the Recommendation for Appropriation of Profit. In addition, it examines the quarterly reports and the 20-F filing required in the U.S.A. The
A L L I A N Z G R O U P 12 by the plenary Meeting of the Supervisory Board, ascertains the required independence of the Auditor, assigns the mandate to the Auditor and sets priorities for the Audit. Its tasks also include the examination of the risk control system. In fiscal 2003, the Audit Committee held five meetings.
Corporation Law concerning compliance with the German Corporate Governance Code as well as the regular examination of corporate governance and the efficiency of the work of the Supervisory Board.
Board of Management and handles questions concerning their compensation. It is also involved in the long-term succession planning for the Board of Management.
The statutory Mediation Committee meets only if the Supervisory Board, in a vote on the appointment or recall of a member of the Board of Management, fails to obtain the two-thirds majority required by law.
Supervisory Board’s work. The questionnaire had previously been approved by the Standing Committee, which compiled the results, condensed them into recommendations as to how the work of the Supervisory Board could be further improved and proposed these to the Supervisory Board in a meeting on De-
At the national and European levels, there are a number of supplementary initiatives for the further development of the corporate governance culture. The E.U. Commission is working on the implementation of an “Action Plan” on corporate governance. This plan is intended to more fully harmonize corporate legal rules within the E.U. and set a standard of transparency.
Remuneration component Related to Mode of payment Variability Share if objective is met 100 %
Annual bonus Success of Group/company and individual performance Annually in the following year 0 – 165 % 27 %
Stock-appreciation rights (SAR) Participation in After a two-year vesting period 0 – 150 % (calculated value share price gains at time of grant)
Corporate retirement plan, Length of service, Disability or Fixed 5 % pension retirement provision, retirement age (actual expense)
Stock-based remuneration This component consists of stock appreciation rights (SAR) and restricted stock units (RSU). More detailed information on the stock-based remuneration components can be found on pages 167 and 168 of this Annual report or on the Internet at www.allianzgroup.com/investor-relations.
can be exercised at the earliest upon expiration of a two-year vesting period, for restricted stock units (RSU) the vesting period is five years. The exercise, the number of rights issued and the development of the value of stock-based remuneration are shown in the income statement and are subject to a detailed annual report.
Income-equivalent ancillary benefits are also reported as part of fixed remuneration. These benefits vary with the function and position of the recipient and are subject to personal income tax. They essentially include the insurance coverage and preventive health care benefits generally granted in the industry and the use of a company car.
Variable remuneration This component consists of an annual and a mid-term 3-year bonus, each of which is performance- and success -related and limited to a maximum amount. Together with
The amount of the total compensation for a given year depends on the relative success of the Group as a whole and on the
The remuneration of the Supervisory Board is based on the size of the company, the functions and responsibilities of the members of the Supervisory Board and the economic situation of the company. For the most part, it is related to the dividend paid. The chairman and the deputy chairman of the Supervisory
Board as well as the chairmen and members of its committees receive an additional remuneration.
General Meeting. The chairman of the Supervisory Board receives double, and his deputy one and a half times the amount of this remuneration. The remuneration of the members of the
H E L M U T P E R L E T
W E R N E R Z E D E L I U S
G E R H A R D R U P P R E C H T
H E R B E R T WA LT E R
A N D R E W T O R R A N C E
R E I N E R H A G E M A N N
Here, it is a matter of making sure that Allianz operates and grows profitably. We adjusted the prices and conditions in the insurance business to the actual risk situation, exposed ourselves to fewer additional capital market risks, continually ramped up the efficiency of our operations and eliminated those risks from our existing portfolio which were not matched by an adequate profit potential. The major successes in the reporting year were the acceleration and deepening of the turnaround programs at Fireman’s Fund, Allianz Global Risks, AGF and
Dresdner Bank, as well as the improvement of the combined ratio in property and casualty insurance from 105.7 to 97.0 percent. In Life insurance, we brought down the expense ratio, and we reduced the cost-income ratio in asset management and at
Important prerequisites were rigorous cost management in all segments, especially in life insurance, and, where necessary, a radical reform of our business models with a clear profitability target. Having already completed this work in the U.S.A.,
program. It continues the earlier Allianz initiatives for securing and increasing profits, makes them more precise and defines the framework for our actions until 2005. It is designed to sharpen the focus of the
Group’s business activities, boost its competitiveness and strengthen its orientation towards the sustainable creation of value.
The “Three Plus One” program comprises four mutually complementary, cross-linked initiatives that are implemented simultaneously. The first three are aimed at restoring the known financial strength and performance of Allianz in all relevant entrepreneurial dimensions. The fourth point, the “Plus One,”
The four strategic concepts of “Three Plus One” are the following: The “Three” stands for protecting and strengthening our capital base, for a significant boost of our operating profitability and for a focused portfolio – and thus a reduction of complexity.
If we want to remain a reliable business partner for our customers and be able to implement our ambitious growth and profitability plans, we must have adequate equity and risk capital. That was the purpose of our substantial capital increase in
April 2003. We are pressing ahead with the extension of a company -wide risk management system that protects the capital base by setting risk standards and limits that are applicable worldwide. At the same time, all business activities are brought into line with our internal risk capital model, which places particular emphasis on diversification. This is based on the fact that
the reporting year in Switzerland, in our asset management segment, at Dresdner Bank and in France. Divesting subcritical activities and risks with no corresponding profit opportunities is another key element of the “Three Plus One” program.
In the past decades, we have used openings in the market to build up a far-reaching international business portfolio. That made good sense, because such opportunities can vanish with unexpected speed. Now, we are subjecting this portfolio to a painstaking analysis with the objective of disposing of those interests which did not meet our original expectations.
By now, the number of disposals has reached 18. That freed up approximately 0.9 billion euros in risk capital and 1.9 billion euros in liquidity. But our primary concern is not just to free up risk capital; rather, we are striving for proximity to the customer and efficient management. We do not want to tie up valuable resources in businesses that offer no prospects of achieving our ambitious goal of sustainable profitable growth.
That is why last year we regrouped the units Allianz Knowledge
Fitness and Outperformance Program”. By that we mean the sustainable increase of our competitiveness and our company value beyond the usual parameters: by strengthening our core business, refining management instruments and accelerating profitable growth. The efficiency gains from the first three program components of “Three Plus One” are invested in business areas that are best suited to reaching these objectives. These can be individual markets, our sales organization or the sharpening of our customer focus.
Overall, this redirection of capital resources has strengthened the profitability of Allianz and increased the normalized return on capital employed across all segments from 3.1 to 12.6 percent *). The internal capital market thus created will enhance the entrepreneurial spirit of the entire organization, because it rewards those whose local strategies are successful with their customers while at the same time generating an attractive return on investment. And that is very much in the interest of our shareholders.
*) In this calculation, investment income is determined by means of a normalized performance rate. We thereby smooth out the influence of fluctuations in the capital markets and of profit taking. At present, we are normalizing stock performance at 8.5 percent.
What do we mean when we talk about the creation of wealth?
greater than zero indicates that an added value for the shareholder has been created. If, on the other hand, the EVA® becomes negative, that means a shareholder would have received a greater return from another risk adequate investment than from Allianz shares. In this case, his investment has destroyed value instead of increasing it.
These considerations are important because they support valuebased management of the Allianz Group and at the same time allow us to retain a decentralized structure. Why do we need decentralization? We are convinced that the management of our business entities worldwide is in the best position to determine what measures are appropriate for making their companies more profitable. They have to decide what risks they can take – for example, when they write insurance policies, extend loans, invest funds or make other managerial decisions – to generate a specific profit.
A L L I A N Z G R O U P 24
The Allianz Group is managed and controlled according to the principle of value-based management. The goal of our corporate policy is to consistently meet the expectations of our shareholders over the long term. We want shareholders, employees, customers and our social surroundings to profit from the value our company creates.
In order to do this, we start by determining the amount of capital each individual operational entity requires to cover the financial risks involved in ongoing business activities. On the one hand, the required capital depends upon the risks that are typical for the products of our Group companies, i. e., premium, reserve and credit risks plus risks in connection with capital investment and operational risks. On the other hand, the amount of capital needed is geared to the mandatory level of security that is centrally prescribed for the group as a whole. Uniform standards are also applied when determining risk capital. For this purpose, risk was up to now measured by means of the Standard & Poor’s model. Beginning in fiscal 2004, we will apply our internal risk model, which permits a more precise valuation of company-specific risk factors.
_ which transform their market position into sustainable creation of value and become a market leader,
_ which are in a position to pay dividends that are at least equal to their capital costs.
The liquidity from divided payments is used by the holding to meet external obligations, i. e. servicing debt and paying dividends to shareholders. In addition, the remaining capital can be used to finance growth.
All Group companies are thus responsible for generating a return on their risk capital that covers at least the cost of capital.
The Group Center supports the business units in this continuous optimization process. The jointly acquired experience then flows into mandatory operational targets. For example, this involves determining the cost and claim quotas a unit will have to achieve in future periods to attain a sustainable increase in
EVA® and thereby meet, if not exceed, the expectations of our shareholders. In measuring our success, we minimize the impact of capital market fluctuations by basing our calculations on
rioration over more than two years, it was not sufficient to post a positive performance in the ten-year comparison, which stands at an annual average minus 1.9 percent. If we extend the observation period and look at the development of the Allianz share price over the last twenty years, the average increase comes to 8.2 percent per year.
confidence is once again growing. The broad-based recovery of our business incited us to once again propose to distribute a dividend of 1.50 euros per share for the year 2003, even though the number of our shares is now significantly higher.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 40
In April 2003, we increased our capital with subscription rights and issued 117 million new shares for this purpose. Fifteen old
Dow Jones EURO STOXX Insurance 16.5 – 12.5 2.4 *) Adjusted for capital measures (capital increase)
Weighting of the Allianz share in major indexes on December 31, 2003 in %
Key figures on the capital increase 1) Market capitalization calculated without treasury shares 2) Adjusted for capital measures (capital increase)
We maintain the continuity of our dividend policy and propose to our shareholders at the Annual General Meeting to distribute a dividend of 1.50 euros per share for 2003, unchanged from last year. Due to the higher number of Allianz shares, the dividend payout will increase 47 percent to 551 million euros.
Allianz shares. This offer was designed to restructure our capital. The exchange was completed in January and ended with a satisfactory acceptance ratio of 86 percent. We issued a total of 6.1 million shares from treasury stock to holders of profit participation certificates. Additional information on the exchange of profit participation certificates is provided on pages 139 and 140 of this Annual Report. Following this offer, the terms for the certificates still outstanding remain in force. We do not intend to issue a call for their redemption as of December 31, 2006.
The free float percentage of our share continued to rise in 2003, from 71 percent in the previous year to the current 83 percent.
Trading volumes went up as well. On an average day, approximately 3.9 million Allianz shares are bought and sold through the electronic trading system Xetra. That put the trading volume of our share in second position among the thirty DAX
Our “Group Equity Incentive Plan” gives top-level management an additional incentive for increasing the Allianz market capitalization. It combines two instruments through which management participates in the development of the Allianz share price. On the one hand, the stock appreciation rights (SAR)
known from previous years continue to exist. On the other hand, restricted stock units (RSU) were issued for the first time.
Number of shares on December 31 (excluding treasury shares) 367,139,707 243,124,517 241,189,535
Average number of shares traded per day on Xetra mn 3.9 1.7 1.0
The information and communication offerings for our private investors are continually expanded, mainly through the Internet. On our website, investors find additional details on our
Newsletters. This material provides up-to-date information about business developments as well as current topics or events.
We want to keep you up-to-date and provide you with a comprehensive information service. Simply call us or submit your questions by mail. The Allianz Investor Line +49 1802 2554269 is available around the clock, seven days a week. Our Investor
Group amounted to 28.6 (21.7) billion euros, not including 18,246,052 treasury shares acquired at a purchase price of 4.5 billion euros. Shareholders’ equity was thus 6.9 billion euros higher than in the previous year, which is mainly due to our capital increase, reserves on securities whose prices recovered, and the exchange of Allianz participation certificates against treasury shares.
The objective of the capital increase was to strengthen the financial solidity of Allianz after an extremely turbulent and challenging fiscal year 2002. We offered our shareholders the subscription of 7 new shares per 15 old shares at a price of 38 euros per share. The subscription period began on April 15, 2003 and ended on April 29, 2003. 99.7 percent of our shareholders exercised their subscription rights. A total of 117 million shares were issued, which, after deduction of transaction costs, strengthened our shareholders’ equity with 4.4 billion euros.
As was already stated in our Annual Report 2002, we offered the holders of Allianz profit participation certificates an exchange of these certificates into Allianz shares at a rate of eight certificates for ten Allianz shares. When the exchange period ended on January 16, 2003, 86 percent of the certificates issued had been exchanged for shares. The share certificates issued were taken from treasury stock. This outflow increased our shareholders’ equity by 426 million euros after taxes.
Shareholders’ equity does not include valuation reserves for our real estate holdings nor participations consolidated at equity.
However, the solvency margin directive applies only to the insurance segment and contains no capital requirements for the banking business. Until the Financial Conglomerates Directive takes effect in fiscal 2005, multiple gearing of regulatory capital is still possible in part.
As a provider of financial services, our fundamental assets are our capital strength and solvency. Securing our capital base was our foremost task in the reporting year. Strengthening our shareholders’ equity by 6.9 billion euros, we achieved a satisfactory interim result.
In February 2004 we issued a perpetual subordinated bond with a nominal value of 1.5 billion euros. We thereby took advantage of the low interest environment and the high liquidity in the market to refinance short-term by long-term debt at attractive conditions. The bond is issued as part of the Debt Issuance
Group an “A+”, the second highest rating. But Standard & Poor’s still links this evaluation to a negative outlook. We are striving to change this perception through lasting improvements of our earnings performance.
In the reporting year, we repaid a first tranch (50 percent) of the index-linked convertible MILES bond by exchanging these bonds for shares of Munich Re. The number of shares to be repaid related to the average level of the German stock index DAX
See table in note 32 “Interest and similar expenses”, table 15 “Participation certificates and subordinated liabilities”, table in note 19 “Certificated liabilities” in the Notes to the Consolidated
Financial Statements. *) Bonds and convertible bonds issued or guaranteed by Allianz AG in the capital market.
The following table provides an overview of bonds issued by Allianz AG1): Allianz AG bond issues1)
Interest cost2) ¤84.2 mn Received option premium at issue ¤ 256.8 mn
Issues that reached maturity in 2003 6.0 % bond issued by Allianz Finance B. V., Amsterdam
Total interest cost ¤681.4 mn 1. Senior Bonds Interest 5.75 % bond issued by Allianz Finance B. V., Amsterdam paid Volume ¤ 1.1 bn in 2003 Year of issue 1997/2000 Maturity date 7/30/2007
Interest cost ¤63.7 mn 5.0 % bond issued by Allianz Finance B. V., Amsterdam Volume ¤ 1.6 bn Year of issue 1998 Maturity date 3/25/2008
Interest cost ¤34.1 mn 4.625 % bond issued by Allianz Finance II B. V., Amsterdam Volume ¤ 1.1 bn Year of issue 2002 Maturity date 11/29/2007
Total interest cost for senior bonds ¤286.0 mn 2. Subordinated Bonds 6.125 % bond issued by Allianz Finance II B. V., Amsterdam Volume ¤ 2 bn Year of issue 2002 Maturity date 5/31/2022
Interest cost ¤123.6 mn 7.25 % bond issued by Allianz Finance II B. V., Amsterdam Volume $ 0.5 bn Year of issue 2002 Maturity date Perpetual Bond
36 A weak start 36 Sputtering recovery stifles financial services providers 38 Capital markets 40 Overall Business Development 44 Earnings 44 Financial assets 45 Return on equity 45 Market capitalization and the Allianz Share 45 Human resources 46 Property and Casualty insurance 48 Overview: Property and Casualty insurance 49 Germany 50 France 51 Italy 52 Great Britain 53 Switzerland 54 Spain 54 Rest of Europe 56 NAFTA Region 57 Asia-Pacific Region 58 South America 58 Allianz Global Risks Rückversicherungs-AG
78 Private & Business Clients 78 Corporate Banking 79 Dresdner Kleinwort Wasserstein 79 Institutional Restructuring Unit 80 Asset Management 80 Asset Management for third party investors 81 Investments 84 Risk report 84 Responsibilities 84 Management of the Allianz Group through risk capital 84 Risk controlling in the insurance business 86 Risk controlling in the banking business 90 Risk controlling in asset management 90 Risk monitoring by third parties 91 Outlook 92 Our employees 92 Leadership Values 93 International personnel marketing 93 Expatriation and international training programs 93 Management training 94 Performance orientation and compensation 94 Thank you!
95 Outlook 95 Positive economic outlook with persisting risks 95 Good prospects for financial services providers 96 Business outlook for the Allianz Group 96 Appropriation of profit
Japan outpaced that of Europe (0.7 percent) for the first time in many years. With the economy expanding by 3.1 percent in the
U.S.A., 2.7 percent in Australia and 1.7 percent in Canada, the industrial nations across all continents reached an average expansion rate of 2.0 percent which is, on the whole, a tolerable figure. Positive impulses also came from the economies of Asia, which are rapidly catching up. Above all, robust growth in
In 2003, the world economy once again suffered from exceptional adversity. At the beginning of the year, the smoldering Iraq crisis and the subsequent war paralyzed economic growth in almost all industrialized nations. Political unrest in other oil producing countries outside
Iraq, terrorist attacks worldwide, and the SARS outbreak were causes of additional uncertainty and initially prevented the world economy from regaining its footing. In the second half, however, a worldwide recovery got underway.
Mandatory health insurance is also undergoing a financial crisis, at least in Germany. The resulting discussion about future financing concepts and the curtailed scope of benefits, which ultimately brought about a change of law, is a boon to the private insurance business, at least for the time being. Driven by rate adjustments and rising health care costs, they outpaced the already good growth of the prior year by a solid 6 percent.
In nearly all industrialized nations, citizens have to make private retirement insurance arrangements to compensate for the cut in benefits provided by state pension systems. In a number of countries such as Sweden and nearly all the Central and
Stock markets The stock indexes moved on a rollercoaster throughout the reporting year. After a three-year slump, they once again came under heavy pressure in the spring of 2003, mainly due to the Iraq crisis and the subsequent war. In this situation, investors shied away from risk more than they had in a long time. The result of this attitude was clearly shown by the indexes in March 2003: the German stock index DAX slipped to 2,200 points, Standard & Poor’s to 800 points. When it became clear that the military confrontation in Iraq was going to come to a quick end, a steep recovery began. Surprisingly positive economic indicators and corporate profits in the U.S.A.
rose 37 percent. Standard & Poor’s closed with a plus of 26 percent.
nearly all major markets, although there are some significant time lags. Overall, providing for the baby boomers’ retirement needs is a particularly strong growth engine for asset management in Europe and the U.S.A., and to an increasing extent also in Asia.
German Banks continue to suffer from the structural deficits of their home market which, by international standards, is still highly fragmented. Even the four biggest institutions together have a market share of no more than 16 percent. In other European countries, the corresponding figure is three or four times as high. That deprives German banks of the strong domestic earnings base that their international competitors have. But the current restructuring and cost cutting drives show that, helped by economic recovery, they are well on their way to making up for this deficiency.
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The main beneficiaries of this aversion to risk were government bonds. Their yields for ten-year maturities slipped to historic lows: 3.3 percent in Germany and 3.1 percent in the U.S.A.
U.S.A. and 80 in Germany. At the end of the year, bond markets closed with a slight plus at the long end.
Currencies Despite the insecurity at the beginning of 2003 over the course of events in Iraq, the U.S. dollar was relatively weak with respect to the euro. After the proclamation of the end of the war, a strong revaluation of the euro got underway. While the exchange rate dipped slightly in the summer, it came back with renewed force in September and climbed to new heights over the dollar. Over the entire reporting year, the value of the euro increased more than 15 percent with respect to the dollar.
Fee and commission income, and income resulting from service activities 6.1 6.1
– 4 *) For the first time, Group investments also include trading liabilities
But we do not intend to stop at consolidation. In parallel, we are launching initiatives designed to ensure the sustained, profitable growth of our Group. In that process, we capitalize on our excellent starting position in major attractive markets, while at the same time expanding our global product lines. We want to fully leverage this potential for the creation of added value.
_ In life and health insurance, we improved the expense ratio and at the same time increased total premium income by 5.3 percent to 42.3 billion euros.
_ At the same time, we critically examined our business portfolio and discontinued a number of supporting activities as well as activities that did not fit in with the strategic orientation of their respective parent companies.
_ be in a position to pay dividends that are at least equal to their capital costs.
We are nonetheless aware of the fact that we still have a considerable way to go to reach the profitability targets we have set ourselves, particularly in the banking business and also in some insurance units. That the progress achieved in the operating business in 2003 is not fully reflected in our earnings performance is mainly due to the following influences: _ Restructuring charges at Dresdner Bank amounting to 840 million euros.
We also made considerable progress in reducing the complexity of our corporate structures. Our activities in marine and aviation insurance were combined in the Allianz Marine & Aviation
Earnings before taxes and amortization of goodwill ¤ bn 3.9 – 0.1
Operating revenues from the banking business declined by 10.9 percent to 6.7 billion euros. Adjusted for consolidation and currency effects, the decrease came to only 3.1 percent.
In each individual segment, absolute costs were reduced in comparison to the previous year. They amounted to 549 million euros in property and casualty insurance, to 550 million euros in life and health insurance, to 991 million euros in banking and to 173 million euros in the asset management segment.
billion euros. The corresponding interest came to 681 million euros in the reporting year. In February 2004 we issued a subordinated bond with a nominal value of 1.5 billion euros. We thereby took advantage of the low interest environment and the high liquidity in the market to refinance short-term by long-term debt at attractive conditions.
At 6.4 percent, the IFRS return on equity improved substantially from the previous year, when it had amounted to – 4.6 percent.
Allianz share was quoted at 80.8 euros at the beginning of 2003. In the first quarter of 2003, its price fell to 40.5 euros, but it recovered to 100.1 euros by the end of the year. If, in addition to the increase of the share price, one takes into account the dividend paid and assumes a participation in our capital increase on the basis of an “operation blanche”, our shareholders obtained a total return on investment of 26.3 percent. The recovery thus lagged behind that of the German stock index DAX
(+ 37.1 percent), but it was stronger than that of the Dow Jones
Insurance reserves decreased by 3.6 billion euros in comparison to last year. The largest part of this decrease is attributable to currency effects. In addition, the positive development of the claims situation resulted in lower reserves. The ratio of reserves for claims in the year under review to total claims expenses in the year under review remained unchanged.
The expense ratio eased off 2.0 percentage points to 25.5 percent because we were able to keep absolute costs at constant levels, or even lower them in a number of countries, while revenues went up. Acquisition costs and administrative expenses in this segment dropped by a total of 0.5 billion euros.
A L L I A N Z G R O U P 48
Earnings before taxes and amortization of goodwill came to 5.9 billion euros. Amortization of goodwill increased to 383
In property and casualty insurance, premium income rose 4.0 percent to 43.4 billion euros, after adjustment for currency and consolidation effects. Total revenues increased 0.3 percent. The combined ratio was brought down 8.7 percentage points to 97.0 percent. Net income of the segment came to 4.5 billion euros.
_ In addition to being the holding company, Allianz AG is also the Group’s reinsurer. Its premium income amounted to 5.5 billion euros.
At 4.1 (9.2) billion euros, earnings after taxes were substantially lower than in 2002, which is in particular attributable to exceptionally high disposition gains in the previous year.
In fiscal 2003, gross premiums of Allianz AG fell by 2.1 percent to 5.5 (5.6) billion euros, which was essentially due to the fact that certain Group companies increased their retentions.
The claims ratio increased to 77.7 (75.3) percent. At 27.4 percent, the expense ratio also improved from the previous year
Earnings after taxes decreased to 294 million euros. The previous year’s results of 383 million euros had been increased through a tax yield.
The combined ratio was down to 105.1 (104.1) percent. In property and casualty reinsurance, i. e. excluding reinsurance business in life and health insurance, the combined ratio was
Investment income fell to 4.8 (9.5) billion euros, even though it includes the greater part of the capital gains from the disposal of shares of Beiersdorf AG. The extraordinarily high investment income of the previous year was the result of a series of transactions in connection with the takeover of Dresdner Bank as well as other stock disposals. The use of a macro hedge to reduce our equity exposure depressed investment income by 1.3 billion euros. Earnings after taxes amounted to 4.8 (9.5) billion euros.
In the current fiscal year, Allianz AG’s reinsurance business should generate premium income of the same amount as last year, provided that rates stay at acceptable levels. In the absence of extraordinary loss developments, the underwriting result will again be positive.
Premium income of the RAS Group grew 3.5 percent to 3.8 billion euros. Lloyd Adriatico – which mainly sells automobile insurance – increased revenues by 3.8 percent to 1.3 billion euros. Rate adjustment in automobile insurance and generally good new business continued to fuel the growth of our Italian companies. At the same time they maintained their selective underwriting policy.
The claims ratio of our Italian companies continued to improve to 65.0 (69.3) at Lloyd Adriatico and to 73.1 (76.8) percent at
RAS. This is the result of our risk-oriented underwriting policy and our continued efforts to eliminate bad risks from our portfolio, aided by the market-wide decline of loss figures. The lower claims ratio at RAS also reflects a revised rate structure and portfolio restructurings in liability insurance.
In the current fiscal year, AGF is expected to expand business in line with the market by 3.5 percent. Leaner and more efficient workflows should help to bring down the expense ratio once again. The continuation of the reassessment of the portfolio adjustments started last year as well as additional rate increases are expected to further improve the claims ratio.
Earnings after taxes ¤ mn 293.6 383.0 30.9 *) 2001 including Allianz Marine & Aviation
_ We are represented in the Italian market by our property and casualty insurers RAS Group and Lloyd Adriatico.
_ Together, these companies jointly increased revenues by 3.6 percent to 5.1 billion euros.
Net investment income of the RAS Group returned to normal levels at 381 (1,033) million euros. The much higher income in the previous year was attributable to the sale of part of the company’s real estate holdings. Net investment income at Lloyd
The increase came mainly from commercial business and specialties such as the “Petplan” health insurance for animals. In automobile insurance for private customers, we reduced the volume of our portfolio because there are indications that prices will fall in the medium term and thus will no longer be risk-adequate. At the same time, we restructured our portfolio and underwrote more profitable business, for example in building insurance.
percent. To maintain strict cost control in the future, we founded a company for the provision of IT development services in India. In the current fiscal year, its task will be expanded to policy administration.
Earnings after taxes went down to 199 (237) million euros, the overall result of our continued improvements in underwriting techniques.
In the current fiscal year, we are concentrating our efforts on maintaining our profitability by expanding the business with commercial customers and by scaling down automobile insurance. Overall, we expect this reorientation to slow down revenue growth in pound sterling.
_ At 2.5 (2.7) billion euros, premium income did not quite come up to previous year’s figure, which is attributable to the declining exchange rate of the pound sterling with respect to the euro.
While we continued the restructuring of both our group health insurance and accident insurance businesses, premium income was slightly higher than in the previous year at 1.3 (1.2) billion euros.
Despite improvements in the operating business, earnings after taxes fell to 19 (31) million euros, because deferred tax liabilities from earlier years were dissolved and recognized as income.
Revenues at our Allianz Risk Transfer (ART) company were down 3.9 percent to 492 million euros. Of this amount, 344 million euros were generated by conventional reinsurance, while 148 million euros came from the sale of alternative risk solutions.
Revenues in this business line increased 1.8 percent. This area involves comprehensive risk management solutions for companies in the service, financial and industrial sectors. The corresponding products bundle financial and insurance expertise.
At 62.7 (55.5) percent, the claims ratio continues to stay at a very advantageous level. The expense ratio increased 4.0 percentage points to 26.6 (22.6) percent, mainly as a result of higher commissions.
At the bottom line, earnings after taxes improved to 38 (33) million euros, primarily due to higher investment income.
_ Our property and casualty insurer in Switzerland is Allianz Suisse Versicherungs-Gesellschaft.
This strong premium growth is all the more appreciable if one takes into account that we continued our selective underwriting policy and eliminated unprofitable risks from our portfolio.
Premium income in the rest of Europe increased 8.8 percent to 5.3 billion euros. The highest revenues came from the Netherlands, with 1.1 billion euros, followed by Austria with 906 million euros and Ireland with 856 million euros. In the Netherlands in particular, we registered strong premium growth. This was due to rate adjustments and the expansion of our industrial insurance business for local and international customers, as well as brisk new business in automobile insurance. Net premiums earned in the rest of Europe increased 7.9 percent to 4.2 billion euros.
In Central and Eastern Europe, Allianz was able to garner an exceptionally high share of market growth. We are the leading international insurer in this region. Except for Poland, all other Allianz companies in the region are among the top three in their markets; in Hungary, Slovakia and Bulgaria we are number one. Overall revenue growth in Central and Eastern Europe
_ We are one of the five leading insurers in the following markets: Austria, Ireland, the Netherlands, Portugal as well as Bulgaria,
came to 24.3 percent. For the first time, this figure includes the premium income of Allianz-Slovenska in Slovakia for a full fiscal year. Because of this addition and its organic growth, the premium income of the company jumped to 324 (158) million euros. The company was first consolidated on July 22, 2002.
Earnings after taxes improved to 128 (118) million euros. The losses in the Netherlands and Luxembourg come from security write-offs.
The combined ratio improved 29.2 percentage points to 99.4 percent, despite the considerable impact of a single large claim amounting to 198 million euros in the discontinued area of surety. The combined ratio in the continued insurance lines clearly improved to 88.3 (105) percent. In each of the core insurance lines, the combined ratio was 103.5 percent or better.
The progress in the combined ratio is, on the one hand, the result of a better claims ratio, which was inflated in the previous year by a substantial increase of our reserves for asbestos-related and environmental risks (A&E reserves). In the absence of this charge, rate increases and a risk-oriented underwriting policy brought down the combined ratio to 69.9 (94.1) percent. Moreover, the expense ratio, which improved to 29.5 (34.5) percent, also helped to improve the combined ratio. In addition to a substantial reduction of restructuring costs, stringent cost management initiatives, including the shedding of 721 jobs, also had a positive impact on this figure.
FFIC has again reduced the percentage of equities in its investment portfolio to 4 (8) percent in order to further dilute the influence of equity market fluctuations on our capital and earnings. Net investment income to improve to 401 (411) million euros.
After the turnaround, the company generated earnings after taxes of 155 million euros, compared to a loss of 666 million euros in the previous year.
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Overall, we succeeded in restoring the profitability of our operating businesses in the NAFTA region and to turn the previous year loss of 702 million euros into after-tax earnings of 221 million euros.
In the current fiscal year, we expect our comprehensive restructuring efforts and our prudent underwriting policy to bring about further improvements.
increased its premium income to 1.3 (1.2) billion euros and improved the combined ratio to 95.6 (104.2) percent. The contributing factors were both a lower claims ratio of 73.9 (81.8)
In India, an insurance market with very strong growth rates, our joint venture is already, in terms of revenues, one of the three leading private providers of property and casualty insurance.
Overall, our companies in the Asia-Pacific region returned to profitability and posted earnings after taxes of 92 million euros, following a loss of 17 million euros in the previous year. Our company in Australia reported earnings after taxes of 74 million euros.
In view of the economic recovery in this region and our operating success in its markets, we are confident that we will be able to further improve our earnings performance in the current fiscal year.
Except for Chile, all companies posted an after-tax profit. Total earnings after taxes came to 13 (47) million euros.
In the current fiscal year, Argentina and Brazil showed the first signs of an economic recovery, but it is very difficult to predict the further course of events at this time. Venezuela is in the grip of political instability that could aggravate the economic situation further. Columbia, on the other hand, managed to enter a stabilization phase.
_ In South America, we have a presence in Argentina, Brazil, Chile, Columbia and Venezuela.
The 18.4 percent growth in revenues is primarily attributable to rate increases. With a share of 66 percent property insurance contributed the largest portion to the revenues and grew by 7.3 percent.
The further optimization of our reinsurance program permitted a substantial reduction of expenses for passive reinsurance. The expense ratio, which had been driven up by the high expenses of building up business, noticeably improved in the year under review from 41.7 percent to 27.9 percent. This resulted in a combined ratio of 98.8 (142.5) percent.
Allianz Global Risks Rückversicherungs-AG returned to profitability in the reporting year and posted earnings after taxes of 77 million euros, compared to a loss of 256.7 million euros in the previous year.
The integration of Euler and Hermes has given us access to a pool of information and data whose breadth and depth will enable us to make even better underwriting decisions in the future. For this reason, and assuming the world economy will continue to pick up speed on its path to recovery, we expect the claims ratio to remain favorable in the current fiscal year. The expense ratio should continue its downward course because of impending further anticipated synergies, particularly in information technology. On the whole, we expect earnings after taxes to remain stable.
_ Insecurities and risk aversion strongly depressed travel, which led to a loss of revenues throughout the industry. Our company was no exception. At the same time, however, our new health management business produced its first successful results.
Together, travel insurance and assistance services generated earnings after taxes amounting to 18 (21) million euros.
Marine & Aviation Versicherungs-AG (Germany) and Allianz Marine & Aviation (France).
The thorough reorganization of the portfolio that eliminated claims-prone, unprofitable business and the fact that we were spared major claims in the previous year combined to bring the claims ratio down to 65.5 (75.2) percent. The expense ratio remained unchanged from the previous year at 21.8 percent.
_ Allianz Marine & Aviation is our European specialist insurer for transportation, shipping and aviation risks.
& Aviation is sticking to its selective underwriting policy in the current fiscal year. We expect earnings to remain unchanged from the previous year.
_ Total revenues increased 5.3 percent to 42.3 (40.2) billion euros. After adjustment for consolidation and currency effects, revenues grew by 10.9 percent.
_ A change in the tax law resulted in an income tax charge amounting to 428 million euros for German life and health insurers.
The business portfolio of unit-linked life insurance and other investment -oriented life insurance products grew 10.8 percent after adjustment for currency effects, and contributed 51.1 percent of total revenues amounting to 42.3 (40.2) billion euros. The following table shows the revenues we generated from investment -oriented products in the various countries.
The expense ratio, in relation to total revenues, i. e. including investment-oriented products, improved once again from 10.0 to 7.9 percent. In IFRS accounts, the expense ratio also declined from 19.3 to 17.1 percent. In absolute terms, net expenses decreased by 0.6 billion euros.
Net investment income rose to 9.8 (7.4) billion euros. This increase is mainly attributable to the fact that – parallel to the recovery of the financial markets – the balance of write-ups and write-downs on our investment portfolio improved significantly to – 1.3 billion euros, compared to – 2.3 billion euros in the previous year. But the balance of realized gains and losses also improved to – 0.3 (– 1.1) billion euros.
Earnings before taxes and amortization of goodwill came to 1,155 (83) million euros. Our subsidiary, Allianz Life Korea, required an unscheduled amortization of goodwill in the amount of 224 million euros, a measure that reflects current estimates of net interest yields in South Korea. This increased total amortization of goodwill to 398 million euros. Taking this expense into consideration, and after deduction of tax (589 million euros ) which increased substantially as a result of a change in German tax law, and minority interests of 216 million euros, we posted a loss of 48 (profit of 19) million euros.
The expense ratio declined from 9.4 to 6.8 percent, mainly as a result of changed assumptions and because of strong premium growth as well as lower administrative expenses. Administrative expenses were pared to 2.5 (2.8) percent – a figure that is significantly better than the market average.
German legislature has lowered the maximum notional interest rate for guaranteed insurance benefits from 3.25 to 2.75 percent, effective January 1, 2004. Like nearly all our competitors, we decided to lower the interest rate for current profit participation by 0.8 percentage points. As a result, we will credit our customers’ accounts with a current total interest of 4.5 percent as of the beginning of 2004.
_ In this market, we provide life insurance products through Allianz Leben, which includes the companies Allianz Lebensversicherungs -AG, Deutsche Lebensversicherungs-AG and Allianz Pensionskasse AG.
_ We are number one in life insurance business and number three in health insurance.
The breakdown for total premium income is as follows: 10.4 billion euros or 77.9 percent came from the life insurance business and 3.0 billion euros or 22.1 percent from the sale of health insurance products. Total segment revenues increased 841 million euros or 6.7 percent to 13.4 billion euros.
Changes in tax law resulted in both a one-time tax charge for previous years and higher tax charges for the coming years.
With an increase of 25.9 percent in premium income from new business, Allianz Leben outperformed the market and increased its market share in new business from 19.0 to 20.4 percent. This success demonstrates that customers apportion particular importance to the security and financial strength of a market-leading life insurer, especially in times of uncertain capital markets. All distribution channels contributed to new business: more than half of new business was generated by our tiedagents network, which is our most important sales channel.
Corporate retirement provision plans give our life insurers excellent business opportunities, particularly since we offer all five available options for such plans. Soaring by 65.9 percent, new premiums registered vigorous growth and rose to 1.4 billion euros. Over 40 percent of total new business came from this area. Our most successful company was Allianz Pensionskasse, which nearly tripled its new business.
Earnings after taxes ¤ mn – 49.6 80.0 64.7 *) In relation to total premiums earned (net).
The claims ratio improved to 68.7 percent, compared to 71.0 percent in the previous year. Given the constant rise of health care costs, an increase in the claims ratio might have been expected. That it did not occur is due to the success of our claims and health management. Through the optimization of our operating and distribution structures, we improved the expense ratio to 10.4 (10.6) percent.
Earnings after taxes dropped to 5 (64) million euros, essentially due to the new tax laws. Total tax charge amounts to 200 million euros.
Our total premium income increased 16.8 percent to 9.0 billion euros. Of this amount, 7.5 billion euros was generated by RAS
Group and 1.5 billion euros by Lloyd Adriatico. The strongest growth driver was once again bank-based distribution, for which we have 3,700 outlets in Italy. The biggest contributor to this success was the Unicredito Group, the bancassurance partner of RAS, who sold contracts representing 5.3 billion euros across its counters. Antoniana Veneta Popolare Vita, a fully consolidated joint venture of Lloyd Adriatico, once again boosted its sales and posted revenues of 1 billion euros.
RAS increased its revenues by selling new products via its agents in the field, and through the promising start of its Darta Saving subsidiary, which specializes in the sale of unit-linked insurances with non-recurring premiums.
Investment income, which had been exceptionally high in the previous year because of the sale of a real estate company, returned to normal and fell to 748 (868) million euros. After taxes, we posted net income of 221 (289) million euros in Italy.
Earnings after taxes ¤ mn 221.0 288.6 260.7 *) In relation to total premiums earned (net).
_ Revenues from group insurance sales were also on the rise, mainly due to contracts with high non-recurring premiums.
_ Total revenues in life insurance came to 4.4 (4.3) billion euros.
Total premium income remained at 1.2 billion euros. It came mainly from the consumer life insurance business, which includes a high percentage of non-recurring premiums. Revenues were boosted by the introduction of unit-linked products. Premium income from group health insurance plans also posted 2 percent growth. Revenues in IFRS accounts, which only recognize the risk and cost components of premiums from investment -oriented life insurance products, total premium income declined to 557 (651) million euros.
Lower realized losses and write-downs on the investment portfolio pushed up investment income to 205 (31) million euros.
But despite operating improvements and higher investment income, our Swiss company once again posted an after-tax loss.
Allianz Seguros generated premium income of 466 (424) million euros. The company focused its activities mainly on the expansion of the private customer business through its own distribution network. Despite the generally sluggish market, it managed to reach this objective by enhancing the productivity of its sales force. With premium growth of 9.8 percent, the company clearly outperformed the market. We also succeeded in further increasing our market share in sales through independent agents. Newly developed retirement products boosted sales of individual life insurance contracts and raised premium income in this business line by 12.7 percent.
Allianz Slovenska over a full fiscal year. The company contributed premiums of 126 (73) million euros to total premium income.
In the rest of Europe, we returned to profitability in 2003, generating earnings after taxes of 7 million euros, following a loss of 77 million euros in the previous year.
In local currency, revenues increased by 6.3 percent compared to 2002. We attribute this impressive success to the following factors: _ Allianz Life presides over a high-performance distribution network. In 2003, we further strengthened our ties to independent agents and brokers. We regard these salespeople as clients and realize the importance of strengthening our ties to them through high-quality training and exceptional service.
Even more than in the past, brokers and other financial intermediaries are paying attention to the financial strength and rating of the companies whose life insurance products they are selling. As a financially strong company, this is advantageous to us.
In the third quarter of 2003, we lowered the guaranteed interest rate for all fixed annuity products, which enabled us to restore reasonable profitability levels across the board.
Our life reinsurance activities in the U.S.A. were sold in response to our decision to concentrate on our core divisions. The transaction was concluded in the fourth quarter of 2003. Proceeds amounting to 264 million dollars were deferred and will be allocated to profit in tranches over the coming years.
With a premium volume of 1.6 (1.9) billion euros, or 62 percent of total revenues in the Asia-Pacific region, Allianz Life Insurance Korea is our biggest life insurer in this area. Since August 2003, South Korea has permitted the sale of life insurance over the bank counter. We participate in this business through Hana
Life, our joint venture with the South Korean Hana Bank. With premium income of 87 million euros, this business is off to a very promising start.
We abandoned the life insurance business in Singapore because even long-term earnings prospects were unsatisfactory.
With earnings after taxes of 2 (– 9) million euros, our business in the region returned to profitability. Our subsidiary Allianz
Life Korea required an unscheduled amortization of 224 million euros of goodwill.
_ Parallel to the strengthening of our distribution organization through restructuring and training programs, we revised our commission system and put it in on a stronger performanceoriented footing.
_ A far-reaching cost cutting program with considerable savings in the back office will substantially improve our cost situation.
Our banking business again experienced a difficult fiscal year 2003: while managing to significantly improve the operating result, the non-operating result was lower because of adjustment measures. In the banking business, that is essentially driven by the business performance of Dresdner Bank Group, we managed to significantly improve the operating result by 1.6 billion euros compared to the previous year. This turnaround came about in a business environment characterized by a recovery in share prices and a gradual improvement in economic development in the second half of 2003. At the same time we streamlined the business portfolio of Dresdner Bank and eliminated risks from the balance sheet.
Net income for the year ¤ mn – 1,279 – 1,358
Loans and advances to customers and banks ¤ bn 289 246
G R O U P M A N A G E M E N T R E P O R T Banking Business 75
results. In addition, net interest income in 2003 was charged by – 365 (– 119) million euros as a result of valuation effects from applying IAS 39.
At the same time, loan loss provisions went down very noticeably: at 1.0 billion euros, they were 54.4 percent lower than for the previous year. In spite of the persistently high number of insolvencies in the corporate customer business, we still managed to significantly cut back net additions to loan loss provisions which for the most part relate to Germany. As a result, the ratio of loan loss provisions to net interest income improved significantly, from 58 to 36 percent.
After deducting administrative expenses and loan loss provisions from the operating income, the banking business posted an operating loss of 357 (operating loss 1,970) million euros. The positive operating result of 371 million euros in the strategic business was offset by an operating loss from the Institutional
Restructuring Unit of 728 million euros. Overall, we managed to significantly improve the operating result even though we failed to meet our original goal of a balanced operating result.
regardless of the progress achieved to date – we must continue to work hard in order to break even. With this goal in mind, the turnaround program “Neue Dresdner” was presented in August 2003. Its aim is to secure the bank’s economic basis, ensure a more efficient use of the employed capital and thus grow profitably. A further unavoidable step towards improving earnings are additional cost reductions amounting to 1 billion euros
We provide an explanation of the new reporting structure further on in this section.
In persistently difficult market conditions, our Private & Business Clients generated operating income of 3.2 (3.2) billion euros. Administrative expenses were once again significantly reduced by 0.2 to 2.8 billion euros. As at the same time loan loss provisions were lowered to 429 (561) million euros, we recorded a slightly positive operating result. The balance of other income and expenses amounted to – 262 million euros and contained restructuring expenses of 270 million euros. Overall, the segment Private & Business Clients posted a loss after taxes of 173 (loss after taxes 304) million euros.
Segment reporting after the transfer of business activities of Dresdner Bank to the IRU (reporting structure
(IRU) commenced its activities. To this segment were transferred the non-strategic domestic and foreign loan portfolios, the private equity business as well as selected restructuring activities of Dresdner Bank. This way, we eased the pressure on the company’s operating segments Private & Business Clients
(DrKW). Looking ahead to the 2004 reporting, we provide a commentary here according to the new structure.
Segment reporting after the transfer of business activities of Dresdner Bank to the IRU as of December 31, 2003
Banking 1) Other = Corporate items and corporate investments of Dresdner Bank as well as consolidations 2) Total = Dresdner Bank contribution to banking business of Allianz Group
The division Dresdner Kleinwort Wasserstein (DrKW) encompasses the Capital Markets and Corporate Finance & Advisory businesses of Dresdner Bank. At DrKW, operating income of 2.2 billion euros was almost at last year’s level. The earnings development in Capital Markets was especially encouraging. We cut administrative expenses to 1.9 billion euros largely because of early and consistent restructuring measures, and the reduction of staff, primarily in the Corporate Finance & Advisory business.
Assets under management comprise both assets managed for third parties as well as investments used to cover insurance reserves, equity capital and liabilities.
Approximately 57 percent or 565 billion euros of our assets are managed for third party investors. The value of this portfolio increased by 4 billion euros. This includes 25 billion euros in net inflows as well as market-related growth of 47 billion euros.
As a result, we enjoy a very strong position in both markets. In terms of total volume, institutional customers account for 59 percent. We are thus operating in a market environment with very high demands on the quality of our products and services.
In 2003 we achieved a number of successes: _ With net inflows of 33 billion euros, our fixed-income fund business achieved extraordinarily strong growth. The fixedincome share of our portfolio amounts to 72 percent; equity funds account for 26 percent.
_ With net inflows to mutual funds of 3.5 billion euros, ADAM
Deutschland GmbH managed to secure itself a market share in 2003 of over 19 percent and thus ranks third among the
Allianz is one of the 5 leading asset managers in the world. Net inflow to assets under management for third-party investors reached 25 billion euros. In spite of the currency-related fall in the value of our investments, most of which are managed in U.S. dollars, the assets managed for third parties grew by 4 billion euros or 1 percent to 565 billion euros. The operating result amounted to 733 million euros. After deduction of acquisition-related expenses as well as taxes and minority interests, the segment reported a lower-than-expected loss of 270 million euros.
Acquisition-related expenses totaled 836 million euros. In agreement with KPMG, the accounting procedure has been adjusted here with effect from September 30, 2003. It concerns the agreement to acquire the PIMCO management’s shares in the company over a period of time (also see note 5 “Intangible assets ” on page 129 of the Notes to the Consolidated Financial
management. These bonuses were agreed upon in 2000 as a component of the purchase price and are amortized over five years. A further 330 million euros are primarily “retention payments ” for the management and employees of PIMCO and
Nicholas Applegate; these, too, were agreed upon at the time of purchase of the fund companies.
PacLife – which still holds a 15 percent interest in PIMCO –
After a tax income in the amount of 16 million euros, the segment reported a loss of 270 million euros; a year earlier, the loss had still been 467 million euros.
Our business model is based on spreading income and risks, both in respect of the different asset classes as well as the regional structure of our business. Nonetheless, business this fiscal year will depend to a great extent on the way in which capital and currency markets develop. We expect inflows in the fixedincome business to continue at a satisfactory level and demand in the equity business to pick up further. The radical cost cutting measures taken in the year under review should also produce results in 2004 and we therefore expect the operating result to improve once again. However, due to high acquisition-related expenses, our after-tax result will again be negative. For the most part, though, these expenses will phase out in 2004.
The current value of Group investments was 398.8 billion euros at December 31, 2003. This amount also comprises the investments from the banking business, including Dresdner Bank, which amounted to 86.4 billion euros. Total Group investments decreased on the previous year (403.0 billion euros) by 1.1 percent.
AG. Our holding in Münchener Rück AG was reduced from 22.4 percent at year-end 2002 to 12.4 percent, and in Beiersdorf AG from 43.6 to 16.6 percent. Both participations will be further reduced in 2004.
Interests in affiliated enterprises, joint ventures and associated enterprises 7.1 1.8 3.7
billion euros, those from fixed-income securities fell to 7.5 billion euros. A list of companies in which we hold at least 5 percent of the capital or in which our investment exceeds 100 million euros can be found in the Notes to the Consolidated Financial
Real estate used by third parties was valued at 13.8 billion euros in fiscal 2003, and funds held by others under reinsurance contracts assumed amounted to 2.0 billion euros.
(13 percent). Trading liabilities (– 84.8 billion euros) essentially include derivatives (24 percent) and obligations to deliver securities (72 percent). These items are primarily attributable to the banking business.
Other investments mainly include loans issued by Group enterprises (21.3 billion euros) and bank deposits (10.7 billion euros).
Investment structure by type of investment and segment as of December 31, 2003 Current values in ¤ bn
Investment income in fiscal 2003 came to 16.9 billion euros, down 0.3 billion euros on the previous year.
Eurohyp AG was de-consolidated in 2003. Secondly, we accounted for Munich Re by the equity method until the end of the first quarter of 2003 and therefore recognized the pro-rata share of its fourth-quarter loss as current income. Realized profits and losses amounted to 5.7 (4.1) billion euros. It results above all from transactions within the framework of our equity reduction program and from the sale of the Beiersdorf shares.
At year-end we extended our write-down regulations and also wrote off equities that had been in a loss position for longer than a year. The write-downs in 2003 were compensated by write-ups of 2.0 (0.7) billion euros. These were mainly thanks to the sustained recovery on equity markets after the second quarter
Income from trading activities, including earnings contributions from trading liabilities, amounted to 0.2 (1.5) billion euros. The positive trading income from the banking segment of 1.5 (1.1)
billion euros surpassed our expectations. In contrast, a charge accrued in property and casualty insurance from the use of derivatives amounted to a total of 1.4 billion euros. Essentially, the charge relates to a macro hedge for hedging the equity exposure. The hedge was achieved by means of forward sales and put options on indices. By selling equities and actually reducing the equity exposure, this macro hedge has been lowered again in the same degree. IFRS accounting regulations require that the change in the market value of the derivatives of this macro hedge is affecting net income, while the contrary market value changes of the underlying equities are directly charged to the equity capital without affecting the operating result, and are affecting net income when they are realized on the capital market. As a result of this different treatment of market value changes, a charge resulted from the derivatives of 1.3 billion euros as a consequence of the recovery on equity markets. To compensate this charge, we have partially realized the correspondingly higher revaluation reserves in the equity capital. The realized gains from the sale of equities amounted in 2003 to altogether 9.5 billion euros for the Allianz Group, which compared with losses of 5.4 billion euros.
billion euros to the investment income (also see table 38 “Supplementary information on insurance business – Investment income ” on page 157 of the Notes to the Consolidated Financial
In the reporting year, we introduced the Group Risk Policy, which strengthens our decentralized risk controlling. This policy established minimum requirements that are binding for all operational units.
Since the beginning of 2003, a Group Risk Committee makes sure that the capital allocations and the risk profile of the
Allianz Group are fully transparent. It is composed of members of the Board of Management of Allianz AG and chaired by our
Group and to further improve our risk controlling processes. Its tasks also include the timely information of the Board of Management about risk-relevant developments and the coordination of appropriate countermeasures.
We control our activities through our respective local companies. The most important parameters used in our risk-oriented controlling process are Economic Value Added (EVA®) and risk capital.
In fiscal 2003, we further improved and tested our internal model for insurance companies. It enables us to systematically evaluate internal data by means of models based on the theory of probability. This process takes into account the special characteristics of our local units as well as the specific nature of their risks. Portfolio effects are also incorporated into our risk analyses. In the course of fiscal 2004, we will convert the valueoriented control of our insurance companies to risk capital, which will be calculated by means of our internal model.
As providers of financial services, we consider risk management one of our core competencies. Risk management is therefore an integrated part of our controlling process. We identify and measure, aggregate and manage risks. The result of this process determines how much capital is allocated to the Group’s various divisions.
Reserve risks We control reserve risks by constantly monitoring the development of the provisions for insurance claims that have been submitted but not yet settled. The information obtained is used in current estimates of these reserves. In life insurance, reserves are calculated by using actuarial methods. In addition to other criteria, these calculations take into account the biometric data of the insured populations.
Credit and counterparty risks The Allianz Group limits its liability from insurance business by ceding part of the risks it assumes to the international reinsurance market. When selecting our reinsurance partners, we consider only companies that offer excellent security. To control this credit risk, we compile groupwide data on receivables from insurance losses. Approximately 97 percent of the Allianz Group’s receivables is distributed over reinsurers who were assigned at least an “A” rating by Standard
equity of the Allianz Group would have decreased by 2.1 billion euros. Taking into account fixed-interest securities available for sale, a parallel upward shift of the interest curve by 100 basis points would have decreased our shareholders’ equity by 2.6 billion euros. Both indications do not take into account the possible influence of derivatives.
In certain insurance lines, there is a direct link between investments and obligations to our customers. Life insurance, for example, must generate the guaranteed interest payment agreed upon. The tight link between insurance obligations and investment of the capital related to these obligations is investigated by using specific models. This also enables us to control risks arising from interest guarantees provided to our customers.
Group have an investment grade rating. More than 86 percent are distributed over debtors that have been assigned at least an
In individual cases, we use derivative financial instruments to hedge against changes in prices or interest rates. Our internal investment and monitoring rules are considerably stricter than the regulations imposed by supervisory authorities.
Market and counterparty risks arising from the use of derivative financial instruments are subject to particularly strict control procedures: _ Credit risks are assessed by calculating replacement values.
_ Market risks are monitored by means stress tests and limited by specifying stop-loss limits.
Operational risks These risks are limited by a wide range of technical and organizational measures. We intend to minimize such risks by installing a comprehensive system of internal controls and security systems in each operating unit. In the future, data on internal losses attributable to operational risks are to be compiled and analyzed for use in our internal model for the calculation of risk capital. The testing phase for such a system for the insurance and asset management segments was successfully completed in the reporting year. It will be installed in the first units in 2004.
Allianz Group Finance Committee, which is made up of members of the Board of Management of Allianz AG, delegates farreaching decision-making authority to the regional Finance
Committees, which monitor activities in their respective regions or countries. The duties and responsibilities at each decisionmaking level are defined by guidelines issued at Group level.
Committees, which formulate specific local investment guidelines. Operational responsibility for investment portfolios lies within the local units.
The volume of the overall portfolio is to a great extent determined by the bank’s trading business, which involves primarily transactions with counterparties in rating classes I to VI, i. e.
Board of Management is required. It will help to further improve the credit approval process.
These are loans which are not of strategic importance or which are exposed to higher risks. Mainly concerned are credit lines in North and South America and in Germany, as well as commitments in the areas of private equity and commercial real estate.
The IRU has the task of reducing these commitments in order to free up risk capital.
We account for the development of risks in the lending business by making allowances for individual risks and country risks.
Bank’s country rating system includes eight risk groups. To establish a parallel to the category system used to determine individual creditworthiness in the lending business, the country rating system will be expanded to 16 rating classes in the current year. At the end of 2003, Dresdner Bank’s country risk provisions totaled 269 million euros.
Market risks Dresdner Bank uses a proprietary value-at-risk model that takes into account all aspects of general and specific risks. Value-at-risk is defined as the potential loss which may occur during a specific period of time and with a given confidence level. In 1998, the German Federal Supervisory Authority for
Bank’s value-at-risk model for purposes of reporting in accordance with Principle I of the German Banking Act. It also approved the improvements made in 2001 and 2002. The valueat -risk data used to calculate capital adequacy requirements for regulatory purposes must take into account potential market movements within a confidence level of 99 percent, based on an assumed holding period of 10 trading days. The value-at-risk model is complemented by stress testing.
For purposes of setting internal limits and risk determination, we calculate value-at-risk with a confidence level of 95 percent and a one-day holding period. Unlike the value-at-risk calculation required by the supervisory authority, which is based on market data from the past, we thus assign greater weight to the most recent market fluctuation. This ensures that value-at-risk data more accurately reflect current market developments.
Diversification 1) No diversification effect can be taken into account since the maximum and minimum values were measured at different dates.
Limit breaches are immediately indicated to the management concerned so that corrective action can be taken.
Currency risks at Dresdner Bank are limited by applying the following principle: all loans and deposits in foreign currencies are refinanced or reinvested in the same currency with matching maturities.
Liquidity risks As part of the Group liquidity policy, Treasury and Risk Controlling of Dresdner Bank established principles for liquidity management. This liquidity policy meets both regulatory requirements and internal standards. The liquidity risk limits set include a reporting process for limit breaches and provisions for emergency planning. Liquidity control and liquidity risk management are tasks attended to by the treasury.
¤ mn ¤ mn ¤ mn ¤ mn ¤ mn *) Before netting
Operational risks Dresdner Bank has a system for the systematic identification, measuring and controlling of operational risks. The essential risk factors are evaluated in the framework of a structured self-assessment.
Organizational risk controlling At the organizational level, risk management and risk controlling are strictly separated on the basis of the principle of dual control. Dresdner Bank’s risk management sets the limits for the company’s different activities that are exposed to risks. This is done in accordance with a general framework approved by the Board of Management.
In the course of the current fiscal year, we will introduce special minimum standard, which will further strengthen the risk management of our local units. These complement and specify the Group risk policy with respect to certain risk categories or processes.
Dresdner Bank is continually refining its system for the assessment of creditworthiness in the lending and trading business, as well as its authorization, supervision and control processes. These measures are based on the future Basel Capital
The customer orientation, commitment and professionalism of its employees have helped the Allianz Group obtain the rank it holds today.
To further strengthen our position as a leading “integrated financial services provider” we are continually looking for highly qualified and internationally oriented young professionals with management potential. We are talking about this challenging task to recent university graduates as well as junior managers with first professional experience.
In the future, interested applicants will have an even easier way to learn about vacant positions. Our electronic job application platform, an essential part of the expanded “Talent Management System”, facilitates global access to information and makes the application processes more efficient. The system is being tested since the end of the reporting year, before it will go online world-wide. Through this platform, each group company can constitute its own “talent pool” in which the profiles of both external and internal applicants are compiled. Upon conclusion of the pilot phase, the “Talent Management System” will give applicants a more coherent overview of career opportunities within the Allianz Group, independent of the group company to which they are currently applying online. In addition, the new tool accelerates the application process through automation, thereby reducing its costs.
As an international financial services group, we demand and promote an international orientation and intercultural competency on the part of our employees. We are committed to filling newly available positions primarily through internal promotions. That is why we are continually expanding our junior management pool with qualified employees who can be assigned to international positions.
That makes it easier for all participants to apply what they have learned to their own daily business. This practical relevance is highly appreciated by the course participants. Abit 90 percent of AMI participants evaluate its programs as “good” or “outstanding ”.
This international organization, which is headquartered in Brussels, is made up of 400 member companies that are actively promoting outstanding performance in management training and development.
Total wages and salaries paid by the Group to its employees worldwide amounted to 8.8 (9.7) billion euros in 2003. Social security contributions, pensions and other employee benefits amounted to 2.2 (2.3) billion euros.
In 2003, we once again launched an employee stock purchase plan, which offered Allianz shares at preferential conditions to over 140,000 employees in 22 (24) countries.
We would like to thank the employees and representatives of our Group companies for their dedication and effort in the difficult year 2003. We also thank the members of the works council, the elected speakers of our management team and the representative bodies of our independent sales force for their constructive and successful cooperation.
After most of the developed economies were either caught in stagnation or showed only modest growth in the last three years, the economic compass at the beginning of 2004 points to growth across all continents. Many of the overwhelming risks of the recent past – terror, war, SARS and accounting scandals
– can by now be better assessed or pose no present danger. The relatively low prime interest rates in Europe and in the U.S.A.
But this does not mean that we can expect the growth rates of the late nineties to return in 2004. At this time, it looks like the recovery will be curbed by considerable burdens of economic relevance, particularly the severe deficits in the U.S.
budget and trade balance, and the high and still rising debt of
should be able to reach. After the kick-start of the Japanese economy in 2003, we expect the country’s economy to grow by about 2 percent, i. e. considerably more than the average of the last ten years. The economic forecasts of the leading economic research institutes are by and large comparable. But we do have to be prepared for the eventuality that unpredictable events, such as a major terrorist attack, could obscure the currently bright picture.
These are positive conditions for the success of financial services providers, even though they will have no immediate effect on further business developments. Overall, the economic recovery and the surge in the stock markets reduce the need for write-downs and offer improved business opportunities. The banks in particular should benefit from this situation.
Asset management and the life insurance business are favored by the worldwide demographic aging of societies and the problems it presents for state pension systems. Uncertainties about the future fiscal treatment of life insurance, for instance in Germany, are likely to provide an additional uplift for this business, at least in 2004. Equally uncertain from today’s perspective is the further development of mandatory health insurance in Germany. While the private health insurers are negatively affected by the recently raised income limit for obligatory insurance, the new supplementary insurance plans introduced by the reform of the health care system have a positive effect. In general, the rising demand for property and casualty insurance opens up new business opportunities. But we do have to be prepared for the possibility that the adjustment of margins in industrial insurance will not keep pace with the positive trend of the previous years – an outgrowth of intensive competition.
The Board of Management and the Supervisory Board propose that the available unappropriated profit of Allianz AG in the amount of 580,000,000 euros be appropriated as follows: _ Distribution of a dividend of 1.50 euros per eligible share 550,709,560.50 euros
(article 71 b AktG) are not entitled to receive a dividend. Further purchases or sales of own shares during the period prior to the Annual General Meeting may increase or decrease the number of shares eligible for dividends. In this case, an amended proposal for the appropriation of profit based upon an unchanged dividend in the amount of 1.50 euros per eligible share will be submitted to the Annual General Meeting for ratification.
In 2004, the Allianz Group is going forward with the implementation of its “Three Plus One” strategy. We will continue to build up our operating strengths and grow profitably. We expect total premium income to increase by about 4 percent. Our disciplined underwriting policy and our strict cost management should enable us to push the combined ratio in property and casualty insurance below 97 percent, provided that there are no major natural catastrophes or other major claims and that no acute changes in our business context occur. In life insurance, we will continue the redesign of our products and rate structures, with the objective of tapping additional earnings potentials. If the recovery of the capital markets continues, we expect clearly improved results in this segment. In banking, we expect drastic cost-cutting to help us achieve modest growth in operating income. In asset management, we want to increase third-party assets under management by 10 percent and continue to bring down the cost-income ratio.
Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words ‘may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, potential, or continue’ and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Allianz Group's core business and core markets, (ii) performance of financial markets, including emerging markets, (iii) the frequency and severity of insured loss events, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) the extent of credit defaults (vii) interest rate levels, (viii)
currency exchange rates including the Euro-U.S. dollar exchange rate, (ix) changing levels of competition, (x) changes in laws and regulations, including monetary convergence and the European Monetary Union, (xi) changes in the policies of central banks and/or foreign governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures and (xiv) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The matters discussed herein may also involve risks and uncertainties described from time to time in Allianz AG’s filings with the U.S. Securities and Exchange Commission. The company assumes no obligation to update any forward-looking information.
The company assumes no obligation to update any information contained herein.
Under “responsibility,” we subsume four central themes that are of relevance to both our business and to society.
_ Our entrepreneurial and economic role, which, in particular, relates to demographics and the future of the social security systems dependent thereon, as well as to risk management and to our function as an integrated financial services provider.
Individuals and companies alike need a minimum of planning security and capital in order to assume business risks, invest, drive innovations and thereby bring about a broad-based welfare effect. We protect against the material consequences of unpredictable events that damage or destroy property, health and life. We make provisions for our customers so that they and their families can sustain the desired standard of living in any phase of their life. We cover health risks and offer products with which our customers can build assets and increase their wealth. As lenders, we supply our customers with the liquidity they need for their private and business undertakings. In addition, we offer corporate customers comprehensive know-how in investment banking.
_ Sustainable action and economic activity. In our activities, we are committed to ensuring the respect of ecological and social precepts. An international “sustainability” strategy team advises the business lines and reports directly to the Chairman of the Board of Management of Allianz AG and the heads of its major subsidiaries. This commitment is honored by agencies that evaluate sustainable development: for third time in three years, Allianz has obtained one of the top rankings in the Dow Jones Sustainability Index. More information on this subject is available on the Internet at www.allianzgroup.com/sustainability.
Allianz Group is among the signatories of the Global Compact, an initiative by UN Secretary General Kofi Annan. This document establishes nine principles for businesses, pertaining to human rights, labor standards and the protection of the environment. That makes the
Global Compact our system of reference against which we measure the extent to which we meet our entrepreneurial responsibility.
How do we apply the new Global Compact principles? Here is a representative but by no means exhaustive selection.
Principle 1 Businesses should support and respect the protection of internationally proclaimed human rights within their sphere of influence; and
Dresdner Bank has signed the so-called Equator Principles, which were developed by the International Finance Corporation, a subsidiary of the World Bank. By signing these principles, banks are committed to making sure that the projects they finance respect environmental and social standards. Dresdner
Principle 3 Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4 the elimination of all forms of forced and compulsory labor; Principle 5 the effective abolition of child labor; and
The Code of Conduct of the Allianz Group prohibits any kind of discrimination on grounds of racial origin, religion, gender or disability. The observation of the Code is enforced by means of a Compliance System.
Allianz respects the freedom of association and the right to collective bargaining within the framework of the respective national legislation.
Allianz appeals to the social commitment of its employees and supports them in their activities in this area. One example is the initiative of the employees of our Brazilian subsidiary, which is aimed at giving better prospects in life to the street children in the poverty-stricken favelas of São Paulo. The program not only provides children and young adults with financial assistance but also with educational support and care that keeps them off the streets and helps them get a better start in an orderly environment. Another project in Romania is devoted to the job training of children in orphanages.
Together with 86 other institutional investors, ADAM participates in the Rockefeller Foundation’s Carbon Disclosure Project. In this project, the 500 largest companies in the world by market capitalization are asked what they are doing to limit greenhouse gas emissions. The results of the most recent survey will be published in May 2004.
Elbe river,” a project aimed at rerouting “lesser white-fronted geese” to safer migratory flight paths, and another dealing with new concepts of bird-watching.
Risk research and risk management are among the core competences of a financial services provider. The risk experts of the
Supplementary Information on Group Assets 129 5 Intangible assets 130 6 Investments in affiliated enterprises, joint ventures, and associated enterprises 132 8 Loans and advances to banks and customers 134 9 Trading assets 135 10 Cash and cash equivalents 135 11 Amounts ceded to reinsurers from the insurance reserves 136 12 Other assets
E. Insurance reserves for life insurance where the investment risk is carried by policyholders 32,460 25,687
D. Investments held on account and at risk of life insurance policyholders 32,460 25,657
I. Amounts ceded to reinsurers from insurance reserves 11 25,061 28,420
Changes in the group of consolidated companies – 554 – 554
Changes in the group of consolidated companies – 1,117 876 – 241
Change in reserves for loss and loss adjustment expenses 1,016 2,530 3,375
Change in deferred acquisition costs – 2,460 – 1,211 – 662
Change in funds held by others under reinsurance business assumed 32 1,349 – 171
Change in accounts receivable/payable on reinsurance business 219 232 – 4
Change in deferred tax assets/liabilities4) – 730 – 1,321 – 2,202
Change in securities available for sale – 8,708 – 7,073 – 3,465
Change in investments held on account and at risk of life insurance policyholders – 7,856 – 2,154 – 1,465
Change in aggregate policy reserves for life insurance products according to SFAS 97 7,819 10,808 8,089
Effect of exchange rate changes on cash and cash equivalents – 120 – 109 18
Cash and cash equivalents at beginning of period 21,008 21,240 4,209
The data for the cash flow statement were prepared in accordance with International Financial Reporting Standards (IFRS). It excludes the effects of major changes in the scope of consolidation, which in 2003 included in particular influences from the deconsolidation of Pioneer Allianz Life Assurance Corporation, Metro Manila. The deconsolidation led to a decrease in the value of investments held (excluding funds held by others) by ¤ 24 mn (2002: ¤ 43,558 mn decrease; 2001: ¤ 77,978 mn increase), and the net total of other assets and liabilities increased by ¤ 24 mn (2002: ¤ 51,416 mn increase; 2001: ¤ 88,568 mn decrease). Cash outflows in connection with the acquisition amounted to ¤ 1,450 (2002: 10,764; 2001: 12,450) mn. Changes in the scope of consolidation did not result in a change in cash funds
1) Without aggregate policy reserves for life insurance products in accordance with SFAS 97 2) Without change in the reserves for latent premium refunds from unrealized investment gains and losses 3) Including trading liabilities 4) Without change in deferred tax assets/liabilities from unrealized investment gains and losses 5) Without change in revenue reserves from unrealized investment gains and losses 6) Cash and cash equivalents
¤ mn ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn 3. Income (net) from investments in affiliated enterprises, joint ventures, and associated enterprises 3,611 8,494 889 712 445 525 6. Fee and commission income, and income from service activities 522 521 1,425 234 200 268 12. Acquisition costs and administrative expenses – 9,972 – 10,521 – 10,042 – 3,713 – 4,263 – 4,259 15. Earnings from ordinary activities before taxes 5,509 7,554 2,409 757 – 91 412
A L L I A N Z G R O U P 110
% % % ¤ mn ¤ mn ¤ mn ¤ mn ¤ mn
The Declaration of Compliance of the two publicly traded group companies Allianz Lebensversicherungs-AG and Oldenburgische Landesbank AG were issued on December 15 and 18, 2003, respectively, and were made available to the shareholders.
Since 2002, the designation IFRS applies to the overall framework of all standards approved by the International Accounting Standards
Board (IASB). Already approved standards continue to be cited as International Accounting Standards (IAS).
IASB project for the introduction of this new standard is divided into two phases. Material changes in valuation and accounting will most likely arise in phase 2, for which no definitive content or date of application has yet been defined.
A L L I A N Z G R O U P 112
Duration Contracts and for Separate Accounts. SOP 03-1 became effective for the Allianz Group on January 1, 2004. Some of the major provisions of SOP 03-1 include, but are not limited to: _ Separate account assets and liabilities (Investments held on account and at risk of life insurance policyholders and insurance reserves for life insurance where the investment risk is carried by policyholders ) are reported and valuated as assets and liabilities of the
_ Establishing an additional liability for guaranteed minimum death and similar mortality and morbidity benefits in certain cases.
As of September 30, 2003, we adjusted the accounting for this arrangement. Previously, we had intended to recognize compensation expense associated with these equity transactions only following a vesting period. However, the accounting and valuation provisions of
Net income for 2001 and 2002 were adjusted for an after-tax charge of ¤ 38 mn and ¤ 62 mn, respectively. This change also resulted in an after-tax charge of ¤ 112 mn for fiscal 2003. Of this amount,
For reasons of comparability with the reporting year, some prioryear figures were adjusted in the balance sheet and the income statement through reclassifications that do not affect net income or shareholders ’ equity.
AG owns less than a majority of the voting power of the subsidiary, including CreditRas Vita S. p. A. and Antoniana Veneta Popolare Vita
All affiliated companies, joint ventures, and associated companies that are included in or excluded from the consolidated financial statements are individually listed in the disclosure of equity investments filed with the Commercial Register in Munich. All private companies are also listed and identified separately in this disclosure of equity investments, for which the consolidated financial statements and the Allianz Group management report are an exempt effect in accordance with the application of the § 264 b of the German Commercial
Code (HGB). Selected affiliated and associated enterprises are shown on pages 175 to 178.
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 113
We acquired the following additional interests in already consolidated subsidiaries: _ On February 17, 2003, we increased our interest in Riunione Adriatica di Sicurtà S.p.A., Milan, by 4.4 % to 55.5 % (acquisition cost for additional shares ¤810 mn). This transaction produced additional goodwill amounting to ¤146 mn.
_ In April 2003, July 2003 and October 2003, we increased our interest in PIMCO Advisors L.P., Delaware, by a total of 14.4 % to 83.9 % (acquisition cost for additional shares ¤640 mn). This transaction produced additional goodwill amounting to ¤624 mn.
A L L I A N Z G R O U P 114
Date of Gross Net income Goodwill 2) Amortization first-time premiums of goodwill consolidation
Dresdner Bank AG, Frankfurt/Main 7/23/2001 – – 300 3,977 – 108
of the shares were acquired on August 22, 2002, and a further 6.5 %
_ On June 28, 2002, we increased our interest in Frankfurter Versicherungs -AG, Frankfurt/Main, by 50.0 % to 100.0 % (acquisition cost for additional shares ¤929.5 mn). This transaction produced additional goodwill amounting to ¤57 mn.
_ On June 28, 2002, we increased our interest in Bayerische Versicherungsbank AG, Munich, by 45.0 % to 90.0 % (acquisition cost for additional shares ¤857.9 mn). This transaction produced additional goodwill amounting to ¤94 mn.
_ the U.S. asset manager Nicholas Applegate, San Diego. The 100.0%
holding was acquired on January 31, 2001 at a purchase price of
¤1,111 mn. The transaction also includes possible further performance -related purchase price payments. Further payments from the retention programs amounting to ¤31 mn were made up to this time; for the years 2004 and 2005, additional payments amounting to a total of USD 40 mn will become due. Incentive programs potentially require payments amounting to USD 75 mn.
AGF Belgium Bank S. A., Brussels 12/15/2003 – – 5 –
The consolidated financial statements include the annual financial statements of Allianz AG and all principal subsidiaries. All the financial statements included are uniformly prepared in conformity with
Any translation differences, including those arising in the process of equity consolidation, are recorded directly in shareholders’ equity without affecting earnings.
Currency gains/losses arising from foreign currency transactions (transactions in a currency other than the functional currency of the entity) are reported in other income or other expenses.
A L L I A N Z G R O U P 116
Financial liabilities are derecognized when the liability is amortized, settled, discharged, cancelled or expired.
Under current IAS rules, activated goodwill must be amortized on a regular basis over the useful life of the asset. In addition, we conduct an annual impairment review of activated goodwill. In the first step of the goodwill impairment review, the present value of a unit is compared to its balance sheet value, including goodwill. If the present value is higher, there is no impairment of goodwill. If the balance sheet value is higher, the present value of the goodwill must be determined in a second step and the goodwill must be written down to this value.
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 117
the policy liability rate or contract rate. This interest is offset against the amortization of the PVFP. PVFP is amortized over the years that such profits are anticipated to be received in proportion to the estimated gross margins or estimated gross profits for traditional participating insurance products that follow the contribution principle and financial or investment products, respectively, and over the premium paying period in proportion to premiums for other traditional insurance products.
Intangible assets also include capitalized loyalty bonuses for senior management of the PIMCO Group, Delaware, that are amortized on a straight-line basis over 5 years, as well as the value of the brand names of Dresdner Bank Group that are amortized on a straight-line basis over 20 years. The fair value for the names “Dresdner Bank”
Other intangible assets are subject to an impairment review at least once a year. If there are indications that other intangible assets are impaired, their recoverable amounts are determined. If the recoverable amounts of other intangible assets are less than their carrying amount, an impairment charge is recognized.
Group’s proportionate share of their net assets based on information. The Allianz Group accounts for all material investments in associates on a time lag of no more than 3 months for IFRS. In the case of investments in enterprises that prepare their own consolidated financial statements, the valuation is based on their consolidated equity. Accordingly, our share of net income or loss of such investments is included in consolidated net income. The effects of profits and losses from intercompany transactions have been eliminated.
Investments in unconsolidated affiliated enterprises, joint ventures, and associated enterprises that are not valued using the equity method because they are not material, are accounted for at cost.
An impairment charge is recorded if a decline in fair value below the asset’s carrying value is deemed to be other than temporary.
Impairment policy Under IFRS, a decline in market value requires a write-down of financial assets such as debt securities and shares to the recoverable amount, unless this decline in market value is deemed by management to be not permanent.
value of the equities has remained more than 20 % below the average amortized cost during a period of more than 6 months prior to the period balance sheet date. Unless further analyses cause management to come to a different conclusion, an impairment charge is recorded if the 6-months/20 % criteria has been met.
Independent of the application of the 6-months /20 % criteria, all equities having an unrealized loss status are also examined to determine whether the market value at the period balance sheet date has remained permanently below the group-wide amortized IRFS cost for a period of more than 12 months. If this is the case, an impairment charge is systematically recorded. This rule was first applied at the end of 2003.
If the market value of the equity was more than 80 % below amortized cost at the period balance sheet date, an impairment charge was systematically recorded, independent of the length of the period during which the market value has remained below amortized cost at this time.
Allianz Group. The cash deposits are recorded on the balance sheet at face value, less any for balances that are deemed to not be fully recoverable.
These investments are comprised of investments funding unit-linked life insurance policies and investments covering obligations under policies where the benefits are index-linked. They are valued at market value on the balance sheet date. Group enterprises maintain and invest these investments separately from the Group’s own investments. Unrealized gains and losses arising from market valuations lead to a corresponding increase or decrease in the related insurance reserves. Policyholders are entitled to all gains and losses pertaining to these investments and therefore to the total amount of all the investments shown under this heading.
The Group’s insurance companies use derivative financial instruments in the course of their investment activities. In particular, they are used for the efficient management of price, interest rate and currency risks.
In the Group’s banking business, derivatives are used both for trading purposes and to hedge against movements in interest rates, currency and other price risks of investments, loans, deposit liabilities and other interest sensitive assets and liabilities.
For derivatives used for hedging purposes, the Allianz Group designates its derivative instruments with respect to their purpose as a fair value, cash flow, or hedge of a net investment in a foreign entity.
Fair value hedges The risk of changes in the fair value of reported assets or liabilities is hedged by a fair value hedge. Changes in the fair value of a hedging instrument are recognized in current income, and classified together with the corresponding changes in fair value of the hedged instruments in the income statement.
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 119
may be applied to a hedge of a net investment in a foreign entity. Financial instruments are used to hedge currency risk. The proportion of gains or losses arising from the valuation of the hedging instrument that qualifies as an effective hedge is recognized in shareholders ’ equity, while the ineffective part is recognized in the income statement.
Pursuant to IAS 39, the Allianz Group documents the hedge relationship, as well as its risk management objective and strategy for entering into various hedge transactions. The Allianz Group also assesses, both at the hedge’s inception and on an on-going basis, whether the derivatives that are used for hedging transactions are, as required by IAS 39, highly effective in offsetting changes in fair values or cash flows of the hedged items.
Non-accrual loans consist of loans on which interest income is no longer recognized on an accrued basis, and loans for which a specific provision is recorded for the entire amount of accrued interest receivable. Loans are placed on non-accrual status when management determines that the payment of principal or interest is doubtful. Management ’s judgement is applied based on its credit assessment of the borrower. When a loan is placed on non-accrual status, any accrued but unpaid interest previously recorded is reversed against current period interest revenues. Loans can only be restored to accrual status when interest and principal payments are made current (in accordance with the contractual terms), and in management’s judgement, future payments in accordance with those terms are reasonably assured. When there is a doubt regarding the ultimate collectibility of the principal of a loan placed in non-accrual status, all cash receipts are applied as reductions of principal amount of the loan is reduced to zero, future cash receipts are recognized as interest income.
A L L I A N Z G R O U P 120
Loans are charged-off when, based on management’s judgement, all economically sensible means of recovery have been exhausted.
charge-off may be full or partial. Subsequent to a charge-off, recoveries, if any, are recognized in the income statement as a credit to net loan loss provisions.
The provision for loan loss, which is charged to net income, is the amount necessary to adjust the allowance to a level determined through the process described above.
This item includes balances with banks payable on demand, balances with central banks, checks and cash on hand, treasury bills (to the extent that they are not included in trading assets), and bills of exchange which are eligible for refinancing at central banks, subject to a maximum term of 6 months from the date of acquisition. Cash funds are stated at their face value, with holdings of foreign notes and coins valued at year-end closing prices.
The calculation of deferred taxes is based on temporary differences between the carrying amounts of assets or liabilities in the published balance sheet and their tax bases, and on differences arising from the application of uniform valuation policies for consolidation purposes as well as consolidation in the income statement. The tax rates used for the calculation of deferred taxes are the local rates applicable in the countries concerned; changes to tax rates already adopted as of the balance sheet date are taken into account. Deferred tax assets are recognized if sufficient future taxable income is available for realization. Safety margins are applied if appropriate.
Other assets include real estate owned by Allianz and used for its own activities, equipment, inventories, accounts receivable on direct insurance business, accounts receivable on reinsurance business, and other receivables. This caption also includes other assets, deferred acquisition costs and prepaid expenses.
Real estate owned by Allianz and used for its own activities
(e.g., real property, and buildings, including buildings on leased land) is carried at cost less accumulated scheduled and unscheduled depreciation. The capitalized cost of buildings is calculated on the basis of acquisition cost and depreciated over a maximum of 50 years in accordance with their expected useful lives. Expenditures to restore the future economic benefit are capitalized if they extend the useful, as are improvements. Costs for repairs and maintenance are expensed. An impairment loss is recognized when the recoverable amount of these assets is less than their carrying amount.
Equipment is carried at cost, less accumulated scheduled and unscheduled amortization. Depreciation is generally computed using the straight-line method over the estimated useful lives of the assets. The estimated useful life of equipment is 2 to 10 years and for purchased information technology equipment is 2 to 8 years.
Deferred policy acquisition costs related to universal life, investment products and traditional participating business that follow the contribution principle are amortized in relation to expected gross profits or estimated gross margins over the life of the policy. Deferred policy acquisition costs related to other traditional life business are deferred and amortized over the premium paying period of the policy in proportion to premium revenues. Deferred policy acquisition costs primarily include commissions paid, as well as other costs, which vary with and are incurred in connection with the acquisition or renewal of insurance policies. All other policy acquisition costs are charged to income as incurred.
In the case of property and casualty insurance enterprises, the amortization period is calculated for each insurance portfolio, based on the average term of the relevant policies, and varies between 1 and 5 years.
In cases where securities lending transactions are combined with forward contracts with the same counter-party (“structured securities lending transactions”), both the securities lending transaction and derivative instrument are considered collectively in assessing whether the Allianz Group has surrendered control of the securities, resulting in the derecognition of securities. Upon derecognition, gains and losses are recognized as the difference between the value of consideration received and the carrying value of the securities.
The Allianz Group transfers financial assets to certain special purpose entities (SPEs) in revolving securitizations of commercial mortgage or other loan portfolios. The Allianz Group consolidates these SPEs as the Allianz Group continues to control the financial assets transferred and retains the servicing of such loans.
Property and equipment holdings are used by the Group under operating leases, whereby the risks and benefits relating to ownership of the assets remain with the lessor, and are not recorded on the
These include unearned premiums, the aggregate policy reserves, reserves for loss and loss adjustment expenses, and other insurance reserves. Premiums written attributable to income of future years are accrued in unearned premiums. These premiums are distributed to the current fiscal year and subsequent years in relation to the exact risk coverage period. However, if there is no temporal proportionality between risk and premium, account must be taken of the varying development of risk over time.
_ Policyholders participate in a surplus on the basis of a mechanical non-contributory system, and policyholders are guaranteed fixed benefits and do not participate in any profits. All other benefits and risks are carried by the insurer. In these cases, assumptions based on experience are used, including provisions for adverse deviations, which are based on values at the time when the policy is taken out.
_ Policyholders are entitled, within certain limits, to vary the level of premium payments, and the life insurance enterprise does not generally give any contractual guarantees about minimum rate of return or the level of management fees (e. g. universal life policies).
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 123
its by the policyholders are set out below for the most significant countries: If the profit participation is attributed to individual policyholders, the corresponding amount is transferred from the reserve for premiums refunds to the aggregate policy reserve.
Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance ceded are reported on a gross basis. Prepaid reinsurance represents the ceded portion of unearned premiums. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured risks. Accordingly, revenues and expenses related to reinsurance agreements are recognized consistently with the underlying risk of the business reinsured.
The reserve for loss and loss adjustment expenses is for future payment obligations under insurance claims where normally the amount of benefits to be paid and/or the date when payments must be made are not yet fixed. The reserve for loss and loss adjustment expenses is calculated at the estimated amount considered necessary to settle future claims in full. It is calculated using recognized actuarial methods. Unusual cases are calculated on an individual basis. Past experience is taken into account as well as current and future anticipated social and economic factors. With the exception of annuity reserves, claims reserves are not discounted. The necessary estimates may mean that the payment obligations calculated may differ from the ultimate cost.
_ claims incurred but not yet reported at the balance sheet date,
1) Following local accounting rules for contracts signed beginning at July 1, 1994, the policyholder is entitled to at least 90 % of net investment income and to an appropriate share of income from all other sources of profit 2) Following local accounting rules, policyholders are to be credited with at least 90 % of net interest income and at least 80 % of gross income respectively
Non-interest-bearing liabilities such as zero-coupon bonds are valued at their present value on initial recognition and written up in accordance with the effective yield method at the contracted interest rate.
Costs relating to the issuance of debt securities, such as fees relating to placement, underwriting commitments, subscription, management or syndication are recognized in the year that they are incurred, and are reported in “Other expenses”.
Miscellaneous accrued liabilities primarily include restructuring provisions, provisions for anticipated losses arising from non-insurance business, provisions for contingent liabilities, for litigation, and for employees (e.g. early retirement, phased retirement, employee awards for long service, and vacation) and agents (e.g. unpaid commissions ).
Premiums from short-term personal accident and health insurance policies are recorded proportionately over the term of the insurance policy. Premiums from long-term personal accident and health insurance policies are reported as earned when due. Unearned premiums are calculated separatly for each individual policy to cover the unexpired portion of written premiums.
Life insurance premiums on traditional life insurance policies are recognized as earned when due. Premiums on short duration life insurance policies are recognized as revenues over a period of the contract in proportion to the amount of insurance protection provided.
In both cases, unearned premiums are calculated separatly for each individual policy to cover the unexpired portion of written premiums.
Benefits and expenses are provided for against such revenues to recognize profits over the estimated life of the policies.
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 125
In its banking business, the Group receives fees from transactions in connection with assets and liabilities held by the Group in its own name, but for the account of third parties. These are shown as
The consolidated statement of cash flows shows the structure of and changes in cash and cash equivalents of Allianz Group during the financial year from the cash flows arising from operating activities, investing activities and financing activities. The cash flows from investing activities primarily comprise changes in investment securities
“Other accrued liabilities” until paid. Compensation expense is reversed in the period in which an unvested award is forfeited. The Allianz Group stock-based compensation plans are more fully described in Note 43.
Property/Casualty The Allianz Group’s property/casualty segment provides automobile, homeowners, liability, travel insurance and assistance services and other personal lines insurance products. Additionally, the Allianz Group provides commercial, industrial and credit coverages to business enterprises of all sizes.
Life/Health The Allianz Group’s life/health segment provides endowment, fixed and variable annuities and traditional life insurance and a wide range of health, disability and related coverages to individual insureds. Additionally, the Allianz Group offers group-life, group-health and pension products to employers.
Asset Management The Allianz Group’s asset management segment provides equity, fixed income, money market, sector, geographic and a variety of other products and alternative investment vehicles to retail and institutional customers.
Explanation of the accounting and valuation policies differing from German law
Under IAS-SIC 12 all investment funds in which the Group has shareholdings in excess of 50.0 % are included within the scope of consolidation. Under the German Commercial Code (HGB) the units of special funds held are recognized in the balance sheet.
_ insurance reserves in property and casualty insurance are lower under IFRS because they are not calculated in accordance with the prudence concept but are based on best-estimate future claims experience.
There are substantial differences between accounting treatment under IFRS rules and the German Commercial Law (HGB) in the case of investments, trading activities and reserves. The following summary explains the most important aspects of IFRS which differ from
are valued using the equity method, i.e. at the corresponding proportion of the shareholders’ equity. It is therefore irrelevant whether a significant influence is actually exercised or not. This means that the valuation includes a proportion of the net profit of the enterprises concerned.
Law (HGB), provisions may be made for general banking risks pursuant to clause § 340 f of the German Commercial Code (HGB), setting aside a special item pursuant to clause § 340 g of the German
Commercial Code. This is, however, not permitted for consolidated financial statements under IFRS rules.
Treasury shares Under IFRS rules, treasury shares held for account of Group companies are deducted from shareholders’ equity. Gains or losses from trading in own shares are added to, or subtracted from, equity with no impact on the income statement. According to the German Commercial Code, own shares must be reported as assets, with reserves for treasury shares set aside at the same time. Also, in financial statements prepared according to the German Commercial
Code, gains or losses from trading in own shares would be transferred to the income statement and reported under trading income.
In accordance with the German Commercial Code, goodwill was charged against revenue reserves without affecting earnings.
Amortization of goodwill is shown in the income statement under item 13 as a separate heading.
The capitalized value of life/health insurance portfolios is amortized over the lives of the policies concerned as surpluses are realized or as premiums are earned. Scheduled amortizations of the capitalized value are included under acquisition costs and administra-
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 129
_ Riunione Adriatica di Sicurtà S. p. A. by 4.4 % to 55.5 %.
Accumulated amortization as of 12/31 prior year – 3,476 – 2,314
Accumulated amortization as of 12/31 prior year – 851 – 625
PVFP in 2003 was ¤102 (2002: 78; 2001: 99) mn. The percentage of
“dit” (Deutscher Investment-Trust) and these are amortized on a straight-line basis over 20 years. The purchase of additional shares of Dresdner Bank AG in 2002 increased the carrying amount of the brand names by ¤224 mn. After scheduled depreciation of ¤47
The fair value of individual securities can fall temporarily below their carrying value but, provided there is no risk resulting from changes in financial standing, such securities are not impaired.
¤10 (2002: 31; 2001: 35) mn and are included in other expenses for investments. Reversal of impairments on securities held-to-maturity totaled ¤3 (2002: 2; 2001: 7) mn and are included in other income from investments.
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 131
The actual maturities may deviate from the contractually defined maturities, because certain security holders/borrowers have the right to serve notice on or repay certain obligations ahead of schedule, with or without redemption or early repayment penalties.
Commitments outstanding at the balance sheet date to purchase real estate amounted to ¤51 (2002: 161) mn.
The fair value of real estate used by third parties was ¤13,804
(2002: 14,818) mn at the balance sheet date. Rental income for the fiscal year 2003 was ¤986 (2002: 1,141; 2001: 1,108) mn.
Receivables due within 1 year total ¤115,455 (2002: 84,074) mn, those due after more than 1 year total ¤2,356 (2002: 3,156) mn.
Loans and advances to banks, net of loan loss allowance 117,511 86,822
mn, those due after more than 1 year total ¤77,213 (2002: 88,040)
Loans and advances to customers include amounts receivable under finance leases at their net investment value totaling ¤933
(2002: 1,104) mn. The corresponding gross investment value of these leases amounts to ¤1,030 (2002: 1,224) mn, the associated unrealized finance income is ¤97 (2002: 120) mn. The residual values of the entire leasing portfolio were fully insured, both in the reporting year and in the preceding year. Lease payments received have been recognized as income in the amount of ¤80 (2002: 141) mn. The allowance for uncollectable lease payments amounted to ¤42 (2002: 4) mn at the balance sheet date. The total amounts receivable under leasing arrangements include ¤114 (2002: 122) mn due within 1 year,
In contrast to the reporting of loans and advances, lending volume does not include reverse repos or other advances. However, this item does comprise loans extended on bills of exchange which, in turn, are not reported under loans and advances to customers or loans and advances to banks.
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 133
Loans and advances to customers by type of loan (before loan loss allowance) are as follows: 12/31/2003 12/31/2002
Lending volume after loan loss allowance 119,565 146,776 *) Including bills of exchange amounting to ¤134 (2002: 277) mn, unless these are included under loans and advances to banks or customers
The effects of the deconsolidation of Deutsche Hyp Deutsche Hypothekenbank AG are shown in the line „Changes in the group of consolidated companies” 2002.
Group continues accruing interest with a specific allowance against the total interest accrued. The interest income not recognized from loans on non-accrual status amounted to ¤367 (2002: 470; 2001: 448) mn.
The majority of equities and fixed-income securities held in trading assets are marketable and listed securities. The fixed-income securities include ¤67,300 (2002: 50,038) mn from public-sector issuers, and ¤44,229 (2002: 41,680) mn from other issuers.
The positive market values of derivative financial instruments are shown on a net basis, i. e. taking into account existing netting agreements.
The amounts ceded to reinsurers from insurance reserves stated under assets include rights of recourse against reinsurers. The credit risk is partly covered by funds held for others under reinsurance contracts, securities portfolios and bank guarantees.
Each subsidiary, where applicable, has its own reinsurance program and determines its own risk limits. A large portion of the business ceded by the Group’s subsidiaries is assumed by Allianz AG, which acts as the reinsurer for the Group, although the subsidiaries also cede business to companies outside of the Group. Allianz AG retains a portion of the intercompany business it assumes and retrocedes the remainder to companies outside of the Group. Some of the business ceded by the subsidiaries and Allianz AG is ceded to associated companies (see Note 41 for related party transactions).
The majority of the business ceded by Allianz AG is placed on a quota-share basis. For its property and casualty business, Allianz AG
The Group pays premiums to reinsurers based upon the risk and exposure of the policies subject to such reinsurance. On most of the premium the Group cedes, the reinsurer pays a commission to the
Group, which includes a reimbursement of the cost of acquiring the portion of the premium that is ceded.
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 135 12/31/2003 12/31/2002
Treasury bills, discounted treasury notes and similar treasury securities 799 850
Insurance reserves for life insurance where the investment risk is carried by policy-
North America, Minneapolis (AZ Life), made the decision to exit the traditional life reinsurance business. As a result of this decision, effective July 1, 2003, the Company entered into a 100 % coinsurance agreement with Reinsurance Group of America, Inc., to coinsure this block of business. In connection with this agreement, the Company recognized a recoverable on future policy benefit reserves of USD
The gross capitalized values totaled ¤6,854 mn at the beginning of the year and ¤6,543 mn at the end of the year. Accumulated depreciation amounted to ¤1,422 mn at the beginning of the year and
As in the previous year, no impairments were recorded in 2003.
The market value of real estate used by Allianz for its own activities amounted to ¤5,741 (2002: 6,245) mn.
These include tax refunds amounting to ¤2,381 (2002: 2,484) mn, interest and rental receivables amounting to ¤5,394 (2002: 3,496) mn, and accounts receivable on banking and asset management business amounting to ¤348 (2002: 327) mn. Of the tax refunds, ¤1,821
Changes in the group of consolidated companies – 1 – 17
Changes in the scope of consolidation in life/health in the year 2002 include the effect of the reclassification of deferred acquisition costs to the capitalized value of life/health insurance portfolios, which was caused by the additional acquisition of 40.5 % of Allianz Lebensversicherungs -AG, Stuttgart. Changes in deferred acquisition costs are detailed in note 35.
L I A B I L I T I E S A N D E Q U I T Y
In April 2003, 117,187,500 shares with participation rights were issued from authorized capital in connection with a capital increase for cash.
¤82.95 each, enabling employees of Allianz Group enterprises in Germany and abroad to purchase 944,625 shares at prices ranging from
At the end of the year under review, there was authorized unissued capital with a notional principal amount of ¤300,000,000
(117,187,500 shares), which can be issued at any time up to April 28, 2008 (authorized unissued capital 2003/II). If shares are issued against a non-cash consideration, the Board of Management, with the approval of the Supervisory Board, is authorized to exclude the pre-emptive rights of shareholders. In the case of capital increases against a cash consideration, pre-emptive rights can be partially excluded, if the issue price is not significantly less than the stock-market price. In addition, there was authorized capital with a notional principal amount of ¤10,000,000 (3,906,250 shares), which can also be issued until April 28, 2008 (authorized unissued capital 2003/I).
AG following the takeover of the bank, the Annual General Meeting on April 29, 2003 authorized the banks in which Allianz AG has a majority holding to acquire treasury stock for purposes of securities trading pursuant to § 71 (1) no. 7 of the Corporation Law (Aktiengesetz).
In accordance with this authorization, the banks in the Group purchased 32,891,597 of the company’s own shares in the course of 2003. An average price of ¤76.67 per share is calculated, including the initial inventory. 32,339,227 shares were disposed of in the course of 2003 at an average price of ¤77.74 per share.
Acquisition Number % of Acquisition Number % of costs of shares issued capital costs of shares issued capital
Other reserves represent unrealized gains and losses on investments available-for-sale and derivatives used to hedge a net investment in a foreign entity.
(2002: 1.50; 2001: 1.50) per qualifying share for fiscal year 2003. Details on the recommendation for appropriation of profit are given in the Group management report.
The primary subsidiaries included are the AGF Group, Paris, the RAS
AG has to pay upon redemption, by the holders of the 1,175,554
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 139
The terms of the profit participation certificates provide for an annual cash distribution of 240.0 % of the dividend paid by the company per one Allianz ordinary share. If certain conditions are met, the holders of profit participation certificates may also subscribe to new profit participation certificates; to this extent, the preemptive subscription rights of Allianz AG shareholders are excluded. Holders of profit participation certificates do not have voting rights, or any rights to convert the said certificates into Allianz AG shares, or rights to liquidation proceeds. Profit participation certificates are unsecured and rank pari passu with the claims of other unsecured creditors.
The company may call the profit participation certificates for redemption, upon 6 months’ prior notice, beginning December 31, 2006, and each year thereafter. Upon redemption by the company, the cash redemption price per certificate would be equal to 122.9 %
of the then current price of 1 Allianz ordinary share during the last 3 months preceding the recall of the participation certicate. In lieu of redemption for cash, the company may offer 10 Allianz ordinary shares per 8 profit participation certificates. Allianz AG has consistently stated at its Annual General Meeting that the company is not legally required to call the profit participation certificates for redemption on December 31, 2006 or at another date.
Participation certificates also include ¤1,511 (2002: 1,505) mn issued by the Dresdner Bank Group which entitle holders to annual interest payments, which take priority over Dresdner shareholders’ dividend entitlements. They are subordinated to obligations for all other creditors of the issuer, except those similarly subordinated, and share in losses of the respective issuers in accordance with the conditions attached to the certificates. The profit participation certificates will be redeemed subject to the provisions regarding loss sharing.
Details of the 2 largest participation certificate issues are provided below: Subordinated liabilities include ¤3,377 mn from subordinated liabilities, which Allianz Finance II B. V. issued in 2002 and which have been guaranteed by Allianz AG on a subordinated basis. The guarantee provided by Allianz for the redemption of these subordinated debt issue is also subordinated, which means that in case of the insolvency or liquidation of Allianz AG, subordinated creditors will be paid back only after all claims by holders of non-subordinated debt have been settled.
and JPY 15,000 mn (interest rate 3.50 %, maturity 2033) in 2001.
Fixed-rate subordinated liabilities of Dresdner Bank Group have coupons between 4.0 % and 8.4 %; in addition, there are variablerate issues linked to a reference interest rate and zero-coupon bonds.
Year of Nominal Issuer Inerest Maturity issue amount*) rate 1996 ¤511 mn Dresdner Bank AG 8.0 % 2007 1997 ¤767 mn Dresdner Bank AG 7.0 % 2008 *) Nominal amount minus amounts held by Dresdner Bank.
The Group’s life insurance companies offer a wide range of traditional life insurance, financial and investment products. Traditional life insurance products consist of both short and long-duration policies with participating and non-participating features. Short-duration traditional life insurance products include term, accident and health contracts.
Long duration traditional life insurance products include individual and group whole-life, endowment, guaranteed renewable term and accident and health, and annuity contracts. Financial and investment products consist of universal life, unit-linked products (variable annuities ), single premium annuities, and guaranteed investment contracts.
Group’s insurance business are as follows: The reserves for loss and loss adjustment expenses (loss reserves)
Changes due to valuation differences credited to income – 2,014 – 1,751
¤ mn ¤ mn 1. Loss reserve as of 1/1 b. Amount ceded to reinsurers – 14,588 – 16,156 2. Plus claims (net)
a. Claims in the year under review 25,712 27,130 b. Previous years’ claims 279 646 3. Less claims paid (net)
a. Claims in the year under review – 11,860 – 12,642 b. Previous years’ claims – 13,155 – 12,143 4. Currency translation adjustments – 1,822 – 3,367 5. Change in the group of consolidated companies – 25 122 6. Loss reserve as of 12/31 b. Amount ceded to reinsurers 12,049 14,588
Liabilities due within 1 year totaled ¤165,125 (2002: 126,757) mn, those due after more than 1 year totaled ¤13,191 (2002: 10,575) mn.
Liabilities due within 1 year total ¤139,698 (2002: 133,793) mn, those due after more than 1 year total ¤15,030 (2002: 13,473) mn.
The Group issues fixed and floating rate debt denominated in various currencies, although predominantly in euros.
Fixed and floating rate debt outstanding as of December 31, 2003 matures at various dates through 2039 and carries contractual interest rates ranging from 1.25 % to 7.42 %. Certificated liabilities include
Allianz Finance B. V. in an amount of ¤5,311 (2002: 7,130) mn and
The interest rates for the floating rate debt issues are generally based on the London Inter-Bank Offered Rate (LIBOR), although in certain instances they are subject to minimum interest rates as specified in the agreements governing the respective issues.
Due 2004 Due 2005 Due 2006 Due 2007 Due 2008 Due after 12/31/2003 12/31/2002 2008 Total Total
The Allianz Group maintains various defined benefit and defined contribution pension plans covering its employees worldwide. Allianz
Group companies normally have pension plans covering their employees, and in Germany, their agents. In Germany, these plans are primarily based on fixed benefits (defined benefit pension plans), while in other countries there are both defined benefit and defined contribution pension plans.
The primary pension fund is Allianz Versorgungskasse VVaG, Munich, which covers most of the employees of Group enterprises in
The need to recognize actuarial gains or losses is reviewed using the corridor approach for each individual pension plan.
Companies in the banking and asset management segment are recognizing these expenses under personnel expenses as part of administrative expenses.
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 145 12/31/2003 12/31/2002
Amounts totaling ¤105 (2002: 123; 2001: 108) mn were expensed in the year under review.
(2002: 404) mn for restructuring, reserves for the lending business in the amount ¤549 (2002: 633) mn, reserves for employee expenses amounting to ¤2,224 (2002: 2,259) mn, loss reserves from the non-insurance business amounting to ¤319 (2002: 316) mn, reserves for litigation amounting to ¤142 (2002: 125) mn, and commission reserves for agents amounting to ¤198 (2002: 159) mn.
Other liabilities primarily include liabilities arising from tax charges on income totaling ¤1,601 (2002: 1,099) mn, interest and rental liabilities amounting to ¤472 (2002: 178) mn, social security liabilities of ¤197 (2002: 229) mn, derivative liabilities of ¤933 (2002: 827)
Accounts payable on direct insurance business and accounts payable on reinsurance are due within 1 year. Of the remaining liabilities stated under other liabilities, ¤8,593 (2002: 8,044) mn are due within 1 year, and ¤4,833 (2002: 4,590) mn are due after more than 1 year.
This item includes miscellaneous deferred income positions amounting to ¤2,433 (2002: 3,010) mn, which is primarily comprised of deferred interest of ¤1,681 (2002: 2,423 ) mn.
N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 147 12/31/2003 12/31/2002
C O N S O L I D AT E D I N C O M E S TAT E M E N T 1 )
Income from securities held-to-maturity 329 384 467 securities available-for-sale 12,355 13,747 13,055 real estate used by third parties 986 1,141 1,108 lending, money market transactions and loans 8,079 11,058 8,566 other interest-bearing instru-
26 Income (net) from investments in affiliated enterprises, joint ventures, and associated enterprises
mn of the income (net) from investments in affiliated enterprises, joint ventures, and associated companies.
Trading income includes expenses amounting to ¤1,359 mn (2002: income ¤412 mn; 2001: income ¤1,385 mn) from derivative financial instruments used by insurance companies for which hedge accounting is not applied under IAS 39. These include gains on derivative financial instruments embedded in exchangeable bonds issued amounting to ¤2 (2002: 387; 2001: 880) mn. In fiscal 2003, equity exposure was substantially reduced through the use of derivatives and direct sales. Futures and put options on indexes were used for hedging. The change in the market value of the derivatives of this macro hedge are recognized as trading income in the income statement, while the corresponding changes in the fair value of the underlying equities are directly recognized in shareholders’ equity with no impact on the income statement. They are recognized in the income statement only at the time of their realization in the capital market. The use of derivatives for macro hedges resulted in a loss of
¤1,351 mn. Also included are losses totaling ¤10 mn (2002: income
Income from revaluations of securities held-to-maturity 3 2 7 securities available-for-sale 2,030 679 184 real estate used by third parties 2 14 87 other investments – 6 109
Realized gains from investments in affiliated enterprises, joint ventures, and associated companies 3,966 4,381 1,319
Other trading activities 317 91 136 *) After eliminating intra Group transactions between segments
Other income is comprised of the following items: Net fee and commission income from banking business*)
Income from releasing or reducing miscellaneous accrued liabilities 433 414 387
Gains from the disposal of real estate used for own activities and of property, plant and equipment 29 115 12
Insurance benefits in Property/Casualty*) comprise the following: Insurance benefits in Life/Health*) comprise the following: 32 Interest and similar expenses The figures for the reporting year include interest expenses for certificated liabilities of Allianz Finance B. V. ¤288 (2002: 363; 2001: 0)
Other interest expenses – 1,814 – 2,638 – 2,644 *) After eliminating intra-Group transactions between segments
Acquisition costs and administrative expenses in the insurance business include the personnel and operating costs of the insurance business allocated to the functional areas “Acquisition of insurance policies ”, “Administration of insurance policies” and “Asset management”.
Change in deferred acquisition costs 205 194 270 1,768 1,438 620
Acquisition costs and administrative expenses – 9,893 – 10,394 – 9,949 – 3,656 – 4,269 – 4,249
(2002: charge of ¤221 mn) are attributable to the recognition of deferred taxes on temporary differences. The change of applicable tax rates due to changes in tax law produced deferred tax income of ¤26
to 45.5 %. Changes to tax rates already adopted on the balance sheet date are taken into account. For reasons of commensurability and because of our current tax loss situation in Germany, we refrained from applying the increased corporate tax rate of 26.5 %, which was adopted as part of the Flood Victim Solidarity law and concerns the year 2003 only.
Expenses for increasing miscellaneous or accrued liabilities – 671 – 648 – 168
Expenses resulting from reinsurance business – 348 – 541 – 562
The non-recognition of deferred taxes on tax losses for the current fiscal year increased tax charges by ¤254 (2002: 794) mn. The above-mentioned effects are shown in the reconciliation statement as
¤17,633 (2002: 18,322) mn have been recognized as deferred tax assets where there is sufficient certainty that the unused tax losses will be utilized. ¤11,301 (2002: 10,376) mn of the tax losses carried forward can be utilized indefinitely.
Losses carried forward can be utilized subject to restrictions and are scheduled in subsequent years as follows: The recognized tax charge for 2003 is ¤699 (2002: 391) mn less than the anticipated tax charge. The following table shows the reconciliation of the anticipated tax charge on income with the effectively recognized tax charge.
The tax rate for domestic Group companies applied in the reconciliation statement includes corporate tax and the solidarity surcharge and amounts to 27.96 (2002: 26.38) %.
In some cases, this also resulted in retroactive changes in the taxation of investment funds.
Due to the “moratorium” introduced by the “law for the dismantling of tax benefits”, the dividend distribution proposed for fiscal 2003 will not lead to a reduction of corporate taxes (2002: ¤62 mn).
S U P P L E M E N TA R Y I N F O R M AT I O N O N
(including real estate owned by Allianz and used for its own activities) (1,868) (1,953) (1,042) (1,102) (2,910) (3,055)
II. Investments in affiliated enterprises, joint ventures, and associated enterprises 1,487 5,087 1,734 1,888 3,221 6,975
Amortization and impairments on investments – 2,439 – 2,273 – 1,104 – 2,714 – 2,853 – 1,319 – 5,153 – 5,126 – 2,423
Investment management, interest charges and other investment expenses – 885 – 1,131 – 1,061 – 390 – 550 – 526 – 1,275 – 1,681 – 1,587
For the following liabilities and contingencies, assets having the indicated value were pledged as collateral: The total amount of collateral pledged consists of the following assets: USD GBP Other 12/31/2003 12/31/2002 in ¤ mn in ¤ mn in ¤ mn ¤ mn ¤ mn 12/31/2003 12/31/2002
Total value of collateral pledged 164,941 133,425 *) After eliminating intra-Group transactions between segments
The following presents loans and advances and liabilities in the banking business according to their final maturity or call date.
_ Loans and advances (after loan loss allowance) to banks and customers include reverse repos totaling ¤154,441 (2002: 98,063)
Group is in compliance with the relevant supervisory regulations and the Group’s own internal guidelines. In addition to local management supervision, comprehensive financial and risk management systems are in force across the Group. Further information on the risks hedged and the Group’s risk management systems is included in the Management Report under “Risk Management”.
Term loans and advances to banks 107,094 68,919 35,899 1,765 511
L I A B I L I T I E S
Savings deposits and home-loan savings deposits 5,474 1,421 184 2,567 1,302
Allianz Group therefore closely monitors the credit rating of counterparties for OTC derivatives.
*) Positive and negative market values are shown on a gross basis, i.e. not taking into account netting effects
The major exposures in equity trading are in the form of options used for hedging the portfolio against market fluctuations. In managing interest rate risk long-term interest income is primarily controlled by the use of interest rate caps.
Exchange traded *) Positive and negative market values are shown on a gross basis, i.e. not taking into account netting effects
The primary derivative financial instruments used are interest rate derivatives, in particular interest rate swaps which are primarily entered into in the course of trading activities.
This applies to free standing derivatives and for bifurcated embedded derivatives of hybrid financial instruments that are not used for hedge transactions recognized in the consolidated balance sheet.
In contrast, derivatives used in hedge transactions are in principle recognized in accordance with the classification of the hedged item.
Derivative financial instruments used for hedge transactions are classified as follows: The Allianz Group principally uses fair value hedging. Important hedging instruments are interest rate swaps and futures. Hedging instruments may be implemented for individual transactions (micro hedge) or for a portfolio of similar assets or liabilities (portfolio hedge). The derivative financial instruments used for fair value hedges had a fair value of ¤55 (2002: 33; 2001: 1,925) mn. Ineffectiveness in hedge transactions produced a gain of ¤1 mn (2002: ¤10 mn loss, 2001: ¤66 mn gain).
The following report relates to material business relationships with associated enterprises and enterprises in which the Allianz Group held ownership interest between 10.0 % and 20.0 % during the last fiscal year and enterprises which held such ownership interest in
The relationship between Allianz AG and Munich Re was set forth in the past in the so-called Principles of Cooperation of May 2000.
After several transactions during 2001 and 2002, including the reduction of mutual participation in each other and the mutual participations in other insurance companies, this contract became irrelevant and was formally canceled with effect from December 31, 2003. Also, mutual board interlocks had been terminated. Certain reinsurance relationships between both enterprises will continue. Furthermore, a continuing quota share agreement provides that Munich Re shall provide reinsurance for 10.5 % of the gross self-retention of the insurance business of the companies of Allianz’s German Property-Casualty
Group via Allianz AG. According to an agreement dated December 2001 the mutually ceded reinsurance volume is to be adjusted on a step-by-step basis by 2008. The reinsurance relationship between Munich Re and Allianz Leben will also continue on the basis of the old agreements until 2010. In addition, a variety of reinsurance and retrocession agreements exists between specific subsidiaries of the Allianz
Group and Munich Re which determine, which insurance business the Munich Re Group or the Allianz Group will receive. The conditions of those reinsurance arrangements between the Groups are subject to ams-length, third party terms.
The Allianz Group premiums that were ceded to or assumed from companies of the Munich Re Group are shown in the following table: EXTREMUS Versicherungs-AG (EXTREMUS)
In the aftermath of the terrorist attacks of September 11, 2001, a terror risk insurance company was founded in Germany to address the existing shortage of direct insurance and reinsurance coverage for major risks in the international markets. Allianz Versicherungs-AG
holds a 16 % interest in EXTREMUS. On the basis of the ¤10 bn state guarantee granted by the Federal Republic of Germany, EXTREMUS
Board may be granted loans by Dresdner Bank and other Group companies, which are subject to usual conditions in the industry. No additional loans were granted in 2002 and 2003. On December 31, 2003, loans to Management Board members granted in previous years by subsidiaries of Allianz AG and amounting to ¤0.086 (2002: ¤ 0.5) mn were still outstanding.
Publication and notification of securities’ transactions as required by § 15 a WpHG (Securities Trading Law) (indications according to section 6.6 of the German Corporate Governance Code)
Bank, which was one of the underwriting syndicate’s joint global coordinators, is one of the named defendants. The complaint alleges that the offering prospectus contained material misrepresentations and/or omissions relating to Deutsche Telekom. In October 2002, the court granted the plaintiffs’ motion for class certification. The action seeks rescission of the sales and damages in an as yet unspecified amount. Management of Dresdner Bank believes the complaint against Dresdner Bank is without merit .
commented in writing on the complaint. Based on current knowledge, a decision of the Federal Cartel Office is not to be expected before the 2nd quarter 2004.
On November 5, 2001, a lawsuit, Silverstein v. Swiss Re International Business Insurance Company Ltd., was filed in the United States
Group recorded net claims expense of approximately ¤1.5 bn in 2001 for the Allianz Group on the basis of one occurrence. In the event that liability is premised under a two occurrence theory, Allianz AG
The outcome of the proceedings can not be predicted at this stage.
The outcome of this proceeding cannot be predicted at this stage.
Other contingent liabilities and other commitments resulting primarily from our banking business include the Group’s potential future liabilities under loan commitments to customers not yet drawn upon, with the term of such commitments being limited. The Group engages in providing open credit facilities to allow customers quick access to funds required to meet their short-term obligations as well as their long-term financing needs. Such credit facilities can take the form of guarantees, whereby the Group might guarantee repayment of a loan taken out by a client with a third party, stand-by letters of credit which are credit enhancement facilities enabling customers to engage in trade finance at lower cost, documentary letters of credit which are payments related to foreign trade finance made on behalf of a customer and reimbursed to the Group later, note issuance facilities and revolving underwriting facilities which allow customers to issue money-market paper or medium-term notes when required without engaging in the normal underwriting process on each occasion. Revenue for guarantees is recognized under “Fee and commission income” and is determined by application of agreed rates on the nominal amount of the guarantees.
Other contingent liabilities and other liabilities comprise: The figures disclosed in the accompanying tables represent the amounts at risk should customers draw fully on all facilities and then default, excluding the effect of any collateral. The majority of these commitments may expire without being drawn upon and are not representative of actual future credit exposure or liquidity requirements for such commitments.
On the balance sheet date commitments to pay up shares, bonds and other capital interests totaled ¤76 (2002: 85) mn; secondary liability under clause § 24 of the German Limited Liability Companies
Act (GmbH-Gesetz) were ¤16 (2002: 16) mn, and obligations arising from hire, rental and leasing agreements existed in an aggregate amount of ¤2,845 (2002: 2,920) mn.
Liquiditäts-Konsortialbank GmbH (LIKO) is a bank founded in 1974 in order to provide funding for German banks which experience liquidity problems.
The Dresdner Bank Group is contingently liable to pay in further assessments to LIKO up to ¤60.5 mn. In addition, under clause § 5 (4)
of the Articles of Association of LIKO, Dresdner Bank is committed to a secondary liability which arises if other shareholders do not fulfill their commitments to pay their further assessment. In all cases of secondary liability, the financial status of the other shareholders involved is sound.
Contingent liabilities on endorsed bills of exchange settled with customers – 1
Letters of credit 1,583 2,092 of which: letters of credit opened (919) (1,107)
In addition, Dresdner Bank is a member of the German banks’
Joint Fund for Securing Customer Deposits, which covers liabilities to each creditor up to specified amounts. As a member of the Joint
From investments on the part of various Group companies in private equity funds, there are open investment commitments amounting to ¤750 mn.
In the course of the purchase of Nicholas Applegate, San Diego, an agreement was reached that part of the purchase price would fall due in 2005 and that the amount would depend on the income growth of Nicholas Applegate: _ If average income growth during this period is at least 25.0 %, this purchase price component will be USD 1.09 bn, with bonus payments of USD 150 mn.
O T H E R I N F O R M AT I O N
The parent company of the Group is Allianz AG, Munich. The company is an “Aktiengesellschaft” (public stock corporation) incorporated in Germany. It is recorded in the German Commercial Register under its registered address at Koeniginstrasse 28, 80802 Munich.
At the end of 2003, the Group employed a total of 173,750 (2002: 181,651) people. 82,245 (2002: 86,768) were employed in Germany and 91,505 (2002: 94,883) abroad. The number of employees undergoing training decreased by 1,525 (2002: 657) to 6,063 (2002: 7,588).
The Group applies the fair value recognition provisions of FAS 123 in accounting for its stock related remuneration plans. Refer to Note 4 for further discussion of the Group’s accounting and valuation policies.
(2002: 136,222; 2001: 361,235). The difference between the exercise price and the market price of Allianz shares of ¤16 mn in 2003 (2002: ¤5 mn; 2001: ¤27 mn) was reported as part of compensation expense.
Allianz share and individual elements such as fixed remuneration and performance.
In fiscal 2003, the following number of SAR and RSU was granted to senior managers of the Allianz Group worldwide: SAR 1,508,209 units
_ the Allianz share price outperforms the reference price by at least 20.0 % at the time when the rights are exercised. The reference price for the 2003 SAR plan award (¤65.91) is the average closing price of Allianz shares for the first 10 trading days after April 29, 2003, the date of the Annual General Meeting 2003.
¤41 (2002: 69; 2001: 31) mn based on standard valuation methods
The total compensation expense related to the SAR plan is calculated as the amount by which the quoted Allianz AG share price exceeds the SAR reference price. The total compensation expense is remeasured at each reporting period based on changes in the Allianz
December 31, 2003 the total compensation expense related to the 3,061,673 outstanding appreciation rights was ¤54 mn. Taking into account the expired portion of the vesting period, a reserve of ¤18 mn was established on December 31, 2003, and reported under the heading “Other accrued liabilities”, with a corresponding ¤18 mn of expense recognized in 2003. No liability or expense was recorded in 2001 and 2002, as the Allianz AG share price did not exceed the reference price of outstanding appreciation rights at that time.
The Group has entered into call options on Allianz AG stock to hedge its future obligations under the SAR plans.
In 2003, the Group established a Restricted Stock Unit (RSU) incentive compensation plan. The RSU plan is designed to increase corporate value and to align shareholders’ and managements’ interests by linking the remuneration of key personnel to the performance of
Under this plan, 542,141 RSUs have been granted to senior management as of May 13, 2003, 541,394 of which remain outstanding as of
The total compensation expense related to the RSU plan is calculated as the amount of the quoted Allianz AG share price and is remeasured at each reporting period based on changes in the Allianz
Grant Vesting Reference SARs SARs date period price granted forfeited years ¤
Plan for the benefit of members of the management of Pacific Investment Management Company LLC (the “Plan”). Under such Plan the plan participants acquire Class B equity units annually through 2004 up to a total of 150,000 units. The holders of the Class B units have rights to a 15 % priority claim on the adjusted operating profits of
Units issued under the Plan vest over 3 to 5 years and are subject to repurchase by ADAM LP upon death, disability or termination of the participant. In addition, beginning in 2005, ADAM LP will have the right to repurchase, and the participants will have the right to cause ADAM LP to repurchase, a portion of the vested Class B unites each year. The repurchase price will be based upon the then determined value of the Class B units being repurchased.
In 2003, plan participants acquired 35,375 (2002: 30,000; 2001: 30,000) Class B units (5,375 of which were units being re-sold after having been forfeited in 2002 by a participant upon termination of employment). In accordance with the provisions of FAS 123, the value of the units issued in 2003 as of the grant date was determined by the Group to be ¤235 (2002: 178; 2001: 137) mn. The total number of Class B units held by plan participants as of year end 2003 is 120,000. A compensation expense of ¤ 172 mn was recognized in 2003 (2002: ¤95 mn; 2001: ¤59 mn) related to the Plan.
AGF Group stock option activity during the periods indicated was as follows: Grant Vesting Options Options Options date period granted exercised expired/
_ at the time of exercise, the RAS share price is at least 20% higher than the average share price in January of the grant year (for the 2001 award grant the hurdle is 10%), and
Stock options have been offered as follows: The fair value as of the grant date of options granted 2003 was ¤4.68
(2002: 5.47; 2001: 7.92) per option. RAS Group stock option activity during the periods indicated was as follows: The average remaining period until expiration of the 2,226,000 options still outstanding at the end of 2003 was 4.8 years. On December 31, 2003, 1,425,000 options were exercisable which had a weighted average exercise price of ¤14.08.
RAS Group recorded compensation expense of ¤3 mn in 2003 related to these stock option awards.
The Group has other local share-based compensation plans, including stock option and employee stock purchase plans, none of which, individually or in the aggregate, are material to the consolidated financial statements. The total expense, in the aggregate, recorded for these plans in 2003 was ¤5 mn.
_ In February 2004, Allianz AG placed a subordinated bond with a total volume of ¤1.5 bn. This transaction successfully concludes a series of measures to strengthen the capital base.
The issue, which was announced last spring within the context of the capital increase and, was part of a long-term plan for strengthening the capital base of Allianz.
Allianz AG and its affiliated enterprises paid 23 (2002: 17) mn to the active members of the Board of Management. As of December 31, 2003, the Board of Management had 11 (2002: 11) members. The information on compensation concerns the members of the Board of
Management who were active at the end of the year, and, on a prorated basis, 2 members who retired from the Board in the course of the year.
Compensation of the Board of Management includes the basic salary as a fixed component as well as an annual bonus and a medium-term 3-year bonus as variable components. Other components consist of stock appreciation rights (SAR) and restricted stock units (RSU).
Variable remuneration also includes allocations to the reserves for the 3-year bonus amounting to ¤3.9 mn. Whether the amounts set aside are actually paid to the Members of the Board of Management upon expiration of the 3-year period, depends on whether the objectives for the entire underlying 3-year period have been reached.
For members of the Board of Management who retired in the course of the year, a pro-rated bonus right was set in connection with the termination of the mandate.
Group equity incentive plans (SAR and RSU) of active board members: The value of the rights granted in the reporting year was ¤9.5 mn at the date of grant. Of this total, ¤4.7 mn correspond to the value of the stock appreciation rights (SAR) granted and ¤4.8 mn to the value of the restricted stock units (RSU) granted.
Outstanding Group equity incentives are valued on a quarterly basis and posted on the Allianz Group website.
The Group paid ¤1.1 (2002: 8.7) mn to increase pension reserves and reserves for similar benefits for active members of the Board of
Management. As of December 31, 2003, the pension reserves and reserves for similar benefits for the then active members of the Board of Management amounted to ¤21.4 (2002: 27.9) mn.
1) Includes changes due to the expiration or exercise of rights and to personnel changes such as departures from or appointments to the Board of Management 2) Adjusted for the capital increase of April 15, 2003
¤2 mn. This body has 20 members, 10 of which are elected by the shareholders and 10 by the employees.
Breakdown of remuneration: In connection with exercise of Supervisory Board mandates or comparable mandates in other companies of the Allianz Group, Claudia
Eggert-Lehmann was paid ¤45,000, Peter Haimerl ¤45,000, Uwe Plucinski ¤67,500, Sultan Salam ¤45,000, Margit Schoffer ¤33,750 and
S E L E C T E D PA R T I C I PAT I O N S A N D E Q U I T Y I N V E S T M E N T S
Arab International Life Assurance Company S. A. E., Cairo 6 100.0
Eurovida, S. A. Compañia de Seguros y Reaseguros, Madrid 36 51.0
EUROPENSIONES S. A., Entidad Grestora de Fondos de Pensiones, Madrid 59 49.0
Worms et Cie, Paris 292 14.8 2,157 190 12/31/2002 1) Market value > = ¤100 mn and percentage of shares owned > = 5 %, or market value > = ¤500 mn, without trading portfolio of banking business 2) Percentage includes equity participations held by dependent enterprises in full, even if the Group’s share in this dependent enterprise is under 100 % (including consolidated investment funds)
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit of the consolidated financial statements in accordance with German auditing regulations and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW, Institute of Independent Auditors), and in supplementary compliance with auditing standards generally accepted in the United States of America (U.S.
Knowledge of the business activities and the economic and legal environment of the Group and the evaluations of possible misstatements are taken into account in the determination of audit procedures. The evidence supporting the amounts and disclosures in the consolidated financial statements are examined on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
January 1 to December 31, 2003, has not led to any reservations. In our opinion, on the whole, the group management report provides a suitable understanding of the Group’s position and suitably presents the risks of future development. In addition, we confirm that the consolidated financial statements and the group management report for the business year from January 1 to December 31, 2003, satisfy the conditions required for the Company’s exemption from its duty to prepare consolidated financial statements and the group management report in accordance with German law.
D R . H E N N I N G S C H U LT E - N O E L L E since January 1, 2004, Chairman
D R . K L A U S L I E S E N until December 31, 2003, Chairman
G E R H A R D F U L L until December 31, 2003
H A R R Y R O E L S since April 1, 2003
Former Chairman of the Board of Management Franz Haniel & Cie. GmbH
H A N S P E T E R S T I H L until December 31, 2003
B E L M I R O D E A Z E V E D O
A N T O N Y B U R G M A N S
M I N O R U M A K I H A R A
J A C Q U E S A . N A S S E R
D R . M A R C O T R O N C H E T T I P R O V E R A
L O U I S S C H W E I T Z E R
S I R I A I N V A L L A N C E
N O R B E R T B L I X
Membership of Supervisory Board members in other corporate management bodies *) We regard foreign memberships as ”comparable“, if the foreign company is listed on a stock exchange or has more than 500 employees.
M A R G I T S C H O F F E R since April 29, 2003
Compagnie Financière Richemond S. A., South African Coal, Oil and Gas
D R . U W E H A A S E N
D R . H E L M U T P E R L E T
M I C H A E L D I E K M A N N
Membership in Group bodies Assurances Générales de France (Vice President ), Riunione Adriatica di Sicurtà S. p. A. (Vice President)
Membership in Group bodies Allianz Insurance Company of Canada (Chairman ), Allianz Life Insurance Company of North America (Chairman), Fireman’s
Membership of Board of Management members in other corporate management bodies *) We regard foreign memberships as ”comparable“, if the foreign company is listed on a stock exchange or has more than 500 employees.
T. U. Allianz Polska S. A. (Chairman), T. U. Allianz Zycie Polska S. A. (Chairman)
D R . H O R S T M Ü L L E R as of December 31, 2003
D R . H E N N I N G S C H U LT E - N O E L L E as of April 29, 2003
(until April 30, 2003), Riunione Adriatica di Sicurtà S. p. A. (Vice President) (until *) We regard foreign memberships as ”comparable“, if the foreign company is listed on a stock exchange or has more than 500 employees.
The expense of policyholder benefits (less amounts ceded in reinsurance ) comprises loss and loss adjustment expenses, premium refunds, and the net change in insurance reserves.
Statement showing movements of cash and cash equivalents during an accounting period, classified by three types of activity: _ normal operating activities
Under this approach to pension plans, actuarial gains and losses are not recognized immediately. Only when the cumulative gains or losses fall outside the corridor is a specified portion recognized in the income statement from the following year onwards. The corridor is 10 % of the present value of the pension rights accrued or of the independent pension fund assets at market value, if greater.
Net expense in connection with a defined benefit pension obligation, less any contributions made by the beneficiary to the independent pension fund.
Under these retirement plans the enterprise promises the beneficiary a particular level of benefit. The contribution payable is based on the age of the beneficiary and depends on the level of benefit promised.
Financial contracts, the values of which move in relationship to the price of an underlying asset. Derivative financial instruments can be classified in relation to their underlying assets (e.g. interest rates, share prices, exchange rates or prices of goods). Important examples of derivative financial instruments are options, futures, forwards and swaps.
Pre-tax profit or loss from activities which an enterprise undertakes in the normal course of business. This does not include extraordinary items, i.e. income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and are therefore not expected to recur frequently or regularly.
Investments in joint ventures and associated companies are accounted for by this method. They are valued at the Group’s proportionate share of the net assets (= shareholders’ equity) of the companies concerned. In the case of investments in companies which prepare consolidated financial statements of their own, the valuation is based on the sub-group’s consolidated net assets. The valuation is subsequently adjusted to reflect the proportionate share of changes in the company’s net assets, a proportionate share of the company’s net earnings for the year being added to the Group’s consolidated income.
Standardized contracts for delivery on a future date, traded on an exchange. Normally, rather than actually delivering the underlying asset on that date, the difference between closing market value and the exercise price is paid.
Difference between the purchase price of a subsidiary and the relevant proportion of its net assets valued at the current value of all assets and liabilities at the time of acquisition. Minority interests are always valued at carried-forward historical cost. Goodwill is amortized over its useful life.
In insurance terminology the terms gross and net mean before and after deduction of reinsurance respectively. (Net is also referred to as “for own account”). In connection with income from interests in affiliated enterprises, joint ventures and associated enterprises, the term “net” is used where the relevant expenses (e.g. depreciations and losses on the disposal of assets) have already been deducted. In the context of investments the term “net” is used where the relevant expenses (e.g. for investment management or valuation writedowns ) have already been deducted from the income. This means that investment income (net) from investments in affiliated enterprises, joint ventures and associated enterprises signifies the net result from these investments.
(IFRS) which sets out the concepts that underlie the preparation and presentation of financial statements for external users.
Investments held on account and at risk of life insurance policyholders
Policyholders are entitled to the gains recorded on these investments, but also have to carry any losses.
That part of net earnings for the year which is not attributable to the
(writer) of the option, on the other hand, is obliged to transfer or buy the asset and receives a premium for granting the option to the purchaser.
Where an insurer transfers part of the risk which he has assumed to another insurer.
In addition to the reserve required by law in the financial statements of the Group parent company, this item consists mainly of the undistributed profits of Group enterprises and amounts transferred from consolidated net income.
Securities held-to-maturity comprise debt securities held with the intent and ability that they will be held-to-maturity. They are valued at amortized cost.
Financial information based on the consolidated financial statements, reported by business segments (life/health, property/casualty, banking business and asset management) and by regions and products.
Agreements between two counterparties to exchange payment streams over a specified period of time. Important examples include currency swaps (in which payment streams and capital in different currencies are exchanged) and interest rate swaps (in which the parties agree to exchange normally fixed interest payments for variable interest payments in the same currency).
Trading income includes all realized and unrealized profits and losses from trading assets and trading liabilities. In addition, it includes commissions as well as any interest or dividend income from trading activities as well as refinancing costs.
Trading liabilities include primarily negative market values from derivatives and short selling of securities. Short sales are made to generate income from short-term price changes. Shorts sales of securities are recorded at market value on the balance sheet date. Derivatives shown as trading liabilities are valued the same way as trading assets.
Commissions, salaries, general expenses and other expenses relating to the acquisition and ongoing administration of insurance policies. The net figure is after expenses recovered from reinsurers have been deducted.
Premiums written attributable to income of future years. The amount is calculated separately for each policy and for every day that the premium still has to cover.
Present value of increases in pension benefits relating to previous years’ service, not yet recognized in the pension reserve.
The policyholder shares equally in the profits or losses of the underlying investments.
_ U N G LO B A L CO M PAC T 97 _ CO N S O L I DAT E D F I N A N C I A L S TAT E M E N T S 101 _ S TAT U TO R Y B OA R D M E M B E R S H I P S 182 _ G LO S S A R Y 188
ALLIANZ GROUP 2003 Change from 2002 2001 2000 1999 1998 More previous year details in % on page
Net revenue from asset management ¤bn 2.2 – 2.8 2.3 2.0 1.1 0.5 – 44
Earning per share before amortization of goodwill ¤ 8.92 – – 0.24 8.62 14.09 10.03 8.76 29
“Three Plus One” program. You will find more information about this program in the Letter to the Shareholder on the next page and in the